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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996
SECURITIES ACT FILE NO. 2-57073
INVESTMENT COMPANY ACT FILE NO. 811-2667
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 25 [x]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 24 [x]
------------------------
SALOMON BROTHERS CAPITAL FUND INC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
7 WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 725-6666
------------------------
LAWRENCE H. KAPLAN, ESQ.
SALOMON BROTHERS ASSET MANAGEMENT INC
7 WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
GARY S. SCHPERO, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)
[ ] 75 days after filing pursuant to Rule 485(a)
[x] on November 1, 1996 pursuant to Rule 485(b)
------------------------
THE REGISTRANT HAS PREVIOUSLY REGISTERED AN INDEFINITE NUMBER OF ITS SHARES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED. THE REGISTRANT FILED ITS RULE 24F-2
NOTICE FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 ON FEBRUARY 28, 1996.
________________________________________________________________________________
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SALOMON BROTHERS CAPITAL FUND INC
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET PURSUANT TO
RULE 495(A) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PART A PROSPECTUS CAPTION
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<C> <S> <C>
Item 1. Cover Page............................................... Cover Page
Item 2. Synopsis................................................. Summary
The Fund's Expenses
Item 3. Condensed Financial Information.......................... Financial Highlights
Performance Information
Item 4. General Description of Registrant........................ Summary; Investment Objectives and
Policies; Additional Investment
Activities and Risk Factors; Investment
Limitations
Item 5. Management of the Fund................................... Summary; Expense Information; Management;
Purchase of Shares; Back Cover
Item 5A. Management's Discussion of Performance................... Not Applicable
Item 6. Capital Stock and Other Securities....................... Multiple Pricing System; Dividends and
Distributions; Taxation; Account
Services; Capital Stock
Item 7. Purchase of Securities Being Offering.................... Multiple Pricing System; Determination of
Net Asset Value; Purchase of Shares;
Dividends and Distributions; Shareholder
Services
Item 8. Redemption or Repurchase................................. Multiple Pricing System; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services
Item 9. Pending Legal Proceedings................................ Not Applicable
<CAPTION>
STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION
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Item 10. Cover Page............................................... Cover Page
Item 11. Table of Contents........................................ Table of Contents
Item 12. General Information and History.......................... Not Applicable
Item 13. Investment Objectives and Policies....................... Additional Information on Portfolio
Instruments and Investment Policies;
Investment Limitations
Item 14. Management of the Registrant............................. Management
Item 15. Control Persons and Principal Holders of Securities...... Management; Capital Stock
Item 16. Investment Advisory and Other Services................... Management; Custodian and Transfer Agent;
Independent Accountants
Item 17. Brokerage Allocation and Other Practices................. Portfolio Transactions
Item 18. Capital Stock and Other Securities....................... Capital Stock
Item 19. Purchase, Redemption and Pricing of Securities Being
Offered................................................ Management; Net Asset Value; Additional
Purchase Information; Additional
Redemption Information
Item 20. Tax Status............................................... Additional Information Concerning Taxes
Item 21. Underwriters............................................. Management; Additional Purchase
Information
Item 22. Calculation of Performance Data.......................... Performance Data
Item 23. Financial Statements..................................... Financial Statements
</TABLE>
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Salomon Brothers
Investment Series
Prospectus &
Application
November 1, 1996
Cash Management Fund
New York Municipal Money Market
Fund
New York Municipal Bond Fund
National Intermediate Municipal Fund
U.S. Government Income Fund
High Yield Bond Fund
Strategic Bond Fund
Total Return Fund
Asia Growth Fund
Investors Fund
Capital Fund
For Information About Salomon Brothers Investment Series Consult
The Following Prospectus
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Salomon Brothers
Investment Series
7 WORLD TRADE CENTER NEW YORK, NEW YORK 10048 (800) SALOMON OR (800) 725-6666
SALOMON BROTHERS INVESTMENT SERIES CONSISTS OF SALOMON BROTHERS CASH MANAGEMENT
FUND (THE 'CASH MANAGEMENT FUND'), SALOMON BROTHERS NEW YORK MUNICIPAL MONEY
MARKET FUND (THE 'NEW YORK MUNICIPAL MONEY MARKET FUND'), SALOMON BROTHERS NEW
YORK MUNICIPAL BOND FUND (THE 'NEW YORK MUNICIPAL BOND FUND'), SALOMON BROTHERS
NATIONAL INTERMEDIATE MUNICIPAL FUND (THE 'NATIONAL INTERMEDIATE MUNICIPAL
FUND'), SALOMON BROTHERS U.S. GOVERNMENT INCOME FUND (THE 'U.S. GOVERNMENT
INCOME FUND'), SALOMON BROTHERS HIGH YIELD BOND FUND (THE 'HIGH YIELD BOND
FUND'), SALOMON BROTHERS STRATEGIC BOND FUND (THE 'STRATEGIC BOND FUND'),
SALOMON BROTHERS TOTAL RETURN FUND (THE 'TOTAL RETURN FUND'), SALOMON BROTHERS
ASIA GROWTH FUND (THE 'ASIA
continued on next page
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THERE CAN BE NO ASSURANCE THAT ANY FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE(S)
AND EACH OF THE FUNDS MAY EMPLOY CERTAIN INVESTMENT PRACTICES WHICH INVOLVE
SPECIAL RISK CONSIDERATIONS. CERTAIN FUNDS MAY INVEST IN CERTAIN SECURITIES,
COMMONLY REFERRED TO AS JUNK BONDS, WHICH PRESENT A HIGH DEGREE OF RISK. SUCH
LOWER-QUALITY SECURITIES INVOLVE COMPARATIVELY GREATER RISKS, INCLUDING PRICE
VOLATILITY AND THE RISK OF DEFAULT IN THE TIMELY PAYMENT OF INTEREST AND
PRINCIPAL, THAN HIGHER-QUALITY SECURITIES. THE HIGH YIELD BOND FUND AND THE
STRATEGIC BOND FUND ARE NOT LIMITED IN THE PERCENTAGE OF THEIR ASSETS WHICH MAY
BE INVESTED IN SUCH SECURITIES. EACH OF THE TOTAL RETURN FUND, THE ASIA GROWTH
FUND, THE INVESTORS FUND AND THE CAPITAL FUND MAY INVEST UP TO 20%, 10%, 5% AND
5%, RESPECTIVELY, OF ITS TOTAL ASSETS IN NON-CONVERTIBLE SECURITIES OF THIS TYPE
AND MAY INVEST WITHOUT LIMIT IN CONVERTIBLE SECURITIES OF THIS TYPE. SEE
'ADDITIONAL INVESTMENT ACTIVITIES AND RISK FACTORS.' BECAUSE THE NEW YORK
MUNICIPAL MONEY MARKET FUND HAS THE ABILITY, LIKE MANY OTHER SINGLE-STATE
TAX-FREE MONEY MARKET FUNDS, TO INVEST A SIGNIFICANT PERCENTAGE OF ITS ASSETS IN
THE SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY BE RISKIER THAN
AN INVESTMENT IN OTHER TYPES OF MONEY MARKET FUNDS.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in a Fund. This Prospectus should be read and
retained for ready reference to information about a Fund. A Statement of
Additional Information dated November 1, 1996, containing additional information
about each Fund (the 'Statement of Additional Information') has been filed with
the Securities and Exchange Commission (the 'SEC') and is hereby incorporated by
reference into this Prospectus. It is available without charge and can be
obtained by writing or calling at the address and telephone number printed
above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SALOMON BROTHERS ASSET MANAGEMENT INC -- INVESTMENT MANAGER
SALOMON BROTHERS INC -- DISTRIBUTOR
NOVEMBER 1, 1996
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continued from previous page
GROWTH FUND'), SALOMON BROTHERS INVESTORS FUND INC (THE 'INVESTORS FUND') AND
SALOMON BROTHERS CAPITAL FUND INC (THE 'CAPITAL FUND') (EACH A 'FUND' AND
COLLECTIVELY, THE 'FUNDS'). EACH OF THE FUNDS, EXCEPT FOR THE INVESTORS FUND AND
THE CAPITAL FUND, IS AN INVESTMENT PORTFOLIO OF SALOMON BROTHERS SERIES FUNDS
INC, AN OPEN-END MANAGEMENT INVESTMENT COMPANY ('SERIES FUNDS'). THE INVESTORS
FUND AND CAPITAL FUND ARE OPEN-END MANAGEMENT INVESTMENT COMPANIES. EACH OF THE
FUNDS HAS A SPECIFIC INVESTMENT OBJECTIVE.
The CASH MANAGEMENT FUND seeks as high a level of current income as is
consistent with liquidity and the stability of principal. The Fund invests in
high-quality, short-term U.S. dollar-denominated money market instruments, and
seeks to maintain a stable net asset value of $1.00 per share.
The NEW YORK MUNICIPAL MONEY MARKET FUND seeks as high a level of current
income exempt from federal, New York State and New York City personal income
taxes as is consistent with liquidity and the stability of principal. The Fund
invests primarily in high-quality, short-term municipal obligations issued by or
on behalf of the State of New York or by its instrumentalities or political
subdivisions, the interest on which is exempt from federal, New York State and
New York City personal income taxes. The Fund seeks to maintain a stable net
asset value of $1.00 per share.
WITH RESPECT TO THE CASH MANAGEMENT FUND AND THE NEW YORK MUNICIPAL MONEY
MARKET FUND, THERE IS NO ASSURANCE THAT A STABLE NET ASSET VALUE OF $1.00 PER
SHARE WILL BE MAINTAINED. INVESTMENTS IN THESE FUNDS ARE NOT GUARANTEED OR
INSURED BY THE U.S. GOVERNMENT.
The NEW YORK MUNICIPAL BOND FUND seeks to achieve a high level of current
income which is exempt from regular federal income taxes and New York State and
New York City personal income taxes, consistent with the preservation of
capital. The Fund invests primarily in a portfolio of municipal obligations the
interest on which is exempt from regular federal income taxes and from the
personal income taxes of New York State and New York City. The Fund will not
invest in municipal obligations that are rated below investment grade at the
time of purchase.
The NATIONAL INTERMEDIATE MUNICIPAL FUND seeks a high level of current income
which is exempt from regular federal income taxes. The Fund seeks to achieve its
objective by investing primarily in a portfolio of municipal obligations. The
Fund will not invest in municipal obligations that are rated below investment
grade at the time of purchase.
The U.S. GOVERNMENT INCOME FUND seeks a high level of current income. The Fund
seeks to achieve its objective by investing in securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities.
The HIGH YIELD BOND FUND seeks to maximize current income. As a secondary
objective, the Fund seeks capital appreciation. The Fund seeks to achieve its
objectives by investing primarily in a diversified portfolio of high yield
fixed-income securities rated in medium or lower rating categories or determined
by the investment manager to be of comparable quality.
The STRATEGIC BOND FUND seeks a high level of current income. As a secondary
objective, the Fund seeks capital appreciation. The Fund seeks to achieve its
objectives by investing in a globally diverse portfolio of fixed-income
investments and by giving the investment manager broad discretion to deploy the
Fund's assets among certain segments of the fixed-income market that the
investment manager believes will best contribute to achievement of the Fund's
investment objectives. In pursuing its investment objectives, the Fund reserves
the right to
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invest predominantly in securities rated in medium or lower rating categories or
as determined by the investment manager to be of comparable quality. Although
the Fund's investment manager has the ability to invest up to 100% of the Fund's
assets in lower-rated securities, the Fund's investment manager does not
anticipate investing in excess of 75% of the Fund's assets in such securities.
The TOTAL RETURN FUND seeks to obtain above-average income (compared to a
portfolio entirely invested in equity securities). As a secondary objective, the
Fund seeks to take advantage of opportunities for growth of capital and income.
The Fund seeks to achieve its objectives primarily through investments in a
broad variety of securities, including equity securities, fixed-income
securities and short-term obligations.
The ASIA GROWTH FUND seeks long-term capital appreciation. The Fund seeks to
achieve its objective by investing at least 65% of its total assets in equity
and equity-related securities of Asian Companies (as defined in this
Prospectus).
The INVESTORS FUND seeks long-term growth of capital. Current income is a
secondary objective. The Fund seeks to achieve its objectives primarily through
investments in common stocks of well-known companies.
The CAPITAL FUND seeks capital appreciation through investments in securities,
primarily common stocks, which are believed to have above-average price
appreciation potential and which may also involve above-average risk. Current
income is an incidental consideration.
PAGE 3
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Table of Contents
Summary 5
Expense Information 11
Financial Highlights 16
Investment Objectives and Policies 30
Additional Investment Activities and Risk
Factors 63
Multiple Pricing System 83
Investment Limitations 88
Management 93
Determination of Net Asset Value 99
Purchase of Shares 100
Redemption of Shares 108
Performance Information 113
Dividends and Distributions 114
Taxation 116
Shareholder Services 122
Account Services 125
Capital Stock 125
Appendix A A-1
Appendix B B-1
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Summary
THE FUNDS
Each of the Funds, except for the Investors Fund and the Capital Fund, is an
investment portfolio of the Series Funds, an open-end investment company
incorporated in Maryland on April 17, 1990. The National Intermediate Municipal
Fund, the U.S. Government Income Fund, the High Yield Bond Fund, the Strategic
Bond Fund, the Total Return Fund and the Asia Growth Fund are newly or recently
organized portfolios of the Series Funds. The Investors Fund is an open-end
management investment company incorporated in Maryland on April 2, 1958. The
Capital Fund is an open-end management investment company incorporated in
Maryland on August 23, 1976.
Each of the Funds, except the Asia Growth Fund and the Capital Fund, is
diversified within the meaning of the Investment Company Act of 1940, as
amended (the '1940 Act').
THE FUNDS' OBJECTIVES AND POLICIES
CASH MANAGEMENT FUND. The objective of the Cash Management Fund is to seek as
high a level of current income as is consistent with liquidity and the stability
of principal. The Fund seeks to maintain a stable net asset value of $1.00 per
share. The Fund will seek to attain its objective by investing in a broad range
of high-quality, short-term U.S. dollar-denominated money market instruments
which are deemed to mature in thirteen months or less, including the following:
(1) securities issued or guaranteed as to principal and interest by the U.S.
government or by agencies or instrumentalities thereof, (2) obligations issued
or guaranteed by U.S. banks with total assets of at least $1 billion (including
obligations of foreign branches of such banks) and by the 75 largest foreign
commercial banks in terms of total assets, (3) high quality commercial paper and
other high-quality short-term debt obligations, and (4) obligations of the
International Bank for Reconstruction and Development, other supranational
organizations and foreign governments and their agencies and instrumentalities.
The Cash Management Fund may also enter into repurchase agreements with respect
to the obligations identified above.
NEW YORK MUNICIPAL MONEY MARKET FUND. The objective of the New York Municipal
Money Market Fund is to seek as high a level of current income exempt from
federal, New York State and New York City personal income taxes as is
consistent with liquidity and the stability of principal. The Fund seeks to
achieve its objective by investing primarily in high-quality, short-term
municipal obligations issued by or on behalf of the State of New York or by its
instrumentalities or political subdivisions, the interest on which is exempt
from federal, New York State and New York City personal income taxes. The Fund
seeks to maintain a stable net asset value of $1.00 per share.
NEW YORK MUNICIPAL BOND FUND. The objective of the New York Municipal Bond Fund
is to achieve a high level of current income which is exempt from regular
federal income taxes and New York State and New York City personal income
taxes, consistent with the preservation of capital. The Fund invests primarily
in a portfolio of municipal obligations the interest on which is exempt from
regular federal income taxes and from the personal income taxes of New York
State and New York City. The Fund will not invest in municipal
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SALOMON BROTHERS INVESTMENT SERIES
obligations that are rated below investment grade at the time of purchase.
NATIONAL INTERMEDIATE MUNICIPAL FUND. The objective of the National
Intermediate Municipal Fund is to achieve a high level of current income which
is exempt from regular federal income taxes. The Fund seeks to achieve its
objective by investing primarily in a portfolio of municipal obligations. The
Fund will not invest in municipal obligations that are rated below investment
grade at the time of purchase.
U.S. GOVERNMENT INCOME FUND. The objective of the U.S. Government Income Fund
is to seek a high level of current income. The Fund seeks to achieve its
objective by investing in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. From time to time, a significant
portion of the Fund's assets may be invested in mortgage-backed securities. The
Fund will not knowingly invest in 'high risk mortgage securities' (as defined
herein).
HIGH YIELD BOND FUND. The objective of the High Yield Bond Fund is to maximize
current income. As a secondary objective, the Fund seeks capital appreciation.
The Fund seeks to achieve its objectives by investing primarily in a
diversified portfolio of high yield fixed-income securities rated in medium or
lower rating categories or determined by the investment manager to be of
comparable quality.
STRATEGIC BOND FUND. The primary objective of the Strategic Bond Fund is to
seek a high level of current income. As a secondary objective, the Fund will
seek capital appreciation. The Fund seeks to achieve its objectives by
investing in a globally diverse portfolio of fixed-income investments and by
giving the investment manager broad discretion to deploy the Fund's assets
among certain segments of the fixed-income market that the investment manager
believes will best contribute to achievement of the Fund's investment
objectives. In pursuing its investment objectives, the Strategic Bond Fund
reserves the right to invest predominantly in securities rated in medium or
lower rating categories or as determined by the investment manager to be of
comparable quality. Although the investment manager has the ability to invest
up to 100% of the Strategic Bond Fund's assets in lower-rated securities, the
investment manager does not anticipate investing in excess of 75% of the assets
in such securities.
TOTAL RETURN FUND. The Total Return Fund seeks to obtain above-average income
(compared to a portfolio entirely invested in equity securities). As a
secondary objective, the Fund seeks to take advantage of opportunities for
growth of capital and income. The Fund seeks to achieve its objectives
primarily through investments in a broad variety of securities, including
equity securities, fixed-income securities and short-term obligations.
ASIA GROWTH FUND. The Asia Growth Fund's objective is long-term capital
appreciation. The Fund seeks to achieve its objective by investing at least 65%
of its total assets in equity and equity-related securities of Asian Companies
(as defined under 'Investment Objectives and Policies').
INVESTORS FUND. The Investors Fund's primary objective is long-term growth of
capital. Current income is a secondary objective. The Fund seeks to achieve its
objectives primarily through investments in common stocks of well-known
companies.
CAPITAL FUND. The objective of the Capital Fund is to seek capital appreciation
through investments primarily in common stock, or securites convertible into
common stocks, which
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SALOMON BROTHERS INVESTMENT SERIES
are believed to have above-average price appreciation potential and which may
also involve above-average risk. Current income is an incidental consideration.
There can be no assurance that the investment objective(s) of any Fund will be
achieved. See 'Investment Objectives and Policies.'
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc ('SBAM'), an affiliate of Salomon
Brothers Inc ('Salomon Brothers'), is the investment manager of the Funds. SBAM
also serves as investment manager to other investment companies and numerous
individuals and institutions. For its services as investment manager, the Cash
Management Fund pays SBAM a monthly fee at an annual rate of .20% of the Fund's
average daily net assets; the New York Municipal Money Market Fund pays SBAM a
monthly fee at an annual rate of .20% of the Fund's average daily net assets;
the New York Municipal Bond Fund pays SBAM a monthly fee at an annual rate of
.50% of the Fund's average daily net assets; the National Intermediate
Municipal Fund pays SBAM a monthly fee at an annual rate of .50% of the Fund's
average daily net assets; the U.S. Government Income Fund pays SBAM a monthly
fee at an annual rate of .60% of the Fund's average daily net assets; the High
Yield Bond Fund pays SBAM a monthly fee at an annual rate of .75% of the Fund's
average daily net assets; the Strategic Bond Fund pays SBAM a monthly fee at an
annual rate of .75% of the Fund's average daily net assets; the Total Return
Fund pays SBAM a monthly fee at an annual rate of .55% of the Fund's average
daily net assets; the Asia Growth Fund pays SBAM a monthly fee at an annual
rate of .80% of the Fund's average daily net assets; the Capital Fund pays SBAM
a monthly fee at an annual rate of 1.00% of average daily net assets up to $100
million, .75% on the next $100 million, .625% on the next $200 million and .50%
on average daily net assets in excess of $400 million; and the Investors Fund
pays SBAM a performance-based fee which consists of a quarterly base fee, based
on the Fund's average daily net assets, at an annual rate of .50% of the Fund's
first $350 million, .40% on the next $150 million, .375% on the next $250
million, .35% on the next $250 million and .30% on the amount in excess of $1
billion, and which may be increased or decreased based on the performance of
the Investors Fund relative to the investment record of the Standard & Poor's
500 Index of Composite Stocks (the 'S&P 500 Index'). See 'Management.'
With respect to the Strategic Bond Fund, SBAM has entered into a subsidiary
consulting agreement with its affiliate, Salomon Brothers Asset Management
Limited ('SBAM Limited') pursuant to which SBAM Limited provides certain
advisory services to SBAM relating to currency transactions and investments in
non-dollar denominated debt securities for the benefit of the Fund. Subject to
the supervision of SBAM, Salomon Brothers Asia Pacific Limited ('SBAM AP')
serves as sub-adviser to the Asia Growth Fund. SBAM Limited and SBAM AP are
compensated by SBAM at no additional cost to the Funds.
RISK FACTORS
Prospective investors should consider certain risks associated with an
investment in each Fund. Certain Funds may use various investment practices
that involve special considerations, including investing in high yield and/or
illiquid securities, investing in foreign securities (including emerging market
securities), investing in warrants, investing in municipal obligations,
entering into repurchase and reverse repurchase agreements, entering into
securities transactions on a firm commitment or when issued basis,
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SALOMON BROTHERS INVESTMENT SERIES
investing in zero coupon securities, investing in loan participations and
assignments, lending portfolio securities and high portfolio turnover rates.
Certain Funds may engage in derivatives which involve special risks. Because
the New York Municipal Bond Fund and the New York Municipal Money Market Fund
significantly invest in New York municipal obligations, each is more
susceptible to factors adversely affecting issuers of such obligations than a
comparable municipal securities fund that is not so concentrated. See
'Investment Objectives and Policies' and 'Additional Investment Activities and
Risk Factors.'
PURCHASE OF SHARES
Shares of each Fund may be purchased at their next determined net asset value
plus, in the case of Class A shares, a front end sales charge, from a selected
dealer or as otherwise set forth under 'Purchase of Shares.' The minimum initial
investment in any class of shares in any Fund is $500 and the minimum
subsequent investment is $50. However, for Individual Retirement Accounts
('IRAs') and Self-Employed Retirement Plans (formerly Keogh Plans), the minimum
initial investment in any class of shares of any Fund is $50. In addition, an
account can be established with a minimum of $50 if the account will be
receiving periodic, regular investments through programs such as Automatic
Investment Plan, Automatic Dividend Diversification and Systematic Investing.
See 'Purchase of Shares' and 'Shareholder Services.'
REDEMPTION OF SHARES
Each Fund redeems shares at the applicable next determined net asset value,
less the applicable contingent deferred sales charge ('CDSC'), if any. The
value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by the
Fund at such time. See 'Redemption of Shares.'
CLASSES OF SHARES
Each Fund offers three classes of shares ('Class A' shares, 'Class B' shares and
'Class C' shares) to the general public, with each class having different sales
charge structures and expense levels (the 'Multiple Pricing System'). In
addition, each Fund has Class O shares which are offered only to existing Class
O shareholders. Each class has distinct advantages and disadvantages for
different investors, and investors may choose the class that best suits their
circumstances and objectives. See 'Multiple Pricing System.'
CLASS A SHARES. Class A shares are offered for sale at net asset value per
share plus a front end sales charge of up to 4.75% (with the exception of Class
A shares of the Cash Management Fund and the New York Municipal Money Market
Fund, which are offered without such a charge). In addition, Class A shares are
subject to an ongoing Rule 12b-1 service fee at an annual rate of .25% of their
respective average daily net assets (with the exception of Class A shares of the
Cash Management Fund and the New York Municipal Money Market Fund, which bear
no such fees). Certain purchases of Class A shares qualify for a waived or
reduced front end sales charge. Certain Class A shares for which the front end
sales charge is waived may be subject to a CDSC of 1% within one year after the
date of purchase. See 'Purchase of Shares -- Class A Shares' and 'Redemption of
Shares -- Class A Share Purchases of $1 Million or More.'
CLASS B SHARES. Class B shares are offered for sale for purchases of less than
$250,000. Class B shares are sold at net asset value without a front end sales
PAGE 8
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SALOMON BROTHERS INVESTMENT SERIES
charge but are subject to a CDSC of 5% of the dollar amount subject thereto
during the first and second year after purchase, and declining each year
thereafter to 0% after the sixth year (with the exception of Class B shares of
the Cash Management Fund and the New York Municipal Money Market Fund, which
are not subject to any CDSC upon redemption). The applicable percentage is
assessed on an amount equal to the lesser of the original purchase price or the
redemption price of the shares redeemed. Class B shares are also subject to an
ongoing Rule 12b-1 distribution fee at an annual rate of .75% of their
respective average daily net assets and an ongoing Rule 12b-1 service fee at an
annual rate of .25% of their respective average daily net assets (with the
exception of Class B shares of the Cash Management Fund and the New York
Municipal Money Market Fund, which bear no such fees). Class B shares (except
for shares of the Cash Management Fund and the New York Municipal Money Market
Fund) will automatically convert, based upon relative net asset value, to Class
A shares of the same Fund six years after purchase. Upon conversion, these
shares will no longer be subject to an annual distribution fee.
CLASS C SHARES. Class C shares are offered for sale for purchases of less than
$1,000,000, are offered at net asset value without a front end sales charge and
are subject to a CDSC of 1% of the dollar amount subject thereto on redemptions
made within one year of purchase (with the exception of Class C shares of the
Cash Management Fund and the New York Municipal Money Market Fund, which are
not subject to any CDSC upon redemption). The CDSC is assessed on an amount
equal to the lesser of the original purchase price or the redemption price of
the shares redeemed. Class C shares are subject to an ongoing Rule 12b-1
distribution fee at an annual rate of .75% of their respective average daily
net assets and an ongoing Rule 12b-1 service fee at an annual rate of .25% of
their respective average daily net assets (with the exception of Class C shares
of the Cash Management Fund and the New York Municipal Money Market Fund, which
bear no such fees). Class C shares (except for shares of the Cash Management
Fund and the New York Municipal Money Market Fund) will automatically convert,
based upon relative net asset value, to Class A shares of the same Fund ten
years after purchase. Upon conversion, these shares will no longer be subject
to an annual distribution fee.
CLASS O SHARES. Each Fund also offers Class O shares. However, only Class O
shareholders are permitted to purchase additional Class O shares. Class O shares
are not subject to any sales charges or Rule 12b-1 fees.
For a discussion of factors to consider in selecting the most beneficial class
of shares for a particular investor, see 'Multiple Pricing System -- Factors for
Consideration.'
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income of the Cash Management Fund, the
New York Municipal Money Market Fund, the New York Municipal Bond Fund, the
National Intermediate Municipal Fund, the U.S. Government Income Fund, the High
Yield Bond Fund, the Strategic Bond Fund and the Total Return Fund will be
declared as a daily dividend, and shareholders will receive such dividends
monthly. The Asia Growth Fund will declare dividends from net investment income
annually and pay them annually. The Investors Fund will pay dividends from net
investment income quarterly. The Capital Fund will pay dividends from net
investment income annually. Each Fund will pay net realized long-term capital
gains annually. It is anticipated that the expenses incurred by each class of
each Fund (other than the
PAGE 9
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
Cash Management Fund and the New York Municipal Money Market Fund) will differ
and, accordingly, the dividends distributed by each such class will differ. See
'Dividends and Distributions.' Dividends and distributions are reinvested in
additional shares of the same class of a Fund unless a shareholder requests
otherwise. Shares acquired by dividend and distribution reinvestments will not
be subject to any sales charge or CDSC. Class B and Class C shares acquired
through dividend and distribution reinvestments will become eligible for
conversion to Class A shares on a pro rata basis. A portion of the dividends of
the New York Municipal Money Market Fund, the New York Municipal Bond Fund and
the National Intermediate Municipal Fund may be subject to the federal
alternative minimum tax. See 'Multiple Pricing System,' 'Dividends and
Distributions' and 'Taxation.'
PAGE 10
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
Each Fund offers multiple classes of shares. Each share of a Fund accrues
income in the same manner, but certain expenses differ based upon the class.
The following tables are intended to assist investors in understanding the
various costs and expenses applicable to each class of shares of each Fund:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS O(D)
<S> <C> <C> <C> <C>
SHAREHOLDERS TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases of Shares (as a percentage of
offering price)
All Funds except Cash Management Fund
and New York Municipal Money Market
Fund 4.75%(a) None None None
Cash Management Fund None None None None
New York Municipal Money Market Fund None None None None
Sales Charge Imposed on Reinvested
Dividends
All Funds None None None None
Contingent Deferred Sales Charge
(as a percentage of original purchase
price
or redemption price, whichever is lower)
All Funds except Cash Management Fund
and New York Municipal Money Market
Fund 1% during the 5% first year, 1% during None
first year for 5% second year, the first
purchases of 4% third year, year(c)
$1 million or 3% fourth year,
more(b) 2% fifth year,
1% sixth year, and
0% after sixth year(c)
Cash Management Fund None None None None
New York Municipal Money Market Fund None None None None
Redemption Fees
All Funds None None None None
Exchange Fee
All Funds None None None None
</TABLE>
------------------------------------------------------------------
(a) Reduced for purchases of $50,000 and over, decreasing to 0% for purchases
of $1,000,000 and over. See
'Purchase of Shares -- Class A Shares.'
(b) See 'Purchase of Shares -- Class A Shares' and 'Redemption of
Shares -- Class A Shares.'
(c) See 'Purchase of Shares -- Class B Shares' and ' -- Class C Shares' and
'Redemption of Shares -- Class B
Shares' and ' -- Class C Shares.'
(d) Only Class O shareholders are permitted to purchase additional Class O
shares.
* Under certain circumstances, certain broker/dealers may impose additional
transaction fees on the purchase and/or
sale of shares. See 'Purchase of Shares.'
PAGE 11
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
ANNUAL FUND OPERATING EXPENSES:
Information in the table below is given as a percentage of average daily net
assets after fee waivers and expense reimbursements in certain cases, as
indicated. Each of the National Intermediate Municipal Fund, U.S. Government
Income Fund, High Yield Bond Fund and Strategic Bond Fund commenced investment
operations on February 22, 1995 and Total Return Fund commenced investment
operations on September 11, 1995. Information shown in the table below with
respect to these Funds, therefore, is annualized. The Asia Growth Fund commenced
investment operations on May 6, 1996. Information shown in the table below with
respect to the Fund, therefore, is based on estimates for the current fiscal
year.
<TABLE>
<CAPTION>
FUND CLASS A CLASS B CLASS C CLASS O
<S> <C> <C> <C> <C>
CASH MANAGEMENT
Management fees (after waiver)`D' -- -- -- --
Rule 12b-1 fees -- -- -- --
Other expenses (after reimbursement)*`D' .55% .55% .55% .55%
--- --- --- ---
Total fund operating expenses (after waiver and
reimbursement)`D' .55% .55% .55% .55%
NEW YORK MUNICIPAL MONEY MARKET
Management Fees (after waiver)`D'`D' .18% .18% .18% .18%
Rule 12b-1 fees -- -- -- --
Other expenses .25% .25% .25% .25%
--- --- --- ---
Total fund operating expenses (after waiver)`D'`D' .43% .43% .43% .43%
NEW YORK MUNICIPAL BOND
Management fees (after waiver)`D' -- -- -- --
Rule 12b-1 fees** .25% 1.00% 1.00% --
Other expenses (after reimbursement)*`D' .50% .50% .50% .50%
--- --- --- ---
Total fund operating expenses (after waiver and
reimbursement)`D' .75% 1.50% 1.50% .50%
NATIONAL INTERMEDIATE MUNICIPAL
Management fees (after waiver)`D' -- -- -- --
Rule 12b-1 fees** .25% 1.00% 1.00% --
Other expenses (after reimbursement)*`D' .50% .50% .50% .50%
--- --- --- ---
Total fund operating expenses (after waiver and
reimbursement)`D' .75% 1.50% 1.50% .50%
U.S. GOVERNMENT INCOME
Management fees (after waiver)`D' -- -- -- --
Rule 12b-1 fees** .25% 1.00% 1.00% --
Other expenses (after reimbursement)*`D' .60% .60% .60% .60%
--- --- --- ---
Total fund operating expenses (after waiver and
reimbursement)`D' .85% 1.60% 1.60% .60%
HIGH YIELD BOND
Management fees (after waiver)`D'`D' .20% .20% .20% .20%
Rule 12b-1 fees** .25% 1.00% 1.00% --
Other expenses* .79% .76% .78% .80%
--- --- --- ---
Total fund operating expenses (after waiver)`D'`D' 1.24% 1.96% 1.98% 1.00%
STRATEGIC BOND
Management fees (after waiver)`D' -- -- -- --
Rule 12b-1 fees** .25% 1.00% 1.00% --
Other expenses (after reimbursement)*`D' .98% .97% .99% .99%
--- --- --- ---
Total fund operating expenses (after waiver and
reimbursement)`D' 1.23% 1.97% 1.99% .99%
TOTAL RETURN
Management fees (after waiver)`D' -- -- -- --
Rule 12b-1 fees** .25% 1.00% 1.00% --
Other expenses (after reimbursement)*`D' .49% .49% .51% .51%
--- --- --- ---
Total fund operating expenses (after waiver and
reimbursement)`D' .74% 1.49% 1.51% .51%
ASIA GROWTH
Management fees .80% .80% .80% .80%
Rule 12b-1 fees** .25% 1.00% 1.00% --
Other expenses (after reimbursement)***`D'`D'`D' .19% .19% .19% .19%
--- --- --- ---
Total fund operating expenses (after reimbursement)*** 1.24% 1.99% 1.99% .99%
</TABLE>
PAGE 12
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
FUND CLASS A CLASS B CLASS C CLASS O
<S> <C> <C> <C> <C>
INVESTORS
Management fees**** .41% .41% .41% .41%
Rule 12b-1 fees** .25% 1.00% 1.00% --
Other expenses* .28% .30% .27% .28%
--- --- --- ---
Total fund operating expenses .94% 1.71% 1.68% .69%
CAPITAL
Management Fees 1.00% 1.00% 1.00% 1.00%
Rule 12b-1 fees .25% 1.00% 1.00% --
Other expenses .36% .36% .36% .36%
--- --- --- ---
Total fund operating expenses 1.61% 2.36% 2.36% 1.36%
</TABLE>
<TABLE>
<S> <C>
------------------------------------------------------------------
`D' Reflects the voluntary waiver of management fees and reimbursement of certain expenses by SBAM
for the period ended December 31, 1995. Absent such waiver and reimbursement, the ratio of
management fees to the average daily net assets for each class of shares of Cash Management,
New York Municipal Bond, National Intermediate Municipal, U.S. Government Income, Strategic
Bond and Total Return would be .20%, .50%, .50%, .60%, .75% and .55%, respectively, the ratio
of other expenses to average daily net assets of (i) Cash Management would be 1.15%, 1.14%,
1.14% and 1.14% for Class A, Class B, Class C and Class O, respectively, (ii) New York
Municipal Bond would be 2.21%, 2.20%, 2.21% and 2.21% for Class A, Class B, Class C and Class
O, respectively, (iii) National Intermediate would be .96%, .95%, .96% and .96% for Class A,
Class B, Class C and Class O, respectively, (iv) U.S. Government Income would be 1.05%, 1.04%,
1.04% and 1.04% for Class A, Class B, Class C and Class O, respectively, (v) Strategic Bond
would be 1.11%, 1.10%, 1.12% and 1.12% for Class A, Class B, Class C and Class O, respectively
and (vi) Total Return would be .65%, .64%, .67% and .67%, respectively, and the ratio of total
fund operating expenses to the average daily net assets of (i) Cash Management would be 1.35%,
1.34%, 1.34% and 1.34% for Class A, Class B, Class C and Class O, respectively, (ii) New York
Municipal Bond would be 2.96%, 3.70%, 3.71% and 2.71% for Class A, Class B, Class C and Class
O, respectively, (iii) National Intermediate Municipal would be 1.71%, 2.45%, 2.46% and 1.46%
for Class A, Class B, Class C and Class O, respectively, (iv) U.S. Government Income would be
1.90%, 2.64%, 2.64% and 1.64% for Class A, Class B, Class C and Class O, respectively, (v)
Strategic Bond would be 2.11%, 2.85%, 2.87% and 1.87% for Class A, Class B, Class C and Class
O, respectively, and (vi) Total Return would be 1.45%, 2.19%, 2.22% and 1.22%, respectively.
For the fiscal year ended December 31, 1996, SBAM has voluntarily agreed to impose an expense
cap on each such Fund's total fund operating expenses (exclusive of taxes, interest and
extraordinary expenses such as litigation and indemnification expenses) at the amounts shown
for each Fund in the table above through reimbursement of expenses and, to the extent
necessary, waiver of management fees.
* The amounts set forth for 'Other expenses' are based on the Fund's operating expenses for the
fiscal year ended December 31, 1995 which are calculated as a percentage of average daily net
assets and includes fees for shareholder services, administrative fees, custodial fees, legal
and accounting fees, printing costs and registration fees.
** Upon conversion to Class A shares, Class B and Class C shares will no longer be subject to a
distribution fee. Salomon Brothers receives an annual Rule 12b-1 service fee of .25% of the
value of average daily net assets of Class A shares, and receives an annual Rule 12b-1 fee of
1.00% of the value of average daily net assets of Class B and Class C shares, consisting of a
.75% distribution fee and a .25% service fee. See 'Multiple Pricing System -- Conversion
Feature.'
`D'`D' Reflects the voluntary partial waiver of the management fees by SBAM for the fiscal year ended
December 31, 1995. Absent such waiver, the ratio of management fees to the average daily net
assets for each class of shares of the New York Municipal Money Market Fund and the High Yield
Bond Fund would be .20% and .75%, respectively and the ratio of total fund operating expenses
to the average daily net assets would be .45% for each class of shares of the New York
Municipal Money Market Fund and 1.80%, 2.51%, 2.54% and 1.55% for Class A, Class B, Class C and
Class O shares of the High Yield Bond Fund, respectively. For the fiscal year ended December
31, 1996, SBAM has voluntarily agreed to impose an expense cap on the total fund operating
expenses of the High Yield Bond Fund (exclusive of taxes, interest and extraordinary expenses
such as litigation and indemnification expenses) at the amount shown in the table above through
reimbursement of expenses and, to the extent necessary, waiver of management fees.
*** Reflects a voluntary expense cap (exclusive of taxes, interest and extraordinary expenses such
as litigation and indemnification expenses) which SBAM has agreed to impose for the fiscal year
ended December 31, 1996. Absent such expense cap, the ratio of other expenses to average daily
net assets would be .77%, .77%, .77% and .77% for Class A, Class B, Class C and Class O,
respectively, and the ratio of total fund operating expenses to the average daily net assets
would be 1.82%, 2.57%, 2.57% and 1.57% for Class A, Class B, Class C and Class O, respectively.
`D'`D'`D' The Fund commenced investment operations on May 6, 1996. The amounts set forth for 'Other
Expenses' are therefore based on estimates for the current fiscal year ending December 31, 1996
and will include fees for shareholder services, administrative fees, custodial fees, legal and
accounting fees, printing costs and registration fees.
**** The Investors Fund pays a performance-based management fee. Management fees included in the
table above reflect the performance of the Fund through the year ended December 31, 1995. See
'Management.'
</TABLE>
PAGE 13
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
The fees and expenses listed under the caption 'Annual Fund Operating Expenses'
are described in this Prospectus under the captions 'Management' and 'Purchase
of Shares -- Distributor.'
For additional information with respect to the expenses identified in the table
above, see 'Management' in the Statement of Additional Information.
EXAMPLE:
The following table demonstrates the projected dollar amount of total cumulative
expenses that would be incurred over various periods with respect to a
hypothetical investment in each class of each Fund. The example assumes payment
by each Fund of operating expenses at the levels set forth in the preceding
table and are also based upon the following assumptions:
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period, with the
exception of the lines marked 'Class B No redemption,' in which case it is
assumed that no redemption is made at the end of each time period:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CASH MANAGEMENT
Class A Shares $ 6 $ 18 $ 31 $ 69
Class B Shares $ 6 $ 18 $ 31 $ 69
Class C Shares $ 6 $ 18 $ 31 $ 69
Class O Shares $ 6 $ 18 $ 31 $ 69
NEW YORK MUNICIPAL MONEY MARKET
Class A Shares $ 4 $ 14 $ 24 $ 54
Class B Shares $ 4 $ 14 $ 24 $ 54
Class C Shares $ 4 $ 14 $ 24 $ 54
Class O Shares $ 4 $ 14 $ 24 $ 54
NEW YORK MUNICIPAL BOND
Class A Shares* $ 55 $ 70 $ 87 $136
Class B Shares** $ 65 $ 87 $ 102 $140***
Class B No redemption $ 15 $ 47 $ 82 $140***
Class C Shares** $ 25 $ 47 $ 82 $179
Class O Shares $ 5 $ 16 $ 28 $ 63
NATIONAL INTERMEDIATE MUNICIPAL
Class A Shares* $ 55 $ 70 $ 87 $136
Class B Shares** $ 65 $ 87 $ 102 $140***
Class B No redemption $ 15 $ 47 $ 82 $140***
Class C Shares** $ 25 $ 47 $ 82 $179
Class O Shares $ 5 $ 16 $ 28 $ 63
U.S. GOVERNMENT INCOME
Class A Shares* $ 56 $ 73 $ 92 $147
Class B Shares** $ 66 $ 90 $ 107 $151***
Class B No redemption $ 16 $ 50 $ 87 $151***
Class C Shares** $ 26 $ 50 $ 87 $190
Class O Shares $ 6 $ 19 $ 33 $ 75
HIGH YIELD BOND
Class A Shares* $ 60 $ 85 $ 112 $190
Class B Shares** $ 70 $ 102 $ 126 $193***
Class B No redemption $ 20 $ 62 $ 106 $193***
Class C Shares** $ 30 $ 62 $ 107 $231
Class O Shares $ 10 $ 32 $ 55 $122
</TABLE>
PAGE 14
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
STRATEGIC BOND
Class A Shares* $ 59 $ 85 $ 112 $189
Class B Shares** $ 70 $ 102 $ 126 $193***
Class B No redemption $ 20 $ 62 $ 106 $193***
Class C Shares** $ 30 $ 62 $ 107 $231
Class O Shares $ 10 $ 32 $ 55 $122
TOTAL RETURN
Class A Shares* $ 55 $ 70 N/A N/A
Class B Shares** $ 65 $ 87 N/A N/A
Class B No redemption $ 15 $ 47 N/A N/A
Class C Shares** $ 25 $ 48 N/A N/A
Class O Shares $ 5 $ 16 N/A N/A
ASIA GROWTH
Class A Shares* $ 60 $ 85 N/A N/A
Class B Shares** $ 70 $ 102 N/A N/A
Class B No redemption $ 20 $ 62 N/A N/A
Class C Shares** $ 30 $ 62 N/A N/A
Class O Shares $ 10 $ 32 N/A N/A
INVESTORS
Class A Shares* $ 57 $ 76 $ 97 $157
Class B Shares** $ 67 $ 94 $ 113 $163***
Class B No redemption $ 17 $ 54 $ 93 $163***
Class C Shares** $ 27 $ 53 $ 91 $199
Class O Shares $ 7 $ 22 $ 38 $ 86
CAPITAL FUND
Class A Shares* $ 63 $ 96 $ 131 $230
Class B Shares** $ 74 $ 114 $ 146 $234***
Class B No redemption $ 24 $ 74 $ 126 $234***
Class C Shares** $ 34 $ 74 $ 126 $270
Class O Shares $ 14 $ 43 $ 74 $164
</TABLE>
* Assumes deduction at the time of purchase of the maximum 4.75% sales
charge.
** Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
*** Reflects the conversion to Class A shares six years after purchase, and
therefore years seven through ten reflect Class A expenses.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES FOR ANY OF THE FUNDS MAY BE HIGHER OR LOWER THAN THE
AMOUNTS SHOWN IN THE FEE TABLES. Moreover, while the example assumes a 5% annual
return, each Fund's performance will vary and may result in a return greater or
less than 5%.
Because a portion of the 12b-1 fees
payable by Class B and Class C shares is considered an asset based sales charge
by the National Association of Securities
Dealers, Inc. ('NASD'), long-term shareholders in Class B and Class C of
each Fund (other than the Cash
Management Fund and the New York Municipal Money Market Fund) may pay more than
the economic equivalent of the maximum front end sales charges
permitted by the NASD.
The information in the foregoing summary is qualified in its entirety by the
more detailed information appearing elsewhere
in this Prospectus and in the Statement of
Additional Information.
PAGE 15
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
The following data per share of capital stock outstanding throughout each
period and ratios should be read in conjunction with the financial statements
of the applicable Fund contained in the Statement of Additional Information.
The financial statements and financial highlights of the Cash Management Fund,
the New York Municipal Money Market Fund, the New York Municipal Bond Fund, the
National Intermediate Fund, the U.S. Government Income Fund, the High Yield
Bond Fund, the Strategic Bond Fund, the Total Return Fund, the Investors Fund
and the Capital Fund for each of the years ended December 31, 1995 have been
audited by Price Waterhouse LLP, whose unqualified reports thereon are included
in the Statement of Additional Information. The Statement of Additional
Information may be obtained by shareholders by writing or calling at the
address or telephone number printed on the front cover. As of the close of
business on December 31, 1994, all existing shares of the Cash Management Fund,
the New York Municipal Bond Fund and the Investors Fund were reclassified as
Class O shares. As of the close of business on October 31, 1996, all existing
shares of the New York Municipal Money Market Fund and the Capital Fund were
reclassified as Class O shares.
PAGE 16
<PAGE>
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
PAGE 17
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995 1996 (UNAUDITED) 1995
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000
------ ------ ------ ------
Net investment income 0.025 0.044 0.025 0.043
Dividends from net investment income (0.025) (0.044) (0.025) (0.043)
------ ------ ------ ------
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000
------ ------ ------ ------
------ ------ ------ ------
Net assets, end of period (thousands) $ 5,293 $ 1,756 $ 2,519 $ 2,238
Total return* +2.5% +4.5% +2.5% +4.4%
Ratios to average net assets:
Expenses 0.55%** 0.55% 0.55%** 0.55%
Net investment income 4.93%** 5.42% 4.96%** 5.38%
Before waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment income per share and expense
ratios would have been:
Net investment income per share $ 0.024 $ 0.037 $ 0.024 $ 0.037
Expense ratio 0.76%** 1.35% 0.76%** 1.34%
<CAPTION>
CLASS C
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995
<S> <C> <C>
Net asset value, beginning of period $1.000 $1.000
------ ------
Net investment income 0.025 0.043
Dividends from net investment income (0.025) (0.043)
------ ------
Net asset value, end of period $1.000 $1.000
------ ------
------ ------
Net assets, end of period (thousands) $ 267 $ 183
Total return* +2.5% +4.4%
Ratios to average net assets:
Expenses 0.55%** 0.55%
Net investment income 4.94%** 5.40%
Before waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment income per share would have
been:
Net investment income per share $0.024 $0.036
Expense ratio 0.76%** 1.34%
</TABLE>
NEW YORK MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995 1996 (UNAUDITED) 1995
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.11 $ 8.96 $10.11 $ 8.96
------ ------ ------ ------
Net investment income 0.24 0.42 0.21 0.36
Net gain (loss) on securities and
futures (both realized and unrealized) (0.42) 1.14 (0.43) 1.14
------ ------ ------ ------
Total from investment operations (0.18) 1.56 (0.22) 1.50
------ ------ ------ ------
Dividends from net investment income (0.24) (0.41) (0.20) (0.35)
Distributions from net realized gain on
securities and futures -- -- -- --
------ ------ ------ ------
Total dividends and distributions (0.24) (0.41) (0.20) (0.35)
------ ------ ------ ------
Net asset value, end of period $ 9.69 $10.11 $ 9.69 $10.11
------ ------ ------ ------
------ ------ ------ ------
Net assets, end of period (thousands) $ 658 $ 546 $ 515 $ 528
Total return* - 1.8 % +17.7 % - 2.1 % +17.0 %
Ratios to average net assets:
Expenses 0.74%** 0.75% 1.50%** 1.50%
Net investment income 4.94%** 5.12% 4.22%** 4.30%
Portfolio turnover rate 21% 22% 21% 22%
Before waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment income per share and expense
ratios would have been:
Net investment income per share $ 0.19 $ 0.24 $ 0.15 $ 0.17
Expense ratio 1.86%** 2.96% 2.61%** 3.70%
<CAPTION>
CLASS C
<S> <C> <C>
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995
Net asset value, beginning of period $10.11 $8.96
------ -----
Net investment income 0.21 0.36
Net gain (loss) on securities and
futures (both realized and unrealized) (0.43 1.14
------ -----
Total from investment operations (0.22 1.50
------ -----
Dividends from net investment income (0.20 (0.35)
Distributions from net realized gain on
securities and futures -- --
------ -----
Total dividends and distributions (0.20) (0.35)
------ ------
Net asset value, end of period $ 9.69 $10.11
------ ------
------ ------
Net assets, end of period (thousands) $ 275 $ 266
Total return* - 2.1% +17.0 %
Ratios to average net assets:
Expenses 1.50%** 1.50%
Net investment income 4.23%** 4.38%
Portfolio turnover rate 21% 22%
Before waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment income per share and expense
ratios would have been:
Net investment income per share $ 0.15 $ 0.18
Expense ratio 2.61%** 3.71%
</TABLE>
<TABLE>
<S> <C>
(a) February 1, 1993, commencement of investment operations, through December 31, 1993.
(b) October 2, 1990, commencement of operations, through December 31, 1990.
* Total return is calculated assuming a $1,000 investment on the first day of each period reported,
reinvestment of all dividends at the net asset value on the payable date, and a sale at net asset
value on the last day of each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return calculated for a period of
less than one year is not annualized.
** Annualized.
</TABLE>
PAGE 18
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
SIX MONTHS PERIOD
ENDED ENDED
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31,
1996 (UNAUDITED) 1995 1994 1993 1992 1991 1990(B)
CLASS O
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- -------- -------- ------------ -------- -------- ------------
0.025 0.055 0.038 0.027 0.033 0.055 0.019
(0.025) (0.055) (0.038) (0.027) (0.033) (0.055) (0.019)
------- -------- -------- ------------ -------- -------- ------------
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- -------- -------- ------------ -------- -------- ------------
------- -------- -------- ------------ -------- -------- ------------
$11,499 $ 6,684 $ 19,127 $ 15,049 $ 11,613 $ 22,982 $ 10,293
+2.5 % +5.6% +3.9% +2.7 % +3.4% +5.7% +1.9 %
0.55 %** 0.55% 0.61% 0.65 % 0.65% 0.65% 0.65 %**
4.96 %** 5.46% 3.79% 2.68 % 3.41% 5.43% 7.46 %**
$ 0.024 $ 0.047 $ 0.036 $ 0.025 $ 0.030 $ 0.053 $ 0.018
0.76 %** 1.34% 0.81% 0.85 % 0.85% 0.85% 0.97 %**
</TABLE>
<TABLE>
<CAPTION>
CLASS O
SIX MONTHS
ENDED PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31,
1996 (UNAUDITED) 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C> <C>
$10.11 $ 8.98 $ 10.44 $10.00
------ -------- ------------ ------
0.25 0.53 0.55 0.46
(0.41) 1.12 (1.46) 0.46
------ -------- ------------ ------
(0.16) 1.65 (0.91) 0.92
------ -------- ------------ ------
(0.25) (0.52) (0.55) (0.46)
-- -- -- (0.02)
------ -------- ------------ ------
(0.25) (0.52) (0.55) (0.48)
------ -------- ------------ ------
$ 9.70 $ 10.11 $ 8.98 $10.44
------ -------- ------------ ------
------ -------- ------------ ------
$2,896 $2,494 $3,333 $8,364
-1.6 % +18.8% -8.8 % +9.4%
0.51%** 0.50% 0.50% 0.50%**
5.24%** 5.50% 5.72% 4.99%**
21 % 22 % 63 % 24 %
$0.20 $0.32 $0.49 $0.40
1.62%** 2.71% 1.17% 1.24%**
</TABLE>
PAGE 19
<PAGE>
<PAGE>
NEW YORK MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, ENDED
PER SHARE OPERATING JUNE 30, 1996 ----------------------------------------------------------- DECEMBER 31,
PERFORMANCE (UNAUDITED) 1995 1994 1993 1992 1991 1990*
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- -------- -------- --------
Net investment
income 0.016 .037`D' .027 .023 .031 .047 .014`D'
Dividends from net
investment income (0.016) (.037) (.027) (.023) (.031) (.047) (.014)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end
of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Net assets end of
period (thousands) $201,955 $226,549 $269,788 $262,413 $263,685 $154,782 $ 34,529
Total investment
return +1.6% +3.7% +2.7% +2.3% +3.1% +4.8% +1.4%
Ratios to average
net assets:
Expenses 0.58%** .43%`D' .41% .41% .42% .60% .64%**`D'
Net investment
income 3.25%** 3.67% 2.63% 2.31% 3.07% 4.63% 5.79%**`D'
</TABLE>
<TABLE>
<S> <C>
* October 2, 1990, commencement of operations, through December 31, 1990.
** Annualized.
`D' Net investment income per share would have been $0.037 and the expense ratio to average net assets
would have been .45% for the year ended December 31, 1995 before waiver of management fee and
credits earned on custodian cash balances. Net investment income per share would have been $0.012
and the expense ratio to average net assets would have been 1.23% for the period ended December 31,
1990 before waiver of management fee and reimbursement of certain expenses.
</TABLE>
PAGE 20
<PAGE>
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
PAGE 21
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
NATIONAL INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(A) 1996 (UNAUDITED) 1995(A)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.43 $10.00 $10.42 $10.00
------ ------ ------ ------
Net investment income 0.24 0.40 0.20 0.34
Net gain on investments (both
realized and unrealized) (0.26) 0.46 (0.26) 0.45
------ ------ ------ ------
Total from investment operations (0.02) 0.86 (0.06) 0.79
------ ------ ------ ------
Dividends from net investment income (0.24) (0.40) (0.20) (0.34)
Distributions from net realized gain
on investments -- (0.03) -- (0.03)
------ ------ ------ ------
Total dividends and distributions (0.24) (0.43) (0.20) (0.37)
------ ------ ------ ------
Net asset value, end of period $10.17 $10.43 $10.16 $10.42
------ ------ ------ ------
------ ------ ------ ------
Net assets, end of period
(thousands) $613 $569 $650 $432
Total return* -0.2 % +8.7 % -0.5 % +8.0 %
Ratios to average net assets:
Expenses 0.75%** 0.75%** 1.50%** 1.50%**
Net investment income 4.69%** 4.63%** 3.92%** 3.85%**
Portfolio turnover rate 9 % 29 % 9 % 29 %
Before waiver of management fee,
expenses absorbed by SBAM and
credits earned on custodian cash
balances, net investment income
per share and expense ratios would
have been:
Net investment income per share $0.18 $0.32 $0.14 $0.25
Expense ratio 1.92%** 1.71%** 2.66%** 2.45%**
</TABLE>
U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(A) 1996 (UNAUDITED) 1995(A)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.32 $10.00 $10.32 $10.00
------ ------ ------ ------
Net investment income 0.28 0.49 0.22 0.43
Net gain on investments
(both realized and unrealized) (0.35) 0.43 (0.33) 0.43
------ ------ ------ ------
Total from investment operations (0.07) 0.92 (0.11) 0.86
------ ------ ------ ------
Dividends from net investment income (0.29) (0.49) (0.26) (0.43)
Distributions from net realized gain
on investments -- (0.10) -- (0.10)
Distributions in excess of net
realized gain on investments -- (0.01) -- (0.01)
------ ------ ------ ------
Total dividends and distributions (0.29) (0.60) (0.26) (0.54)
------ ------ ------ ------
Net asset value, end of period $ 9.96 $10.32 $ 9.95 $10.32
------ ------ ------ ------
------ ------ ------ ------
Net assets, end of period (thousands) $706 $278 $583 $572
Total return* -0.6 % +9.5 % -1.1 % +8.8 %
Ratios to average net assets:
Expenses 0.84%** 0.85%** 1.59%** 1.60%**
Net investment income 5.06%** 5.67%** 4.39%** 4.85%**
Portfolio turnover rate 134 % 230 % 134 % 230 %
Before waiver of management fee,
expenses absorbed by SBAM and
credits earned on custodian cash
balances, net investment income per
share and expense ratios would have
been:
Net investment income per share $0.21 $0.40 $0.16 $0.34
Expense ratio 2.11%** 1.90%** 2.86%** 2.64%**
</TABLE>
<TABLE>
<S> <C>
------------------------------------------------------------------
(a) February 22, 1995, commencement of investment operations, through December 31, 1995.
* Total return is calculated assuming a $1,000 investment on the first day of each period reported,
reinvestment of all dividends at the net asset value on the payable date, and a sale at net asset
value on the last day of each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return calculated for a period of
less than one year is not annualized.
** Annualized.
</TABLE>
PAGE 22
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
CLASS C CLASS O
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(A) 1996 (UNAUDITED) 1995(A)
<S> <C> <C> <C> <C>
$10.42 $10.00 $10.43 $10.00
------ ------ ------ ------
0.20 0.34 0.25 0.42
(0.26) 0.45 (0.26) 0.46
------ ------ ------ ------
(0.06) 0.79 (0.01) 0.88
------ ------ ------ ------
(0.20) (0.34) (0.25) (0.42)
-- (0.03) -- (0.03)
------ ------ ------ ------
(0.20) (0.37) (0.25) (0.45)
------ ------ ------ ------
$10.16 $10.42 $10.17 $10.43
------ ------ ------ ------
------ ------ ------ ------
$360 $271 $9,622 $9,675
-0.5 % +8.0 % -0.1 % +9.0 %
1.50%** 1.50%** 0.50%** 0.50%**
3.94%** 3.85%** 4.94%** 4.86%**
9 % 29 % 9 % 29 %
$ 0.14 $ 0.25 $ 0.19 $ 0.34
2.67%** 2.46%** 1.67%** 1.46%**
</TABLE>
<TABLE>
<CAPTION>
CLASS C CLASS O
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(A) 1996 (UNAUDITED) 1995(A)
<S> <C> <C> <C> <C>
$10.32 $10.00 $10.32 $10.00
------ ------ ------ ------
0.22 0.43 0.27 0.52
(0.33) 0.43 (0.33) 0.42
------ ------ ------ ------
(0.11) 0.86 (0.06) 0.94
------ ------ ------ ------
(0.26) (0.43) (0.31) (0.52)
-- (0.10) -- (0.10)
-- (0.01) -- --
------ ------ ------ ------
(0.26) (0.54) (0.31) (0.62)
------ ------ ------ ------
$ 9.95 $10.32 $ 9.95 $10.32
------ ------ ------ ------
------ ------ ------ ------
$249 $273 $9,274 $9,552
-1.1 % +8.8 % -0.6 % +9.7 %
1.60%** 1.60%** 0.60%** 0.60%**
4.47%** 4.92%** 5.46%** 5.92%**
134 % 230 % 134 % 230 %
$ 0.16 $ 0.34 $ 0.21 $ 0.42
2.87%** 2.64%** 1.87%** 1.64%**
</TABLE>
PAGE 23
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(A) 1996 (UNAUDITED) 1995(A)
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 10.53 $ 10.00 $ 10.53 $ 10.00
------- ------- ------- -------
Net investment income 0.56 0.92 0.52 0.85
Net gain on investments (both
realized and unrealized) 0.42 0.67 0.43 0.68
------- ------- ------- -------
Total from investment operations 0.98 1.59 0.95 1.53
------- ------- ------- -------
Dividends from net investment
income (0.56) (0.91) (0.53) (0.85)
Distributions from net realized
gain on investments -- (0.15) -- (0.15)
------- ------- ------- -------
Total dividends and distributions (0.56) (1.06) (0.53) (1.00)
------- ------- ------- -------
Net asset value, end of period $ 10.95 $ 10.53 $ 10.95 $ 10.53
------- ------- ------- -------
------- ------- ------- -------
Net assets, end of period
(thousands) $21,866 $10,789 $30,383 $10,108
Total return* +9.5 % +16.6 % +9.1 % +15.7 %
Ratios to average net assets:
Expenses 1.24%** 1.24%** 1.99%** 1.96%**
Net investment income 10.24%** 10.58%** 9.36%** 9.53%**
Portfolio turnover rate 54 % 109 % 54 % 109 %
Before waiver of management fee by
SBAM and credits earned on
custodian cash balances, net
investment income per share and
expense ratios would have been:
Net investment income per share $ 0.53 $ 0.87 $ 0.49 $ 0.80
Expense ratio 1.66%** 1.80%** 2.40%** 2.51%**
</TABLE>
STRATEGIC BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(A) 1996 (UNAUDITED) 1995(A)
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 10.53 $ 10.00 $ 10.53 $ 10.00
------- ------- ------- -------
Net investment income 0.50 0.84 0.45 0.76
Net gain on investments (both
realized and unrealized) 0.08 0.78 0.08 0.79
------- ------- ------- -------
Total from investment operations 0.58 1.62 0.53 1.55
------- ------- ------- -------
Dividends from net investment
income (0.50) (0.85) (0.46) (0.78)
Distributions from net realized
gain on investments -- (0.24) -- (0.24)
------- ------- ------- -------
Total dividends and distributions (0.50) (1.09) (0.46) (1.02)
------- ------- ------- -------
Net asset value, end of period $ 10.61 $ 10.53 $ 10.60 $ 10.53
------- ------- ------- -------
------- ------- ------- -------
Net assets, end of period
(thousands) $2,573 $513 $5,992 $1,879
Total return* +5.6 % +16.8 % +5.0 % +16.1 %
Ratios to average net assets:
Expenses 1.23%** 1.23%** 1.98%** 1.97%**
Net investment income 8.39%** 9.51%** 7.67%** 8.75%**
Portfolio turnover rate 53 % 161 % 53 % 161 %
Before waiver of management fee,
expenses absorbed by SBAM and
credits earned on custodian cash
balances, net investment income
per share and expense ratios
would have been:
Net investment income per share $ 0.45 $ 0.76 $ 0.40 $ 0.69
Expense ratio 2.07%** 2.11%** 2.82%** 2.85%**
</TABLE>
------------------------------------------------------------------
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
'ss' Per share information calculated using the average shares outstanding
method, which more accurately represent amounts.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated
for a period of less than one year is not annualized.
** Annualized.
PAGE 24
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<S> <C> <C> <C> <C>
CLASS C CLASS O
<CAPTION>
SIX MONTHS
SIX MONTHS PERIOD ENDED PERIOD
ENDED ENDED JUNE 30, ENDED
JUNE 30, DECEMBER 31, 1996 DECEMBER 31,
1996 (UNAUDITED) 1995(A) (UNAUDITED)SS 1995(A)
<S> <C> <C> <C> <C>
$ 10.53 $ 10.00 $ 10.54 $ 10.00
-------- ------- -------- -------
0.52 0.85 0.58 0.95
0.42 0.68 0.38 0.67
0.94 1.53 0.96 1.62
(0.53) (0.85) (0.57) (0.93)
-- (0.15) -- (0.15)
(0.53) (1.00) (0.57) (1.08)
-------- ------- -------- -------
$ 10.94 $ 10.53 $ 10.93 $ 10.54
-------- ------- -------- -------
-------- ------- -------- -------
$2,968 $1,274 $ 19 $7,854
+9.0 % +15.8 % +9.2 % +16.8 %
1.99%** 1.98%** 0.99%** 1.00%**
9.42%** 9.61%** 10.70%** 10.59%**
54 % 109 % 54 % 109 %
$0.50 $ 0.80 $ 0.56 $ 0.90
2.40%** 2.54%** 1.40%** 1.55%**
</TABLE>
<TABLE>
<CAPTION>
CLASS C CLASS O
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(A) 1996 (UNAUDITED) 1995(A)
<S> <C> <C> <C> <C>
$ 10.53 $ 10.00 $ 10.53 $ 10.00
-------- ------- -------- -------
0.45 0.77 0.47 0.87
0.08 0.78 0.11 0.77
-------- ------- -------- -------
0.53 1.55 0.58 1.64
-------- ------- -------- -------
(0.46) (0.78) (0.51) (0.87)
-- (0.24) -- (0.24)
(0.46) (1.02) (0.51) (1.11)
-------- ------- -------- -------
$ 10.60 $ 10.53 $ 10.60 $ 10.53
-------- ------- -------- -------
-------- ------- -------- -------
$ 1,212 $ 411 $ 9,828 $ 9,763
+5.1% +16.1% +5.6% +17.0%
1.98%** 1.99%** 1.00%** 0.99%**
7.66%** 8.77%** 8.92%** 9.74%**
53% 161% 53% 161%
$ 0.40 $ 0.70 $ 0.43 $ 0.79
2.82%** 2.87%** 1.84%** 1.87%**
</TABLE>
PAGE 25
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
TOTAL RETURN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(A)SS 1996 (UNAUDITED) 1995(A)SS
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.55 $10.00 $10.54 $10.00
------ ------ ------ ------
Net investment income 0.27 0.15 0.23 0.13
Net gain on investments
(both realized and unrealized) 0.41 0.52 0.40 0.51
------ ------ ------ ------
Total from investment operations 0.68 0.67 0.63 0.64
------ ------ ------ ------
Dividends from net investment income (0.22) (0.11) (0.18) (0.09)
Distributions from net realized gain on
investments -- (0.01) -- (0.01)
------ ------ ------ ------
Total dividends and distributions (0.22) (0.12) (0.18) (0.10)
------ ------ ------ ------
Net asset value, end of period $11.01 $10.55 $10.99 $10.54
------ ------ ------ ------
------ ------ ------ ------
Net assets, end of period (thousands) $13,800 $3,658 $13,801 5,$378
Total return* +6.5 % +6.7 % +6.0 % +6.4 %
Ratios to average net assets:
Expenses 0.75%** 0.74%** 1.50%** 1.49%**
Net investment income 4.87%** 4.82%** 4.12%** 4.06%**
Portfolio turnover rate 44 % 16 % 44 % 16 %
Average Broker Commission Rate $0.0539 N/A $0.0539 N/A
Before waiver of management fee, expenses
absorbed by SBAM and credits earned on
custodian cash balances, net investment
income per share and expense ratios would
have been:
Net investment income per share $ 0.22 $ 0.13 $ 0.18 $ 0.11
Expense ratio 1.63%** 1.45%** 2.38%** 2.19%**
</TABLE>
INVESTORS FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995 1996 (UNAUDITED) 1995
<S> <C> <C> <C> <C>
Net asset value, beginning of period $16.62 $13.61 $16.61 $13.61
------ ------ ------ ------
Net investment income 0.08 0.19 0.04 0.10
Net gain (loss) on investments (both
realized and unrealized) 1.95 4.55 1.92 4.54
------ ------ ------ ------
Total from investment operations 2.03 4.74 1.96 4.64
------ ------ ------ ------
Dividends from net investment income (0.06) (0.23) (0.02) (0.14)
Distributions from net realized gain on
investments (0.58) (1.50) (0.58) (1.50)
------ ------ ------ ------
Total dividends and distributions (0.64) (1.73) (0.60) (1.64)
------ ------ ------ ------
Net asset value, end of period $18.01 $16.62 $17.97 $16.61
------ ------ ------ ------
------ ------ ------ ------
Net assets, end of period (thousands) $3,293 $441 $1,733 $716
Total return* +12.5 % +35.3 % +12.0 % +34.5 %
Ratios to average net assets:
Expenses 1.02%** 0.94% 1.74%** 1.71%
Net investment income 1.22%** 1.41% 0.58%** 0.63%
Portfolio turnover rate 33 % 86 % 33 % 86 %
Average Broker Commission Rate $0.0591 N/A $0.0591 N/A
<CAPTION>
CLASS C
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995
<S> <C> <C>
Net asset value, beginning of period $16.61 $13.61
------ ------
Net investment income 0.03 0.09
Net gain (loss) on investments (both
realized and unrealized) 1.93 4.55
------ ------
Total from investment operations 1.96 4.64
------ ------
Dividends from net investment income (0.02) (0.14)
Distributions from net realized gain on
investments (0.58) (1.50)
------ ------
Total dividends and distributions (0.60) (1.64)
------ ------
Net asset value, end of period $17.97 $16.61
------ ------
------ ------
Net assets, end of period (thousands) $ 706 $306
Total return* +12.0% +34.5%
Ratios to average net assets:
Expenses 1.75%** 1.68%
Net investment income 0.52%** 0.66%
Portfolio turnover rate 33% 86%
Average Broker Commission Rate $0.0591 N/A
</TABLE>
------------------------------------------------------------------
(a) September 11, 1995, commencement of investment operations, through December
31, 1995.
'ss' Per share information calculated using the average shares outstanding
method, which more accurately
represent amounts.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported,
reinvestment of all dividends at the net asset value on the ex-dividend date,
and a sale at net asset value on
the last day of each period reported. Initial sales charge or contingent
deferred sales charge is not reflected
in the calculation of total return. Total return calculated for a period of
less than one year is not
annualized.
** Annualized.
*** Includes $.05 per share of non cash income and special dividends received in
1989.
`D' Since May 1, 1990, the Fund has been managed by SBAM. Prior thereto, the
Lehman Management Co.
division of Shearson Lehman Brothers Inc. served as the Fund's investment
manager.
PAGE 26
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
CLASS C CLASS O
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(A)SS 1996 (UNAUDITED) 1995(A)SS
<S> <C> <C> <C> <C>
$10.56 $10.00 $10.57 $10.00
------ ------ ------ ------
0.18 0.14 0.28 0.17
0.46 0.51 0.41 0.52
------ ------ ------ ------
0.64 0.65 0.69 0.69
------ ------ ------ ------
(0.18) (0.08) (0.23) (0.11)
-- (0.01) -- (0.01)
------ ------ ------ ------
(0.18) (0.09) (0.23) (0.12)
------ ------ ------ ------
$11.02 $10.56 $11.03 $10.57
------ ------ ------ ------
------ ------ ------ ------
$2,116 $445 $4,690 $4,494
+6.1 % +6.5 % +6.6 % +6.9 %
1.49%** 1.51%** 0.51%** 0.51%**
4.07%** 4.26%** 5.16%** 5.30%**
44 % 16 % 44 % 16 %
$0.0539 N/A $0.0539 N/A
$ 0.14 $ 0.11 $ 0.23 $ 0.15
2.38%** 2.22%** 1.39%** 1.22%**
</TABLE>
<TABLE>
<CAPTION>
CLASS O
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1996 (UNAUDITED) 1995 1994 1993 1992 1991 1990`D' 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$16.61 $13.63 $15.60 $16.10 $17.10 $14.54 $16.65 $15.55 $14.77 $17.37
------ ------ ------ ------ ------ ------ ------- ------ ------- ------
0.13 0.27 0.27 0.32 0.41 0.44 0.49 0.66*** 0.52 0.49
1.92 4.48 (0.48) 2.03 0.79 3.68 (1.555) 2.66 1.885 (.32)
------ ------ ------ ------ ------ ------ ------- ------ ------- ------
2.05 4.75 (0.21) 2.35 1.20 4.12 (1.065) 3.32 2.405 .17
------ ------ ------ ------ ------ ------ ------- ------ ------- ------
(0.06) (0.27) (0.27) (0.33) (0.41) (0.46) (0.55 ) (.63) (.525) (.51)
(0.58) (1.50) (1.49) (2.52) (1.79) (1.10) (0.495) (1.59) (1.10 ) (2.26)
------ ------ ------ ------ ------ ------ ------- ------ ------- ------
(0.64) (1.77) (1.76) (2.85) (2.20) (1.56) (1.045) (2.22) (1.625) (2.77)
------ ------ ------ ------ ------ ------ ------- ------ ------- ------
$18.02 $16.61 $13.63 $15.60 $16.10 $17.10 $14.54 $16.65 $15.55 $14.77
------ ------ ------ ------ ------ ------ ------- ------ ------- ------
------ ------ ------ ------ ------ ------ ------- ------ ------- ------
$465,594 $428,950 $348,214 $386,147 $370,350 $378,615 $330,814 $393,747 $362,742 $352,272
+12.5 % +35.4 % - 1.3 % +15.1 % +7.4 % +29.3 % - 6.5 % +21.8 % +16.9 % +0.7%
0.73%** 0.69% 0.69% 0.68% 0.68% 0.70% 0.68 % 0.63% 0.67 % 0.58%
1.54%** 1.67% 1.75% 1.90% 2.47% 2.67% 3.13 % 3.76% 3.32 % 2.37%
33 % 86 % 66 % 79 % 48 % 44 % 22 % 36 % 54 % 80 %
$0.0591 N/A N/A N/A N/A N/A
<CAPTION>
1986
<S> <C>
$19.86
-------
0.51
2.085
-------
2.595
-------
(.535)
(4.55 )
-------
(5.085)
-------
$17.37
-------
-------
$396,610
+14.4 %
0.57 %
2.56 %
62 %
</TABLE>
PAGE 27
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
ASIA GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS O
PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) (a)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $10.00 $ 10.00 $10.00
----------- ------------ ----------- ------------
Net investment income 0.04 0.02 0.01 0.05
Net gain on investments (both realized and
unrealized) (0.36) (0.37) (0.36) (0.36)
----------- ------------ ----------- ------------
Total from investment operations (0.32) (0.35) (0.35) (0.31)
----------- ------------ ----------- ------------
Net asset value, end of period $ 9.68 $ 9.65 $ 9.65 $ 9.69
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
Net assets, end of period (thousands) $3,105 $2,646 $175 $117
Total return* -3.2 % -3.5 % -3.5 % -3.10%
Ratios to average net assets:
Expenses 1.24%** 1.99%** 2.00%** 0.99%**
Net investment income 1.26%** 0.58%** 0.43%** 1.60%**
Portfolio turnover rate 49 % 49 % 49 % 49 %
Average Broker Commission Rate $0.0064 $0.0064 $0.0064 $0.0064
Before waiver of management fee, expenses
absorbed by SBAM and credits earned on
custodian cash balances, net investment
income per share and expense ratios would
have been:
Net investment income per share ($ 0.04) ($0.06) ($ 0.06) ($0.02)
Expense ratio 3.54%** 4.29%** 4.31%** 3.29%**
</TABLE>
------------------------------------------------------------------
(a) May 6, 1996, commencement of investment operations, through September 30,
1996.
'ss' Per share information calculated using the average shares outstanding
method, which more accurately represent amounts.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value on
the ex-dividend date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated for
a period of less than one year is not annualized.
** Annualized.
PAGE 28
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
CAPITAL FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1996 --------------------------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991 1990`D' 1989 1988
------------- -------- ------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year $ 18.67 $ 15.62 $ 20.80 $ 19.64 $ 19.06 $14.86 $16.75 $ 15.58 $16.58
------------- -------- ------- -------- -------- ------- ------- ------- -------
Net investment income .07 .14 .03 .028 .10 .33 .20 .05 .01[p]
Net gains (or losses) on
securities (both realized and
unrealized) 2.67 5.27 (2.87) 3.242 .80 4.56 (1.715) 6.25 (.775)
------------- -------- ------- -------- -------- ------- ------- ------- -------
Total from investment
operations 2.74 5.41 (2.84) 3.27 .90 4.89 (1.515) 6.30 (.765)
------------- -------- ------- -------- -------- ------- ------- ------- -------
Less dividends and
distributions:
Dividends from net investment
income -- (.14) (.03) (.035) (.105) (.325) (.285) -- --
Distributions from net
realized gain on investments (.96) (2.22) (1.51) (2.075) (.215) (.365) (.09) (5.13) (.235)
Distributions in excess of net
realized gains -- -- (.80) -- -- -- -- -- --
------------- -------- ------- -------- -------- ------- ------- ------- -------
Total dividends and
distributions (.96) (2.36) (2.34) (2.11) (.32) (.69) (.375) (5.13) (.235)
------------- -------- ------- -------- -------- ------- ------- ------- -------
Net asset value, end of year $ 20.45 $ 18.67 $ 15.62 $ 20.80 $ 19.64 $19.06 $14.86 $ 16.75 $15.58
------------- -------- ------- -------- -------- ------- ------- ------- -------
------------- -------- ------- -------- -------- ------- ------- ------- -------
Total investment return based
on net asset value per share +15.1% +34.9% - 14.2% +17.2% +4.7% +33.4% - 9.1% +39.7% - 4.6%
RATIOS/SUPPLEMENTAL DATA:
Net assets end of year
(thousands) $119,179 $102,429 $86,704 $113,905 $103,356 $89,829 $75,815 $72,621 $64,267
Ratio of expenses to average
net assets`DD' 1.29%** 1.36% 1.30% 1.31% 1.34% 1.48% 1.44% 1.48% 1.27%
Ratio of net investment income
to average net assets 0.73%** .74% 0.12% 0.13% 0.58% 1.87% 1.59% 0.33% 0.03%
Portfolio turnover rate 102% 217% 152% 104% 41% 94% 156% 362% 270%
Average broker commission rate $0.0559
<CAPTION>
1987 1986
------- --------
<S> <C> <C>
PER SHARE OPERATING PERFORMANC
Net asset value, beginning of
year $17.87 $ 19.75
------- --------
Net investment income .04 .13
Net gains (or losses) on
securities (both realized and
unrealized) .355* 2.275
------- --------
Total from investment
operations .395 2.405
------- --------
Less dividends and
distributions:
Dividends from net investment
income (.13) (.25)
Distributions from net
realized gain on investments (1.555) (4.035)
Distributions in excess of net
realized gains -- --
------- --------
Total dividends and
distributions (1.685) (4.285)
------- --------
Net asset value, end of year $16.58 $ 17.87
------- --------
------- --------
Total investment return based
on net asset value per share +1.7% +13.7%
RATIOS/SUPPLEMENTAL DATA:
Net assets end of year
(thousands) $91,313 $105,215
Ratio of expenses to average
net assets`DD' 1.17%* 1.13%
Ratio of net investment income
to average net assets 0.19% 0.65%
Portfolio turnover rate 395% 279%
Average broker commission rate
</TABLE>
------------------------------------------------------------------
* Net of Provision for income taxes of $.057 per share. Expense ratio including
provision would be 1.45%.
** Annualized.
[p] Calculated using average shares outstanding.
`DD' Net of reimbursement for the years 1986 through 1988.
`D' Since May 1, 1990, the Fund has been managed by SBAM. Prior thereto, the
Lehman Management Co. division of Shearson Lehman Brothers Inc. served as
the Fund's investment manager.
PAGE 29
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Investment Objectives
and Policies
The investment objective(s) of each Fund are deemed to be fundamental policies
and may not be changed without the affirmative vote of the holders of a
majority of its outstanding shares as defined in the 1940 Act. There is no
assurance that any particular Fund will achieve its investment objective(s).
CASH MANAGEMENT FUND
The investment objective of the Cash Management Fund is to seek as high a level
of current income as is consistent with liquidity and the stability of
principal. The Fund invests in high-quality, short-term U.S. dollar-denominated
money market instruments which are deemed to mature in thirteen months or less,
and is managed so that the average portfolio maturity of all portfolio
instruments (on a dollar-weighted basis) will not exceed 90 days. The Fund is
'diversified' within the meaning of the 1940 Act, and seeks to maintain a
stable net asset value of $1.00 per share.
The types of obligations in which the Cash Management Fund may invest include:
(1) Securities issued or guaranteed by the U.S. government or by agencies or
instrumentalities thereof;
(2) Obligations issued or guaranteed by U.S. banks with total assets of at
least $1 billion (including obligations of foreign branches of such banks) and
by the 75 largest foreign commercial banks in terms of total assets;
(3) High-quality commercial paper and other high-quality short-term debt
obligations; and
(4) Obligations of the International Bank for Reconstruction and Development
(also known as the 'World Bank'), other supranational organizations and foreign
governments and their agencies and instrumentalities.
The Cash Management Fund may also enter into repurchase agreements with respect
to the obligations identified above. While the maturity of the underlying
securities in a repurchase agreement transaction may be more than thirteen
months, the term of the repurchase agreement will always be less than thirteen
months. For a description of repurchase agreements and their associated risks,
see 'Additional Investment Activities and Risk Factors -- Repurchase
Agreements.'
Securities issued or guaranteed by the U.S. government or by its agencies or
instrumentalities include obligations of several kinds. Such securities in
general include a wide variety of U.S. Treasury obligations consisting of
bills, notes and bonds, which principally differ only in their interest rates,
maturities and times of issuance. Securities issued or guaranteed by U.S.
government agencies and instrumentalities are debt securities issued by
agencies or instrumentalities established or sponsored by the U.S. government
and may be backed only by the credit of the issuing agency or instrumentality.
The Fund will invest in such obligations only where the investment manager is
satisfied that the credit risk with respect to the issuer is minimal. For a
further description of these securities, see the discussion of the investment
objective of the U.S. Government Income Fund.
The Cash Management Fund will, as a fundamental policy, invest at least 25% of
the current value of its total assets in bank obligations (including bank
obligations subject to repurchase agreements). However, if at some future date
adverse conditions prevail in the banking industry
PAGE 30
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
or in the market for bank obligations, the Fund, for temporary defensive
purposes, may temporarily invest less than 25% of its assets in bank
obligations. Bank obligations that may be purchased by the Fund consist of
obligations issued or guaranteed by U.S. banks with total assets of at least $1
billion (including obligations issued by foreign branches of such banks) and by
the 75 largest foreign commercial banks in terms of total assets. Such
obligations include certificates of deposit, commercial paper, bankers'
acceptances and fixed time deposits. Fixed time deposits are obligations of
branches of U.S. banks or foreign banks which are payable at a stated maturity
date and bear a fixed rate of interest. Although fixed time deposits do not
have a market, there are no contractual restrictions on the right to transfer a
beneficial interest in the deposit to a third party. For a discussion of the
risks associated with investing in bank obligations, see 'Additional Investment
Activities and Risk Factors -- Bank Obligations.'
The commercial paper that may be purchased by the Cash Management Fund consists
of direct obligations of domestic issuers which are (i) rated in the highest
short-term rating category by at least two nationally recognized statistical
rating organizations ('NRSROs') or by the only NRSRO that has rated the
security; or (ii) if not rated, are of an investment quality comparable to
rated commercial paper in which the Fund may invest.
The Cash Management Fund's investments in corporate debt securities will
consist of non-convertible corporate debt securities such as bonds and
debentures of domestic issuers that have thirteen months or less remaining to
maturity and are of an investment quality comparable to rated commercial paper
in which the Fund may invest.
Obligations of the World Bank and certain other supranational organizations are
supported by subscribed but unpaid commitments of member countries. There is no
assurance that these commitments will be undertaken or complied with in the
future. The Cash Management Fund limits its investments in obligations of
foreign governments and their agencies and instrumentalities to U.S.
dollar-denominated commercial paper and other short-term notes issued or
guaranteed by the governments or agencies and instrumentalities of Western
Europe, including the United Kingdom, Spain, Portugal, Greece, Austria, France,
West Germany, Belgium, the Netherlands, Italy, Switzerland, Denmark, Norway,
Sweden, Finland and Ireland, and of Australia, New Zealand, Japan and Canada.
The Fund will purchase these obligations only if such obligations, in the
opinion of the investment manager based on guidelines established by the Fund's
Board of Directors, are of comparable quality to corporate obligations in which
the Fund may invest.
The Cash Management Fund may also invest in high quality, short-term municipal
obligations that carry yields that are competitive with those of other types of
money market instruments in which the Fund may invest. Dividends paid by the
Fund derived from interest on municipal obligations that may be purchased by it
will be taxable to shareholders for federal income tax purposes because the Fund
will not qualify as an entity that can pass through the tax-exempt character of
such interest.
The Cash Management Fund may invest in floating and variable rate obligations
with stated maturities in excess of thirteen months upon compliance with certain
conditions contained in Rule 2a-7 promulgated under the 1940 Act, in which case
such obligations will be treated, in accordance with Rule 2a-7, as having
maturities not exceeding thirteen months. For a further discussion of such
obligations, see 'Additional Investment Activities and Risk Factors -- Floating
and Variable Rate Instruments.'
PAGE 31
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
The Cash Management Fund may also invest in variable amount master demand
notes. A variable amount master demand note differs from ordinary commercial
paper in that it is issued pursuant to a written agreement between the issuer
and the holder, its amount may from time to time be increased by the holder
(subject to an agreed maximum) or decreased by the holder or the issuer, it is
payable on demand, the rate of interest payable on it varies with an agreed
formula and it is not typically rated by a rating agency.
The Cash Management Fund may also purchase asset-backed securities.
Asset-backed securities represent defined interests in an underlying pool of
assets. Such securities may be issued as pass-through certificates, which
represent undivided fractional interests in the underlying pool of assets.
Alternatively, asset-backed securities may be issued as interests, generally in
the form of debt securities, in a special purpose entity organized solely for
the purpose of owning the underlying assets and issuing such securities. In the
latter case, such securities are secured by and payable from a stream of
payments generated by the underlying assets. The assets underlying asset-backed
securities are often a pool of assets similar to one another, such as motor
vehicle receivables or credit card receivables. Alternatively, the underlying
assets may be particular types of securities, various contractual rights to
receive payments and/or other types of assets. Asset-backed securities
frequently carry credit protection in the form of extra collateral, subordinate
certificates, cash reserve accounts, letters of credit or other enhancements.
Any asset-backed securities held by the Fund must comply with its credit
quality requirements and be deemed to have a maturity of thirteen months or
less in accordance with applicable regulations. For a further discussion of
asset backed securities and the risks associated therewith, see 'Additional
Information on Portfolio Instruments and Investment Policies -- Asset-Backed
Securities' in the Statement of Additional Information.
Among the municipal obligations that the Cash Management Fund may invest in are
participation certificates in a lease, an installment purchase contract or a
conditional sales contract (hereinafter collectively called 'lease obligations')
entered into by a State or a political subdivision to finance the acquisition or
construction of equipment, land or facilities. For a further discussion of
municipal lease obligations, see 'Additional Investment Activities and Risk
Factors -- Municipal Lease Obligations.' Certain investments in lease
obligations may be illiquid. The Fund may not invest in illiquid lease
obligations if such investments, together with all other illiquid investments,
would exceed 10% of the Fund's net assets. The Fund may, however, invest
without regard to such limitation in lease obligations which the investment
manager, pursuant to guidelines which have been adopted by the Board of
Directors and subject to the supervision of the Board, determines to be liquid.
The Cash Management Fund may purchase securities on a firm commitment basis,
including when-issued securities. See 'Additional Investment Activities and Risk
Factors -- Firm Commitments and When-Issued Securities' for a description of
such securities and their associated risks.
In view of the fundamental policy of the Cash Management Fund to invest at least
25% of its assets in bank obligations, except for temporary defensive purposes
as described above, an investment in the Cash Management Fund should be made
with an understanding of the characteristics of the banking industry and the
risks which such an investment may entail. See 'Additional Investment
Activities and Risk Factors -- Bank Obligations.'
PAGE 32
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
The Cash Management Fund is not authorized to use any of the various investment
strategies referred to under 'Additional Investment Activities and Risk
Factors -- Derivatives.'
Except with respect to investment by the Cash Management Fund of at least 25% of
its assets in bank obligations, as described above, the foregoing investment
policies and activities are not fundamental and may be changed by the Board of
Directors of the Cash Management Fund without the approval of shareholders.
NEW YORK MUNICIPAL MONEY MARKET FUND
The New York Municipal Money Market Fund's investment objective is to seek as
high a level of current income exempt from federal income tax and New York
State and New York City personal income taxes as is consistent with liquidity
and the stability of principal. The Fund invests primarily in a portfolio of
high-quality, short-term municipal obligations issued (i) by the State of New
York and its cities, municipalities and other public authorities, and (ii) by
territories and possessions of the United States and their respective
authorities, agencies, instrumentalities and political subdivisions, the
interest on which is exempt from federal income tax and from the personal
income taxes of New York State and New York City.
The New York Municipal Money Market Fund invests exclusively in high-quality,
United States dollar-denominated securities which are deemed to mature in
thirteen months or less and is managed so that the average maturity of all
portfolio instruments (on a dollar-weighted basis) will not exceed 90 days. The
Fund seeks to maintain a stable net asset value of $1.00 per share. The Fund's
investment objective is a fundamental policy and may not be changed without the
affirmative vote of a majority of its outstanding shares, as defined under
'Capital Stock' in the Statement of Additional Information. Of course,
achievement of this objective cannot be guaranteed. All or a portion of the
Fund's dividends paid in respect of its shares may be a preference or an
adjustment for purposes of the federal alternative minimum tax. See 'Taxation.'
The types of obligations in which the New York Municipal Money Market Fund may
invest include (see 'Description of Ratings' in Appendix A):
(1) Municipal commercial paper that is rated 'P-1' or 'P-2' by Moody's Investors
Service, Inc. ('Moody's') or 'A-1' or 'A-2' by Standard & Poor's Corporation
('S&P') or, if not rated, is, in the opinion of the investment manager based on
guidelines established by the Series Funds' Board of Directors, of investment
quality comparable to rated municipal commercial paper in which the Fund may
invest (see 'Description of Ratings' in Appendix A);
(2) Municipal notes that are rated 'MIG 1,' 'MIG 2' (or 'VMIG 1' or 'VMIG 2' in
the case of variable rate demand notes), 'P-1', 'P-2' or 'Aa' or better by
Moody's or 'SP-1', 'SP-2', 'A-1', 'A-2' or 'AA' or better by S&P or, if not
rated, are, in the opinion of the investment manager based on guidelines
established by the Series Funds' Board of Directors, of investment quality
comparable to rated municipal notes in which the Fund may invest; and
(3) Municipal bonds which are rated 'Aa' or better by Moody's or 'AA' or better
by S&P or, if not rated, are, in the opinion of the investment manager based on
guidelines established by the Series Funds' Board of Directors, of investment
quality comparable to rated municipal bonds in which the Fund may invest.
Municipal bonds at the time of issuance are generally long-term securities with
maturities of as much as thirty years or more, but may have remaining maturities
of shorter duration at the time of purchase by the Fund.
Municipal commercial paper that may be purchased by the New York Municipal
PAGE 33
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
Money Market Fund consists of short-term obligations of a municipality. Such
paper is likely to be issued to meet seasonal working capital needs of a
municipality or as interim construction financing. Municipal commercial paper,
in many cases, is backed by a letter of credit lending agreement, note
repurchase agreement or other credit facility agreement offered by banks and
other institutions.
Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes generally have maturities at
the time of issuance of three years or less. Municipal notes that may be
purchased by the Fund include, but are not limited to tax anticipation notes
('TANs'), bond anticipation notes ('BANs') and revenue anticipation notes
('RANs').
TANs are sold as interim financing in anticipation of collection of taxes. An
uncertainty in a municipal issuer's capacity to raise taxes as a result of such
things as a decline in its tax base or a rise in delinquencies could adversely
affect the issuer's ability to meet its obligations on outstanding TANs.
BANs are sold as interim financing in anticipation of a bond sale. The ability
of a municipal issuer to meet its obligations on its BANs is primarily
dependent on the issuer's adequate access to the longer term municipal bond
market and the likelihood that the proceeds of such bond sales will be used to
pay the principal of, and interest on, BANs.
RANs are sold as interim financing in anticipation of receipt of other
revenues. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs.
Municipal notes also include construction loan notes and project notes. TANs,
BANs and RANs are usually general obligations of the issuer. Project notes are
issued by local housing authorities to finance urban renewal and public housing
projects and are secured by the full faith and credit of the United States
Government.
Municipal obligations are debt obligations issued by or on behalf of states,
cities, municipalities and other public authorities. The two principal
classifications of municipal obligations that may be held by the New York
Municipal Money Market Fund are 'general obligation' securities and 'revenue'
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of a
facility being financed. Revenue securities may include private activity bonds.
Such bonds may be issued by or on behalf of public authorities to finance
various privately operated facilities and are not payable from the unrestricted
revenues of the issuer. As a result, the credit quality of private activity
bonds is frequently related directly to the credit standing of private
corporations or other entities. In addition, the interest on private activity
bonds issued after August 7, 1986 is subject to the federal alternative minimum
tax. The Fund will not be restricted with respect to the proportion of its
assets that may be invested in such obligations. Accordingly, the Fund may not
be a suitable investment vehicle for individuals or corporations that are
subject to the federal alternative minimum tax.
The New York Municipal Money Market Fund's portfolio may also include 'moral
obligation' securities, which are normally issued by special purpose public
authorities. If the issuer of moral obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral
PAGE 34
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
commitment but not a legal obligation of the state or municipality that created
the issuer.
The New York Municipal Money Market Fund currently intends to invest
substantially all of its assets in obligations that are exempt from federal
income tax and from the personal income taxes of the State of New York and its
cities. See 'Taxation.' To the extent that the unavailability of suitable
obligations for investment by the Fund prevents it from investing substantially
all of its assets in such obligations, the Fund may purchase municipal
obligations issued by other states, their agencies and instrumentalities. Under
normal market conditions, however, the Fund will invest at least 65% of its
total assets in obligations that are exempt from federal income tax and from the
personal income taxes of the State of New York and its cities, as described
above. In addition, it is a fundamental policy of the Fund to invest, under
normal market conditions, at least 80% of its total assets in obligations that
are exempt from federal income tax. To the extent not so invested, the
remaining 20% of the Fund's assets may be invested in high quality, short-term
money market instruments, the income from which is subject to federal income
tax. Taxable money market instruments that may be purchased by the Fund include
securities issued or guaranteed as to principal and interest by the United
States government or by agencies or instrumentalities thereof; obligations
issued or guaranteed by United States banks with total assets of at least $1
billion (including obligations of foreign branches of such banks) and by the 75
largest foreign commercial banks in terms of total assets; high quality
commercial paper and other high quality short-term debt obligations; and
obligations of the World Bank, other supranational organizations and foreign
governments and their agencies and instrumentalities. For a discussion of the
U.S. government securities, bank obligations and World Bank and other
supranational and foreign government obligations in which the Fund may invest,
see the description of the investment objective and policies of the Cash
Management Fund. The commercial paper that may be purchased by the Fund
consists of direct obligations of domestic and foreign issuers which are (i)
rated 'P-1' or 'P-2' by Moody's or 'A-1' or 'A-2' by S&P or (ii) if not rated,
are issued or guaranteed as to principal and interest by issuers having an
extensive debt security rating of 'Aa' or better by Moody's or 'AA' or better
by S&P or are, in the opinion of the investment manager, of an investment
quality comparable to rated commercial paper in which the Fund may invest. The
corporate debt securities in which the Fund may invest will consist of
non-convertible corporate debt securities such as bonds and debentures which
are rated 'Aa' or better by Moody's or 'AA' or better by S&P or are, in the
opinion of the investment manager, of an investment quality comparable to rated
debt securities in which the Fund may invest. The Fund may also enter into
repurchase agreements with respect to the taxable obligations identified above.
See 'Repurchase Agreements' under 'Additional Investment Activities and Risk
Factors.' Dividends paid by the Fund that are attributable to interest derived
from taxable money market instruments will be taxable to investors.
If at some future date, in the opinion of the investment manager, adverse
conditions prevail in the market for obligations exempt from federal income tax
and from the personal income taxes of the State of New York and its cities, the
New York Municipal Money Market Fund may, for temporary defensive purposes,
invest more than 35% of its assets in municipal obligations issued by other
states, their agencies or instrumentalities or in taxable money market
instruments. Moreover, if at some future date, in the opinion of the investment
manager, adverse conditions in the market for
PAGE 35
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
municipal securities generally should prevail, the Fund may temporarily invest
more than 20% of its assets in cash reserves or in taxable money market
instruments in order to maintain a defensive posture. To the extent that the
Fund deviates from its investment policies as a result of the unavailability of
suitable obligations or for other temporary defensive purposes, its investment
objective of seeking income exempt from federal income tax and the personal
income taxes of New York State and its cities may not be achieved.
Up to October 3, 1996, the New York Municipal Money Market Fund was classified
as a 'non-diversified' investment company, which means that the proportion of
the Fund's assets that were permitted to be invested in the securities of a
single issuer was not limited by the 1940 Act. However, as a fundamental
investment limitation, the Fund has limited its investments so that with regard
to 50% of total assets, no more than 5% of assets are invested in the
securities of a single issuer, and with respect to the remaining 50% of total
assets, no more than 25% of total assets are invested in the securities of a
single issuer. Moreover, effective October 3, 1996, the Fund limits its
investments so that with regard to 75% of its total assets, no more than 5% of
its assets are invested in the securities of a single issuer. Because the Fund
has the ability, like many other single-state tax-free money market funds, to
invest a significant percentage of its assets in the securities of a single
issuer, an investment in the Fund may be riskier than an investment in other
types of money market funds.
Because the New York Municipal Money Market Fund will invest primarily in
obligations issued (i) by the State of New York and its cities, municipalities
and other public authorities, and (ii) by territories and possessions of the
United States and their respective authorities, agencies, instrumentalities and
public subdivisions, the interest on which is exempt from federal income tax
and from the personal income taxes of New York State and New York City, it is
more susceptible to factors adversely affecting issuers of such obligations
than a comparable municipal securities fund that is not so concentrated. New
York State, New York City and other New York public bodies have recently
encountered and are encountering financial difficulties. Although New York
State's financial operations improved during the most recent fiscal years, the
State incurred budget deficits during the period 1989 through 1992 and both the
State and the City continue to face increasing debt levels. In the most recent
national recession, the State was more heavily impacted than the nation as a
whole and was slower in recovering. The City and other State localities have
required and continue to require significant financial assistance from the
State. In recent years, the ratings on State and City general obligation bonds
were downgraded by Moody's and S&P. If either New York State or any of its
local governmental entities is unable to meet its financial obligations, the
income derived by the Fund and its ability to preserve capital and liquidity
could be adversely affected. See 'Special Factors Affecting Investment in New
York Municipal Obligations' in the Statement of Additional Information for
further information.
In addition, from time to time the New York Municipal Money Market Fund may
invest 25% or more of its assets in municipal obligations that are related in
other ways such that an economic, business or political development or change
affecting one such obligation could also affect the other obligations; for
example, municipal obligations the interest on which is paid from revenues of
similar types of projects. In addition, from time to time, the Fund may invest
25% or more of its assets in industrial development bonds, which, although
issued by industrial development authorities, may be backed
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only by those assets and revenues of non-governmental users.
Opinions relating to the validity of municipal obligations and to the exemption
of interest thereon from federal income tax and New York State and New York
City personal income taxes are rendered by bond counsel to the respective
issuers at the time of issuance. Neither the Fund nor the investment manager
will review the proceedings relating to the issuance of municipal obligations
or the basis for such opinions.
The New York Municipal Money Market Fund may invest without limitation in
obligations that are guaranteed or have other credit support provided by a
foreign bank. The Fund's ability to receive payment with respect to any such
guarantee or other credit support may involve certain risks, such as future
political, social and economic developments, less governmental supervision and
regulation, market liquidity differences, the possible establishment of laws or
restrictions that might adversely affect the payment of the bank's obligations
under the guarantee or other credit support and the difficulty of obtaining or
enforcing a judgment against the bank.
The investment manager seeks to enhance the yield of the New York Municipal
Money Market Fund by taking advantage of yield disparities or other factors that
occur in the market. For example, market conditions frequently result in similar
securities trading at different prices. The Fund may dispose of any portfolio
security prior to its maturity if such disposition and reinvestment of the
proceeds are expected to enhance yield consistent with the investment manager's
judgment as to a desirable portfolio maturity structure or if such disposition
is believed to be advisable due to other circumstances or considerations.
Subsequent to its purchase, a portfolio security may be assigned a lower rating
or cease to be rated. Such an event would not require the disposition of the
instrument, but the investment manager will consider such an event in
determining whether the Fund should continue to hold the security. The Fund's
policy regarding dispositions of portfolio securities and its policy of
investing in securities deemed to have maturities of 13 months or less will
result in high portfolio turnover. A higher rate of portfolio turnover results
in increased transactions costs to the Fund in the form of dealer spreads.
Certain of the obligations that the New York Municipal Money Market Fund may
purchase may have a floating or variable rate of interest. For a description of
these obligations, see 'Additional Investment Activities and Risk
Factors -- Floating and Variable Rate Instruments.'
The New York Municipal Money Market Fund may purchase participation
certificates issued by a bank, insurance company or other financial institution
in obligations that may otherwise be purchased by the Fund. For a further
discussion of participation certificates, see 'Additional Investment Activities
and Risk Factors -- Participation Certificates.'
The New York Municipal Money Market Fund may invest in municipal lease
obligations. See 'Additional Investment Activities and Risk Factors -- Municipal
Lease Obligations.' Certain investments in lease obligations may be illiquid.
The Fund may not invest in illiquid lease obligations if such investments,
together with all other illiquid investments, would exceed 10% of the Fund's
net assets. The Fund may, however, invest without regard to such limitation in
lease obligations which the investment manager, pursuant to guidelines which
have been adopted by the Board of Directors and subject to the supervision of
the Board, determines to be liquid.
The New York Municipal Money Market Fund may purchase securities on a firm
commitment basis, including when-issued securities. See 'Additional Investment
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Activities and Risk Factors -- Firm Commitments and When-Issued Securities' for
a description of such securities and their associated risks.
The New York Municipal Money Market Fund may enter into standby commitments
with respect to securities held in its portfolio. Such transactions entitle the
Fund to 'put' its securities at an agreed upon price within a specified period
of time prior to their maturity date. See the Statement of Additional
Information for a further discussion of standby commitments.
The New York Municipal Money Market Fund is not authorized to use the various
investment strategies referred to under 'Additional Investment Activities and
Risk Factors -- Derivatives.'
Except with respect to investment by the New York Municipal Money Market Fund
of at least 80% of its assets in tax-exempt obligations, as described above, the
foregoing investment policies and activities are not fundamental and may be
changed by the Board of Directors without the approval of shareholders.
NEW YORK MUNICIPAL BOND FUND
The New York Municipal Bond Fund's investment objective is to achieve a high
level of current income which is exempt from regular federal income taxes and
New York State and New York City personal income taxes, consistent with the
preservation of capital. The Fund invests primarily in a portfolio of municipal
obligations that are issued (i) by the State of New York and its cities,
municipalities and other public authorities, and (ii) by territories and
possessions of the United States and their respective authorities, agencies,
instrumentalities and political subdivisions, the interest on which is exempt
from regular federal income taxes and from personal income taxes of New York
State and New York City. All or a portion of the Fund's dividends paid in
respect of its shares may be subject to the federal alternative minimum tax. See
'Taxation.' Under normal market conditions, the Fund will invest at least 65%
of its net assets in obligations the interest on which is exempt from personal
income taxes of New York State and New York City and at least 80% of its net
assets in obligations the interest on which is exempt from regular federal
income taxes.
The New York Municipal Bond Fund will not invest in municipal obligations that
are rated below investment grade at the time of purchase. However, the Fund may
retain in its portfolio a municipal obligation whose rating drops below Baa or
BBB after its acquisition by the Fund, if the investment manager considers the
retention of such obligation advisable. The Fund intends to emphasize
investments in municipal obligations with long-term maturities and expects to
maintain an average portfolio maturity of 20 to 30 years and an average
portfolio duration of 8 to 11 years. Duration is an approximate measure of the
sensitivity of the value of a fixed income security to changes in interest
rates. In general, the percentage change in a fixed income security's value in
response to changes in interest rates is a function of that security's duration
multiplied by the percentage point change in interest rates. The average
portfolio maturity and duration, however, may be shortened from time to time
depending on market conditions.
The types of obligations in which the New York Municipal Bond Fund may invest
include municipal bonds and municipal notes. The Fund may invest in municipal
bonds that are rated at the time of purchase within the four highest ratings
assigned by Moody's, S&P or Fitch Investors Services, Inc. ('Fitch'), or
determined by the investment manager to be of comparable quality. The four
highest ratings currently assigned by Moody's to municipal bonds are Aaa, Aa, A
and Baa; the four highest ratings assigned by S&P to municipal bonds are AAA,
AA, A and
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SALOMON BROTHERS INVESTMENT SERIES
BBB and the four highest ratings assigned by Fitch to municipal bonds are AAA,
AA, A and BBB. A description of the ratings used by Moody's, S&P and Fitch is
set forth in Appendix A to this Prospectus.
Although municipal obligations rated in the fourth highest rating category by
Moody's (i.e., Baa), S&P (i.e., BBB) or Fitch (i.e., BBB) are considered
investment grade, they may be subject to greater risks than other higher rated
investment grade securities. Municipal obligations rated Baa by Moody's, for
example, are considered medium grade obligations that lack outstanding
investment characteristics and have speculative characteristics as well.
Municipal obligations rated BBB by S&P are regarded as having an adequate
capacity to pay principal and interest. Municipal obligations rated BBB by Fitch
are considered to be of satisfactory credit quality. Municipal bonds are debt
obligations that are typically issued to obtain funds for various public
purposes, such as construction of public facilities (e.g., airports, highways,
bridges and schools). Municipal bonds at the time of issuance are generally
long-term securities with maturities of as much as thirty years or more, but
may have remaining maturities of shorter duration at the time of purchase by
the Fund.
The New York Municipal Bond Fund may invest in municipal notes rated at the time
of purchase MIG1, MIG2 (or VMIG-1 or VMIG-2, in the case of variable rate
demand notes), P-1, P-2 or better by Moody's or SP-1, SP-2, A-1, A-2 or better
by S&P, or determined by the investment manager to be of comparable quality. For
a discussion of municipal notes, see the discussion of the investment objective
and policies of the New York Municipal Money Market Fund.
Municipal obligations are debt obligations issued by or on behalf of states,
cities, municipalities and other public authorities. The two principal
classifications of municipal obligations that may be held by the New York
Municipal Bond Fund are 'general obligation' securities and 'revenue'
securities. For a description of such obligations, see the discussion of the
investment objective and policies of the New York Municipal Money Market Fund.
The Fund will not be restricted with respect to the proportion of its assets
that may be invested in such obligations. Accordingly, the Fund may not be a
suitable investment vehicle for individuals or corporations that are subject to
the federal alternative minimum tax.
The New York Municipal Bond Fund's portfolio may also include 'moral
obligation' securities, which are discussed in the investment objective and
policies of the New York Municipal Money Market Fund.
In addition, the New York Municipal Bond Fund may invest in municipal lease
obligations. Municipal lease obligations are not fully backed by the
municipality's credit and their interest may become taxable if the lease is
assigned. For a further discussion of municipal lease obligations, see
'Additional Investment Activities and Risk Factors -- Municipal Lease
Obligations.' The Fund also may invest in resource recovery bonds, which may be
general obligations of the issuing municipality or supported by corporate or
bank guarantees. The viability of the resource recovery project, environmental
protection regulations and project operator tax incentives may affect the value
and credit quality of resource recovery bonds.
The New York Municipal Bond Fund currently intends to invest substantially all
of its assets in obligations that are exempt from regular federal income taxes
and New York State and New York City personal income taxes. See 'Taxation.' To
the extent that the unavailability of suitable obligations for investment by the
Fund prevents it from investing substantially all of its assets in such
obligations, the Fund may purchase municipal obligations issued by other
states, their agencies or instrumentalities.
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SALOMON BROTHERS INVESTMENT SERIES
Under normal market conditions, however, the Fund will invest at least 65% of
its net assets in obligations that are exempt from regular federal income tax
and New York State and New York City personal income taxes, as described above.
In addition, it is a fundamental policy of the Fund to invest, under normal
market conditions, at least 80% of its net assets in obligations that are
exempt from regular federal income tax.
If at some future date, in the opinion of the investment manager, adverse
conditions prevail in the market for obligations exempt from regular federal
income tax and from the personal income taxes of New York State and New York
City (including conditions under which such obligations are unavailable for
investment), the New York Municipal Bond Fund may, for temporary defensive
purposes, invest more than 35% of its assets in municipal obligations issued by
other states, their agencies or instrumentalities. Moreover, if at some future
date, in the opinion of the investment manager, adverse conditions should
prevail in the market for municipal bonds generally, the Fund may temporarily
invest without limitation in taxable high-quality short-term money market
instruments in order to maintain a defensive posture. To the extent that the
Fund deviates from its investment policies as a result of the unavailability of
suitable obligations or for other defensive purposes, its investment objective
of seeking income exempt from regular federal income taxes and the personal
income taxes of New York State and New York City may not be achieved.
The New York Municipal Bond Fund may purchase the following taxable high-quality
short-term money market instruments: obligations of the U.S. government or its
agencies or instrumentalities; commercial paper of issuers rated, at the time of
purchase, A-2 or better by S&P or P-2 or better by Moody's or which, in the
opinion of the investment manager, is of comparable quality; certificates of
deposit, banker's acceptances or time deposits of U.S. banks with total assets
of at least $1 billion (including obligations of foreign branches of such
banks) and of the 75 largest foreign commercial banks in terms of total assets
(including domestic branches of such banks), and repurchase agreements with
respect to such obligations.
The New York Municipal Bond Fund may also purchase municipal commercial paper
that is rated at the time of purchase P-1 or P-2 or better by Moody's or A-1 or
A-2 or better by S&P, or determined by the investment manager to be of
comparable quality. Municipal commercial paper that may be purchased by the
Fund consists of short-term obligations of a municipality. Such paper is likely
to be issued to meet seasonal working capital needs of a municipality or as
interim construction financing. Municipal commercial paper, in many cases, is
backed by a letter of credit lending agreement, note repurchase agreement or
other credit facility agreement offered by banks or other institutions.
Certain of the obligations that the New York Municipal Bond Fund may purchase
may have a floating or variable rate of interest. For a description of these
obligations, see 'Additional Investment Activities and Risk Factors -- Floating
and Variable Rate Instruments.'
The New York Municipal Bond Fund may purchase participation certificates issued
by a bank, insurance company or other financial institution in obligations that
may otherwise be purchased by the Fund. For a further discussion of
participation certificates, see 'Additional Investment Activities and Risk
Factors -- Participation Certificates.'
The New York Municipal Bond Fund may invest in variable rate auction securities
and inverse floaters which are instruments created when an issuer or dealer
separates the principal portion of a long-term,
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SALOMON BROTHERS INVESTMENT SERIES
fixed-rate municipal bond into two long-term, variable-rate instruments. For a
further discussion see 'Additional Investment Activities and Risk Factors --
Variable Rate Auction Securities and Inverse Floaters.'
Because the New York Municipal Bond Fund will invest primarily in obligations
issued (i) by the State of New York and its cities, municipalities and other
public authorities, and (ii) by territories and possessions of the United
States and their respective authorities, agencies, instrumentalities and
political subdivisions the interest on which is exempt from regular federal
income taxes and from personal income taxes of New York State and New York
City, it is more susceptible to factors adversely affecting issuers of such
obligations than a comparable municipal securities fund that is not so
concentrated. See the discussion of the investment objective and policies of the
New York Municipal Money Market Fund for further information.
In addition, from time to time the New York Municipal Bond Fund may invest 25%
or more of its assets in municipal obligations that are related in such a way
that an economic, business or political development or change affecting one such
obligation could also affect the other obligations; for example, municipal
obligations the interest on which is paid from revenues of similar types of
projects.
Opinions relating to the validity of municipal obligations and to the exemption
of interest thereon from federal income tax and New York State and New York
City personal income taxes are rendered by bond counsel to the respective
issuers at the time of issuance. Neither the New York Municipal Bond Fund nor
the investment manager will review the proceedings relating to the issuance of
municipal obligations or the basis for such opinions.
The New York Municipal Bond Fund may purchase securities on a when-issued or
delayed delivery basis. See 'Additional Investment Activities and Risk
Factors -- Firm Commitments and When-Issued Securities' for a description of
such securities and their associated risks.
The New York Municipal Bond Fund may purchase securities for which there is a
limited trading market or which are subject to restrictions on resale to the
public. The Fund will not invest more than 15% of the value of its total assets
in illiquid securities, such as 'restricted securities' which are illiquid, and
securities that are not readily marketable. For further discussion of illiquid
securities and their associated risks, see 'Additional Investment Activities
and Risk Factors -- Restricted Securities and Securities with Limited Trading
Markets.'
The New York Municipal Bond Fund is currently authorized to use only certain of
the various investment strategies referred to under 'Additional Investment
Activities and Risk Factors -- Derivatives.' Specifically, the Fund may, in
order to further its objective, purchase or sell futures contracts on (a) debt
securities that are backed by the full faith and credit of the U.S. government,
such as long-term U.S. Treasury Bonds and Treasury Notes ('U.S. debt
securities') and (b) municipal bond indices. Currently, at least one exchange
trades futures contracts on an index of long-term municipal bonds, and the Fund
reserves the right to conduct futures transactions based on an index which may
be developed in the future to correlate with price movements in municipal
obligations. The Fund will only enter into futures contracts traded on
recognized domestic exchanges. The Fund does not intend to enter into futures
contracts on a regular basis, and will not do so if, as a result, the Fund will
have more than 25% of the value of its total assets committed to the completion
of such contracts. The Fund will not engage in futures transactions for
leveraging purposes. The Fund's ability to pursue these strategies may be
limited by
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SALOMON BROTHERS INVESTMENT SERIES
applicable regulations of the SEC, the Commodity Futures Trading Commission
('CFTC') and the federal income tax requirements applicable to regulated
investment companies. For a discussion of futures transactions, including
certain risks associated therewith, see 'Additional Investment Activities and
Risk Factors -- Derivatives,' Appendix B to this Prospectus and the Statement of
Additional Information.
The foregoing policies, other than the New York Municipal Bond Fund's
investment objective and its policy to invest at least 65% of its net assets,
under normal market conditions, in obligations the interest on which is exempt
from personal income taxes of New York State and New York City and at least 80%
of its net assets, under normal market conditions, in obligations the interest
on which is exempt from regular federal income taxes, are not fundamental and
may be changed by the Fund's Board of Directors without the approval of
shareholders.
NATIONAL INTERMEDIATE MUNICIPAL FUND
The National Intermediate Municipal Fund's investment objective is to achieve a
high level of current income which is exempt from regular federal income taxes.
The Fund seeks to achieve its objective by investing primarily in a portfolio of
municipal obligations. The Fund will invest under normal circumstances, at least
80% of its net assets in municipal obligations the interest on which is exempt
from regular federal income tax. All or a portion of the Fund's dividends paid
in respect of its shares may be subject to the federal alternative minimum tax.
See 'Taxation.'
The National Intermediate Municipal Fund will not invest in municipal
obligations that are rated below investment grade at the time of purchase.
However, the Fund may retain in its portfolio a municipal obligation whose
rating drops below 'Baa' or 'BBB' after its acquisition by the Fund, if the
investment manager considers the retention of such obligation advisable. The
Fund intends to emphasize investments in municipal obligations with
intermediate maturities and expects to maintain a dollar-weighted average
portfolio maturity of 3 to 10 years. The average portfolio maturity, however,
may be shortened from time to time depending on market conditions.
The types of obligations in which the National Intermediate Municipal Fund may
invest include municipal bonds, municipal notes, municipal obligations, 'moral
obligation' securities, resource recovery bonds, taxable high quality
short-term money market instruments and municipal commercial paper which are
described above under the investment objectives and policies of the New York
Municipal Money Market Fund. The Fund may also invest in municipal lease
obligations, floating and variable rate obligations, participation certificates,
variable rate auction securities and inverse floaters which are described under
'Additional Investment Activities and Risk Factors.' It is not presently
anticipated that the Fund will invest in variable rate auction securities or
inverse floaters to any significant degree.
The Fund may invest in municipal bonds that are rated at the time of purchase
within the four highest ratings assigned by Moody's, S&P or Fitch, or
determined by the investment manager to be of comparable quality. The four
highest ratings currently assigned by Moody's to municipal bonds are Aaa, Aa, A
and Baa; the four highest ratings assigned by S&P and Fitch to municipal bonds
are AAA, AA, A and BBB. A description of the ratings used by Moody's, S&P and
Fitch is included in Appendix A to this Prospectus, and the risks associated
with municipal obligations rated in the fourth highest rating category are
described above under the investment objective and policies of
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SALOMON BROTHERS INVESTMENT SERIES
the New York Municipal Money Market Fund.
The National Intermediate Municipal Fund may invest in municipal notes rated at
the time of purchase MIG1, MIG2 (or VMIG-1 or VMIG-2, in the case of variable
rate demand notes), P-2 or better by Moody's, SP-2, A-2 or better by S&P, or
F-2 or better by Fitch, or determined by the investment manager to be of
comparable quality.
The National Intermediate Municipal Fund currently intends to invest
substantially all of its assets in obligations the interest on which is exempt
from regular federal income taxes. See 'Taxation.' However, in order to maintain
liquidity, the Fund may invest up to 20% of its assets in taxable obligations,
including taxable high-quality short-term money market instruments.
If at some future date, in the opinion of the investment manager, adverse
conditions prevail in the market for obligations exempt from regular federal
income taxes, the National Intermediate Municipal Fund may invest its assets
without limit in taxable high-quality short-term money market instruments, the
types and characteristics of which are set forth above in the discussion of the
investment objective and policies of the New York Municipal Bond Fund.
Dividends paid by the Fund that are attributable to interest derived from
taxable money market instruments will be taxable to investors.
Certain of the obligations that the National Intermediate Municipal Fund may
purchase may have a floating or variable rate of interest. For a description of
these obligations, see 'Additional Investment Activities and Risk
Factors -- Floating and Variable Rate Instruments.'
From time to time, the National Intermediate Municipal Fund may invest more
than 25% of its assets in obligations whose interest payments are from revenues
of similar projects (such as utilities or hospitals) or whose issuers share the
same geographic location. As a result, the Fund may be more susceptible to a
single economic, political or regulatory development than would a portfolio of
securities with a greater variety of issuers. These developments include
proposed legislation or pending court decisions affecting the financing of such
projects and market factors affecting the demand for their services or products.
Opinions relating to the validity of municipal obligations and to the exemption
of interest thereon from regular federal income tax are rendered by bond counsel
to the respective issuers at the time of issuance. Neither the National
Intermediate Municipal Fund nor the investment manager will review the
proceedings relating to the issuance of municipal obligations or the basis for
such opinions.
The National Intermediate Municipal Fund may purchase securities on a
when-issued or delayed delivery basis. See 'Additional Investment Activities
and Risk Factors -- Firm Commitments and When-Issued Securities' for a
description of such securities and their associated risks.
The National Intermediate Municipal Fund may purchase securities for which
there is a limited trading market or which are subject to restrictions on
resale to the public. The Fund will not invest more than 15% of the value of
its total assets in illiquid securities, such as 'restricted securities' which
are illiquid, and securities that are not readily marketable. For further
discussion of illiquid securities and their associated risks, see 'Additional
Investment Activities and Risk Factors -- Restricted Securities and Securities
with Limited Trading Markets.'
The National Intermediate Municipal Fund is currently authorized to use only
certain of the various investment strategies referred to under 'Additional
Investment Activities and Risk Factors -- Derivatives.'
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Specifically, the Fund may purchase or sell futures contracts on (a) U.S. debt
securities and (b) municipal bond indices. Currently, at least one exchange
trades futures contracts on an index of long-term municipal bonds, and the Fund
reserves the right to conduct futures transactions based on an index which may
be developed in the future to correlate with price movements in municipal
obligations. The Fund will only enter into futures contracts traded on
recognized domestic exchanges. The Fund does not intend to enter into futures
contracts on a regular basis, and will not do so if, as a result, the Fund will
have more than 25% of the value of its total assets committed to the completion
of such contracts. The Fund will not engage in futures transactions for
leveraging purposes. The Fund's ability to pursue these strategies may be
limited by applicable regulations of the SEC, the CFTC and the federal income
tax requirements applicable to regulated investment companies. For a discussion
of futures transactions, including certain risks associated therewith, see
'Additional Investment Activities and Risk Factors -- Derivatives,' Appendix B
to this Prospectus and the Statement of Additional Information.
The foregoing policies, other than the National Intermediate Municipal Fund's
investment objective, are not fundamental and may be changed by the Fund's Board
of Directors without the approval of shareholders.
U.S. GOVERNMENT INCOME FUND
The investment objective of the U.S. Government Income Fund is to obtain a high
level of current income. The Fund seeks to attain its objective by investing
under normal circumstances 100% of its assets in debt obligations and mortgage-
backed securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The securities in which the U.S. Government Income Fund may
invest are:
(1) U.S. Treasury obligations;
(2) obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government which are backed by their own credit and may not be backed by
the full faith and credit of the U.S. government;
(3) mortgage-backed securities guaranteed by the Government National Mortgage
Association ('GNMA'), popularly known as 'Ginnie Maes,' that are supported by
the full faith and credit of the U.S. government. Such securities entitle the
holder to receive all interest and principal payments due whether or not
payments are actually made on the underlying mortgages;
(4) mortgage-backed securities guaranteed by agencies or instrumentalities of
the U.S. government which are supported by their own credit but not the full
faith and credit of the U.S. government, such as the Federal Home Loan Mortgage
Corporation ('FHLMC') and the Federal National Mortgage Association ('FNMA'),
commonly known as 'Fannie Maes'; and
(5) collateralized mortgage obligations issued by private issuers for which the
underlying mortgage-backed securities serving as collateral are backed (i) by
the credit alone of the U.S. government agency or instrumentality which issues
or guarantees the mortgage-backed securities, or (ii) by the full faith and
credit of the U.S. government.
Any guarantee of the securities in which the U.S. Government Income Fund invests
runs only to principal and interest payments on the securities and not to the
market value of such securities or the principal and interest payments on the
underlying mortgages. In addition, the guarantee only runs to the portfolio
securities held by the U.S. Government Income Fund and not to the purchase of
shares of the Fund.
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The U.S. Government Income Fund currently expects that it will maintain an
average portfolio effective duration of three to five years. Duration is an
approximate measure of the sensitivity of the value of a fixed income security
to changes in interest rates. In general, the percentage change in a fixed
income security's value in response to changes in interest rates is a function
of that security's duration multiplied by the percentage point change in
interest rates. The Fund may, however, invest in securities of any maturity or
effective duration and accordingly, the composition and weighted average
maturity of the Fund's portfolio will vary from time to time, based upon the
investment manager's determination of how best to achieve the Fund's investment
objective. With respect to mortgage-backed securities in which the Fund
invests, average maturity and duration are determined by using mathematical
models that incorporate prepayment assumptions and other factors that involve
estimates of future economic parameters. These estimates may vary from actual
results, particularly during periods of extreme market volatility. In addition,
the average maturity and duration of mortgage-backed derivative securities may
not accurately reflect the price volatility of such securities under certain
market conditions.
From time to time, a significant portion of the Fund's assets may be invested in
mortgage-backed securities. The mortgage-backed securities in which the U.S.
Government Income Fund invests represent participating interests in pools of
fixed rate and adjustable rate residential mortgage loans issued or guaranteed
by agencies or instrumentalities of the U.S. government. Mortgage-backed
securities are issued by lenders such as mortgage bankers, commercial banks,
and savings and loan associations. Mortgage-backed securities generally provide
monthly payments which are, in effect, a 'pass-through' of the monthly interest
and principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans. Principal prepayments result from the
sale of the underlying property or the refinancing or foreclosure of underlying
mortgages.
The yield of the mortgage securities is based on the prepayment rates
experienced over the life of the security. Prepayments tend to increase during
periods of falling interest rates, while during periods of rising interest rates
prepayments will most likely decline. Reinvestment by the U.S. Government
Income Fund of scheduled principal payments and unscheduled prepayments may
occur at higher or lower rates than the original investment, thus affecting the
yield of the Fund. Monthly interest payments received by the Fund have a
compounding effect which will increase the yield to shareholders as compared to
debt obligations that pay interest semiannually. For further discussion of
mortgage-backed securities and collateralized mortgage obligations and their
associated risks, see 'Additional Investment Activities and Risk Factors --
Mortgage- Backed Securities' and 'Additional Information on Portfolio
Instruments and Investment Policies -- Mortgage-Backed Securities' in the
Statement of Additional Information.
While the U.S. Government Income Fund seeks a high level of current income, it
cannot invest in instruments such as lower grade corporate obligations which
offer higher yields but are subject to greater credit risks. The Fund will not
knowingly invest in a high risk mortgage security. The term 'high risk mortgage
security' is defined generally as any mortgage security that exhibits
significantly greater price volatility than a benchmark security, the FNMA
current coupon 30-year mortgage-backed pass through security. Shares of the
Fund are neither insured nor guaranteed by the U.S. government, its agencies or
instrumentalities. Neither
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the issuance by nor the guarantee of a U.S. government agency for a security
constitutes assurance that the security will not significantly fluctuate in
value or that the U.S. Government Income Fund will receive the originally
anticipated yield on the security.
The U.S. Government Income Fund may enter into repurchase agreements and
reverse repurchase agreements, may purchase securities on a firm commitment
basis, including when-issued securities and may lend portfolio securities. The
Fund does not currently intend to make loans of portfolio securities with a
value in excess of 33% of the value of its total assets. The Fund may also
enter into mortgage 'dollar rolls.' For a description of these investment
practices and the risks associated therewith, see 'Additional Investment
Activities and Risk Factors.'
The U.S. Government Income Fund may purchase securities for which there is a
limited trading market or which are subject to restrictions on resale to the
public. The Fund will not invest more than 15% of the value of its total assets
in illiquid securities, such as 'restricted securities' which are illiquid, and
securities that are not readily marketable. For further discussion of illiquid
securities and their associated risks, see 'Additional Investment Activities
and Risk Factors -- Restricted Securities and Securities with Limited Trading
Markets.'
The U.S. Government Income Fund is not currently authorized to use any of the
various investment strategies referred to under 'Additional Investment
Activities and Risk Factors -- Derivatives.' However, such strategies may be
used in the future by the Fund. The Fund's ability to pursue certain of these
strategies may be limited by applicable regulations of the SEC, the CFTC and
the federal income tax requirements applicable to regulated investment
companies. Appendix B to this Prospectus and the Statement of Additional
Information contain descriptions of these strategies and of certain risks
associated therewith.
The foregoing investment policies, other than the U.S. Government Income Fund's
investment objective, are not fundamental and may be changed by the Fund's Board
of Directors without the approval of shareholders.
HIGH YIELD BOND FUND
The High Yield Bond Fund's investment objective is to maximize current income.
As a secondary objective, the High Yield Bond Fund will seek capital
appreciation. The Fund seeks to achieve its objective by investing primarily in
a diversified portfolio of high yield fixed-income securities rated in medium
or lower rating categories or determined by the investment manager to be of
comparable quality.
The High Yield Bond Fund intends to invest, under normal market conditions, at
least 65% of its assets in securities rated 'Baa' or lower by Moody's or 'BBB'
or lower by S&P, or in securities determined by the investment manager to be of
comparable quality. The Fund may invest up to 35% of its total assets in foreign
fixed-income securities as more fully described below. Medium and low-rated and
comparable unrated securities offer yields that fluctuate over time, but
generally are superior to the yields offered by higher rated securities.
However, such securities also involve significantly greater risks, including
price volatility and risk of default in the payment of interest and principal,
than higher rated securities. Certain of the debt securities purchased by the
Fund may be rated as low as 'C' by Moody's or 'D' by S&P or may be considered
comparable to securities having such ratings. The lower-rated bonds in which
the Fund may invest are commonly referred to as 'junk bonds.'
An investment in the High Yield Bond Fund should not be considered as a
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complete investment program for all investors. For further discussion of high
yield securities and the special risks associated therewith, see 'Additional
Investment Activities and Risk Factors -- High Yield Securities.'
In light of the risks associated with high yield debt securities, the investment
manager will take various factors into consideration in evaluating the
creditworthiness of an issuer. For corporate debt securities, these will
typically include the issuer's financial resources, its sensitivity to economic
conditions and trends, the operating history of the issuer, and the experience
and track record of the issuer's management. For sovereign debt instruments,
these will typically include the economic and political conditions within the
issuer's country, the issuer's overall and external debt levels and debt
service ratios, the issuer's access to capital markets and other sources of
funding, and the issuer's debt service payment history. The investment manager
will also review the ratings, if any, assigned to the security by any
recognized rating agencies, although the investment manager's judgment as to
the quality of a debt security may differ from that suggested by the rating
published by a rating service. The High Yield Bond Fund's ability to achieve
its investment objectives may be more dependent on the investment manager's
credit analysis than would be the case if it invested in higher quality debt
securities. A description of the ratings used by Moody's and S&P is set forth in
Appendix A to this Prospectus.
The investment manager will have discretion to select the range of maturities
of the fixed-income securities in which the High Yield Bond Fund may invest. The
investment manager anticipates that under current market conditions, the Fund
will have an average portfolio maturity of 10 to 15 years. However, the average
portfolio maturity may vary substantially from time to time depending on
economic and market conditions.
The High Yield Bond Fund may invest up to 35% of its total assets in foreign
fixed-income securities all or a portion of which may be non-U.S. dollar
denominated and which include: (a) debt obligations issued or guaranteed by
foreign national, provincial, state, municipal or other governments with taxing
authority or by their agencies or instrumentalities, including Brady Bonds; (b)
debt obligations of supranational entities; (c) debt obligations of the U.S.
government issued in non-dollar securities; (d) debt obligations and other
fixed-income securities of foreign corporate issuers (both dollar and
non-dollar denominated); and (e) U.S. corporate issuers (both Eurodollar and
non-dollar denominated). There is no minimum rating criteria for the Fund's
investments in such securities. A description of Brady Bonds is set forth in
the discussion of investment objectives and policies of the Strategic Bond
Fund. The risks associated with these investments are described under the
captions 'Additional Investment Activities and Risk Factors -- Foreign
Securities' and ' -- High Yield Debt Securities.' Moreover, substantial
investments in foreign securities may have adverse tax implications as described
under 'Taxation.'
The High Yield Bond Fund may also invest in zero coupon securities and
pay-in-kind bonds, which involve special risk considerations. See 'Additional
Investment Activities and Risk Factors -- Zero Coupon Securities, Pay-in-Kind
Bonds and Deferred Payment Securities.'
The High Yield Bond Fund may invest in fixed and floating rate loans ('Loans')
arranged through private negotiations between a corporate borrower or a foreign
sovereign entity and one or more financial institutions ('Lenders'). The Fund
may invest in such Loans in the form of participations in Loans
('Participations') and assignments of all or a portion of
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Loans from third parties ('Assignments'). See 'Additional Investment Activities
and Risk Factors -- Loan Participations and Assignments.'
The High Yield Bond Fund may invest up to 20% of its assets in common stock,
convertible securities, warrants, preferred stock or other equity securities
when consistent with the Fund's objectives. The Fund will generally hold such
equity investments as a result of purchases of unit offerings of fixed-income
securities which include such securities or in connection with an actual or
proposed conversion or exchange of fixed-income securities, but may also
purchase equity securities not associated with fixed-income securities when, in
the opinion of the investment manager, such purchase is appropriate.
There may be times when, in the judgment of the investment manager, conditions
in the securities markets would make pursuing the Fund's basic investment
strategy inconsistent with the best interests of the Fund's shareholders. At
such times, the Fund's investment manager may employ alternative strategies,
including investment of a substantial portion of the Fund's assets in securities
rated higher than 'Baa' by Moody's or 'BBB' by S&P, or of comparable quality.
In addition, in order to maintain liquidity, the Fund may invest up to 35% of
its assets in high-quality short-term money market instruments. Such
instruments may include obligations of the U.S. government or its agencies or
instrumentalities; commercial paper of issuers rated, at the time of purchase,
A-2 or better by S&P or P-2 or better by Moody's or which, in the opinion of
the investment manager, are of comparable quality; certificates of deposit,
banker's acceptances or time deposits of U.S. banks with total assets of at
least $1 billion (including obligations of foreign branches of such banks) and
of the 75 largest foreign commercial banks in terms of total assets (including
domestic branches of such banks), and repurchase agreements with respect to such
obligations.
If at some future date, in the opinion of the investment manager, adverse
conditions prevail in the securities markets which makes the High Yield Bond
Fund's investment strategy inconsistent with the best interests of the Fund's
shareholders, the Fund may invest its assets without limit in high-quality
short-term money market instruments.
The High Yield Bond Fund may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a firm commitment basis,
including when-issued securities and may lend portfolio securities. For a
description of these investment practices and the risks associated therewith,
see 'Additional Investment Activities and Risk Factors.'
The High Yield Bond Fund may purchase securities for which there is a limited
trading market or which are subject to restrictions on resale to the public. The
Fund will not invest more than 15% of the value of its total assets in illiquid
securities, such as 'restricted securities' which are illiquid, and securities
that are not readily marketable. As more fully described in the Statement of
Additional Information, the Fund may purchase certain restricted securities
('Rule 144A securities') for which there is a secondary market of qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933, as amended (the '1933 Act'). The Fund's holdings of Rule 144A securities
which are liquid securities will not be subject to the 15% limitation on
investments in illiquid securities. For further discussion of illiquid
securities and their associated risks, see 'Additional Investment Activities
and Risk Factors -- Restricted Securities and Securities with Limited Trading
Markets.'
The High Yield Bond Fund is currently authorized to use all of the various
investment strategies referred to under 'Additional Investment Activities and
Risk
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SALOMON BROTHERS INVESTMENT SERIES
Factors -- Derivatives.' It is not presently anticipated that any of these
strategies will be used to a significant degree by the Fund. The Fund's ability
to pursue certain of these strategies may be limited by applicable regulations
of the SEC, the CFTC and the federal income tax requirements applicable to
regulated investment companies. Appendix B to this Prospectus and the Statement
of Additional Information contain descriptions of these strategies and of
certain risks associated therewith.
The foregoing investment policies, other than the High Yield Bond Fund's
investment objectives, are not fundamental and may be changed by the Fund's
Board of Directors without the approval of shareholders.
STRATEGIC BOND FUND
The primary investment objective of the Strategic Bond Fund is to seek a high
level of current income. As a secondary objective, the Fund seeks capital
appreciation. The Strategic Bond Fund seeks to achieve its objectives by
investing in a globally diverse portfolio of fixed-income investments and by
giving the investment manager broad discretion to deploy the Strategic Bond
Fund's assets among certain segments of the fixed-income market that the
investment manager believes will best contribute to the achievement of the
Fund's objectives. At any point in time, the investment manager will deploy the
Fund's assets based on the investment manager's analysis of current economic
and market conditions and the relative risks and opportunities present in the
following market segments: U.S. government obligations, investment grade
domestic corporate debt, high yield domestic corporate debt securities,
mortgage-backed securities and investment grade and high yield foreign
corporate and sovereign debt securities. The investment manager has entered
into a subadvisory consulting agreement with its London based affiliate, SBAM
Limited, pursuant to which SBAM Limited will provide certain advisory services
to the investment manager relating to currency transactions and investments in
non-dollar-
denominated debt securities for the benefit of the Fund.
The investment manager will determine the amount of assets to be allocated to
each type of security in which it invests based on its assessment of the maximum
level of income and capital appreciation that can be achieved from a portfolio
which is invested in these securities. In making this determination, the
investment manager will rely in part on quantitative analytical techniques that
measure relative risks and opportunities of each type of security based on
current and historical economic, market, political and technical data for each
type of security, as well as on its own assessment of economic and market
conditions both on a global and local (country) basis. In performing
quantitative analysis, the investment manager will employ prepayment analysis
and option adjusted spread technology to evaluate mortgage securities, mean
variance optimization models to evaluate foreign debt securities, and total
rate of return analysis to measure relative risks and opportunities in other
fixed-income markets. Economic factors considered will include current and
projected levels of growth and inflation, balance of payment status and
monetary policy. The allocation of assets to foreign debt securities will
further be influenced by current and expected currency relationships and
political and sovereign factors. The investment manager will continuously
review this allocation of assets and make such adjustments as it deems
appropriate. The Fund does not plan to establish a minimum or a maximum
percentage of the assets which it will invest in any particular type of
fixed-income security.
In addition, the investment manager will have discretion to select the range of
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SALOMON BROTHERS INVESTMENT SERIES
maturities of the various fixed-income securities in which the Strategic Bond
Fund invests. The investment manager anticipates that under current market
conditions, the Fund's portfolio securities will have a weighted average life
of 6 to 10 years. However, the weighted average life of the portfolio
securities may vary substantially from time to time depending on economic and
market conditions.
The investment grade corporate debt securities and the investment grade foreign
debt securities to be purchased by the Fund are domestic and foreign debt
securities rated within the four highest bond ratings of either Moody's or S&P,
or, if unrated, deemed to be of equivalent quality in the investment manager's
judgment. While debt securities carrying the fourth highest quality rating
('Baa' by Moody's or 'BBB' by S&P) are considered investment grade and are
viewed to have adequate capacity for payment of principal and interest,
investments in such securities involve a higher degree of risk than that
associated with investments in debt securities in the higher rating categories
and such debt securities lack outstanding investment characteristics and in
fact have speculative characteristics as well. For example, changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt securities.
The types and characteristics of the U.S. government obligations and mortgage
backed securities to be purchased by the Strategic Bond Fund are set forth
above in the discussion of the investment objective and policies for the U.S.
Government Income Fund. In addition, the Fund may purchase privately issued
mortgage securities which are not guaranteed by the U.S. government or its
agencies or instrumentalities and may purchase stripped mortgage securities,
including interest-only and principal-only securities. The Strategic Bond Fund
does not currently intend to invest more than 10% of its total assets in
interest-only and principal-only securities. Additional information with
respect to securities to be purchased by the Fund is set forth below in the
section entitled 'Additional Investment Activities and Risk Factors' and in the
section entitled 'Additional Information on Portfolio Instruments and
Investment Policies' in the Statement of Additional Information.
The Strategic Bond Fund may invest in debt obligations issued or guaranteed by a
foreign sovereign government or one of its agencies or political subdivisions
and debt obligations issued or guaranteed by supranational organizations.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the World Bank, the European Coal and Steel
Community, the Asian Development Bank and the Inter-American Development Bank.
Such supranational issued instruments may be denominated in multi-national
currency units. The Strategic Bond Fund will not invest more than 10% of its
total assets in issuers located in any one country (other than issuers located
in the United States).
In pursuing the Strategic Bond Fund's investment objectives, the Fund reserves
the right to invest predominantly in medium or lower-rated securities, commonly
known as 'junk bonds.' Investments of this type involve significantly greater
risks, including price volatility and risk of default in the payment of
interest and principal, than higher-quality securities. Although the investment
manager does not anticipate investing in excess of 75% of the Strategic Bond
Fund's assets in domestic and developing country debt securities that are rated
below investment grade, the Strategic Bond Fund may invest a greater percentage
in such securities when, in the opinion of the investment manager, the
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SALOMON BROTHERS INVESTMENT SERIES
yield available from such securities outweighs their additional risks. The
investment manager anticipates that under current market conditions, a
significant portion of the Fund's assets will be invested in such securities.
By investing a portion of the Strategic Bond Fund's assets in securities rated
below investment grade as well as through investments in mortgage securities
and foreign debt securities, the investment manager expects to provide
investors with a higher yield than a high-quality domestic corporate bond fund.
Certain of the debt securities in which the Strategic Bond Fund may invest may
be rated as low as 'C' by Moody's or 'D' by S&P or may be considered comparable
to securities having such ratings. See 'Additional Investment Activities and
Risk Factors -- High Yield Securities.'
In light of the risks associated with high yield corporate and sovereign debt
securities, the investment manager will take various factors into consideration
in evaluating the creditworthiness of an issuer. For corporate debt securities,
these will typically include the issuer's financial resources, its sensitivity
to economic conditions and trends, the operating history of the issuer, and the
experience and track record of the issuer's management. For sovereign debt
instruments, these will typically include the economic and political conditions
within the issuer's country, the issuer's overall and external debt levels and
debt service ratios, the issuer's access to capital markets and other sources
of funding, and the issuer's debt service payment history. The investment
manager will also review the ratings, if any, assigned to the security by any
recognized rating agencies, although the investment manager's judgment as to
the quality of a debt security may differ from that suggested by the rating
published by a rating service. The Strategic Bond Fund's ability to achieve its
investment objectives may be more dependent on the investment manager's credit
analysis than would be the case if it invested in higher quality debt
securities. A description of the ratings used by Moody's and S&P is set forth in
Appendix A to this Prospectus.
The high yield sovereign debt securities in which the Strategic Bond Fund may
invest are U.S. dollar-denominated and non-dollar-denominated debt securities,
including Brady Bonds, that are issued or guaranteed by governments or
governmental entities of developing and emerging market countries. The
investment manager expects that these countries will consist primarily of those
which have issued or have announced plans to issue Brady Bonds, but the Fund is
not limited to investing in the debt of such countries. Brady Bonds are debt
securities issued under the framework of the Brady Plan, an initiative
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
indebtedness. For a description of Brady Bonds, see 'Additional Investment
Activities and Risk Factors -- High Yield Securities' in this Prospectus and
'Additional Information on Portfolio Instruments and Investment
Policies -- Brady Bonds' in the Statement of Additional Information. The
investment manager anticipates that the Fund's investments in sovereign debt
will be concentrated in Latin American countries, including Central and South
American and Caribbean countries. The investment manager also expects to take
advantage of additional opportunities for investment in the debt of North
African countries, such as Nigeria and Morocco, Eastern European countries,
such as Poland and Hungary, and Southeast Asian countries, such as the
Philippines. Sovereign governments may include national, provincial, state,
municipal or other foreign governments with taxing authority. Governmental
entities may include the agencies and instrumentalities of such governments, as
well as state-owned
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enterprises. For a more detailed discussion of high yield sovereign debt
securities, see 'Additional Investment Activities and Risk Factors -- High
Yield Securities.'
The Strategic Bond Fund will be subject to special risks as a result of its
ability to invest up to 100% of its assets in foreign securities (including
emerging market securities). Such securities may be non-U.S. dollar denominated
and there is no limit on the percentage of the Fund's assets that can be
invested in non-dollar denominated securities. The investment manager
anticipates that under current market conditions, a significant portion of the
Fund's assets will be invested in foreign securities. These risks are described
under the captions 'Additional Investment Activities and Risk Factors --
Foreign Securities.' Moreover, substantial investments in foreign securities
may have adverse tax implications as described under 'Taxation.' The ability to
spread its investments among the fixed-income markets in a number of different
countries may, however, reduce the overall level of market risk to the extent
it may reduce the Strategic Bond Fund's exposure to a single market.
The Strategic Bond Fund may invest in zero coupon securities, pay-in-kind bonds,
Loan Participations and Assignments. See 'Additional Investment Activities and
Risk Factors-Zero Coupon Securities, Pay-in-Kind Bonds and Deferred Payment
Securities' and ' -- Loan Participations and Assignments.'
The Strategic Bond Fund may invest up to 20% of its assets in common stock,
convertible securities, warrants, preferred stock or other equity securities
when consistent with the Fund's objectives. The Fund will generally hold such
equity investments as a result of purchases of unit offerings of fixed-income
securities which include such securities or in connection with an actual or
proposed conversion or exchange of fixed-income securities, but may also
purchase equity securities not associated with fixed-income securities when, in
the opinion of the investment manager, such purchase is appropriate.
The Strategic Bond Fund currently intends to invest substantially all of its
assets in fixed-income securities. In order to maintain liquidity, the
Strategic Bond Fund may invest up to 20% of its assets in high-quality
short-term money market instruments. If at some future date, in the opinion of
the investment manager, adverse conditions prevail in the market for
fixed-income securities, the Strategic Bond Fund for temporary defensive
purposes may invest its assets without limit in high-quality short-term money
market instruments. The types and characteristics of the money market
securities to be purchased by the Fund are set forth in the discussion of the
investment objectives and policies of the Cash Management Fund.
The Strategic Bond Fund may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a firm commitment basis,
including when-issued securities and may lend portfolio securities. The Fund
does not currently intend to make loans of portfolio securities with a value in
excess of 33% of the value of its total assets. The Fund may also enter into
mortgage 'dollar rolls.' For a description of these investment practices and
the risks associated therewith, see 'Additional Investment Activities and Risk
Factors.'
The Strategic Bond Fund may purchase securities for which there is a limited
trading market or which are subject to restrictions on resale to the public. The
Fund will not invest more than 15% of the value of its total assets in illiquid
securities, such as 'restricted securities' which are illiquid, and securities
that are not readily marketable. As more fully described in the Statement of
Additional Information, the Fund may purchase Rule 144A securities for which
there is a secondary market of qualified institutional buyers as contemplated
by Rule 144A under the 1933 Act. The Fund's holdings
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of Rule 144A securities which are liquid securities will not be subject to the
15% limitation on investments in illiquid securities. For further discussion of
illiquid securities and their associated risks, see 'Additional Investment
Activities and Risk Factors -- Restricted Securities and Securities with
Limited Trading Markets.'
The Strategic Bond Fund is currently authorized to use all of the various
investment strategies referred to under 'Additional Investment Activities and
Risk Factors -- Derivatives.' With the exception of currency transactions,
however, it is not presently anticipated that any of these strategies will be
used to a significant degree by the Fund. The Fund's ability to pursue certain
of these strategies may be limited by applicable regulations of the SEC, the
CFTC and the federal income tax requirements applicable to regulated investment
companies. Appendix B to this Prospectus and the Statement of Additional
Information contain descriptions of these strategies and of certain risks
associated therewith.
The foregoing investment policies, other than the Strategic Bond Fund's
investment objectives, are not fundamental and may be changed by the Fund's
Board of Directors without the approval of shareholders.
TOTAL RETURN FUND
The primary investment objective of the Total Return Fund is to obtain above
average income (compared to a portfolio entirely invested in equity
securities). The Fund's secondary objective is to take advantage of
opportunities for growth of capital and income. The policy of the Total Return
Fund is to invest in a broad variety of securities, including equity
securities, fixed-income securities and short-term obligations. The Fund may
vary the percentage of assets invested in any one type of security in
accordance with the investment manager's view of existing and anticipated
economic and market conditions, fiscal and monetary policy and underlying
security values. Under normal market conditions, it is anticipated that at
least 40% of the Fund's total assets will be invested in equity securities.
Equity securities include common and preferred stock (including convertible
preferred stock), bonds, notes and debentures convertible into common or
preferred stock, stock purchase warrants and rights, equity interests in trusts,
partnerships, joint ventures or similar enterprises and American, Global or
other types of Depositary Receipts. Most of the equity securities purchased by
the Fund are expected to be traded on a stock exchange or in an over-the-counter
market.
The investment manager will have discretion to invest in the full range of
maturities of fixed-income securities. Generally, most of the Fund's long-term
debt investments will consist of 'investment grade' securities (rated Baa or
better by Moody's or BBB or better by S&P or Fitch or determined by the
investment manager to be of comparable quality). See Appendix A to this
Prospectus for a description of these ratings. Certain risks associated with
investment in debt securities carrying the fourth highest quality rating ('Baa'
by Moody's or 'BBB' by S&P) are described above in the investment objectives and
policies for the Strategic Bond Fund.
Up to 20% of the Fund's net assets may be invested in nonconvertible fixed
income securities that are rated Ba or lower by Moody's or BB or lower by S&P
or Fitch or determined by the investment manager to be of comparable quality
(commonly known as 'junk bonds'). There is no limit on the amount of the Total
Return Fund's assets that can be invested in convertible securities rated below
investment grade. For additional information on these lower rated, high yield
debt securities, which may involve a high degree of risk, see the discussion
above under the investment objectives and policies for the High Yield
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Bond Fund and 'Additional Investment Activities and Risk Factors -- High Yield
Securities.'
In addition to corporate debt securities, the Total Return Fund may invest in
U.S. Government securities and mortgage-backed securities, the types and
characteristics of which are set forth above in the discussion of the investment
objective and policies for the U.S. Government Income Fund. The Fund may also
purchase privately issued mortgage securities which are not guaranteed by the
U.S. government or its agencies or instrumentalities. For a description of
these securities and the risks associated therewith see 'Additional Investment
Activities and Risk Factors.' The Total Return Fund may invest in corporate
asset-backed securities, the characteristics and risks of which are described
above under the investment objective and policies of the Cash Management Fund.
Other fixed income securities in which the Total Return Fund may invest include
zero coupon bonds, deferred interest bonds and bonds on which the interest is
payable in kind ('PIK bonds'). For additional information on zero coupon bonds
and PIK bonds, see 'Additional Investment Activities and Risk Factors -- Zero
Coupon Securities, PIK Bonds and Deferred Payment Securities.' Deferred
interest bonds are debt obligations which are issued or purchased at a
significant discount from face value and provide for a period of delay before
the regular payment of interest begins. The characteristics and related risks
of these bonds are similar to those of zero coupon bonds.
The Total Return Fund may invest up to 20% (and generally expects to invest
between 10% and 20%) of its total assets in foreign securities (including
American Depositary Receipts). For a discussion of the risks associated with
investment in foreign securities, see 'Additional Investment Activities and
Risk Factors -- Foreign Securities.'
The Total Return Fund may invest a portion of its assets in Loan Participations
and Assignments. For a discussion of Loan Participations and Assignments and
their associated risks, see 'Additional Investment Activities and Risk
Factors -- Loan Participation and Assignments.'
The Total Return Fund may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a firm commitment basis,
including when-issued securities, and may lend portfolio securities. For a
description of these investment practices, see 'Additional Investment
Activities and Risk Factors.' The Fund will not invest more than 10% of its
assets in repurchase agreements maturing in more than seven days.
The Total Return Fund may purchase securities for which there is a limited
trading market or which are subject to restrictions on resale to the public. The
Fund will not invest more than 15% of the value of its total assets in illiquid
securities, such as 'restricted securities' which are illiquid, and securities
that are not readily marketable. As more fully described in the Statement of
Additional Information, the Fund may purchase Rule 144A securities for which
there is a secondary market of qualified institutional buyers as contemplated
by Rule 144A under the 1933 Act. The Fund's holdings of Rule 144A securities
which are liquid securities will not be subject to the 15% limitation on
investments in illiquid securities. For further discussion of illiquid
securities and their associated risks, see 'Additional Investment Activities
and Risk Factors -- Restricted Securities and Securities with Limited Trading
Market.'
The Total Return Fund is currently authorized to use all of the various
investment strategies referred to under 'Additional Investment Activities and
Risk Factors -- Derivatives.' With the exception of currency transactions,
however, it is not presently anticipated that any of these strategies will be
used to a significant
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degree by the Fund. The Fund's ability to pursue certain of these strategies
may be limited by applicable regulations of the SEC, the CFTC and the federal
income tax requirements applicable to regulated investment companies. Appendix
B to this Prospectus and the Statement of Additional Information contain
descriptions of these strategies and of certain risks associated therewith.
The foregoing investment policies, other than the Total Return Fund's investment
objectives, are not fundamental and may be changed by the Board of Directors
without the approval of shareholders.
ASIA GROWTH FUND
The Asia Growth Fund's objective is to achieve long-term capital appreciation.
The Fund seeks to achieve its objective by investing at least 65% of its total
assets in equity and equity-related securities of Asian Companies. Asian
Companies include companies that (i) are organized under the laws of
Bangladesh, China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, the
Philippines, Singapore, Sri Lanka, Taiwan, Thailand or any other country in the
Asian region (other than Japan, Australia and New Zealand) that currently or in
the future permits foreign investment (collectively, 'Asian Countries') or (ii)
regardless of where organized and as determined by SBAM AP, (a) derive at least
50% of their revenues from goods produced or sold, investments made, or
services performed in or with one or more of the Asian Countries, (b) maintain
at least 50% of their assets in one or more of the Asian Countries, or (c) have
securities which are traded principally on a stock exchange in an Asian
Country. The Fund is non-diversified within the meaning of the 1940 Act. See
'Additional Investment Activities and Risk Factors -- Non-
Diversification.'
Equity securities in which the Asia Growth Fund may invest include common and
preferred stocks (including convertible preferred stock), bonds, notes and
debentures convertible into common and preferred stock, stock purchase warrants
and rights, equity-linked debt securities, equity interests in trusts,
partnerships, joint ventures or similar enterprises, and American, Global or
other types of Depositary Receipts. Equity-linked debt securities are debt
instruments whose prices are indexed to the prices of equity securities or
securities indices. In other words, the value at maturity or coupon rate of
these equity-linked debt instruments is determined by reference to a specific
instrument or statistic. The performance of equity-linked debt instruments
depends to a great extent on the performance of the security or index to which
they are indexed, and may also be influenced by interest rate changes in the
United States and abroad. At the same time, these instruments are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Indexed
instruments may be more volatile than the underlying instruments.
There are no prescribed limits on geographic asset distributions among Asian
Countries and from time to time, SBAM AP expects to invest a significant portion
of the Asia Growth Fund's assets in Hong Kong, Malaysia, Singapore and Thailand.
Investments in each of these countries may from time to time exceed 25% of the
Fund's total assets. In addition, more than 25% of the Fund's total assets may
be denominated or quoted in the currencies of any one or more of such
countries. In this connection, SBAM AP anticipates that up to 35% of the Fund's
initial investments will be in Hong Kong. Although SBAM AP expects that most of
the equity securities purchased by the Fund will be traded on a stock exchange
or in an over-the-counter market, most of the Asian securities markets have
substantially less volume than U.S. or
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other established markets and some of the stock exchanges in the Asian
Countries are in the early stages of their development. Concentration of the
Fund's assets in one or a few of the Asian countries and Asian currencies will
subject the Fund, to a greater extent than if the Fund's assets were less
geographically concentrated, to the risks of adverse changes in the securities
and foreign exchange markets of such countries and social, political or
economic events which may occur in those countries. For a more detailed
discussion of the special risks which the Fund is subject to by virtue of its
investment in foreign securities, see 'Additional Investment Activities and
Risk Factors -- Foreign Securities.' An investment in the Asia Growth Fund
should not be considered as a complete investment program for all investors.
In pursuing the Asia Growth Fund's investment objective, SBAM AP will combine a
traditional fundamental approach towards evaluating industry sectors and
individual securities of Asian Companies with a risk management driven approach
seeking to keep the Fund's volatility of return in line with or lower than that
currently experienced in the Asian markets.
SBAM AP expects to focus on certain industry groups across Asian Countries in
an attempt to identify and capture the relative value of such groups on a
pan-regional basis. SBAM AP will research individual companies in an effort to
identify the investment opportunities within these industry groups which will
provide long-term capital appreciation. In addition, SBAM AP intends to meet the
management of individual companies on a periodic basis. As part of the Asia
Growth Fund's risk management objective, SBAM AP will also concentrate on
macroeconomic issues and other variables influencing the direction of monetary
policies followed by Asian Central Banks.
The investment process to be implemented by SBAM AP will consist of the three
following principal (and potentially overlapping) types of approaches.
PAN REGIONAL INDUSTRY GROUP DECISIONS. SBAM AP will seek to identify the
pan-regional industrial sectors which are likely to exhibit attractive returns
over the long-term. In selecting such industrial sectors, SBAM AP will focus on
industry cycles and competitiveness as well as the industrial characteristics
of the Asian economies. In addition, SBAM AP will review government
regulations, industrial policies, access to technology and industrial research
reports provided by industrial companies or associations and securities dealers
in Asian Countries. SBAM AP will focus on those industries which represent
meaningful weightings in the total market capitalization of the Asian Countries
including, but not limited to, telecommunications, consumer durables and
nondurables, food and beverage, electronics, hotels, power engineering and
generation, basic industries, public utilities, property and financial sectors.
SBAM AP believes that an investment process that places emphasis on industry
groups is appropriate given the current state of economic and financial
integration being achieved by the Asian Countries and the relatively
significant concentration of market capitalization in Asian Countries toward
certain industrial sectors.
FUNDAMENTAL ANALYSIS. In order to identify the most attractive investment
opportunities within industry groups, SBAM AP will employ extensive research to
select investments in Asian Countries that offer long-term growth potential for
investors. While the Asia Growth Fund generally seeks to invest in securities of
larger companies within the particular Asian market, it may also invest in the
securities of medium and smaller companies that, in the opinion of SBAM AP,
have potential for growth. In particular, SBAM AP will employ the following
three-step process to evaluate
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particular investment opportunities for the Fund.
SCREENING PROCESS. SBAM AP will implement a systematic screening process in an
effort to identify individual securities it believes likely to exhibit
attractive returns over the long term. SBAM AP will screen companies according
to factors such as the perceived quality of their management and business,
overall sustainable competitiveness, historical earnings, dividend records over
at least a full business cycle, liquidity, trading volumes and historical and
expected volatility.
FINANCIAL ANALYSIS PROCESS. The financial analysis of selected companies will
focus on evaluating the fundamental value of the enterprise. SBAM AP will use a
value-driven process which will emphasize quantitative analysis based on return
on equity ('ROE') and its components, such as operating margins, financial
leverage, asset turnover and interest and tax burdens. In addition, the
company's cash flow generating capabilities and return on assets will be
considered. SBAM AP believes that ROE and cash flow dynamics are appropriate
variables when analyzing companies which operate in high growth markets, such
as Asia, as the ability of such companies to capture this growth by using the
right allocation of resources and asset financing is of utmost importance.
VALUATION PROCESS AND VOLATILITY ANALYSIS. The valuation process will focus on
Price Earnings Ratio ('PER') calculations and comparisons with historical
relative PER bands and local market conditions. SBAM AP will use measures such
as PER/growth, and will evaluate whether the security enjoys accelerating
earnings growth momentum due to management changes or the introduction of new
products and/or services. In addition, where appropriate, SBAM AP will conduct
specific dividend discount model and discount cash flow analyses for specific
securities with predictable cash flows or dividend streams. Through the use of
this analysis, SBAM AP will attempt to identify companies with strong potential
for appreciation relative to their downside exposure. Lastly, SBAM AP will
conduct a volatility analysis on selected securities in an effort to forecast
the expected risk of such securities and compare the results of such risk
analysis with these securities' expected returns. Investments may be made in
companies that do not have extensive operating experience provided that SBAM AP
believes such companies nevertheless have significant growth potential.
RISK MANAGEMENT AND MACROECONOMIC/TOP-DOWN ANALYSIS. SBAM AP will also consider
macroeconomic variables, such as liquidity and capital flows, foreign equity and
industrial investments and the direction of monetary policies in the Asian
Countries in an effort to capture individual market movements as well as attain
an optimal asset allocation mix and to identify the appropriate risk management
parameters for the Asia Growth Fund. The macroeconomic data SBAM AP will
monitor and analyze includes, but is not limited to, gross domestic product
growth, balance of payments and current account balances, budget deficits or
surpluses, inflation and interest rates. SBAM AP intends to meet with central
bankers, regional economists and strategists on a regular basis to assess the
present and future direction of monetary policies and their likely impact on
the markets of the Asian Countries.
As part of the Fund's risk management approach and in an attempt to better
assess and control the Fund's overall risk level on an ongoing basis, SBAM AP
will employ a quantitative analysis at each stage of the investment process
which will consist of analyzing and forecasting volatilities of the Asian
markets and securities. SBAM AP will use a number of volatility-control
strategies, including derivative instruments (as discussed below), in an effort
to attain an optimal
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asset allocation mix, for hedging purposes in an attempt to control the Fund's
overall risk level and to obtain exposure to markets in the Asian Countries
which have restrictions on foreign investment.
The Asia Growth Fund from time to time may invest up to 10% of its total assets
in non-convertible debt securities, which may include securities rated below
investment grade by S&P and Moody's with no minimum rating required or
comparable unrated securities, commonly known as 'junk bonds.' There is no
limit on the amount of the Fund's assets that can be invested in convertible
securities rated below investment grade. For additional information on these
high yield debt securities, which may involve a high degree of risk, see
'Additional Investment Activities and Risk Factors -- High Yield Securities.'
In order to maintain liquidity, the Asia Growth Fund may hold and/or invest up
to 35% of its total assets in debt securities denominated in U.S. dollars or in
another freely convertible currency including: (1) short-term (less than 12
months to maturity) and medium-term (not greater than five years to maturity)
obligations issued or guaranteed by (a) the U.S. government or the government
of an Asian Country, their agencies or instrumentalities or (b) international
organizations designated or supported by multiple foreign governmental entities
to promote economic reconstruction or development ('supranational entities');
(2) finance company obligations, corporate commercial paper and other short-term
commercial obligations, in each case rated, or issued by companies with similar
securities outstanding that are rated, 'Prime-1' or 'A' or better by Moody's or
'A-1' or 'A' or better by S&P or, if unrated, of comparable quality as
determined by SBAM AP; (3) obligations (including certificates of deposit, time
deposits, demand deposits and bankers' acceptances) of banks; and (4) repurchase
agreements (as described below under 'Additional Investment Activities and Risk
Factors -- Repurchase Agreements') with respect to securities in which the Fund
may invest. If at some future date, in the opinion of SBAM AP, adverse
conditions prevail in the securities markets which makes the Asia Growth Fund's
investment strategy inconsistent with the best interests of the Fund's
shareholders, the Fund may invest its assets without limit in such instruments.
The Asia Growth Fund may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a firm commitment basis,
including when-issued securities and may lend portfolio securities. The Fund may
also invest in investment funds. For a description of these investment practices
and the risks associated therewith, see 'Additional Investment Activities and
Risk Factors.'
The Asia Growth Fund may purchase securities for which there is a limited
trading market or which are subject to restrictions on resale to the public. The
Fund will not invest more than 15% of the value of its total assets in illiquid
securities, such as 'restricted securities' which are illiquid, and securities
that are not readily marketable. For further discussion of illiquid securities
and their associated risks, see 'Additional Investment Activities and Risk
Factors -- Restricted Securities and Securities With Limited Trading Markets.'
As more fully described in the Statement of Additional Information, the Fund
may purchase Rule 144A securities. The Fund's holdings of Rule 144A securities
which are liquid securities will not be subject to the 15% limitation on
investments in illiquid securities.
The Asia Growth Fund is currently authorized and intends to use the various
investment strategies referred to under 'Additional Investment Activities and
Risk Factors -- Derivatives.' The Fund's ability to pursue certain of these
strategies may be limited by applicable regulations of the
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SEC, the CFTC and the federal income tax requirements applicable to regulated
investment companies. Appendix B to this Prospectus and the Statement of
Additional Information contain descriptions of these strategies and of certain
risks associated therewith.
The foregoing investment policies and activities, other than the Asia Growth
Fund's investment objective, are not fundamental and may be changed by the
Fund's Board of Directors without the approval of shareholders.
INVESTORS FUND
The primary investment objective of the Investors Fund is to seek long-term
growth of capital. Current income is a secondary objective. The Fund seeks to
achieve its objectives primarily through investments in common stocks of well-
known companies.
The Investor Fund's policy is to retain flexibility in the management of its
portfolio, without restrictions as to the proportion of assets which may be
invested in any class of securities. It is anticipated that the Fund's
portfolio will generally consist of common and preferred stocks. The Fund may
purchase securities of companies located in foreign countries which the Fund's
investment manager deems consistent with the investment objectives and policies
of the Fund, but not if upon such purchase more than 20% of the Fund's net
assets would be so invested. For a discussion of the risks associated with
investment in foreign securities, see 'Additional Investment Activities and
Risk Factors -- Foreign Securities.'
Under normal conditions, the selection of common stock or securities convertible
into common stock, such as convertible preferred stock or convertible
debentures, with growth possibilities will be favored. Income-producing
securities are a secondary consideration in portfolio selection. To meet
operating expenses, to serve as collateral in connection with certain
investment techniques and to meet anticipated redemption requests, the
Investors Fund generally holds a portion of its assets in short-term
fixed-income securities (governmental obligations or investment grade debt
securities) or cash or cash equivalents. As described below, short-term
investments may include repurchase agreements with banks or broker-dealers.
When management deems it appropriate, consistent with the Investors Fund's
secondary objective of current income, or during temporary defensive periods
due to economic or market conditions, the Fund may invest without limitation in
fixed-income securities or hold assets in cash or cash equivalents. The types
and characteristics of investment grade corporate debt securities and
investment grade foreign debt securities which may be purchased by the Fund are
set forth above in the discussion of investment objectives and policies for the
Strategic Bond Fund. Investments in such investment grade fixed-income
securities may also be made for the purpose of capital appreciation, as in the
case of purchases of bonds traded at a substantial discount, or when interest
rates are expected to decline.
The Investors Fund from time to time may invest up to 5% of its net assets in
non-convertible debt securities rated below investment grade by S&P and Moody's
with no minimum rating required or comparable unrated securities. There is no
limit on the amount of Investors Fund's assets that can be invested in
convertible securities rated below investment grade. For additional information
on these high yield debt securities, which may involve a high degree of risk,
see the description above of investment objectives and polices for the High
Yield Bond Fund and 'Additional Investment Activities and Risk Factors -- High
Yield Securities.'
The Investors Fund maintains a carefully selected portfolio of securities
diversified
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among industries and companies. The Fund may invest up to 25% of its net assets
in any one industry. The Fund generally purchases marketable securities,
primarily those traded on the New York Stock Exchange ('NYSE') or other
national securities exchanges, but also issues traded in the over-the-counter
market. The Fund will not invest more than 10% of the value of its total assets
in illiquid securities, such as 'restricted securities' which are illiquid, and
securities that are not readily marketable. As more fully described in the
Statement of Additional Information, the Fund may purchase certain Rule 144A
securities for which there is a secondary market of qualified institutional
buyers as contemplated by Rule 144A under the 1933 Act. The Fund's holdings of
Rule 144A securities which are liquid securities will not be subject to the 10%
limitation on investments in illiquid securities. For further discussion of
illiquid securities and their associated risks, see 'Additional Investment
Activities and Risk Factors -- Restricted Securities and Securities with
Limited Trading Markets.'
From time to time, the Investors Fund may lend portfolio securities to brokers
or dealers or other financial institutions. Such loans will not exceed 10% of
the Fund's total assets, taken at value. For a discussion of the risks
associated with lending portfolio securities, see 'Additional Investment
Activities and Risk Factors -- Loans of Portfolio Securities.'
As indicated under 'Investment Limitations' below, the Investors Fund may
invest in repurchase agreements in an amount up to 25% of its total assets. For
a description of repurchase agreements and their associated risks, see
'Additional Investment Activities and Risk Factors -- Repurchase Agreements.'
As a hedge against either a decline in the value of securities included in the
Investors Fund's portfolio or against an increase in the price of securities
which it plans to purchase or in order to preserve or maintain a return or
spread on a particular investment or portion of its portfolio or to achieve a
particular return on cash balances, or in order to increase income or gain, the
Investors Fund may use all of the various investment strategies referred to
under 'Additional Investment Activities and Risk Factors -- Derivatives.' The
Fund's ability to pursue certain of these strategies may be limited by
applicable regulations of the SEC, the CFTC and the federal income tax
requirements applicable to regulated investment companies. Appendix B to this
Prospectus and the Statement of Additional Information contain descriptions of
these strategies and of certain risks associated therewith.
The foregoing investment policies, other than the Investors Fund's investment
objectives, are not fundamental and may be changed by the Board of Directors
without the approval of shareholders.
CAPITAL FUND
The investment objective of the Capital Fund is to seek capital appreciation
through investments in securities which are believed to have above-average price
appreciation potential. Such investments may also involve above-average risk.
There can be no assurance that the Fund's objective will be achieved. Although
the Fund may receive current income from dividends, interest and other sources,
income is an incidental consideration to seeking capital appreciation. The Fund
is non-diversified within the meaning of the 1940 Act. See 'Additional
Investment Activities and Risk Factors -- Non-Diversification.'
In seeking capital appreciation, investments by the Capital Fund may be in
seasoned, established companies, relatively small new companies as well as in
new issues and may be subject to wide fluctuations in market value. Portfolio
securities may have limited marketability or may be widely and publicly traded.
The
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Fund will not concentrate its investments in any particular industry.
The Capital Fund anticipates that its investments generally will be in
securities of companies which it considers to reflect the following
characteristics:
(1) share prices which appear to undervalue the company's assets or which
appear not to take into account adequately factors such as prospective reversal
of an unfavorable industry trend, lack of investor recognition or disappointing
earnings believed to be temporary;
(2) special situations such as existing or possible changes in management or
management policies, corporate structure or control, capitalization, regulatory
environment, or other circumstances which could be expected to favor earnings or
market price of such company's shares; or
(3) growth potential due to technological advances, new methods in marketing or
production, new or unique products or services, changes in demand for products
or services or other significant new developments.
The Capital Fund intends to invest primarily in common stocks, or securities
convertible into or exchangeable for common stocks, such as convertible
preferred stocks or convertible debentures. To meet operating expenses, to
serve as collateral in connection with certain investment techniques and to meet
anticipated redemption requests, the Fund generally holds a portion of its
assets in short-term fixed income securities (government obligations or
investment grade debt securities) or cash or cash equivalents. As described
below, short-term investments may include repurchase agreements with banks or
brokers-dealers. When management deems it appropriate, for temporary defensive
purposes, the Fund may invest without limitation in investment grade
fixed-income securities or hold assets in cash or cash equivalents. Investment
grade debt securities are debt securities rated BBB or better by S&P or Baa or
better by Moody's, or if rated by other rating agencies or if unrated,
securities deemed by the investment manager to be of comparable quality. See
'Appendix A: Description of Ratings.' Investments in such investment grade
fixed-income securities may also be made for the purpose of capital
appreciation, as in the case of purchases of bonds traded at a substantial
discount or when the Investment Manager believes interest rates may decline.
The Capital Fund from time to time may invest up to 5% of its net assets in non-
convertible debt securities rated below investment grade by S&P and Moody's
with no minimum rating required or comparable unrated securities. There is no
limit on the amount of the Fund's assets that can be invested in convertible
securities rated below investment grade. For additional information on these
high yield debt securities, which may involve a high degree of risk, see the
description above of the investment objectives and policies for the High Yield
Bond Fund and 'Additional Investment Activities and Risk Factors -- High Yield
Securities.' The Fund may invest up to 20% of the value of the Fund's assets in
securities of foreign issuers. See 'Additional Investment Activities and Risk
Factors -- Foreign Securities.'
The Capital Fund may purchase securities for which there is a limited trading
market or which are subject to restrictions on resale to the public. The Fund
will not invest more than 10% of the value of its total assets in illiquid
securities, such as 'restricted securities' which are illiquid, and securities
that are not readily marketable. For further discussion of illiquid securities
and their associated risks, see 'Additional Investment Activities and Risk
Factors -- Restricted Securities and Securities With Limited Trading Markets.'
As more fully described in the Statement of Additional Information, the Fund
may purchase Rule 144A securities. The Fund's holding of Rule 144A
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securities which are liquid securities will not be subject to the 10%
limitation on investments in illiquid securities.
As indicated below under 'Investment Limitations,' the Fund may from time to
time lend portfolio securities to selected members of the NYSE. Such loans will
not exceed 10% of the Fund's total assets taken at value. For a discussion of
the risks associated with lending portfolio securities, see 'Additional
Investment Activities and Risk Factors -- Loans of Portfolio Securities.'
As indicated below under 'Investment Limitations,' the Capital Fund may invest
in repurchase agreements in an amount up to 25% of its total assets. The Fund
enters into repurchase agreements with respect to securities in which it may
otherwise invest. For a description of repurchase agreements and their
associated risks, see 'Additional Investment Activities and Risk
Factors -- Repurchase Agreements.' In addition, in order to meet redemptions or
to take advantage of promising investment opportunities without disturbing an
established portfolio, the Fund may borrow up to an aggregate of 15% of the
value of its total assets taken at the time of borrowing. In addition, the Fund
may borrow as a temporary measure an aggregate amount which may not exceed 5%
of the value of its total assets at the time of borrowing. The Fund shall borrow
only from banks. Borrowings may be unsecured, or may be secured by not more
than 15% of the value of the Fund's total assets. As a matter of operating
policy, however, the Fund will not secure borrowings by more than 10% of the
value of the Fund's total assets. For a discussion of the risks associated with
borrowings, see 'Additional Investment Activities and Risk
Factors -- Borrowing.'
As a hedge against either a decline in the value of the securities included in
the Capital Fund's portfolio, or against an increase in the price of the
securities which it plans to purchase, or in order to preserve or maintain a
return or spread on a particular investment or portion of its portfolio or to
achieve a particular return on cash balances, or in order to increase income or
gain, the Capital Fund may use all of the investment strategies referred to
under 'Additional Investment Activities and Risk Factors -- Derivatives.' The
Fund's ability to pursue certain of these strategies may be limited by
applicable regulations of the SEC, the CFTC and the federal income tax
requirements applicable to regulated investment companies.
The foregoing investment policies (other than the policy of the Capital Fund
with respect to the borrowing of money) are not fundamental and may be changed
by the Board of Directors without the approval of shareholders.
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Additional Investment Activities
and Risk Factors
BANK OBLIGATIONS. Banks are subject to extensive governmental regulations which
may limit both the amounts and types of loans and other financial commitments
which may be made and interest rates and fees which may be charged. The
profitability of this industry is largely dependent upon the availability and
cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations.
Investors should also be aware that securities issued or guaranteed by foreign
banks, foreign branches of U.S. banks, and foreign government and private
issuers may involve investment risks in addition to those relating to domestic
obligations. See ' -- Foreign Securities' below. None of the Funds will
purchase bank obligations which the investment manager believes, at the time of
purchase, will be subject to exchange controls or foreign withholding taxes;
however, there can be no assurance that such laws may not become applicable to
certain of the Funds' investments. In the event unforeseen exchange controls or
foreign withholding taxes are imposed with respect to a Fund's investments, the
effect may be to reduce the income received by the Fund on such investments.
FLOATING AND VARIABLE RATE INSTRUMENTS. Certain Funds may invest in floating
and variable rate obligations. Floating or variable rate obligations bear
interest at rates that are not fixed, but vary with changes in specified market
rates or indices, such as the prime rate, and at specified intervals. Certain
of the floating or variable rate obligations that may be purchased by a Fund
may carry a demand feature that would permit the holder to tender them back to
the issuer at par value prior to maturity. Such obligations include variable
rate master demand notes, which are unsecured instruments issued pursuant to an
agreement between the issuer and the holder that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest rate. A
Fund will limit its purchases of floating and variable rate obligations to
those of the same quality as it otherwise is allowed to purchase. The
investment manager will monitor on an ongoing basis the ability of an issuer of
a demand instrument to pay principal and interest on demand. For a further
discussion of floating and variable rate obligations, see 'Additional
Information on Portfolio Instruments and Investment Policies -- Floating and
Variable Rate Instruments' in the Statement of Additional Information.
MUNICIPAL LEASE OBLIGATIONS. Certain of the Funds may invest in municipal lease
obligations. Although lease obligations do not constitute general obligations
of the issuer for which the lessee's unlimited taxing power is pledged, a lease
obligation is frequently backed by the lessee's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain 'nonappropriation' clauses which provide that
the lessee has no obligation to make lease or installment purchase payments in
future years unless money is appropriated for such purpose on a yearly basis.
Although 'nonappropriation' lease obligations are secured by the leased
property, disposition of the property in the event of foreclosure might prove
difficult. These securities
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represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional securities.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements for cash
management purposes. A repurchase agreement is a transaction in which the
seller of a security commits itself at the time of the sale to repurchase that
security from the buyer at a mutually agreed upon time and price.
Each Fund will enter into repurchase agreements only with dealers, domestic
banks or recognized financial institutions which, in the opinion of the
investment manager based on guidelines established by the Fund's Board of
Directors, are deemed creditworthy. The investment manager will monitor the
value of the securities underlying the repurchase agreement at the time the
transaction is entered into and at all times during the term of the repurchase
agreement to ensure that the value of the securities always equals or exceeds
the repurchase price. Each Fund requires that additional securities be
deposited if the value of the securities purchased decreases below their resale
price and does not bear the risk of a decline in the value of the underlying
security unless the seller defaults under the repurchase obligation. In the
event of default by the seller under the repurchase agreement, a Fund could
experience losses and experience delays in connection with the disposition of
the underlying security. To the extent that, in the meantime, the value of the
securities that a Fund has purchased has decreased, the Fund could experience a
loss. Repurchase agreements with maturities of more than seven days will be
treated as illiquid securities by a Fund.
REVERSE REPURCHASE AGREEMENTS. Certain of the Funds may enter into 'reverse'
repurchase agreements to avoid selling securities during unfavorable market
conditions to meet redemptions. Pursuant to a reverse repurchase agreement, a
Fund will sell portfolio securities and agree to repurchase them from the buyer
at a particular date and price. Whenever a Fund enters into a reverse
repurchase agreement, it will establish a segregated account in which it will
maintain liquid assets in an amount at least equal to the repurchase price
marked to market daily (including accrued interest), and will subsequently
monitor the account to ensure that such equivalent value is maintained. A Fund
pays interest on amounts obtained pursuant to reverse repurchase agreements.
Reverse repurchase agreements are considered to be borrowings by a Fund.
PARTICIPATION CERTIFICATES. The New York Municipal Money Market Fund, the New
York Municipal Bond Fund and the National Intermediate Municipal Fund may
invest in participation certificates. A participation certificate gives a Fund
an undivided interest in the underlying obligations in the proportion that a
Fund's interest bears to the total principal amount of such obligations.
Certain of such participation certificates may carry a demand feature that
would permit the holder to tender them back to the issuer or to a third party
prior to maturity.
LOANS OF PORTFOLIO SECURITIES. Certain of the Funds may lend portfolio
securities to generate income. In the event of the bankruptcy of the other
party to a securities loan, a Fund could experience delays in recovering the
securities it lent. To the extent that, in the meantime, the value of the
securities a Fund lent has increased, the Fund could experience a loss. The
value of securities loaned will be marked to market daily. Any securities that
a Fund may receive as collateral will not become a part of its portfolio at the
time of the loan and, in the event of a default by the borrower, the Fund will,
if permitted by law, dispose of such collateral except that the Fund may retain
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any such part thereof that is a security in which the Fund is permitted to
invest. The Fund may invest the cash collateral and earn additional income or
receive an agreed-upon fee from a borrower that has delivered cash equivalent
collateral. Cash collateral received by a Fund may be invested in securities in
which the Fund is permitted to invest. Portfolio securities purchased with cash
collateral are subject to possible depreciation. Voting rights may pass with
the lending of portfolio securities. Loans of securities by a Fund will be
subject to termination at the Fund's or the borrower's option. A Fund may pay
administrative and custodial fees in connection with a securities loan and may
pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or a placing broker.
FIRM COMMITMENTS AND WHEN-ISSUED SECURITIES. A Fund may purchase securities on
a firm commitment basis, including when-issued securities. Securities purchased
on a firm commitment basis are purchased for delivery beyond the normal
settlement date at a stated price and yield. No income accrues to the purchaser
of a security on a firm commitment basis prior to delivery. Such securities are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. Purchasing a security on a firm commitment
basis can involve a risk that the market price at the time of delivery may be
lower than the agreed upon purchase price, in which case there could be an
unrealized loss at the time of delivery. A Fund will only make commitments to
purchase securities on a firm commitment basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. A Fund will establish a segregated account in which it will
maintain liquid assets in an amount at least equal in value to the Fund's
commitments to purchase securities on a firm commitment basis. If the value of
these assets declines, the Fund will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is
equal to the amount of such commitments.
ZERO COUPON SECURITIES, PIK BONDS AND DEFERRED PAYMENT SECURITIES. Certain of
the Funds may invest in zero coupon securities, PIK bonds and deferred payment
securities.
Zero coupon securities are debt securities that pay no cash income but are sold
at substantial discounts from their value at maturity. When a zero coupon
security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time
of their investment what the expected return on their investment will be.
Certain zero coupon securities also are sold at substantial discounts from their
maturity value and provide for the commencement of regular interest payments at
a deferred date. Zero coupon securities may have conversion features. A Fund
also may purchase PIK bonds. PIK bonds pay all or a portion of their interest
in the form of debt or equity securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes
payable at regular intervals.
Zero coupon securities, PIK bonds and deferred payment securities tend to be
subject to greater price fluctuations in response to changes in interest rates
than are ordinary interest-paying debt securities with similar maturities. The
value of zero coupon securities appreciates more during periods of declining
interest rates and depreciates more during periods of rising interest rates
than ordinary interest-paying debt securities with similar maturities.
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Zero coupon securities, PIK bonds and deferred payment securities may be issued
by a wide variety of corporate and governmental issuers. Although these
instruments are generally not traded on a national securities exchange, they are
widely traded by brokers and dealers and, to such extent, will not be considered
illiquid for the purposes of a Fund's limitation on investments in illiquid
securities.
Current federal income tax law requires the holder of a zero coupon security,
certain PIK bonds, deferred payment securities and certain other securities
acquired at a discount (such as Brady Bonds) to accrue income with respect to
these securities prior to the receipt of cash payments. Accordingly, to avoid
liability for federal income and excise taxes, a Fund may be required to
distribute income accrued with respect to these securities and may have to
dispose of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Certain of the Funds may invest in Loan
Participations and Assignments. The Funds consider these investments to be
investments in debt securities for purposes of this Prospectus. Loan
Participations typically will result in a Fund having a contractual
relationship only with the Lender, not with the borrower. A Fund will have the
right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Loan Participations, a Fund generally will have no right to enforce compliance
by the borrower with the terms of the Loan agreement relating to the Loan, nor
any rights of set-off against the borrower, and the Fund may not benefit
directly from any collateral supporting the Loan in which it has purchased the
Participation. As a result, a Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, a Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. A Fund will acquire Loan Participations only if the
Lender interpositioned between the Fund and the borrower is determined by SBAM
(or in the case of the Asia Growth Fund, SBAM AP) to be creditworthy. When a
Fund purchases Assignments from Lenders, the Fund will acquire direct rights
against the borrower on the Loan, except that under certain circumstances such
rights may be more limited than those held by the assigning Lender.
A Fund may have difficulty disposing of Assignments and Loan Participations.
Because the market for such instruments is not highly liquid, the Funds
anticipate that such instruments could be sold only to a limited number of
institutional investors. The lack of a highly liquid secondary market may have
an adverse impact on the value of such instruments and will have an adverse
impact on a Fund's ability to dispose of particular Assignments or Loan
Participations in response to a specific economic event, such as deterioration
in the creditworthiness of the borrower.
The Board of Directors of the Series Funds has adopted policies and procedures
for the purpose of determining whether Assignments and Loan Participations are
liquid or illiquid for purposes of a Fund's limitation on investment in
illiquid securities. Pursuant to those policies and procedures, the Board of
Directors has delegated to the investment manager the determination as to
whether a particular Loan Participation or Assignment is liquid or illiquid,
requiring that consideration be given to, among other things, the frequency of
quotes, the number of dealers willing to sell and the number of potential
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purchasers, the nature of the Loan Participation or Assignment and the time
needed to dispose of it and the contractual provisions of the relevant
documentation. The Board of Directors periodically reviews purchases and sales
of Assignments and Loan Participations. To the extent that liquid Assignments
and Loan Participation that a Fund holds become illiquid, due to the lack of
sufficient buyers or market or other conditions, the percentage of a Fund's
assets invested in illiquid assets would increase. The investment manager, under
the supervision of the Board of Directors, will monitor Fund investments in
Assignments and Loan Participations and will consider appropriate measures to
enable a Fund to maintain sufficient liquidity for operating purposes and to
meet redemption requests.
In valuing a Loan Participation or Assignment held by a Fund for which a
secondary trading market exists, the Fund will rely upon prices or quotations
provided by banks, dealers or pricing services. To the extent a secondary
trading market does not exist, a Fund's Loan Participations and Assignments
will be valued in accordance with procedures adopted by the Board of Directors,
taking into consideration, among other factors, (i) the creditworthiness of the
borrower under the Loan and the Lender, (ii) the current interest rate, period
until next rate reset and maturity of the Loan, (iii) recent prices in the
market for similar Loans and (iv) recent prices in the market for instruments
of similar quality, rate, period until next interest rate reset and maturity.
See 'Net Asset Value.'
RESTRICTED SECURITIES AND SECURITIES WITH LIMITED TRADING MARKETS. Certain
Funds may purchase securities for which there is a limited trading market or
which are subject to restrictions on resale to the public. If a Fund were to
assume substantial positions in securities with limited trading markets, the
activities of the Fund could have an adverse effect upon the liquidity and
marketability of such securities and the Fund might not be able to dispose of
its holdings in those securities at then current market prices. Circumstances
could also exist (to satisfy redemptions, for example) when portfolio
securities might have to be sold by a Fund at times which otherwise might be
considered to be disadvantageous so that the Fund might receive lower proceeds
from such sales than it had expected to realize. Investments in securities
which are 'restricted' may involve added expenses to a Fund should the Fund be
required to bear registration costs with respect to such securities and could
involve delays in disposing of such securities which might have an adverse
effect upon the price and timing of sales of such securities and the liquidity
of the Fund with respect to redemptions. Restricted securities and securities
for which there is a limited trading market may be significantly more difficult
to value due to the unavailability of reliable market quotations for such
securities, and investment in such securities may have an adverse impact on net
asset value. As more fully described in the Statement of Additional Information,
certain Funds may purchase Rule 144A securities for which there may be a
secondary market of qualified institutional buyers as contemplated by recently
adopted Rule 144A under the 1933 Act. A Fund's holdings of Rule 144A securities
which are liquid securities will not be subject to the Fund's applicable
limitation on investments in illiquid securities. Rule 144A is a recent
development and there is no assurance that a liquid market in Rule 144A
securities will develop or be maintained. To the extent that the number of
qualified institutional buyers is reduced, a previously liquid Rule 144A
security may be determined to be illiquid, thus increasing the percentage of
illiquid assets in a Fund's portfolio. The Board of Directors will be
responsible for monitoring the liquidity of Rule 144A
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securities and the selection by the investment manager of such securities.
VARIABLE RATE AUCTION SECURITIES AND INVERSE FLOATERS. The New York Municipal
Bond Fund and the National Intermediate Municipal Fund may invest in variable
rate auction securities and inverse floaters which are instruments created when
an issuer or dealer separates the principal portion of a long-term, fixed-rate
municipal bond into two long-term, variable-rate instruments. The interest rate
on the variable rate auction portion reflects short-term interest rates, while
the interest rate on the inverse floater portion is typically higher than the
rate available on the original fixed-rate bond. Changes in the interest rate
paid on the portion of the issue relative to short-term interest rates
inversely affect the interest rate paid on the latter portion of the issue. The
latter portion therefore is subject to greater price volatility than the
original fixed-rate bond, and the market value can be extremely volatile. Since
the market for these instruments is new, the holder of one portion may have
difficulty finding a ready purchaser. Depending on market availability, the two
portions may be recombined to form a fixed-rate municipal bond.
WARRANTS. Certain of the Funds may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other securities.
Warrants do not carry the right to dividends or voting rights with respect to
their underlying securities, and they do not represent any rights in assets of
the issuer. An investment in warrants may be considered speculative. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities and a warrant ceases to have value if it is not
exercised prior to its expiration date.
FOREIGN SECURITIES. Investors should recognize that investing in the securities
of foreign issuers involves special considerations which are not typically
associated with investing in the securities of U.S. issuers. Investments in
securities of foreign issuers may involve risks arising from differences
between U.S. and foreign securities markets, including less volume, much
greater price volatility in and relative illiquidity of foreign securities
markets, different trading and settlement practices and less governmental
supervision and regulation, from changes in currency exchange rates, from high
and volatile rates of inflation, from economic, social and political conditions
and, as with domestic multinational corporations, from fluctuating interest
rates.
Investment in certain emerging market securities is restricted or controlled to
varying degrees which may at times limit or preclude investment in certain
emerging market securities and increase the costs and expenses of a Fund.
Certain emerging market countries require governmental approval prior to
investments by foreign persons, limit the amount of investment by foreign
persons in a particular issuer, limit the investment by foreign persons only to
a specific class of securities of an issuer that may have less advantageous
rights than other classes, restrict investment opportunities in issuers in
industries deemed important to national interests and/or impose additional
taxes on foreign investors.
Certain emerging market countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors which could adversely affect a Fund. In
addition, if a deterioration occurs in the country's balance of payments, it
could impose temporary restrictions on foreign capital remittances. Investing
in local markets in emerging market countries may require a Fund to adopt
special procedures, seek local government approvals or take other actions, each
of which may involve additional costs to the Fund.
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Other investment risks include the possible imposition of foreign withholding
taxes on certain amounts of a Fund's income, the possible seizure or
nationalization of foreign assets and the possible establishment of exchange
controls, expropriation, confiscatory taxation, other foreign governmental laws
or restrictions which might affect adversely payments due on securities held by
a Fund, the lack of extensive operating experience of eligible foreign
subcustodians and legal limitations on the ability of a Fund to recover assets
held in custody by a foreign subcustodian in the event of the subcustodian's
bankruptcy. Moreover, brokerage commissions and other transactions costs on
foreign securities exchanges are generally higher than in the United States.
In addition, there may be less publicly-available information about a foreign
issuer than about a U.S. issuer, and foreign issuers may not be subject to the
same accounting, auditing and financial record-keeping standards and
requirements as U.S. issuers. In particular, the assets and profits appearing
on the financial statements of an emerging market country issuer may not
reflect its financial position or results of operations in the way they would
be reflected and the financial statements been prepared in accordance with U.S.
generally accepted accounting principles. In addition, for an issuer that keeps
accounting records in local currency, inflation accounting rules may require,
for both tax and accounting purposes, that certain assets and liabilities be
restated on the issuer's balance sheet in order to express items in terms of
currency of constant purchasing power. Inflation accounting may indirectly
generate losses or profits. Consequently, financial data may be materially
affected by restatements for inflation and may not accurately reflect the real
condition of those issuers and securities markets. See ' -- High Yield
Securities.'
Finally, in the event of a default in any such foreign obligations, it may be
more difficult for a Fund to obtain or enforce a judgment against the issuers
of such obligations. For a further discussion of certain risks involved in
investing in foreign securities, particularly of emerging market issuers, see
'Additional Information on Portfolio Instruments and Investment
Policies -- Foreign Securities' in the Statement of Additional Information.
FIXED-INCOME SECURITIES. Changes in market yields will affect a Fund's net asset
value as prices of fixed-income securities generally increase when interest
rates decline and decrease when interest rates rise. Prices of longer term
securities generally increase or decrease more sharply than those of shorter
term securities in response to interest rate changes, particularly if such
securities were purchased at a discount. Because the New York Municipal Bond
Fund, National Intermediate Municipal Fund, U.S. Government Income Fund, the
High Yield Bond Fund and the Strategic Bond Fund will invest primarily in
fixed-income securities and the Total Return Fund may from time to time invest
in a substantial amount of fixed-income securities, the net asset value of
these Fund's shares can be expected to change as general levels of interest
rates fluctuate. It should be noted that the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities.
Except to the extent that values are affected independently by other factors
such as developments relating to a specific issuer, when interest rates
decline, the value of a fixed-income portfolio can generally be expected to
rise. Conversely, when interest rates rise, the value of a fixed-income
portfolio can generally be expected to decline.
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In addition, many fixed-income securities contain call or buy-back features that
permit their issuers to call or repurchase the securities from their holders.
Such securities may present risks based on payment expectations. Although a Fund
would typically receive a premium if an issuer were to redeem a security, if an
issuer exercises such a 'call option' and redeems the security during a time of
declining interest rates, a Fund may realize a capital loss on its investment if
the security was purchased at a premium and a Fund may have to replace the
called security with a lower yielding security, resulting in a decreased rate
of return to the Fund.
Because the New York Municipal Money Market Fund, the New York Municipal Bond
Fund and the National Intermediate Municipal Fund invest primarily in municipal
obligations, they are more susceptible to factors adversely affecting issuers
of such obligations than funds that are not so concentrated. The secondary
market for municipal obligations may be less liquid than for most taxable fixed-
income securities. Consequently, the ability of the New York Municipal Money
Market Fund, the New York Municipal Bond Fund and the National Intermediate
Municipal Fund to buy and sell municipal obligations may, at any particular
time and with respect to any particular securities, be limited. The amount of
information about the financial condition of an issuer of municipal obligations
may not be as extensive as information about corporations whose securities are
publicly traded. Obligations of issuers of municipal obligations may be subject
to the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the U.S. Bankruptcy Code and applicable
state laws, which could limit the ability of such Funds to recover payments of
principal or interest on such securities.
MORTGAGE-BACKED SECURITIES. The yield characteristics of the mortgage-backed
securities in which the U.S. Government Income Fund, the Strategic Bond Fund
and the Total Return Fund may invest differ from those of traditional debt
securities. Among the major differences are that interest and principal
payments are made more frequently on mortgage-backed securities, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans generally may be prepaid at any time. As a result, if these
securities are purchased at a premium, faster than expected prepayments will
reduce yield to maturity, while slower than expected prepayments will increase
yield to maturity. Conversely, if these securities are purchased at a discount,
faster than expected prepayments will increase yield to maturity, while slower
than expected prepayments will reduce yield to maturity. Accelerated
prepayments on securities purchased at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is prepaid in full. Because of the reinvestment of prepayments of
principal at current rates, mortgage-backed securities may be less effective
than Treasury bonds of similar maturity at maintaining yields during periods of
declining interest rates. When interest rates rise, the value and liquidity of
mortgage-backed securities may decline sharply and generally will decline more
than would be the case with other fixed-income securities; however, when
interest rates decline, the value of mortgage-backed securities may not
increase as much as other fixed-income securities due to the prepayment
feature. Certain market conditions may result in greater than expected
volatility in the prices of mortgage-backed securities. For example, in periods
of supply and demand imbalances in the market for such securities and/or in
periods of sharp
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interest rate movements, the prices of mortgage-backed securities may fluctuate
to a greater extent than would be expected from interest rate movements alone.
For a description of multiple class mortgage pass-through securities, see
' -- Collateralized Mortgage Obligations and Multiclass Pass-Through Securities'
below.
ADJUSTABLE RATE MORTGAGE SECURITIES. Unlike fixed rate mortgage securities,
adjustable rate mortgage securities are collateralized by or represent
interests in mortgage loans with variable rates of interest. These variable
rates of interest reset periodically to align themselves with market rates. A
Fund will not benefit from increases in interest rates to the extent that
interest rates rise to the point where they cause the current coupon of the
underlying adjustable rate mortgages to exceed any maximum allowable annual or
lifetime reset limits (or 'cap rates') for a particular mortgage. In this event,
the value of the mortgage securities in a Fund would likely decrease. Also, a
Fund's net asset value could vary to the extent that current yields on
adjustable rate mortgage securities are different than market yields during
interim periods between coupon reset dates or if the timing of changes to the
index upon which the rate for the underlying mortgages is based lags behind
changes in market rates. During periods of declining interest rates, income to a
Fund derived from adjustable rate mortgages which remain in a mortgage pool
will decrease in contrast to the income on fixed rate mortgages, which will
remain constant. Adjustable rate mortgages also have less potential for
appreciation in value as interest rates decline than do fixed rate investments.
PRIVATELY-ISSUED MORTGAGE SECURITIES. The Strategic Bond Fund and the Total
Return Fund may also purchase mortgage-backed securities issued by private
issuers which may entail greater risk than mortgage-backed securities that are
guaranteed by the U.S. government, its agencies or instrumentalities. Privately-
issued mortgage securities are issued by private originators of, or investors
in, mortgage loans, including mortgage bankers, commercial banks, investment
banks, savings and loan associations and special purpose subsidiaries of the
foregoing. Since privately-issued mortgage certificates are not guaranteed by an
entity having the credit status of GNMA or FHLMC, such securities generally are
structured with one or more types of credit enhancement. Such credit support
falls into two categories: (i) liquidity protection and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches.
The ratings of mortgage securities for which third-party credit enhancement
provides liquidity protection or protection against losses from default are
generally dependent upon the continued creditworthiness of the provider of the
credit enhancement. The ratings of such securities could be subject to reduction
in the event of deterioration in the creditworthiness of the credit enhancement
provider even in cases where the delinquency and loss experience on the
underlying pool of assets is better than expected. There can be no assurance
that the private issuers or credit enhancers of mortgage-backed
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securities can meet their obligations under the relevant policies or other
forms of credit enhancement.
Examples of credit support arising out of the structure of the transaction
include 'senior-subordinated securities' (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), creation of
'reserve funds' (where cash or investments sometimes funded from a portion of
the payments on the underlying assets are held in reserve against future
losses) and 'over-collateralization' (where the scheduled payments on, or the
principal amount of, the underlying assets exceed those required to make
payment of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information with respect to the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that which is anticipated
could adversely affect the return on an investment in such security.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES.
The U.S. Government Income Fund and the Strategic Bond Fund may invest in
collateralized mortgage obligations ('CMOs'). CMOs are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by GNMA, Fannie Mae or Freddie Mac
Certificates, but also may be collateralized by whole loans or private
pass-throughs (such collateral collectively hereinafter referred to as
'Mortgage Assets'). Multiclass pass-through securities are interests in a trust
composed of Mortgage Assets. Unless the context indicates otherwise, all
references herein to CMOs include multiclass pass-through securities. Payments
of principal and of interest on the Mortgage Assets, and any reinvestment
income thereon, provide the funds to pay debt service on the CMOs or make
scheduled distributions on the multiclass pass-through securities. CMOs may be
issued by agencies or instrumentalities of the U.S. government, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. CMOs acquired by the U.S. Government
Income Fund will be limited to those issued or guaranteed by agencies or
instrumentalities of the U.S. government and, if available in the future, the
U.S. government.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a 'tranche', is issued at a specified fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable
ways. In one structure, payments of principal, including any principal
prepayments, on the Mortgage Assets are applied to the classes of a CMO in the
order of their respective stated maturities or final distribution dates, so
that no payment of principal will be made on any class of CMOs until all other
classes having an earlier stated maturity or final distribution date have been
paid in full. The U.S. Government Income and Strategic Bond Funds have no
present intention to invest in CMO residuals. As market conditions change, and
particularly during periods of rapid
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or unanticipated changes in market interest rates, the attractiveness of the
CMO classes and the ability of the structure to provide the anticipated
investment characteristics may be significantly reduced. Such changes can
result in volatility in the market value, and in some instances reduced
liquidity, of the CMO class.
The U.S. Government Income Fund and the Strategic Bond Fund may also invest in,
among others, parallel pay CMOs and Planned Amortization Class CMOs ('PAC
Bonds'). Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution date
of each class, which, as with other CMO structures, must be retired by its
stated maturity date or a final distribution date but may be retired earlier.
PAC Bonds are a type of CMO tranche or series designed to provide relatively
predictable payments of principal provided that, among other things, the actual
prepayment experience on the underlying mortgage loans falls within a
predefined range. If the actual prepayment experience on the underlying
mortgage loans is at a rate faster or slower than the predefined range or if
deviations from other assumptions occur, principal payments on the PAC Bond may
be earlier or later than predicted. The magnitude of the predefined range
varies from one PAC Bond to another; a narrower range increases the risk that
prepayments on the PAC Bond will be greater or smaller than predicted. Because
of these features, PAC Bonds generally are less subject to the risks of
prepayment than are other types of mortgage-backed securities.
STRIPPED MORTGAGE SECURITIES. The Strategic Bond Fund may purchase stripped
mortgage securities which are derivative multiclass mortgage securities.
Stripped mortgage securities may be issued by agencies or instrumentalities of
the U.S. government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.
Stripped mortgage securities have greater volatility than other types of
mortgage securities. Although stripped mortgage securities are purchased and
sold by institutional investors through several investment banking firms acting
as brokers or dealers, the market for such securities has not yet been fully
developed. Accordingly, stripped mortgage securities are generally illiquid and
to such extent, together with any other illiquid investments, will be subject
to the Strategic Bond Fund's applicable restriction on investments in illiquid
securities.
Stripped mortgage securities are structured with two or more classes of
securities that receive different proportions of the interest and principal
distributions on a pool of mortgage assets. A common type of stripped mortgage
security will have at least one class receiving only a small portion of the
interest and a larger portion of the principal from the mortgage assets, while
the other class will receive primarily interest and only a small portion of the
principal. In the most extreme case, one class will receive all of the interest
('IO' or interest-only), while the other class will receive all of the
principal ('PO' or principal-only class). The yield to maturity on IOs, POs and
other mortgage-backed securities that are purchased at a substantial premium or
discount generally are extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on such securities' yield
to maturity. If the
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underlying mortgage assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities even if the securities have received the highest rating by a
nationally recognized statistical rating organizations.
In addition to the stripped mortgage securities described above, the Strategic
Bond Fund may invest in similar securities such as Super POs and Levered IOs
which are more volatile than POs, IOs and IOettes. Risks associated with
instruments such as Super POs are similar in nature to those risks related to
investments in POs. Risks connected with Levered IOs and IOettes are similar in
nature to those associated with IOs. The Strategic Bond Fund may also invest in
other similar instruments developed in the future that are deemed consistent
with its investment objective, policies and restrictions. POs may generate
taxable income from the current accrual of original issue discount, without a
corresponding distribution of cash to the Fund. See 'Taxation' in this
Prospectus and 'Additional Information Concerning Taxes' in the Statement of
Additional Information.
MORTGAGE ROLLS. The U.S. Government Income Fund and the Strategic Bond Fund may
enter into mortgage 'dollar rolls' in which a Fund sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period, a Fund foregoes principal and
interest paid on the mortgage-backed securities. A Fund is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the 'drop') as well as by the interest
earned on the cash proceeds of the initial sale. A Fund may only enter into
covered rolls. A 'covered roll' is a specific type of dollar roll for which
there is an offsetting cash position which matures on or before the forward
settlement date of the dollar roll transaction. At the time a Fund enters into
a mortgage 'dollar roll', it will establish a segregated account with its
custodian bank in which it will maintain cash, U.S. government securities or
other liquid high grade debt obligations equal in value to its obligations in
respect of dollar rolls, and accordingly, such dollar rolls will not be
considered borrowings. Mortgage dollar rolls involve the risk that the market
value of the securities the Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a mortgage dollar roll files for bankruptcy or becomes insolvent, the
Fund's use of proceeds of the dollar roll may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Fund's obligation to repurchase the securities.
HIGH YIELD SECURITIES. The High Yield Bond Fund and the Strategic Bond Fund may
invest without limitation in domestic and foreign 'high yield' securities,
commonly known as 'junk bonds.' The Investors Fund, the Capital Fund and the
Total Return Fund may invest without limitation in convertible securities of
this type and up to 5%, 5% and 20%, respectively, of their net assets in non-
convertible securities of this type. The Asia Growth Fund may invest without
limitation in convertible non-U.S. high yield securities and up to 10% of its
total assets in non-convertible non-U.S. high yield securities.
Under rating agency guidelines, medium-and lower-rated securities and
comparable unrated securities will likely have some quality and protective
characteristics that are outweighed by large uncertainties or major risk
exposures to adverse conditions. Medium and lower rated securities are
considered to have extremely poor prospects of ever attaining any real
investment standing, to have a current identifiable vulnerability to default or
are in default, to be unlikely
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to have the capacity to pay interest and repay principal when due in the event
of adverse business, financial or economic conditions, and/or to be in default
or not current in the payment of interest or principal. Such securities are
considered speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations.
Accordingly, it is possible that these types of factors could, in certain
instances, reduce the value of securities held by a Fund with a commensurate
effect on the value of the Fund's shares.
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. A description of the
ratings used by Moody's and S&P is set forth in Appendix A to this Prospectus.
The ratings of Moody's and S&P generally represent the opinions of those
organizations as to the quality of the securities that they rate. Such ratings,
however, are relative and subjective, are not absolute standards of quality, are
subject to change and do not evaluate the market risk or liquidity of the
securities. Ratings of a non-U.S. debt instrument, to the extent that those
ratings are undertaken, are related to evaluations of the country in which the
issuer of the instrument is located. Ratings generally take into account the
currency in which a non-U.S. debt instrument is denominated. Instruments issued
by a foreign government in other than the local currency, for example,
typically have a lower rating than local currency instruments due to the
existence of an additional risk that the government will be unable to obtain
the required foreign currency to service its foreign currency-denominated debt.
In general, the ratings of debt securities or obligations issued by a non-U.S.
public or private entity will not be higher than the rating of the currency or
the foreign currency debt of the central government of the country in which the
issuer is located, regardless of the intrinsic creditworthiness of the issuer.
The secondary markets for high yield securities are not as liquid as the
secondary markets for higher rated securities. The secondary markets for high
yield securities are concentrated in relatively few market makers and
participants in the market are mostly institutional investors, including
insurance companies, banks, other financial institutions and mutual funds. In
addition, the trading volume for high yield securities is generally lower than
that for higher-rated securities and the secondary markets could contract under
adverse market or economic conditions independent of any specific adverse
changes in the condition of a particular issuer. These factors may have an
adverse effect on the ability of a Fund holding such securities to dispose of
particular portfolio investments, may adversely affect the Fund's net asset
value per share and may limit the ability of such a Fund to obtain accurate
market quotations for purposes of valuing securities and calculating net asset
value. If a Fund is not able to obtain precise or accurate market quotations
for a particular security, it will become more difficult for the Board of
Directors to value such Fund's portfolio securities, and the Directors may have
to use a greater degree of judgment in making such valuations. Less liquid
secondary markets may also affect the ability of a Fund to sell securities at
their fair value. If the secondary markets for high yield securities contract
due to adverse economic conditions or for other reasons, certain liquid
securities in a Fund's portfolio may become illiquid and the proportion of the
Fund's assets invested in illiquid securities may significantly increase.
Prices for high yield securities may be affected by legislative and regulatory
developments. These laws could adversely affect a Fund's net asset value and
investment practices, the secondary
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market for high yield securities, the financial condition of issuers of these
securities and the value of outstanding high yield securities. For example,
federal legislation requiring the divestiture by federally insured savings and
loan associations of their investments in high yield bonds and limiting the
deductibility of interest by certain corporate issuers of high yield bonds
adversely affected the market in recent years.
HIGH YIELD CORPORATE SECURITIES. While the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities,
the market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, such securities present a higher degree of
credit risk. Issuers of these securities are often highly leveraged and may not
have more traditional methods of financing available to them, so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. The risk of loss
due to default by such issuers is significantly greater than with investment
grade securities because such securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. A Fund also may
incur additional expenses to the extent that it is required to seek recovery
upon a default in the payment of principal or interest on its portfolio
holdings.
The development of a market for high yield non-U.S. corporate securities has
been a relatively recent phenomenon. On the other hand, the market for high
yield U.S. corporate debt securities is more established than that for high
yield non-U.S. corporate debt securities, but has undergone significant changes
in the past and may undergo significant changes in the future.
High yield non-U.S. and U.S. corporate securities in which the applicable Funds
may invest include bonds, debentures, notes, commercial paper and preferred
stock and will generally be unsecured. Most of the debt securities will bear
interest at fixed rates. However, a Fund may also invest in corporate debt
securities with variable rates of interest or which involve equity features,
such as contingent interest or participations based on revenues, sales or
profits (i.e., interest or other payments, often in addition to a fixed rate of
return, that are based on the borrower's attainment of specified levels of
revenues, sales or profits and thus enable the holder of the security to share
in the potential success of the venture).
HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES. Investing in fixed and floating
rate high yield foreign sovereign debt securities will expose Funds investing in
such securities to the direct or indirect consequences of political, social or
economic changes in the countries that issue the securities. See ' -- Foreign
Securities' above. The ability and willingness of sovereign obligors in
developing and emerging market countries or the governmental authorities that
control repayment of their external debt to pay principal and interest on such
debt when due may depend on general economic and political conditions within
the relevant country. Countries such as those in which a Fund may invest have
historically experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate trade difficulties and extreme
poverty and unemployment. Many of these countries are also characterized by
political uncertainty or instability. Additional factors which may influence
the ability or willingness to service debt include, but are not limited to, a
country's cash flow situation, the availability of sufficient foreign exchange
on the date a payment is due, the relative size of its debt service burden to
the economy as a whole, and its
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government's policy towards the International Monetary Fund, the World Bank and
other international agencies.
The ability of a foreign sovereign obligor to make timely payments on its
external debt obligations will also be strongly influenced by the obligor's
balance of payments, including export performance, its access to international
credits and investments, fluctuations in interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few commodities
or whose economy depends on certain strategic imports could be vulnerable to
fluctuations in international prices of these commodities or imports. To the
extent that a country receives payment for its exports in currencies other than
U.S. dollars, its ability to make debt payments denominated in U.S. dollars
could be adversely affected. If a foreign sovereign obligor cannot generate
sufficient earnings from foreign trade to service its external debt, it may
need to depend on continuing loans and aid from foreign governments, commercial
banks and multilateral organizations, and inflows of foreign investment. The
commitment on the part of these foreign governments, multilateral organizations
and others to make such disbursements may be conditioned on the government's
implementation of economic reforms and/ or economic performance and the timely
service of its obligations. Failure to implement such reforms, achieve such
levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds,
which may further impair the obligor's ability or willingness to timely service
its debts. The cost of servicing external debt will also generally be adversely
affected by rising international interest rates, because many external debt
obligations bear interest at rates which are adjusted based upon international
interest rates. The ability to service external debt will also depend on the
level of the relevant government's international currency reserves and its
access to foreign exchange. Currency devaluations may affect the ability of a
sovereign obligor to obtain sufficient foreign exchange to service its external
debt.
As a result of the foregoing, a governmental obligor may default on its
obligations. If such an event occurs, a Fund may have limited legal recourse
against the issuer and/or guarantor. Remedies must, in some cases, be pursued
in the courts of the defaulting party itself, and the ability of the holder of
foreign sovereign debt securities to obtain recourse may be subject to the
political climate in the relevant country. In addition, no assurance can be
given that the holders of commercial bank debt will not contest payments to the
holders of other foreign sovereign debt obligations in the event of default
under their commercial bank loan agreements.
Certain debt obligations, customarily referred to as 'Brady Bonds,' are created
through the exchange of existing commercial bank loans to foreign entities for
new obligations in connection with debt restructuring under a plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the 'Brady Plan').
Brady Bonds have been issued only recently, and, accordingly, do not have a
long payment history. They may be collateralized or uncollateralized and issued
in various currencies (although most are dollar-denominated) and they are
actively traded in the over-the-counter secondary market. Dollar-denominated,
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are generally collateralized in full as to principal due at
maturity by U.S. Treasury zero coupon obligations which have the same maturity
as the Brady Bonds. Certain interest payments on these Brady Bonds may be
collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is typically equal to between 12 and 18 months of rolling interest
payments or, in the case of floating rate bonds, initially is typically equal to
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between 12 and 18 months rolling interest payments based on the applicable
interest rate at that time and is adjusted at regular intervals thereafter with
the balance of interest accruals in each case being uncollateralized. The
applicable Funds may purchase Brady Bonds with no or limited collateralization,
and will be relying for payment of interest and (except in the case of principal
collateralized Brady Bonds) principal primarily on the willingness and ability
of the foreign government to make payment in accordance with the terms of the
Brady Bonds. In the event of a default with respect to collateralized Brady
Bonds as a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as collateral for
the payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held
by the collateral agent to the scheduled maturity of the defaulted Brady Bonds,
which will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments which would have then been due on
the Brady Bonds in the normal course. Based upon current market conditions, a
Fund would not intend to purchase Brady Bonds which, at the time of investment,
are in default as to payments. However, in light of the residual risk of the
Brady Bonds and, among other factors, the history of default with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds are to be viewed as speculative. A substantial
portion of the Brady Bonds and other sovereign debt securities in which the
High Yield Bond and Strategic Bond Funds invest are likely to be acquired at a
discount, which involves certain considerations discussed below under
'Taxation.'
Sovereign obligors in developing and emerging market countries are among the
world's largest debtors to commercial banks, other governments, international
financial organizations and other financial institutions. These obligors have
in the past experienced substantial difficulties in servicing their external
debt obligations, which led to defaults on certain obligations and the
restructuring of certain indebtedness. Restructuring arrangements have
included, among other things, reducing and rescheduling interest and principal
payments by negotiating new or amended credit agreements or converting
outstanding principal and unpaid interest to Brady Bonds, and obtaining new
credit to finance interest payments. Holders of certain foreign sovereign debt
securities may be requested to participate in the restructuring of such
obligations and to extend further loans to their issuers. There can be no
assurance that the Brady Bonds and other foreign sovereign debt securities in
which certain of the Funds may invest will not be subject to similar
restructuring arrangements or to requests for new credit which may adversely
affect a Fund's holdings. Furthermore, certain participants in the secondary
market for such debt may be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to
other market participants.
INVESTMENT FUNDS. A Fund may invest in unaffiliated investment funds which
invest principally in securities in which that Fund is authorized to invest.
Under the 1940 Act, the Fund may invest a maximum of 10% of its total assets in
the securities of other investment companies. In addition, under the 1940 Act,
not more than 5% of the Fund's total assets may be invested in the securities
of any one investment company. To the extent a Fund invests in other investment
funds, the Fund's shareholders will incur certain duplicative fees and
expenses, including investment advisory fees. A Fund's investment in certain
investment funds will result in special U.S. Federal income tax
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consequences described below under 'Taxation.'
BORROWING. Each of the Funds may borrow in certain limited circumstances. See
'Investment Limitations.' Borrowing creates an opportunity for increased
return, but, at the same time, creates special risks. For example, borrowing may
exaggerate changes in the net asset value of a Fund's shares and in the return
on the Fund's portfolio. Although the principal of any borrowing will be fixed,
a Fund's assets may change in value during the time the borrowing is
outstanding. A Fund may be required to liquidate portfolio securities at a time
when it would be disadvantageous to do so in order to make payments with
respect to any borrowing, which could affect the investment manager's strategy
and the ability of the Fund to comply with certain provisions of the Internal
Revenue Code of 1986, as amended (the 'Code') in order to provide 'pass-though'
tax treatment to shareholders. Furthermore, if a Fund were to engage in
borrowing, an increase in interest rates could reduce the value of the Fund's
shares by increasing the Fund's interest expense.
NON-DIVERSIFICATION. The Asia Growth Fund and the Capital Fund are classified
as non-diversified investment companies under the 1940 Act, which means that
each Fund is not limited by the 1940 Act in the proportion of its assets that
may be invested in the obligations of a single issuer. Both Funds, however,
intend to comply with the diversification requirements imposed by the Code for
qualification as a regulated investment company. To the extent a Fund invests a
greater proportion of its assets in the securities of a smaller number of
issuers, the Fund may be more susceptible to any single economic, political or
regulatory occurrence than a more widely diversified fund and may be subject to
greater risk of loss with respect to its portfolio securities. Moreover, because
the New York Municipal Money Market Fund has the ability, like many other
single-state tax-free money market funds, to invest a significant percentage of
its assets in the securities of a single issuer, an investment in the Fund may
be riskier than an investment in other types of money market funds. See
'Taxation' and 'Investment Limitations.'
DERIVATIVES. Certain of the Funds may be authorized to use various investment
strategies described below to hedge market risks (such as broad or specific
market movements, interest rates and currency exchange rates), to manage the
effective maturity or duration of debt instruments held by a Fund, or to seek
to increase a Fund's income or gain. The description in this Prospectus of each
Fund indicates which, if any, of these types of transactions may be used by that
Fund. Although these strategies are regularly used by some investment companies
and other institutional investors, it is not presently anticipated that any of
these strategies will be used to a significant degree by any Fund unless
otherwise specifically indicated in the description of the particular Fund
contained in this Prospectus. Over time, however, techniques and instruments may
change as new instruments and strategies are developed or regulatory changes
occur.
Subject to the constraints described above, a Fund may (if and to the extent so
authorized) purchase and sell interest rate, currency or stock or bond index
futures contracts and enter into currency forward contracts and currency swaps;
purchase and sell (or write) exchange listed and over-the-counter put and call
options on securities, currencies, futures contracts, indices and other
financial instruments, and a Fund may enter into interest rate transactions,
equity swaps and related transactions, invest in indexed debt securities and
other similar transactions which may be developed to the extent the investment
manager determines that they are consistent with the applicable Fund's
investment
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objective and policies and applicable regulatory requirements (collectively,
these transactions are referred to in this Prospectus as 'Derivatives'). A
Fund's interest rate transactions may take the form of swaps, caps, floors and
collars, and a Fund's currency transactions may take the form of currency
forward contracts, currency futures contracts, currency swaps and options on
currencies.
Derivatives may be used to attempt to protect against possible changes in the
market value of securities held or to be purchased for a Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, to
protect a Fund's unrealized gains in the value of its securities, to facilitate
the sale of those securities for investment purposes, to manage the effective
maturity or duration of a Fund's portfolio or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities or to seek to enhance a Fund's income or gain. A Fund may
use any or all types of Derivatives which it is authorized to use at any time;
no particular strategy will dictate the use of one type of transaction rather
than another, as use of any authorized Derivative will be a function of
numerous variables, including market conditions. The ability of a Fund to
utilize Derivatives successfully will depend on, in addition to the factors
described above, the investment manager's ability to predict pertinent market
movements, which cannot be assured. These skills are different from those
needed to select a Fund's portfolio securities. None of the Funds is a
'commodity pool' (i.e., a pooled investment vehicle which trades in commodity
futures contracts and options thereon and the operator of which is registered
with the CFTC), and Derivatives involving futures contracts and options on
futures contracts will be purchased, sold or entered into only for bona fide
hedging purposes, provided that a Fund may enter into such transactions for
purposes other than bona fide hedging if, immediately thereafter, the sum of
the amount of its initial margin and premiums on open contracts and options
would not exceed 5% of the liquidation value of the Fund's portfolio, after
taking into account unrealized profits and losses on existing contracts
provided, further, that, in the case of an option that is in-the-money, the
in-the-money amount may be excluded in calculating the 5% limitation. The use of
certain Derivatives in certain circumstances will require that a Fund segregate
cash, liquid high grade debt obligations or other assets to the extent a Fund's
obligations are not otherwise 'covered' through ownership of the underlying
security, financial instrument or currency.
Derivatives involve special risks, including possible default by the other
party to the transaction, illiquidity and, to the extent the investment
manager's view as to certain market movements is incorrect, the risk that the
use of Derivatives could result in significantly greater losses than if it had
not been used. Use of put and call options could result in losses to a Fund,
force the purchase or sale of portfolio securities at inopportune times or for
prices higher or lower than current market values, or cause a Fund to hold a
security it might otherwise sell. The use of currency transactions could result
in a Fund's incurring losses as a result of the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive a
specified currency in addition to exchange rate fluctuations. The use of
options and futures transactions entails certain special risks. In particular,
the variable degree of correlation between price movements of futures contracts
and price movements in the related portfolio position of a Fund could create
the possibility that losses on the Derivative will be greater than gains in the
value of the Fund's position. In addition, futures and options markets could be
illiquid in some circumstances and certain over-the-counter options
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could have no markets. A Fund might not be able to close out certain positions
without incurring substantial losses. To the extent a Fund utilizes futures and
options transactions for hedging, such transactions should tend to minimize the
risk of loss due to a decline in the value of the hedged position and, at the
same time, limit any potential gain to the Fund that might result from an
increase in value of the position. Finally, the daily variation margin
requirements for futures contracts create a greater ongoing potential financial
risk than would purchases of options, in which case the exposure is limited to
the cost of the initial premium and transaction costs. Losses resulting from
the use of Derivatives will reduce a Fund's net asset value, and possibly
income, and the losses may be significantly greater than if Derivatives had not
been used. Additional information regarding the risks and special
considerations associated with Derivatives appears in Appendix B to this
Prospectus and the Statement of Additional Information.
The degree of a Fund's use of Derivatives may be limited by certain provisions
of the Code. See 'Taxation.'
PORTFOLIO TURNOVER. Purchases and sales of portfolio securities may be made as
considered advisable by each Fund's investment manager in the best interests of
the shareholders. Each Fund intends to limit portfolio trading to the extent
practicable and consistent with its investment objectives. Each Fund's
portfolio turnover rate may vary from year to year, as well as within a year.
The Total Return Fund anticipates that its annual portfolio turnover rate will
not exceed 120% and the Asia Growth Fund anticipates that its annual portfolio
turnover rate generally will not exceed 100%. However, the expected portfolio
rates may be exceeded if conditions warrant. The portfolio turnover of the New
York Municipal Bond Fund for the years ended December 31, 1995 and 1994 were
22% and 63%, respectively. The portfolio turnover for the National Intermediate
Municipal Fund, U.S. Government Income Fund, High Yield Bond Fund and Strategic
Bond Fund for the period from February 22, 1995 (commencement of investment
operations) through December 31, 1995 was 29%, 230%, 109%, and 161%,
respectively. The portfolio turnover for the Total Return Fund for the period
from September 11, 1995 (commencement of investment operations) through
December 31, 1995 was 16%. The portfolio turnover of the Investors Fund for the
years ended December 31, 1995 and 1994 was 86% and 66%, respectively. The
portfolio turnover of the Capital Fund for the years ended December 31, 1995 and
1994 was 217% and 152%, respectively. Short-term gains realized from portfolio
transactions are taxable to shareholders as ordinary income. In addition, higher
portfolio turnover rates can result in corresponding increases in portfolio
transaction costs for a Fund. See 'Portfolio Transactions' in the Statement of
Additional Information.
With respect to each of the Cash Management Fund and the New York Municipal
Money Market Fund, the investment manager seeks to enhance the Fund's yield by
taking advantage of yield disparities or other factors that occur in the money
market. For example, market conditions frequently result in similar securities
trading at different prices. The Cash Management Fund and the New York
Municipal Money Market Fund may dispose of any portfolio security prior to its
maturity if such disposition and reinvestment of the proceeds are expected to
enhance yield consistent with the investment manager's judgment as to a
desirable portfolio maturity structure or if such disposition is believed to be
advisable due to other circumstances or considerations. Subsequent to its
purchase, a portfolio security may be assigned a lower rating or cease to be
rated. Such an event would not require the disposition of the instrument, but
the
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investment manager will consider such an event in determining whether the Cash
Management Fund and the New York Municipal Money Market Fund should continue to
hold the security. The policy of each of the Cash Management Fund and the New
York Municipal Money Market Fund regarding dispositions of portfolio securities
and its policy of investing in securities deemed to have maturities of thirteen
months or less will result in high portfolio turnover. A higher rate of
portfolio turnover results in increased transaction costs to the Cash
Management Fund and the New York Municipal Money Market Fund in the form of
dealer spreads.
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Multiple Pricing System
The Funds' Multiple Pricing System permits an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are offered for sale at net asset value per
share plus a front end sales charge of up to 4.75% payable at the time of
purchase (with the exception of Class A shares of the Cash Management Fund and
the New York Municipal Money Market Fund, which are offered without such a
charge). The initial sales charge may be reduced or waived for certain
purchases of Class A shares. Certain Class A shares for which the front end
sales charge is waived may be subject to a CDSC of 1% within one year after the
date of purchase. In addition, Class A shares are subject to a Rule 12b-1
service fee at an annual rate of .25% of their respective average daily net
assets (with the exception of Class A shares of the Cash Management Fund and
the New York Municipal Money Market Fund, which bear no such fees). The annual
service fee is compensation for ongoing services provided by Salomon Brothers,
the Funds' distributor, to shareholders, including payments to compensate
selected securities dealers for such services. See 'Purchase of Shares -- Class
A Shares -- Reduced Sales Charges' and ' -- Distributor' and 'Redemption of
Shares -- Class A Share Purchases of $1 Million or More.'
CLASS B SHARES. Class B shares are offered for sale for purchases of less than
$250,000. Class B shares are sold at net asset value without a front end sales
charge, but are subject to a CDSC of 5% of the dollar amount subject thereto
during the first and second year after purchase, and declining each year
thereafter to 0% after the sixth year. The applicable percentage is assessed on
an amount equal to the lesser of the original purchase price or the redemption
price of the shares redeemed. Any CDSC applicable to Class B shares excludes the
time the shares were held in the Cash Management Fund and/or the New York
Municipal Money Market Fund. The CDSC is not applicable with respect to
redemptions of Class B shares of the Cash Management Fund and the New York
Municipal Money Market Fund which were initially purchased as such and which
were never exchanged for Class B shares of another Fund. However, in the case of
Class B shares of the Cash Management Fund and the New York Municipal Money
Market Fund which were obtained through an exchange (other than an exchange
between the Cash Management Fund and the New York Municipal Money Market Fund),
such shares are subject to any applicable CDSC due at redemption. Similarly,
shares initially purchased as Class B shares of the Cash Management Fund and
the New York Municipal Money Market Fund which are subsequently exchanged for
Class B shares of other Funds (other than an exchange between the Cash
Management Fund and the New York Municipal Money Market Fund) will be subject
to any applicable CDSC due at redemption. See 'Shareholder Services -- Exchange
Privilege.' In addition, Class B shares are subject to a Rule 12b-1
distribution fee at an annual rate of .75% of their respective average daily
net assets and a Rule 12b-1 service fee at an annual rate of .25% of their
respective average daily net assets (with the exception of Class B shares of
the Cash Management Fund and the New York Municipal Money Market Fund, which
bear no such fees). Like the service fee applicable to Class A shares, the Class
B service fee is compensation for ongoing services
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provided by Salomon Brothers to shareholders, including payments to compensate
selected securities dealers for such services. Additionally, the distribution
fee paid with respect to Class B shares compensates Salomon Brothers for selling
those shares. Class B shares enjoy the benefit of permitting all of the
investor's dollars to work from the time the investment is made. The ongoing
distribution fees paid by Class B shares will cause such shares to have a higher
expense ratio and to pay lower dividends than Class A shares. See 'Purchase of
Shares -- Class B Shares' and ' -- Distributor.' Class B shares will
automatically convert to Class A shares six years after the end of the calendar
month in which the shareholder's order to purchase was accepted. See
' -- Conversion Feature' below.
CLASS C SHARES. Class C shares are offered for purchases of less than
$1,000,000, are offered at net asset value without a front end sales charge and
are subject to a CDSC of 1% if redeemed within the first year of purchase (with
the exception of Class C shares of the Cash Management Fund and the New York
Municipal Money Market Fund, which are not subject to any CDSC upon redemption
if they were initially purchased as such and were never exchanged (other than an
exchange between the Cash Management Fund and the New York Municipal Money
Market Fund) for Class C shares of another Fund). Any CDSC applicable to Class
C shares excludes the time the shares were held in the Cash Management Fund
and/or the New York Municipal Money Market Fund. See 'Shareholder
Services -- Exchange Privilege.' Class C shares are subject to a Rule 12b-1
distribution fee at an annual rate of .75% of their respective average daily
net assets and a Rule 12b-1 service fee at an annual rate of .25% of their
respective average daily net assets (with the exception of Class C shares of
the Cash Management Fund and the New York Municipal Money Market Fund, which
bear no such fees). Like the services fees applicable to Class A and Class B
shares, the Class C service fee is compensation for ongoing services provided
by Salomon Brothers to shareholders, including payments to compensate selected
securities dealers for such services, and like the distribution fee applicable
to Class B shares, the Class C distribution fee compensates Salomon Brothers
for selling shares of that class. Class C shares, like Class B shares, enjoy
the benefit of permitting all of the investor's dollars to work from the time
the investment is made. The ongoing distribution fees paid by Class C shares
will cause such shares to have a higher expense ratio and to pay lower dividends
than Class A shares. See 'Purchase of Shares -- Class C Shares' and
' -- Distributor.' Class C shares will automatically convert to Class A shares
ten years after the end of the calendar month in which the shareholder's order
to purchase was accepted. See ' -- Conversion Feature' below.
CLASS O SHARES. Each Fund also offers Class O shares. However, only Class O
shareholders are permitted to purchase additional Class O shares. In connection
with the implementation of the Multiple Pricing System, shares outstanding as of
the close of business on December 31, 1994 of each of the Cash Management Fund,
the New York Municipal Bond Fund and the Investors Fund were reclassified as
shares of Class O of each such Fund. In addition, shares outstanding as of the
close of business on October 31, 1996 of each of the New York Municipal Money
Market Fund and the Capital Fund were reclassified as Class O shares of each
such Fund. Class O shares are not subject to any sales charges, distribution or
service fees.
CONVERSION FEATURE. Class B shares and Class C shares will automatically convert
to Class A shares six years and ten years, respectively, after the end of the
calendar
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month in which the shareholder's order to purchase was accepted and will
thereafter no longer be subject to a distribution fee. Such conversion will be
on the basis of the relative net asset values of each class, without the
imposition of any sales charge, fee or other charge. The purpose of the
conversion feature is to relieve the holders of Class B shares and Class C
shares from most of the burden of distribution-related expenses at such time as
when the shares have been outstanding for a duration sufficient for the Funds'
distributor, Salomon Brothers (in such capacity, the 'Distributor'), to have
been substantially compensated for distribution-related expenses incurred in
connection with Class B shares or Class C shares, as the case may be.
Accordingly, Class B shares and Class C shares of the Cash Management Fund and
the New York Municipal Money Market Fund, respectively, do not convert to Class
A shares of the Cash Management Fund and the New York Municipal Money Market
Fund, respectively, at any time, as shares of all classes of the Cash Management
Fund and the New York Municipal Money Market Fund do not bear any distribution
or service fees. If a shareholder effects one or more exchanges among Class B
shares or Class C shares, as the case may be, of the Funds during the applicable
conversion period, the period of time during which Class B shares or Class C
shares were held prior to an exchange will be added to the holding period of
Class B shares or Class C shares acquired in an exchange. However, because Class
B shares and Class C shares of the Cash Management Fund and the New York
Municipal Money Market Fund are not subject to any distribution or service fees,
the applicable conversion period is tolled for any period of time in which Class
B shares or Class C shares are held in the Cash Management Fund and/or the New
York Municipal Money Market Fund. For example, if Class B shares of a Fund other
than the Cash Management Fund or the New York Municipal Money Market Fund are
exchanged for Class B shares of the Cash Management Fund or the New York
Municipal Money Market Fund two years after purchase and are subsequently
exchanged one year later for Class B shares of a Fund other than the Cash
Management Fund or the New York Municipal Money Market Fund, the one year of
ownership in the Cash Management Fund or the New York Municipal Money Market
Fund does not count in the determination of the time of conversion to Class A
shares.
For purposes of the conversion of Class B shares and Class C shares to Class A
shares, shares purchased through the reinvestment of dividends and distributions
paid on Class B shares or Class C shares, as the case may be, in a shareholder's
Fund account will be considered to be held in a separate sub-account. Each time
any Class B shares or Class C shares in the shareholder's Fund account (other
than those in the sub-account) convert to Class A shares, a pro rata portion of
the Class B shares or Class C shares, as the case may be, in the sub-account
will also convert to Class A shares.
The conversion of Class B shares to Class A shares and the conversion of Class
C shares to Class A shares of the Total Return Fund and the Asia Growth Fund
are both subject to the availability of a ruling of the Internal Revenue Service
that payment of different dividends on Class A shares, Class B shares and Class
C shares, does not result in the Funds' dividends or distributions constituting
'preferential dividends' under the Code, and the continuing availability of an
opinion of counsel to the effect that the conversion of shares does not
constitute a taxable event under federal income tax law. Each of the other
Funds except the New York Municipal Money Market Fund has obtained such a
ruling. The Total Return Fund has applied for such a ruling; and the Asia
Growth Fund and the New York Municipal Money Market Fund intend to apply for
such a ruling; however,
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there can be no assurance that the Funds' ruling requests will be granted. The
conversion of Class B shares and Class C shares of the Total Return Fund and the
Asia Growth Fund may be suspended if such a ruling or opinion is not available.
In that event, no further conversions of Class B shares or Class C shares would
occur, and those shares might continue to be subject to distribution fees for an
indefinite period which may extend beyond the period ending six years or ten
years, respectively, after the end of the calendar month in which the
shareholder's order to purchase was accepted.
FACTORS FOR CONSIDERATION. The Funds' Multiple Pricing System is designed to
offer different classes of shares to investors. Although the different classes
of shares of a particular Fund represent an interest in the same portfolio of
investments, each class is subject to a different distribution structure and,
as a result, differing expenses. The Multiple Pricing System provides investors
with the option of choosing the class of shares which is best suited to their
needs and objectives. In evaluating the options offered by the Multiple Pricing
System, investors should consider the different sales charges, distribution and
service fees and conversion features applicable to each class, and other
factors, including the amount of the purchase and the length of time the
investor expects to hold the shares. To assist investors in making their
determination, the information provided above under the caption 'Expense
Information' sets forth the charges applicable to each class of shares and
presents an example of a hypothetical investment in each class of shares of each
Fund.
There are distinct advantages and disadvantages among the classes of shares
that investors should consider in evaluating the options offered by the
Multiple Pricing System. Class A, Class B and Class C shares all pay an annual
Rule 12b-1 service fee of .25% of average daily net assets, but Class A shares
are not subject to the annual Rule 12b-1 distribution fee of .75% of average
daily net assets paid by Class B and Class C shares, and, accordingly, Class A
shares pay correspondingly higher dividends per share. However, because a front
end sales charge is deducted at the time of purchase of Class A shares, the
entire purchase price is not immediately invested and, therefore, investors
purchasing Class A shares initially own fewer shares than they would own if they
had invested the same amount in Class B shares or Class C shares. Investors may,
however, benefit from the reduction or waiver of the front end sales charge
applicable to Class A shares for certain purchases.
Although investors purchasing Class B or Class C shares benefit from the
advantage of having all their funds invested initially, Class B and Class C
shares remain subject to an ongoing distribution fee which causes them to have
higher expenses and pay lower dividends than Class A shares and may be subject
to a CDSC upon redemption. Class B shares differ from Class C shares, however,
in that Class B shares may be subject to a CDSC upon redemption if redeemed
within six years of purchase, whereas Class C shares are subject to a CDSC only
if they are redeemed within one year after purchase. In addition, Class B
shares automatically convert to Class A shares six years after the end of the
month in which the shares were purchased and thereafter are not subject to an
ongoing distribution fee, whereas Class C shares, which automatically convert
to Class A shares ten years after the end of the month in which the shares were
purchased, remain subject to an ongoing distribution fee for a longer time
period. The purchase of Class C shares may therefore prove beneficial for an
investor expecting to hold Fund shares for less than six years.
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Because of the differences among the classes of shares, in deciding which class
of shares to purchase, investors should consider, in addition to other facts and
circumstances, the following factors:
(i) Class A shares are, in general, the most beneficial for the investor who
qualifies for a waiver or certain reductions of the front end sales charges, as
described herein under 'Purchase of Shares -- Class A Shares.'
(ii) Class B and Class C shareholders may pay a CDSC upon redemption. Investors
who expect to redeem during the six year CDSC period applicable to Class B
shares or the one year CDSC period applicable to Class C shares should consider
the cost of the applicable CDSC plus the aggregate annual distribution and
service fees applicable to Class B and Class C shares, as compared with the
cost of the front end sales charge plus the aggregate annual service fees
applicable to Class A shares.
(iii) Over time, the cumulative distribution and service fees applicable to
Class B and Class C shares will approach and may exceed the 4.75% maximum front
end sales charge plus the service fee applicable to Class A shares. For
example, assuming a constant net asset value, the aggregate distribution and
service fees applicable to Class B and Class C shares would equal the front end
sales charge and aggregate service fees applicable to Class A shares at the end
of the sixth year after purchase. Because Class B shares convert to Class A
shares (which bear the same service fees as Class B and Class C shares but do
not bear the expense of ongoing distribution fees) approximately six years after
purchase, an investor expecting to hold Fund shares for longer than six years
would generally pay lower cumulative expenses by purchasing Class A or Class B
shares than by purchasing Class C shares. An investor expecting to hold Fund
shares for less than six years would generally pay lower cumulative expenses by
purchasing Class C shares than by purchasing Class A shares and, due to the
CDSC that would become payable on redemption of Class B shares, such an
investor would generally pay lower cumulative expenses by purchasing Class C
shares than Class B shares.
(iv) Because Class B and Class C shareholders pay no front end sales charge,
the entire purchase price is immediately invested in Fund shares. Any return
realized on the additional funds initially invested may partially or wholly
offset the ongoing distribution fees applicable to Class B and Class C shares.
There can be no assurance, however, as to the investment return, if any, which
will be realized on such additional funds.
Investors should consult their investment representatives for assistance in
evaluating the relative benefits of the different classes of shares.
Sales personnel of broker-dealers distributing each Fund's shares and any other
persons entitled to receive compensation for selling or servicing a Fund's
shares may receive different compensation for selling or servicing one class of
shares over another. The distribution and shareholder service expenses incurred
by the Distributor and dealers in connection with the sale of shares will be
paid, in the case of Class A shares, from the proceeds of front end sales
charges and the ongoing service fees; and in the cases of Class B and Class C
shares, from the proceeds of applicable CDSCs and ongoing distribution and
service fees. Investors should understand that the purpose of the front end
sales charge and ongoing service fees applicable to Class A shares is the same
as that of the CDSCs and ongoing distribution and service fees applicable to
Class B and Class C shares.
Dividends paid by each Fund with respect to all classes of shares will be
calculated in
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substantially the same manner at the same time on the same day, except that
distribution and service fees and any other costs specifically attributable to a
particular class of shares will be borne exclusively by the applicable class.
See 'Dividends and Distributions.' Net asset value per share will also differ
among the classes. Shares of each Fund may be exchanged for shares of the same
class of any other Fund, but not for shares of other classes of any Fund. See
'Shareholder Services -- Exchange Privilege.'
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Investment Limitations
The following investment restrictions and those described in the Statement of
Additional Information are fundamental policies applicable to the individual
Funds which may be changed only when permitted by law and approved by the
holders of a majority of each Fund's outstanding voting securities, as defined
in the 1940 Act. Except for the investment restrictions set forth below and in
the Statement of Additional Information and each Fund's investment
objective(s), the other policies and percentage limitations referred to in this
Prospectus and in the Statement of Additional Information are not fundamental
policies of the Funds and may be changed by the applicable Fund's Board of
Directors without shareholder approval.
If a percentage restriction on investment or use of assets set forth below is
adhered to at the time a transaction is effected, later changes in percentages
resulting from changing values will not be considered a violation.
CASH MANAGEMENT FUND. The Cash Management Fund may not:
(1) purchase the securities of any one issuer, other than the U.S. government,
its agencies or instrumentalities, if immediately after such purchase, more
than 5% of the value of the Fund's total assets would be invested in such
issuer; provided, however, that such 5% limitation shall not apply to
repurchase agreements collateralized by obligations of the U.S. government, its
agencies or instrumentalities; and provided, further, that the Fund may invest
more than 5% (but no more than 25%) of the value of the Fund's total assets in
the securities of a single issuer for a period of up to three business days;
(2) borrow money except as a temporary measure from banks for extraordinary or
emergency purposes, and in no event in excess of 15% of the value of its total
assets, except that for the purpose of this restriction, short-term credits
necessary for settlement of securities transactions are not considered
borrowings (the Fund will not purchase any securities at any time while such
borrowings exceed 5% of the value of its total assets);
(3) invest more than 10% of the value of its net assets in securities which are
illiquid, including repurchase agreements having notice periods of more than
seven days, fixed time deposits subject to withdrawal penalties and having
notice periods of more than seven days,
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receivables-backed obligations and variable amount master demand notes that are
not readily saleable in the secondary market and with respect to which
principal and interest may not be received within seven days, and securities
that would be illiquid by virtue of legal or contractual restrictions on resale;
(4) invest less than 25% of the current value of its total assets in bank
obligations (including bank obligations subject to repurchase agreements),
provided that if at some future date adverse conditions prevail in the banking
industry or in the market for bank obligations, the Fund, for defensive
purposes, may invest temporarily less than 25% of its assets in bank
obligations; or
(5) pledge, hypothecate, mortgage or otherwise encumber its assets in excess of
20% of the value of its total assets, and then only to secure borrowings
permitted by (2) above.
NEW YORK MUNICIPAL MONEY MARKET FUND. The New York Municipal Money Market Fund
may not:
(1) invest more than 10% of the value of its net assets in securities which are
illiquid, including repurchase agreements having notice periods of more than
seven days, fixed time deposits subject to withdrawal penalties and having
notice periods of more than seven days and securities that would be illiquid by
virtue of legal or contractual restrictions on resale;
(2) purchase any securities which would cause more than 25% of the value of its
total assets to be invested in securities of one or more issuers conducting
their principal business activities in the same industry, provided that there
is no limitation with respect to investment in (a) obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities
or by any state or territory, any possessions of the United States, or any of
their authorities, agencies, instrumentalities or political subdivisions, (b)
bank obligations, or (c) repurchase agreements with respect to any such
obligations;
(3) invest more than 5% of the current value of its total assets in the
securities of any one issuer, other than obligations issued or guaranteed by
the United States Government, is agencies or instrumentalities; however, up to
50% of the value of the total assets of the Fund may be invested without regard
to this limitation so long as no more than 25% of its total assets are invested
in the securities of any one issuer;
(4) borrow money except as a temporary measure from banks for extraordinary or
emergency purposes, and in no event in excess of 15% of the value of its total
assets, except that for the purpose of this restriction, short-term credits
necessary for settlement of securities transactions are not considered
borrowings (the Fund will not purchase any securities at any time while such
borrowings exceed 5% of the value of its total assets); or
(5) pledge, hypothecate, mortgage or otherwise encumber its assets in excess of
20% of the value of its total assets, and then only to secure borrowings
permitted by (4) above.
The foregoing investment restrictions and those described in the Statement of
Additional Information are fundamental policies of the Fund which may be
changed only when permitted by law and approved by the holders of a majority of
the Fund's outstanding voting securities, as defined under 'Capital Stock' in
the Statement of Additional Information.
As a non-fundamental operating policy, effective October 3, 1996, the Fund
applies the percentage limitation of (3) above with respect to 75% of the value
of its total assets.
For purposes of the investment limitations applicable to the New York Municipal
Money Market Fund, the identification of
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the issuer of a municipal obligation depends on the terms and conditions of the
obligation. If the assets and revenues of any agency, authority,
instrumentality or other political subdivision are separate from those of the
government creating the subdivision and the obligation is backed only by the
assets and revenues of the subdivision, such subdivision would be regarded as
the sole issuer. Similarly, in the case of a private activity bond, if the bond
is backed only by the assets and revenues of the non-governmental user, such
non-governmental user would be regarded as the sole issuer. If in either case
the creating government or another entity guarantees an obligation, the
guarantee may be considered a separate security and may be treated as an issue
of such government or entity in accordance with applicable regulations.
NEW YORK MUNICIPAL BOND FUND. The New York Municipal Bond Fund may not:
(1) purchase the securities of any one issuer, other than the U.S. government,
its agencies or instrumentalities, if immediately after such purchase, more
than 5% of the value of the Fund's total assets would be invested in such
issuer; provided, however, that up to 25% of the assets of the Fund may be
invested without regard to this limitation; or
(2) borrow money except as a temporary measure from banks for extraordinary or
emergency purposes, and in no event in excess of 20% of the value of its total
assets, except that for the purpose of this restriction, short-term credits
necessary for settlement of securities transactions are not considered
borrowings (the Fund will not purchase any securities at any time while such
borrowings exceed 5% of the value of its total assets).
NATIONAL INTERMEDIATE MUNICIPAL FUND, U.S. GOVERNMENT INCOME FUND, HIGH YIELD
BOND FUND, STRATEGIC BOND FUND AND TOTAL RETURN FUND.
The National Intermediate Municipal Fund, the U.S. Government Income Fund, the
High Yield Bond Fund, the Strategic Bond Fund and the Total Return Fund may not:
(1) purchase securities of any issuer if the purchase would cause more than 5%
of the value of each Fund's total assets to be invested in the securities of
any one issuer (excluding securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and bank obligations) or cause
more than 10% of the voting securities of the issuer to be held by a Fund,
except that up to 25% of the value of each Fund's total assets may be invested
without regard to this restriction and provided that each Fund may invest all
or substantially all of its assets in another registered investment company
having substantially the same investment objective(s) and policies and
substantially the same investment restrictions as those with respect to such
Fund;
(2) borrow money (including entering into reverse repurchase agreements),
except for temporary or emergency purposes and then not in excess of 10% of the
value of the total assets of the applicable Fund at the time the borrowing is
made, except that for the purpose of this restriction, short-term credits
necessary for settlement of securities transactions are not considered
borrowings (a Fund will not purchase additional securities at any time its
borrowings exceed 5% of total assets, provided, however, that a Fund may
increase its interest in another registered investment company having
substantially the same investment objective(s) and policies and substantially
the same investment restrictions as those with respect to such Fund while such
borrowings are outstanding); or
(3) invest more than 25% of the total assets of each Fund in the securities of
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issuers having their principal activities in any particular industry, except for
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities or by any state, territory or any possession of the United
States or any of their authorities, agencies, instrumentalities or political
subdivisions, or with respect to repurchase agreements collateralized by any of
such obligations (for purposes of this restriction, supranational issuers will
be considered to comprise an industry as will each foreign government that
issues securities purchased by a Fund), provided, however, that each Fund may
invest all or substantially all of its assets in another registered investment
company having substantially the same investment objective(s) and policies and
substantially the same investment restrictions as those with respect to such
Fund.
For purposes of investment limitations (1) and (3) above, both the borrower
under a Loan and the Lender selling a Participation will be considered an
'issuer.' See 'Additional Investment Activities and Risk Factors -- Loan
Participations and Assignments.'
ASIA GROWTH FUND. The Asia Growth Fund may not:
(1) borrow money, except for temporary or emergency purposes and then not in
excess of 5% of the value of the total assets of the applicable Fund at the time
the borrowing is made, except that for the purpose of this restriction,
short-term credits necessary for settlement of securities transactions are not
considered borrowings (the Fund will not purchase additional securities at any
time its borrowing exceed 5% of total assets); or
(2) invest more than 25% of the total assets of each Fund in the securities of
issuers having their principal activities in any particular industry, except for
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities or by any state, territory or any possession of the United
States or any of their authorities, agencies, instrumentalities or political
subdivisions, or with respect to repurchase agreements collateralized by any of
such obligations (for purposes of this restriction, supranational issuers will
be considered to comprise an industry as will each foreign government that
issues securities purchased by a Fund).
INVESTORS FUND. The Investors Fund may not:
(1) purchase any securities of another issuer (other than the United States of
America) if upon said purchase more than 5% of its net assets would consist of
securities of such issuer, or purchase more than 10% of any class of securities
of such issuer;
(2) borrow money, except as a temporary measure for extraordinary or emergency
purposes and then only from banks and only in an amount not to exceed 5% of its
total assets taken at cost or value, whichever is less, or mortgage or pledge
any of its assets and except that for purposes of this restriction, collateral
arrangements with respect to the writing of options on stocks and stock
indices, the purchase and sale of futures contracts and options on futures
contracts, and forward currency contracts are not deemed a pledge of assets or
a borrowing of money;
(3) lend its funds or other assets to any other person other than through the
purchase of liquid debt securities pursuant to the Fund's investment policies,
except that (a) the Fund may lend its portfolio securities as described in the
Statement of Additional Information and (b) the Fund may enter into repurchase
agreements in an amount up to an aggregate of 25% of its total assets; or
(4) invest in the securities of issuers which have been in operation for less
than three years if such purchase at the time thereof would cause more than 5%
of the net assets of the Fund to be so invested.
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CAPITAL FUND. The Capital Fund may not:
(1) hold more than 25% of the value of its total assets in the securities of
any single company or in the securities of companies in any one industry. As to
50% of the value of its total assets, the Fund's investment in any one security
other than United States Government obligations will not exceed 5% of the value
of its total assets and as to this 50%, the Fund will not invest in more than
10% of the outstanding voting securities of any one issuer;
(2) borrow money or pledge or mortgage its assets, except as described under
'Investment Objective and Policies' and except that for purposes of this
restriction, collateral arrangements with respect to the writing of options on
stocks and stock indices, the purchase and sale of futures contracts and
options on futures contracts, and forward currency contracts are not deemed a
pledge of assets or a borrowing of money;
(3) underwrite securities, except in instances where the Fund has acquired
portfolio securities which it may not be free to sell publicly without
registration under the Securities Act of 1933 ('restricted securities'); in such
registrations the Fund may technically be deemed an 'underwriter' for purposes
of that Act. No more than 10% of the value of Fund's total assets may be
invested in illiquid securities;
(4) make loans other than through (a) the lending of its portfolio securities in
accordance with the procedures described under 'Additional Information on
Portfolio Instruments and Investment Policies -- Loans of Portfolio Securities'
in the Statement of Additional Information, or (b) entering into repurchase
agreements in an amount up to an aggregate of 25% of its total assets, but this
restriction shall not prevent the Fund from buying a portion of an issue of
bonds, debentures or other obligations which are liquid, or from investing up
to an aggregate of 10% (including investments in other types of illiquid
securities) of the value of its total assets in portions of issues of bonds,
debentures or other obligations of a type privately placed with financial
institutions and which are illiquid; or
(5) invest more than 10% of the value of the Fund's total assets in securities
of unseasoned issuers, including their predecessors, which have been in
operation for less than three years, and equity securities which are not readily
marketable.
Each Fund may, in the future, seek to achieve its investment objective(s) by
investing all of its assets in a no-load, open-end management investment
company for which SBAM serves as investment manager and which has substantially
the same investment objective(s) and policies and substantially the same
investment restrictions as those applicable to such Fund. In such event, the
Fund's applicable investment advisory agreement would be terminated since the
investment management would be performed by or on behalf of such other
registered investment company.
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Management
The business and affairs of each Fund are managed under the direction of its
Board of Directorsd. The Board of Directors approves all significant agreements
between a Fund and the persons or companies that furnish services to the Fund,
including agreements with its distributor, investment manager, administrator,
custodian and transfer agent. The day-to-day operations of a Fund are delegated
to the Fund's investment manager and administrator. The Statement of Additional
Information contains general background information regarding each director and
executive officer of each Fund.
INVESTMENT MANAGER
Each Fund retains SBAM, a wholly owned subsidiary of Salomon Brothers Holding
Company Inc, which is in turn wholly owned by Salomon Inc, as its investment
manager under an investment management contract. SBAM was incorporated in 1987
and together with affiliates in London, Frankfurt, Tokyo and Hong Kong, SBAM
provides a broad range of fixed-income and equity investment advisory services
to various individuals and institutional clients located throughout the world,
and serves as investment adviser to various investment companies. As of August
31, 1996, SBAM had approximately $15.7 billion of assets under management of
which approximately $790 million is invested in high yield securities and
approximately $558 million is invested in mortgage backed securities. Michael S.
Hyland serves as President of SBAM. SBAM has access to Salomon Inc's more than
250 economists, mortgage, bond, sovereign, and equity analysts. The business
address of SBAM is 7 World Trade Center, New York, New York 10048.
In connection with SBAM's service as investment manager to the Strategic Bond
Fund, SBAM Limited, whose business address is Victoria Plaza, 111 Buckingham
Palace Road, London SW1W OSB, England, provides certain advisory services to
SBAM relating to currency transactions and investments in non-dollar-
denominated debt securities for the benefit of the Strategic Bond Fund. SBAM
Limited is compensated by SBAM at no additional expense to the Fund. Like SBAM,
SBAM Limited is a direct, wholly-owned subsidiary of Salomon Brothers Holding
Company Inc. SBAM Limited is a member of the Investment Management Regulatory
Organization Limited in the United Kingdom and is registered as an investment
adviser in the United States pursuant to the Investment Advisers Act of 1940,
as amended. David J. Scott is primarily responsible for a portion of the
Strategic Bond Fund relating to currency transactions and investments in
non-dollar denominated debt securities. Prior to joining SBAM Limited in April,
1994, Mr. Scott worked for four years at JP Morgan Investment Management where
he was responsible for global and non-dollar portfolios. Before joining JP
Morgan Investment Management, Mr. Scott worked for three years at Mercury Asset
Management where he was responsible for captive insurance portfolios and
products.
Pursuant to a subadvisory agreement, SBAM has retained SBAM AP, whose business
address is Three Exchange Square, Hong Kong, to act as sub-adviser to the Asia
Growth Fund, subject to the supervision of SBAM. SBAM AP is compensated by SBAM
at no additional cost to the Fund. Like SBAM, SBAM AP is an indirect,
wholly-owned subsidiary of Salomon Inc. SBAM AP, which was formed in 1995, is a
member of the Hong Kong Securities and Futures Commission
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and is registered as an investment adviser in the United States pursuant to the
Investment Advisers Act of 1940, as amended. The business address of SBAM AP is
Three Exchange Square, Hong Kong. References to investment manager in this
Prospectus include SBAM Limited and SBAM AP when the context requires.
Marybeth Whyte is primarily responsible for the day-to-day management of the
New York Municipal Bond Fund's portfolio and the National Intermediate
Municipal Fund's portfolio. Prior to joining SBAM on July 25, 1994, Ms. Whyte
was a Senior Vice President and head of the Municipal Bond Area at Fiduciary
Trust Company International, where her responsibilities included managing and
advising portfolios with assets of approximately $1.3 billion.
Steven Guterman is primarily responsible for the day-to-day management of the
U.S. Government Income Fund and the mortgage-backed securities and U.S.
government securities portions of the Strategic Bond Fund. Mr. Guterman is
assisted by Roger Lavan in the management of the two foregoing Funds. Mr.
Guterman joined SBAM in 1990 and is currently a Senior Portfolio Manager,
responsible for SBAM's investment company and institutional portfolios which
invest primarily in mortgage-backed securities and U.S. government issues. Mr.
Guterman also serves as portfolio manager for two offshore mortgage funds. In
addition, Mr. Guterman serves as portfolio manager for a number of SBAM's
institutional clients. Mr. Guterman joined Salomon Brothers in 1983. He
initially worked in the mortgage research group where he became a Research
Director and later traded derivative mortgage-backed securities for Salomon
Brothers. Mr. Lavan joined SBAM in 1990 and is a Portfolio Manager and
Quantitative Fixed Income Analyst. He is responsible for working with senior
portfolio managers to monitor and analyze market relationships and identify and
implement relative value transactions in SBAM's investment company and
institutional portfolios which invest in mortgage-backed securities and U.S.
Government securities. Prior to joining SBAM, Mr. Lavan spent four years
analyzing portfolios for Salomon Brothers' Fixed Income Sales Group and Product
Support Divisions.
Peter J. Wilby is primarily responsible for the day-to-day management of the
High Yield Bond Fund and the high yield and sovereign bond portions of the
Strategic Bond Fund. Mr. Wilby, who joined SBAM in 1989, is a Senior Portfolio
Manager, responsible for SBAM's investment company and institutional portfolios
which invest in high yield non-U.S. and U.S. corporate debt securities and high
yield foreign sovereign debt securities. Mr. Wilby is the portfolio manager for
Salomon Brothers Institutional High Yield Bond Fund and Salomon Brothers
Institutional Emerging Markets Debt Fund, each a portfolio of Salomon Brothers
Institutional Series Funds Inc ('Institutional Series Funds'), Global Partners
Income Fund Inc., The Emerging Markets Income Fund Inc, The Emerging Markets
Income Fund II Inc, The Emerging Markets Floating Rate Fund Inc, Salomon
Brothers Worldwide Income Fund Inc, Salomon Brothers High Income Fund Inc, and
the foreign sovereign debt component of Salomon Brothers 2008 Worldwide Dollar
Government Term Trust Inc.
Giampaolo G. Guarnieri is primarily responsible for the day-to-day management
of the Asia Growth Fund. Mr. Guarnieri has been employed by SBAM AP as a Vice
President and Senior Portfolio Manager since April 1995. Prior to joining SBAM
AP, Mr. Guarnieri spent five years as a Senior Portfolio Investment Manager at
Credit Agricole Asset Management (South East Asia) Limited in Hong Kong, a
wholly-owned subsidiary of the Credit Agricole Group as a senior portfolio
manager since 1992 and as head of direct investment activities prior to that.
Mr.
PAGE 94
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SALOMON BROTHERS INVESTMENT SERIES
Guarnieri is the portfolio manager for Salomon Brothers Institutional Asia
Growth Fund, a portfolio of Institutional Series Funds.
Allan R. White III is primarily responsible for day-to-day management of the
Investors Fund's portfolio. Mr. White has been Executive Vice President and
portfolio manager for the Investors Fund since April 1992. Since 1989 he has
been a Vice President of SBAM to 1989 he was a Vice President at The First
Boston Corporation. Mr. White is also Executive Vice President and portfolio
manager for The Salomon Brothers Fund Inc.
Richard E. Dahlberg is primarily responsible for the day-to-day management of
the Total Return Fund. Prior to joining SBAM in July 1995, Mr. Dahlberg was
employed by Massachusetts Financial Services Company since 1968. Mr. Dahlberg
had been primarily responsible for the day-to-day management of the MFS Total
Return Fund for ten years prior to joining SBAM.
Ross S. Margolies is primarily responsible for the day-to-day management of the
Capital Fund's portfolio. Mr. Margolies is a portfolio manager with SBAM who
manages other investments in equities, options, convertible bonds and high yield
bonds. Prior to joining SBAM in 1992, Mr. Margolies was a Senior Vice President
and analyst in the High Yield Research Department at Lehman Brothers.
Subject to policy established by the Board of Directors, which has overall
responsibility for the business and affairs of each Fund, SBAM manages the
investment and reinvestment of each Fund's assets pursuant to the applicable
management contract. SBAM also furnishes office space, personnel and certain
facilities required for the performance by SBAM of certain additional services
provided by it to each Fund under the applicable management contract, including
SEC compliance, supervision of Fund operations and certain administrative and
clerical services, and pays the compensation of the Funds' officers, employees
and directors affiliated with SBAM. Except for the expenses paid by SBAM that
are described herein, each Fund bears all costs of its operations.
As compensation for its services, the Cash Management Fund pays SBAM a monthly
fee at an annual rate of .20% of the Fund's average daily net assets; the New
York Municipal Money Market Fund pays SBAM a monthly fee at an annual rate of
.20% of the Fund's average daily net assets; the New York Municipal Bond Fund
pays SBAM a monthly fee at an annual rate of .50% of the Fund's average daily
net assets; the National Intermediate Municipal Fund pays SBAM a monthly fee at
an annual rate of .50% of the Fund's average daily net assets; the U.S.
Government Income Fund pays SBAM a monthly fee at an annual rate of .60% of the
Fund's average daily net assets; the High Yield Bond Fund pays SBAM a monthly
fee at an annual rate of .75% of the Fund's average daily net assets; the
Strategic Bond Fund pays SBAM a monthly fee at an annual rate of .75% of the
Fund's average daily net assets; the Total Return Fund pays SBAM a monthly fee
at an annual rate of .55% of the Fund's average daily net assets; the Asia
Growth Fund pays SBAM a monthly fee at an annual rate of .80% of the Fund's
average daily net assets; and the Capital Fund pays SBAM a monthly fee at an
annual rate of 1.00% of average daily net assets up to $100 million, .75% on the
next $100 million, .625% on the next $200 million and .50% on average daily net
assets in excess of $400 million. With respect to each Fund other than Investors
Fund and Capital Fund, for the 1996 fiscal year, SBAM has voluntarily agreed to
impose an expense cap on total Fund operating expenses (exclusive of taxes,
interest and extraordinary expenses such as litigation and indemnification
expenses) at the amount of such Fund's total Fund operating expenses shown
under 'Expense
PAGE 95
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SALOMON BROTHERS INVESTMENT SERIES
Information -- Annual Fund Operating Expense.' See 'Expense Information --
Annual Fund Operating Expenses.' The Investors Fund pays SBAM a quarterly fee
(the 'Base Fee') at the end of each calendar quarter based on the following
rates:
<TABLE>
<CAPTION>
ANNUAL FEE
AVERAGE DAILY NET ASSETS RATE
- ---------------------------------- ----------
<S> <C>
First $350 million .500%
Next $150 million .400%
Next $250 million .375%
Next $250 million .350%
Over $1 billion .300%
</TABLE>
The Base Fee for the Investors Fund may be increased or decreased based on the
performance of the Investors Fund relative to the investment record of the S&P
500 Index. At the end of each calendar quarter, for each percentage point by
which the investment performance of the Investors Fund exceeds or is exceeded by
the investment record of the S&P 500 Index over the one year period ending on
the last day of the calendar quarter for which the adjustment is being
calculated, the Base Fee will be adjusted upward or downward by the product of
(i) 1/4 of .01% multiplied by (ii) the average daily net assets of the
Investors Fund for the one year period preceding the end of the calendar
quarter. If the amount by which the Investors Fund outperforms or underperforms
the S&P 500 Index is not a whole percentage point, a pro rata adjustment shall
be made. However, there will be no performance adjustment unless the investment
performance of the Investors Fund exceeds or is exceeded by the investment
record of the S&P 500 Index by at least one percentage point. The maximum
quarterly adjustment is 1/4 of .10%, which would occur if the Investors Fund's
performance exceeds or is exceeded by the S&P 500 Index by ten or more
percentage points. The first performance adjustment was paid on September 30,
1995 for the one year period ending on that date. Thereafter, the performance
adjustment will be paid quarterly based on a rolling one year period.
With respect to the Strategic Bond Fund and in connection with the subadvisory
consulting agreement between SBAM and SBAM Limited, SBAM pays SBAM Limited, as
full compensation for all services provided under the subadvisory consulting
agreement, a portion of its investment management fee. The amount payable to
SBAM Limited is equal to the fee payable under SBAM's management agreement
multiplied by the portion of the assets of the Strategic Bond Fund that SBAM
Limited has been delegated to manage divided by the current value of the net
assets of the Strategic Bond Fund.
With respect to the Asia Growth Fund, SBAM pays SBAM AP as full compensation
for its services provided under the subadvisory agreement, a portion of its
investment management fee.
SBAM may waive all or part of its fee from time to time in order to increase
each Fund's net investment income available for distribution to shareholders.
The Funds will not be required to reimburse SBAM for any advisory fees waived.
SBAM may from time to time, at its own expense, provide compensation to certain
selected dealers for performing administrative services for their customers.
These services include maintaining account records, processing orders to
purchase, redeem and exchange Fund shares and responding to certain customer
inquiries. The amount of such compensation may be up to .12% annually of the
average net assets of a Fund attributable to shares of such Fund held by
customers of such selected dealers. Such compensation does not represent an
additional expense to a Fund or its shareholders, since it will be paid from
the assets of SBAM.
The services of SBAM, SBAM Limited and SBAM AP are not deemed to be exclusive,
and nothing in the relevant agreements will prevent either of them or their
affiliates from providing similar
PAGE 96
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SALOMON BROTHERS INVESTMENT SERIES
services to other investment companies and other clients (whether or not their
investment objectives and policies are similar to those of any of the Funds) or
from engaging in other activities.
Consistent with the Rules of Fair Practice of the NASD, and subject to seeking
the most favorable price and execution available, the investment manager may
consider sales of shares of the Funds as a factor in the selection of brokers to
execute portfolio transactions for the Funds. The Funds may use Salomon
Brothers and its affiliates to execute portfolio transactions when the
investment manager believes that the broker's charge for the transaction does
not exceed the usual and customary levels charged by other brokers in
connection with comparable transactions involving similar securities. See the
Statement of Additional Information for a more complete description of the
Funds' policies with respect to portfolio transactions.
PERFORMANCE OF ACCOUNTS
ASIA GROWTH FUND. Set forth in the chart below is performance data provided by
SBAM AP relating (i) for the period from January 1, 1992 to February 28, 1995,
to a non-U.S. collective investment vehicle (the 'Offshore Fund I') managed by
the portfolio manager of the Asia Growth Fund while he was employed by a
different investment adviser unaffiliated with SBAM (ii) for the quarters ending
September 30, 1995, December 31, 1995 and March 31, 1996, to a non-U.S.
collective investment vehicle managed by the portfolio manager after
commencement of employment with an affiliate of SBAM (the 'Offshore Fund II')
and (iii) for the quarters ending June 30, 1996 and September 30, 1996, to a
composite ('Composite') consisting of Offshore Fund II and Salomon Brothers
Institutional Asia Growth Fund ('Institutional Asia Growth Fund'), a portfolio
of Salomon Brothers Institutional Series Funds Inc, a U.S. registered
investment company. The Institutional Asia Growth Fund and Asia Growth Fund
have the same portfolio manager and have identical investment objectives,
policies and strategies. Both Offshore Fund I and Offshore Fund II have
substantially similar, though not identical, investment objectives, policies
and strategies as those of the Asia Growth Fund. With respect to Offshore Fund
I, the period shown reflects the period for which the portfolio manager was
primarily responsible for the day-to-day management of the portfolio of
Offshore Fund I. During the period shown for Offshore Fund I, the size of the
fund ranged from approximately $45 million to $95 million and during the period
shown solely for Offshore Fund II, the size of the fund ranged from
approximately $8 million to $10 million. During the period shown for the
Composite, its size ranged from $8.5 million to $15.6 million.
The Morgan Stanley Capital International All Country Asia Free Ex-Japan Index is
a widely recognized market index of Asian country equity issues. The index is
composed of a sample of companies from the following ten countries: Hong Kong,
India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Singapore, Sri Lanka
and Thailand. Constituent stocks are selected for the index on the basis of
industry representation, liquidity and sufficient float. The index is unmanaged
and accordingly, does not reflect the effect of operating expenses, including
advisory fees, transaction costs and other expenses but does reflect
reinvestment of dividends.
The performance data shown below should be read in conjunction with the
information in 'General' that follows.
<TABLE>
<CAPTION>
1/1/92 - 1/1/93 - 1/1/94 -
12/31/92 12/31/93 12/31/94
-------- -------- --------
<S> <C> <C> <C>
Offshore Fund I... 29.50% 95.05% (13.55)%
Morgan Stanley
Capital
International All
Country Asia
Free Ex-Japan
Index............ 21.80 103.39 (16.94)
</TABLE>
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SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
TOTAL TOTAL
1/1/95 - RETURN RETURN
2/28/95 1/1/92 - 1/1/92 -
(ANNUALIZED) 2/28/95 2/28/95
------------ ------------ -------
<S> <C> <C> <C>
Offshore Fund I... (5.47)% 106.42% 25.72%
Morgan Stanley
Capital
International All
Country Asia
Free Ex-Japan
Index............ (15.55) 100.05 24.48
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDING:
--------------------------------
9/30/95 12/31/95 3/31/96
------- -------- -------
<S> <C> <C> <C>
Offshore Fund II... 2.12% 3.23% 10.19%
Morgan Stanley
Capital
International All
Country Asia
Free Ex-Japan
Index............ 1.19 .80 9.74
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER TOTAL
ENDING RETURN
--------------- SINCE
6/30/96 9/30/96 9/1/95*
------- ------- ------
<S> <C> <C> <C>
Composite......... (2.35)% (1.89)% 11.29%
Morgan Stanley
Capital
International All
Country Asia
Free Ex-Japan
Index............ .91 (2.94) 9.64
</TABLE>
* This figure is a weighted-average figure representing, for the period from
September 1, 1995 to April 30, 1996, total return of Offshore Fund II, and for
the period May 1, 1996 to September 30, 1996, for the Composite.
GENERAL. The performance results shown above are based on total returns
reflecting realized and unrealized gains and losses and income, including that
derived from cash positions. Returns are calculated monthly for Offshore Fund
I, Offshore Fund II and the Institutional Asia Growth Fund and are compounded
monthly. The investment results are time-weighted based on market values
determined as of the last business day of each month. The performance results
are net of transaction costs and advisory and other fees incurred and reflect
reinvestment of dividends and capital gains distributions, if any.
The performance results shown above are not performance results for the Asia
Growth Fund, which has recently commenced investment operations. The results
shown above should not be deemed to be indicative of future results for the
Asia Growth Fund owing to differences in brokerage commissions and dealer
spreads, expenses, including investment advisory fees, the size of positions
taken in relation to fund size, timing of purchases and sales and market
conditions at the time of a transaction, timing of cash flows and availability
of cash for new investments.
Although substantially similar, the investment objectives, policies and
strategies for Offshore Fund I and Offshore Fund II differ in certain respects
from those of the Asia Growth Fund. In addition, such accounts were and are
managed without regard to certain tax requirements applicable to U.S. registered
investment companies that limit the proportions of short-term gains that such
companies may realize to maintain their tax status. See 'Dividends,
Distributions and Taxes.' Accordingly, the performance results shown above and
that of the Asia Growth Fund are expected to differ.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTORS SHOULD ALSO BE
AWARE THAT THE USE OF METHODS OF DETERMINING PERFORMANCE DIFFERENT THAN THAT
USED BY SBAM AP WOULD RESULT IN DIFFERENT PERFORMANCE DATA. NO ADJUSTMENT HAS
BEEN MADE FOR ANY INCOME TAXES WHICH ARE PAYABLE ON INCOME DIVIDENDS OR CAPITAL
GAINS DISTRIBUTIONS. THE EFFECT OF TAXES ON ANY INVESTOR WILL DEPEND ON SUCH
INVESTOR'S TAX STATUS. SEE 'DIVIDENDS AND DISTRIBUTIONS' AND 'TAXATION.'
ADMINISTRATOR
Each Fund employs Investors Bank & Trust Company ('Investors Bank') under its
applicable administration agreement to provide certain administrative services
to the respective Fund. The administrator is not involved in the investment
decisions made with respect to the Funds.
The services provided by Investors Bank under the applicable administration
agreements include certain accounting, clerical and bookkeeping services, Blue
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SALOMON BROTHERS INVESTMENT SERIES
Sky compliance, corporate secretarial services and assistance in the preparation
and filing of tax returns and reports to shareholders and the SEC. For its
services as administrator, each Fund, other than the Investors Fund and the
Capital Fund, pays Investors Bank a fee, calculated daily and payable monthly,
at an annual rate of .08% of the applicable Fund's aggregate average daily net
assets. As compensation for its services to the Investors Fund and the Capital
Fund and at no additional cost to either Fund, SBAM pays Investors Bank a fee
each month at an annual rate of .08% and .06%, respectively, of the average
daily value of the Investors Fund's and the Capital Fund's net assets,
respectively.
EXPENSES
Each Fund's expenses include taxes, interest, fees and salaries of the directors
and officers who are not directors, officers or employees of the Fund's service
contractors, SEC fees, state securities qualification fees, costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders, advisory and administration fees, charges of the
custodian, transfer agent and dividend disbursing agent, certain insurance
premiums, outside auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. Each Fund also pays for
brokerage fees and commissions (if any) in connection with the purchase and
sale of portfolio securities. Fund expenses are allocated to a particular class
based on either expenses identifiable to the class or relative net assets of
the class and other classes of Fund shares.
- -------------------------------------------------------------------------
Determination
of Net Asset Value
For the purpose of pricing purchase and redemption orders, the net asset value
per share of each class of each Fund is calculated separately and is determined
once daily as of the close of regularly scheduled trading on the NYSE (except
with respect to the Cash Management Fund and the New York Municipal Money
Market Fund for which the determination is made at 12:00 noon (New York time)).
With respect to each Fund, such calculation is determined on each day that the
NYSE is open for trading, i.e., Monday through Friday, except for New Year's
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and the preceding Friday or subsequent
Monday when one of those holidays falls on a Saturday or Sunday, respectively.
Net asset value per share of each class of each Fund is calculated by dividing
the value of the portion of the Fund's securities and other assets attributable
to that class, less the liabilities attributable to that class, by the number of
shares of that class outstanding. In calculating net asset value, all portfolio
PAGE 99
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SALOMON BROTHERS INVESTMENT SERIES
securities will be valued at market value when there is a reliable market
quotation available for the securities and otherwise pursuant to procedures
adopted by each Fund's Board of Directors. Securities that are primarily traded
on foreign exchanges generally are valued at the preceding closing values of
such securities on their respective exchanges, except that when an occurrence
subsequent to the time a value was so established is likely to have changed
such value, then the fair value of those securities will be determined by
consideration of other factors by or under the direction of the Board of
Directors. Securities may be valued by independent pricing services which use
prices provided by market-makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
In valuing a Fund's assets, any assets or liabilities initially expressed in
terms of a foreign currency are converted to U.S. dollar equivalents at the
then current exchange rate. Corporate actions by issuers of foreign securities
held by the Fund, such as payment of dividends or distributions, are reflected
in the net asset value on the ex-dividend date therefor, except that such
actions will be so reflected on the date the Fund is actually advised of the
corporate action if subsequent to the ex-dividend date. Further information
regarding the Funds' valuation policies is contained in the Statement of
Additional Information.
Each of the Cash Management Fund and the New York Municipal Money Market Fund
use the amortized cost method to value its portfolio securities and, with
respect to each class of shares of the Fund, seeks to maintain a stable net
asset value of $1.00 per share. Each of the other Funds values short-term
investments that mature in 60 days or less at amortized cost whenever the Board
of Directors determines that amortized cost is the fair value of those
investments. If a Fund acquires securities with more than sixty days remaining
to maturity, they will be valued at current market value (using the bid price)
until the 60th day prior to maturity, and will then be valued on an amortized
cost basis based upon the value on such date unless the Board determines during
such 60-day period that this amortized cost basis does not represent fair
value. The amortized cost method involves valuing a security at its cost and
amortizing any discount or premium over the period until maturity, regardless
of the impact of fluctuating interest rates on the market value of the
security. See the Statement of Additional Information for a more complete
description of the amortized cost method.
- --------------------------------------------------------------------------------
Purchase of Shares
Shares of each Fund may be purchased from any dealer that has a selling
agreement with Salomon Brothers. Purchases of shares made through a selected
dealer should be made in accordance with the procedures prescribed by such
selected dealer.
HOW TO OPEN AN ACCOUNT AND PURCHASE SHARES
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SALOMON BROTHERS INVESTMENT SERIES
Shares may be purchased initially by completing a Purchase Application and
mailing it, together with a check payable to First Data Investor Services
Group, Inc. ('FDISG'), formerly known as The Shareholder Services Group, Inc.,
to:
(Name of Fund)
c/o FDISG
P.O. Box 5127
Westborough, MA 01581-5127
Subsequent investments may be made at any time through a selected dealer or by
mailing a check to FDISG at the address set forth above, along with the
detachable stub from the Statement of Account (or a letter providing the
account number). Shareholders should be sure to write the Fund account number
on the check. If an investor's purchase check is not collected, the purchase
will be cancelled and FDISG will charge a fee of $10 to the shareholder's
account. FDISG does not intend to resubmit such checks for collection.
Subsequent investments may also be made by wiring federal funds to FDISG. Prior
notification by telephone is not required. The investor should instruct the
wiring bank to transmit the specified amount in federal funds to:
Boston Safe Deposit and Trust Company
Boston, Massachusetts
ABA No. 011-001-234
Account #142743
Attn: (Name of Fund)
Name of Account:
Account # (As assigned):
Shareholders should note that their bank may charge a fee in connection with
transferring money by bank wire.
To ensure prompt credit to their accounts, investors or their dealers should
call (800) SALOMON or (800) 725-6666 prior to sending a wire to receive a
reference number for the wire. If wires are received after 4:15 p.m. New York
time, or during a bank holiday, purchases will be confirmed at the price
determined on the next business day of the applicable Fund.
MINIMUM INVESTMENT
The minimum initial investment in any class of shares in any Fund is $500 and
the minimum subsequent investment is $50. However, for IRAs and Self-Employed
Retirement Plans (formerly Keogh Plans), the minimum initial investment in any
class of shares of any Fund is $50. In addition, an account can be established
with a minimum of $50 if the account will be receiving periodic, regular
investments through programs such as Automatic Investment Plans, Automatic
Dividend Diversification and Systematic Investing. See 'Shareholder Services.'
When purchasing shares of any Fund, investors must specify the class of shares.
Each Fund and the investment manager reserve the right to reject any purchase
order, to suspend the offering of shares for a period of time or to waive or
lower the minimum investment requirements.
TIMING OF PURCHASE ORDERS
Orders for the purchase of Fund shares (other than the Cash Management Fund and
the New York Municipal Money Market Fund) received by selected dealers by the
close of regular trading on the NYSE on any day that a Fund calculates its net
asset value and either transmitted to Salomon Brothers by the close of its
business day (normally 5:00 p.m., New York time) or transmitted by dealers to
FDISG, through the facilities of the National Securities Clearing Corporation
('NSCC') by 7:00 p.m., New York time, on that day will be priced according to
the net asset value determined on that day plus any applicable sales charge.
Otherwise, the orders will be priced as of the time the net asset value is next
determined. Purchase orders for shares of the Cash Management Fund and the New
York Municipal Money Market Fund will be executed at the net asset value per
share next determined after the order has become effective, i.e., payment has
been received in or converted into federal
PAGE 101
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SALOMON BROTHERS INVESTMENT SERIES
funds. See 'Determination of Net Asset Value.' It is the dealers' responsibility
to ensure that orders are transmitted on a timely basis to Salomon Brothers or
FDISG through the facilities of NSCC. Any loss resulting from a dealer's failure
to submit an order within the prescribed time frame will be borne by that
dealer. See 'How to Open an Account and Purchase Shares' above for information
on obtaining a reference number for wire orders, which will facilitate the
handling of such orders and ensure prompt credit to the investor's account.
Funds transmitted by a wire system other than the Federal Reserve Wire System
generally take one business day to be converted into federal funds. In those
cases in which an investor pays for shares by a check drawn on a member bank of
the Federal Reserve System, federal funds generally will become available on
the business day after the check is deposited. Checks drawn on banks which are
not members of the Federal Reserve System or foreign banks may take
substantially longer to be converted into federal funds.
STOCK CERTIFICATES
Although most shareholders elect not to receive stock certificates,
certificates for full shares can be obtained on specific written request at no
cost to the shareholder. No certificates will be issued for fractional shares
or for any shares of the Cash Management Fund and the New York Municipal Money
Market Fund.
MULTIPLE PRICING SYSTEM
Each Fund currently offers three classes of shares to the general public
through the Multiple Pricing System. Although the Class A, Class B and Class C
shares of a particular Fund represent an interest in the same portfolio of
investments, each class is subject to different sales charge structures and
expense levels. Class A shares of all Funds are sold with a front end sales
charge (with the exception of Class A shares of the Cash Management Fund and
the New York Municipal Money Market Fund, which are sold at net asset value)
and may, under limited circumstances, be subject to a CDSC upon redemption.
Class B shares and Class C shares of all Funds are sold without a front end
sales charge but may be subject to a CDSC upon redemption (with the exception
of sales of Class B shares and Class C shares of the Cash Management Fund and
the New York Municipal Money Market Fund, which are not subject to a CDSC). The
Multiple Pricing System allows investors to select the class that is best
suited to their needs and objectives. In considering the options afforded by the
Multiple Pricing System, investors should consider both the applicable front end
sales charge or CDSC, as well as the applicable service or distribution fee, and
other relevant factors such as whether their investment goals are long-term or
short-term in order to determine the class that best suits their circumstances
and objectives. See 'Multiple Pricing System' for a discussion of factors to
consider in selecting which class of shares to purchase. In addition, Class O
shareholders may purchase additional Class O shares which are sold at net asset
value and are not subject to any sales charges, distribution or service fees.
CLASS A SHARES
The public offering price for Class A shares of each Fund is the per share net
asset value of that class plus a front end sales charge, expressed as a
percentage of the offering price as set forth in the table below. No front end
sales charge is imposed on the purchase of Class A shares of the Cash
Management Fund and the New York Municipal Money Market Fund.
However, when Class A shares of the Cash Management Fund or the New York
Municipal Money Market Fund on which no sales charge has been paid or waived
are exchanged for Class A shares of
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SALOMON BROTHERS INVESTMENT SERIES
another Fund for which a sales charge is normally imposed on the purchase of
Class A shares, the sales charge applicable to purchases of Class A shares will
be assessed at that time.
CLASS A SALES CHARGE TABLE
<TABLE>
<CAPTION>
CONCESSION TO
PERCENTAGE OF BROKER-DEALER AS
AMOUNT OF PERCENTAGE OF THE NET AMOUNT A PERCENTAGE OF
PURCHASE PAYMENT THE OFFERING PRICE INVESTED OFFERING PRICE
<S> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.25%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 4.00% 4.17% 3.50%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than 1 million 2.00% 2.04% 1.75%
$1 million or more None* None **
</TABLE>
------------------------------------------------------------------
* With respect to purchases of Class A shares of $1 million or more, a CDSC
will apply if the shares are redeemed within one year after purchase. See
'Redemption of Shares -- Class A Share Purchases of
$1 million or more.'
** The Distributor may in its discretion compensate selected dealers in
connection with the sale of Class A Shares in an aggregate amount of $1
million or more up to the following amounts:
<TABLE>
<CAPTION>
DEALER'S
AMOUNT OF PURCHASE CONCESSION
- ----------------------------------- ----------
<S> <C>
1 million up to $2 million 1.00%
Over $2 million up to $3 million .75%
Over $3 million up to $5 million .50%
Over $5 million .25%
</TABLE>
The Distributor may reallow concessions to selected dealers and retain the
balance over such concessions, and at times the Distributor may reallow the
entire front end sales charge to such dealers. In such circumstances, dealers
may be deemed to be 'underwriters' as that term is defined under the 1933 Act.
The Distributor has determined to reallow the entire front end sales charge to
dealers for sales of Class A shares until further notice.
REDUCED SALES CHARGES
Investors purchasing Class A shares may be able to benefit from a reduction or
elimination of the front end sales charge through several purchase plans.
RIGHT OF ACCUMULATION. For the purposes of determining which sales charge level
in the table above is applicable to a purchase of Class A shares, investors may
combine the total of the value of the shares being purchased with the amount
equal to the current net asset value of the investor's holdings of Class A
shares in all Funds, excluding Class A shares purchased or held in the Cash
Management Fund or the New York Municipal Money Market Fund. Also, for purposes
of the foregoing calculation, Class A shares (excluding Class A shares
purchased or held in the Cash Management Fund or the New York Municipal Money
Market Fund) beneficially owned by the investor's spouse and the investor's
children under the age of 21 may, upon written notice to the transfer agent,
also be included in the investor's beneficial holdings at the current net asset
value to reach a level specified in the above table. The investor must notify
the transfer agent in writing of all share accounts to be considered in
exercising the right of accumulation described above.
LETTER OF INTENT. For the purposes of determining which sales charge level in
the table above is applicable to a purchase of Class A shares, investors may
also establish a total investment goal in shares of the Funds to be achieved
over a thirteen-month period and may purchase
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SALOMON BROTHERS INVESTMENT SERIES
Class A shares during such period at the applicable reduced front end sales
charge. All Class A shares, (excluding Class A shares purchased or held in the
Cash Management Fund or the New York Municipal Money Market Fund), previously
purchased and still beneficially owned by the investor and his or her spouse
and children under the age of 21 may, upon written notice to the transfer
agent, also be included at the current net asset value to reach a level
specified in the table above.
Shares totaling 5% of the dollar amount of the Letter of Intent will be held in
escrow by the transfer agent in the name of the purchaser. The effective date
of a Letter of Intent may be back-dated up to 90 days, in order that any
investments made during this 90-day period, valued at the purchaser's cost, can
be applied to the fulfillment of the Letter of Intent goal.
The Letter of Intent does not obligate the investor to purchase, nor any Fund
to sell, the indicated amount. In the event the Letter of Intent goal is not
achieved within the thirteen-month period, the investor is required to pay the
difference between the front end sales charge otherwise applicable to the
purchases of Class A shares made during this period and the sales charge
actually paid. If a payment is due under the preceding sentence, it must be
made directly to the transfer agent within twenty days of notification or, if
not paid, the transfer agent will liquidate sufficient escrowed shares to
obtain such difference. For additional information, shareholders should contact
the applicable Fund, the transfer agent or eligible securities dealers.
GROUP PURCHASES. A reduced sales charge is available to employees (and
partners) of the same employer purchasing as a group. The sales charge
applicable to purchases by each member of such a group will be determined by
the table set forth above and will be based upon the aggregate sales of Class A
shares to, and share holdings of, all members of the group. To be eligible for
such reduced sales charges, all purchases must be pursuant to an employer or
partnership sanctioned plan meeting certain requirements; one such requirement
is that the plan must be open to specified partners or employees of the
employer and its subsidiaries, if any. Such plans include, but are not limited
to, plans which provide for payroll deductions and retirement plans under
Sections 401 or 408 of the Code. The Distributor may also offer a reduced sales
charge for aggregating related fiduciary accounts under such conditions that
the Distributor will realize economies of sales efforts and sales related
expenses. An individual who is a member of a qualified group may also purchase
Class A shares of a Fund at the reduced sales charge applicable to the group as
a whole. The sales charge is based upon the aggregate dollar value of Class A
shares previously purchased and still owned by the group, plus the amount of
the current purchase. A 'qualified group' is one which (i) has been in
existence for more than six months, (ii) has a purpose other than acquiring
Fund shares at a discount and (iii) satisfies uniform criteria which enables
the Distributor to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be available to
arrange for group meetings between representatives of a Fund and the members,
and must agree to include sales and other materials related to the Funds in its
publications and mailings to members at no cost to the Distributor. In order to
obtain such reduced sales charge, the purchases must provide sufficient
information at the time of purchase to permit verification that the purchase
qualifies for the reduced sales charge. Approval of group purchase reduced
sales charge plans is subject to the discretion of the Distributor.
CERTAIN QUALIFIED PURCHASERS. No front end sales charge is applicable to any
sale of Class A shares to a Director or
PAGE 104
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SALOMON BROTHERS INVESTMENT SERIES
officer of a Fund and to their immediate families (i.e., the spouse, children,
mother or father of such persons), employees of SBAM and their immediate
families, or any full-time employee or registered representative of the
Distributor or of broker-dealers having dealer agreements with the Distributor
('Selling Broker') and their immediate families (or any trust, pension, profit
sharing or other benefit plan for the benefit of such persons), any full-time
employee of a bank, savings and loan, credit union or other financial
institution that utilizes a Selling Broker to clear purchases of the Funds'
shares and their immediate families, participants in certain 'wrap-fee' or asset
allocation programs sponsored by broker-dealers and other financial institutions
that have entered into agreements with Salomon Brothers, any accounts
established on behalf of registered investment advisers or their clients by
broker-dealers that charge a transaction fee and that have entered into
agreements with Salomon Brothers or investors who purchase Class A shares with
proceeds from the sale of shares of any other investment company with respect
to which the investor previously paid a commission, whether a front-end sales
charge or CDSC or otherwise.
CLASS B SHARES
Class B shares of each Fund are offered for sale at net asset value and are
offered for purchases of less than $250,000. No initial sales charge is imposed
at the time of purchase. A CDSC is imposed, however, on certain redemptions of
Class B shares. See 'Redemption of Shares' which describes the CDSC in greater
detail.
In general, a sales commission of 4% of the amount of Class B share purchases
(other than Class B shares of the Cash Management Fund and the New York
Municipal Money Market Fund) will be paid by the Distributor to broker-dealers
at the time of sale.
CLASS C SHARES
Class C shares of each Fund are offered for sale at net asset value and are
offered for purchases of less than $1,000,000. Class C shares are sold without
a front end sales charge and are subject to a CDSC of 1% within the first year
of purchase.
A sales commission of 1% of the amount of Class C share (other than Class C
shares of the Cash Management Fund and the New York Municipal Money Market
Fund) will be paid by the Distributor to broker dealers at the time of sale.
CLASS O SHARES
Class O shares of each Fund are offered for sale at net asset value and are not
subject to any sales charges. Only Class O shareholders may purchase additional
Class O shares.
DISTRIBUTOR
Salomon Brothers, located at 7 World Trade Center, New York, New York 10048,
serves as each Fund's distributor. Salomon Brothers is a wholly-owned
subsidiary of Salomon Brothers Holding Company Inc, which is in turn wholly-
owned by Salomon Inc. It is also one of the largest securities dealers in the
world and a registered broker-dealer. Salomon Brothers makes markets in
securities and provides a broad range of underwriting, research, and financial
advisory services to governments, international corporations, and institutional
investors. Salomon Brothers from time to time may receive fees from the Funds
in connection with the execution of portfolio transactions on behalf of the
Funds.
Each class of each Fund (other than the Cash Management Fund and the New York
Municipal Money Market Fund) is authorized pursuant to a services and
distribution plan applicable to that class of shares (the 'Class A Plan,' the
'Class B
PAGE 105
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SALOMON BROTHERS INVESTMENT SERIES
Plan' and the 'Class C Plan,' collectively, the 'Plans') adopted
pursuant to Rule 12b-1 under the 1940 Act to pay Salomon Brothers an annual
service fee with respect to Class A, Class B and Class C shares of the
applicable Fund (other than the Cash Management Fund and the New York Municipal
Money Market Fund) at the rate of .25% of the value of the average daily net
assets of the respective class. Salomon Brothers is also paid an annual
distribution fee with respect to Class B and Class C shares of each Fund (other
than the Cash Management Fund and the New York Municipal Money Market Fund) at
the rate of .75% of the value of the average daily net assets of the respective
class. Class O shares are not subject to a services and distribution plan. The
service fees are used for servicing shareholder accounts, including payments by
Salomon Brothers to selected securities dealers. The distribution fees are paid
to Salomon Brothers to compensate for activities primarily intended to result in
the sale of Class B and Class C shares. The expenses incurred in connection with
these activities include: costs of printing and distributing the Funds'
Prospectus, Statement of Additional Information and sales literature to
prospective investors; an allocation of overhead and other Salomon Brothers'
branch office distribution-related expenses; payments to and expenses of other
persons who provide support services in connection with the distribution of the
shares; any other costs and expenses relating to distribution or sales support
activities; compensation for the Distributor's initial expense of paying
investment representatives or introducing brokers a commission upon the sale of
the Funds' shares; and accruals for interest on the amount of the foregoing
expenses that exceed the amount of the distribution fee and the CDSC received
by the Distributor. Under the Plans, Salomon Brothers may retain all or a
portion of the service and distribution fees. The payments to selected
securities dealers may include a commission paid at the time of sale and a
continuing fee based upon the value of the average daily net assets of the
applicable class of shares that remain invested in a Fund (a 'trail fee') with
respect to accounts that dealers continue to service. With respect to Class B
shares, Salomon Brothers will pay broker-dealers at the time of sale a
commission of 4% of the purchase price and a quarterly trail fee at an annual
rate of .25% which will begin to accrue in the thirteenth month after
settlement. With respect to Class C shares, Salomon Brothers will pay
broker-dealers at the time of sale a commission of 1% of the purchase price and
a quarterly trail fee at an annual rate of .90% which will begin to accrue in
the thirteenth month after settlement. In addition, with respect to Class A
shares, Salomon Brothers will pay broker-dealers at the time of sale a
commission as discussed above under 'Purchase of Shares -- Class A Shares' and
a quarterly trail commission at an annual rate of .25% which will begin to
accrue immediately after settlement.
The Plans provide that Salomon Brothers may make payments to assist in the
distribution of a Fund's shares out of the other fees received by it or its
affiliates from such Fund, its past profits or any other sources available to
it. From time to time, Salomon Brothers may waive receipt of fees under a Plan
while retaining the ability to be paid under such Plan thereafter. The fees
payable to Salomon Brothers under the Plans and payments by Salomon Brothers to
selected securities dealers are payable without regard to actual expenses
incurred.
The Distributor may, from time to time, assist dealers by, among other things,
providing sales literature to, and holding informational programs for the
benefit of, dealers' registered representatives which may include payment for
travel expenses, including lodging, incurred in connection with trips taken
by qualifying registered representatives and members of their families within
or outside the United States. Participation of registered
PAGE 106
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SALOMON BROTHERS INVESTMENT SERIES
representatives in such informational programs may require the sale of minimum
dollar amounts of shares of the Funds. In addition, the Distributor may also,
from time to time, at its expense or as an expense for which it may be
compensated under a distribution plan, if applicable, pay a bonus or other
consideration or incentives to dealers who sell a minimum dollar amount of
shares of the Funds during a specified period of time. In some instances, these
incentives may be offered only to certain dealers who have sold or may sell
significant amounts of shares. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of the applicable Fund's
shares or the amount that any particular Fund will receive as proceeds from
such sales. Dealers may not use sales of the Funds' shares to qualify for any
incentives to the extent that such incentives may be prohibited by the laws of
any state. Incentive payments will be provided for out of the front end sales
charges and CDSCs retained by the Distributor, any applicable Plan payments or
the Distributor's other resources. Other than Plan payments, the Funds do not
bear distribution expenses.
---------------
Under certain circumstances, certain broker/dealers may impose additional
transaction fees on the purchase and/or sale of shares.
PAGE 107
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Redemption of Shares
Shareholders may redeem all or any part of their shareholdings on any business
day at the applicable net asset value next determined after the receipt of
proper redemption instructions. The value of shares on redemption may be more
or less than the investor's cost.
Payment of redemption proceeds may be made in securities, subject to regulation
by some state securities commissions. Payment of the redemption price will be
made within seven days after receipt of the redemption instructions in good
order (or such shorter time period as may be required), but each Fund may
suspend the right of redemption during any period when (i) trading on the NYSE
is restricted or the NYSE is closed, other than customary weekend and holiday
closings, (ii) the SEC has by order permitted such suspension, or (iii) an
emergency, as defined by rules of the SEC, exists, making disposal of portfolio
securities or determination of the value of the net assets of each Fund not
reasonably practicable.
For the shareholder's convenience each Fund has established several different
redemption procedures. No redemption requests will be processed until the
applicable Fund has received a completed Purchase Application. If a shareholder
holds shares in more than one class, any request for redemption must specify the
class being redeemed. Each Fund will not credit redemption proceeds for any
shares until checks received in payment for such shares have been collected,
which may take up to 15 days or more. A shareholder who anticipates the need
for more immediate access to his or her investment should purchase shares by
federal funds or bank wire, or by a certified or cashier's check.
REDEMPTION THROUGH SELECTED
DEALERS
Salomon Brothers will accept orders from dealers with whom it has sales
agreements for the repurchase of shares held by investors. With respect to each
Fund (other than the Cash Management Fund and the New York Municipal Money
Market Fund), redemption orders received by the dealer prior to the close of
trading on the NYSE on any business day and transmitted to Salomon Brothers
prior to the close of its business day (normally 5:00 p.m., New York time) are
effective that day. Otherwise, the shares will be redeemed at the applicable
net asset value next determined. With respect to the Cash Management Fund and
the New York Municipal Money Market Fund, redemption requests received by the
dealer and transmitted to Salomon Brothers by 12:00 noon, New York time, on any
business day generally will be effected on that same day. It is the
responsibility of the dealer to transmit orders on a timely basis. The dealer
may charge the investor a fee for executing the order. This redemption
arrangement is discretionary and may be withdrawn or modified at any time.
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request to FDISG which meets all
the following requirements:
(1) Written instructions from registered owner(s), signed exactly as shares are
registered (facsimile instructions will not be accepted);
(2) All certificates, if any, to be redeemed;
(3) If shares to be redeemed have a net asset value of $50,000 or more, a
letter or a stock power signed by the registered owner(s) with the signature(s)
guaranteed by an acceptable guarantor. A guarantee of each shareholder's
signature is required
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SALOMON BROTHERS INVESTMENT SERIES
for all redemptions, regardless of the amount involved, when the proceeds are
to be paid to someone other than the registered owner(s) of the shares
redeemed, are to be wired to a bank or are to be sent to other than the
registered address. Signature guarantees must be in accordance with FDISG's
standards and procedures. Any one of the following guarantors is normally
acceptable: (a) a commercial or savings bank which is a member of the Federal
Deposit Insurance Corporation; (b) a trust company; (c) a member firm of a
domestic stock exchange; or (d) a foreign branch of any of the above (FDISG
will not accept dated guarantees or guarantees from a notary public); and
(4) In the case of shares of record held in the name of a corporation, trust,
fiduciary or partnership, the redemption agent requires evidence of authority
to sign and a stock power with signature(s) guaranteed.
To expedite processing of redemptions by mail, shareholders should submit
redemption requests and all related documents directly to First Data Investor
Services Group, Inc., P.O. Box 9109, Boston, MA 02205-9109.
Checks for redemption proceeds will normally be mailed within seven days after
redemption. Unless other instructions are given in proper form, checks for
redemption proceeds will be sent to the shareholder's address of record if the
shareholder does not have a brokerage account. If a shareholder has a brokerage
account, redemption proceeds will be credited to such account.
Upon request, the proceeds of a redemption amounting to $500 or more will be
sent by federal funds or bank wire to the shareholder's predesignated bank
account.
TELEPHONE REDEMPTION PRIVILEGE
Shareholders having direct accounts with FDISG may redeem shares by means of
the Telephone Redemption Privilege. The Application for Telephone Redemption
Privilege must be completed by the shareholder with the signature(s) guaranteed
in the manner described above under 'Redemption by Mail' prior to initiating a
telephone redemption.
Shareholders cannot apply the Telephone Redemption Privilege to shares held in
certificate form or for accounts requiring additional supporting documentation
for redemptions such as trust, corporate, estate and guardian accounts.
Proceeds from the telephone redemption will be forwarded to the shareholder by
check unless the shareholder has requested redemption by wire in the manner
described below under 'Redemption by Wire.' The check will be made payable to
the registered shareholder(s) and sent to the address of record on file with
FDISG.
Shareholders should realize that by making redemption requests by telephone,
they may be giving up a measure of security that they may have if they were to
redeem their shares in writing. Each Fund reserves the right to refuse a
telephone request for redemption if it is believed advisable to do so.
Procedures for redeeming shares by telephone may be modified or terminated at
any time by the applicable Fund. None of the Funds or FDISG will be liable for
following redemption instructions received by telephone, which are reasonably
believed to be genuine, and the shareholder will bear the risk of loss in the
event of unauthorized or fraudulent telephone instructions. Each Fund and FDISG
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Each Fund and/or FDISG may be liable for any losses due
to unauthorized or fraudulent instructions in the absence of following these
procedures.
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SALOMON BROTHERS INVESTMENT SERIES
When requesting a redemption by telephone, shareholders should have available
the correct account registration and account numbers or tax identification
number.
REDEMPTION BY WIRE
If redemption by wire has been elected on the Purchase Application, shares may
be redeemed, in the amount of $500 or more, on any business day upon request
made by telephone or letter. No signature guarantee is required on such a
redemption request. To elect this service subsequent to opening an account, call
SBAM or FDISG for further information.
You may either:
Telephone the redemption request to FDISG at the following number: (800)
SALOMON or (800) 725-6666 or
Mail the request to FDISG at the following address:
(Name of Fund)
c/o FDISG
P.O. Box 5127
Westborough, MA 01581-5127
Proceeds of wire redemptions of $500 or more will be wired to the shareholder's
bank indicated in the Purchase Application or by letter which has been properly
guaranteed. With respect to the Cash Management Fund and the New York Municipal
Money Market Fund, if a wire redemption request is received by FDISG by 12:00
noon, New York time, on any business day, the redemption proceeds generally
will be transmitted to the shareholder's bank that same day. Checks for
redemption proceeds of less than $500 will be mailed to the shareholder's
address of record.
Shareholders should note that their bank may charge a fee in connection with
transferring money by bank wire.
CHECKWRITING
Checkwriting is available only to Class A and Class O shareholders of the Cash
Management Fund and the New York Municipal Money Market Fund. If redemption by
check has been elected on the Purchase Application, the redemption of shares
may be made by using redemption checks provided by FDISG. There is no charge
for this service. Checks may be made payable to the order of any person or
organization designated by the shareholder and must be for amounts of $500 or
more. Shareholders will continue to earn dividends on the shares redeemed until
the check clears the banking system. If a shareholder's account does not contain
an available amount sufficient to cover the amount of a check, the check will be
returned marked insufficient funds and a $10 charge per returned check will be
imposed. If checks are improperly signed, they will not be honored. Checks
cannot be used to close an account. Redemption by check may be terminated at
any time by FDISG or the applicable Fund.
SMALL ACCOUNTS
Under each Fund's present policy, it reserves the right to redeem upon not less
than 30 days' notice, the shares in an account which have a value of $500 or
less or, in the case of an IRA or Self-Employed Retirement Plan, $250 or less if
the reduction in value is the result of shareholder redemptions or transfers and
not as a result of a decline in the net asset value. However, any shareholder
affected by the exercise of this right will be allowed to make additional
investments prior to the date fixed for redemption to avoid liquidation of the
account.
CONTINGENT DEFERRED SALES CHARGES
Redemptions may be subject to a CDSC as described below. The CDSC is not
applicable with respect to redemptions of shares of the Cash Management Fund or
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SALOMON BROTHERS INVESTMENT SERIES
the New York Municipal Money Market Fund which have never been exchanged from
another Fund that normally imposes a CDSC. However, in the case of shares of
the Cash Management Fund or the New York Municipal Money Market Fund which were
obtained through an exchange from another Fund that normally imposes a CDSC,
such shares will be subject to any applicable CDSC due at redemption.
Similarly, shares initially purchased in the Cash Management Fund or the New
York Municipal Money Market Fund which are subsequently exchanged for shares of
other Funds that normally impose a CDSC will be subject to any applicable CDSC
due at redemption. Shares of any Fund may be exchanged for shares of any other
Fund without the imposition of a CDSC, although a CDSC may apply upon
redemption of the shares acquired through the exchange. See 'Shareholder
Services -- Exchange Privilege.'
Because shares of the Cash Management Fund and the New York Municipal Money
Market Fund are not subject to any distribution or service fees, any applicable
CDSC period is tolled for the period of time in which shares of other Funds that
normally impose a CDSC are held in the Cash Management Fund and/or the New York
Municipal Money Market Fund. For example, if shares subject to a CDSC of a Fund
other than the Cash Management Fund or the New York Municipal Money Market Fund
are exchanged for shares of the Cash Management Fund or the New York Municipal
Money Market Fund two years after purchase and are subsequently redeemed one
year later, only the first two years of ownership count in the determination of
the applicable CDSC percentage to be applied to that redemption.
The CDSC is assessed on an amount equal to the lesser of the net asset value at
redemption or the initial purchase price of the shares being redeemed. In
determining the amount of the CDSC that may be applicable to a redemption, the
calculation is determined in the manner that results in the lowest possible rate
being charged. Therefore, any shares in the redeeming shareholder's account that
may be redeemed without charge will be assumed to be redeemed prior to those
subject to a charge. In addition, if the CDSC is determined to be applicable to
redeemed shares, it will be assumed that shares held for the longest duration
are redeemed first. No CDSC is imposed on: (i) amounts representing increases
in the net asset value per share and (ii) shares acquired through reinvestment
of income dividends or capital gains distributions.
The CDSC may be waived on a redemption of shares in connection with:
(a) redemptions made following the death or disability (as defined in the
Internal Revenue Code of 1986, as amended (the 'Code')), of a shareholder; (b)
redemptions effected pursuant to each Fund's right to liquidate a shareholder's
account if the aggregate net asset value of the shares held in the account is
less than the applicable minimum account size; (c) a tax-free return of an
excess contribution to any retirement plan; (d) exchanges; (e) automatic cash
withdrawals in amounts equal to or less than 12% annually or 2% monthly of
their initial account balances (see 'Shareholder Services -- Automatic
Withdrawal Plan'); (f) redemptions of shares in connection with mandatory post-
retirement distributions and withdrawals from retirement plans or IRAs; (g)
redemption proceeds from other Funds that are reinvested within 60 days of the
redemption (see 'Shareholder Services -- Reinstatement Privilege'); (h) certain
redemptions of shares of a Fund in connection with lump-sum or other
distributions made by eligible retirement plans; and (i) redemption of shares by
participants in certain 'wrap-fee' or asset allocation programs sponsored by
broker-dealers and other financial institutions that have entered into
agreements with Salomon Brothers or SBAM.
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SALOMON BROTHERS INVESTMENT SERIES
CLASS A SHARE PURCHASES
OF $1 MILLION OR MORE
Class A shares that were purchased without a sales charge by reason of a
purchase of $1 million or more within one year after the date of purchase are
subject to a CDSC of 1% if redeemed within the first year of purchase (with the
exception of Class A shares of the Cash Management Fund and the New York
Municipal Money Market Fund, which are not subject to any CDSC upon redemption).
CLASS B SHARES
Class B shares that are redeemed within six years of purchase are subject to a
CDSC at the rates set forth in the table below, charged as a percentage of the
dollar amount subject thereto (with the exception of Class B shares of the Cash
Management Fund and the New York Municipal Money Market Fund, which are not
subject to any CDSC upon redemption). The amount of any CDSC payable upon
redemption varies depending on the number of years elapsed from the time of the
purchase of Class B shares until the time of redemption. Solely for purposes of
determining the number of years from the time of any payment for the purchase
of shares until redemption, all orders accepted during a month are aggregated
and deemed to have been made on the last business day of that month.
CLASS B CDSC TABLE
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF
YEAR(S) SINCE PURCHASE ORDER DOLLAR AMOUNT SUBJECT TO CHARGE
- ------------------------------------------------------------------------------------------------
<S> <C>
Up to 2 years 5%
2 years or more but less than 3 years 4%
3 years or more but less than 4 years 3%
4 years or more but less than 5 years 2%
5 years or more but less than 6 years 1%
6 or more years 0%
</TABLE>
CLASS C SHARES
Class C shares are subject to a CDSC of 1% if redeemed within the first year of
purchase (with the exception of Class C shares of the Cash Management Fund and
the New York Municipal Money Market Fund, which are not subject to any CDSC
upon redemption).
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Performance Information
From time to time, a Fund may advertise its 'yield,' 'tax-equivalent yield,'
'effective yield' and/or standardized and nonstandardized 'average annual total
return' over various periods of time. Total return and yield quotations are
computed separately for each class of shares of a Fund. Total return figures
show the average annual percentage change in value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period. These figures reflect changes in the price of the shares and assume
that any income dividends and/or capital gains distributions made by a Fund
during the period were reinvested in shares of the same class. Total return
figures for Class A shares include the maximum initial 4.75% sales charge
(except for the Cash Management Fund and the New York Municipal Money Market
Fund, which have no sales charge) and for Class B and Class C shares include
any applicable CDSC during the measuring period. These figures also take into
account the service and distribution fees, if any, payable with respect to each
class of a Fund's shares.
Standardized total return is calculated in accordance with the SEC's formula.
Nonstandardized total return differs from the standardized total return only in
that it may relate to a nonstandard period or is presented in the aggregate
rather than as an annual average.
Total return figures will be given for the most current one-, five- and ten-year
periods, or the life of the relevant class of a Fund to the extent it has not
been in existence for any such periods, and may be given for other periods as
well, such as on a year-by-year basis. When considering average total return
figures for periods longer than one year, it is important to note that the
total return for any one year in the period might have been greater or less
than the average for the entire period. 'Aggregate total return' figures may be
used for various periods, representing the cumulative change in value of an
investment in Fund shares for the specific period (again reflecting changes in
share prices and assuming reinvestment of dividends and distributions).
Aggregate total return may be calculated either with or without the effect of
the maximum 4.75% sales charge for the Class A shares (except for the Cash
Management Fund and the New York Municipal Money Market Fund, which have no
sales charge) or any applicable CDSC for Class B and Class C shares, and may be
shown by means of schedules, charts or graphs and may indicate subtotals of the
various components of total return (i.e., change in the value of initial
investment, income dividends and capital gains distributions). Because of the
differences in sales charges, distribution fees and certain other expenses, the
performance for each of the classes will differ.
Yield is calculated in accordance with the SEC's formula. The tax-equivalent
yield is calculated by determining the portion of the yield which is tax-exempt
and calculating the equivalent taxable yield and adding to such amount any
fully taxable yield. Yield differs from total return in that it does not
consider changes in net asset value.
From time to time the Cash Management Fund and the New York Municipal Money
Market Fund may make available information as to its 'yield' and 'effective
yield.' The 'yield' of the Cash Management Fund and the New York Municipal
Money Market Fund refers to the income generated by an investment in each such
Fund over a seven-day period. This income is then 'annualized.' That is, the
amount of income generated by the investment during that week is assumed to
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SALOMON BROTHERS INVESTMENT SERIES
be generated each week over a 52-week period and is shown as a percentage of the
investment. The 'effective yield' is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested in
shares of the same class. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
Distribution rate differs from yield in that it is calculated by dividing the
annualization of the most recent month's distribution by the maximum offering
price at the end of the month.
Furthermore, in reports or other communications to shareholders or in
advertising materials, performance of Fund shares may be compared with that of
other mutual funds or classes of shares of other mutual funds, as listed in the
rankings prepared by Lipper Analytical Services, Inc. or similar independent
services that monitor the performance of mutual funds, financial indices such
as the S&P 500 Index or other industry or financial publications such as Bank
Rate Monitor, Barron's, Business Week, CDA Investment Technologies, Inc.,
Changing Times, Forbes, Fortune, ICB Donaghue's Money Fund Report,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund Values,
The New York Times, USA Today and The Wall Street Journal. The annual reports
to shareholders for each of the Series Funds, other than the Asia Growth Fund,
which recently commenced operations, the Investors Fund and the Capital Fund
for the fiscal year ended December 31, 1995 containing additional performance
information are available without charge and can be obtained by writing or
calling the address or telephone number printed on the front cover. The yield
of the Cash Management Fund and the New York Municipal Money Market Fund may
also be compared to yields set forth in the weekly statistical release
H.15(519) or the monthly statistical release designated G.13(415) published by
the Board of Governors of the Federal Reserve System. Performance figures are
based on historical earnings and are not intended to indicate future
performance. See 'Performance Data' in the Statement of Additional Information.
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Dividends and Distributions
Each of the Cash Management Fund and the New York Municipal Money Market Fund
intend to declare as a dividend substantially all of its net investment income
at the close of each business day to the Fund's shareholders of record at 12:00
noon, New York time, on that day, and will pay such dividends monthly. The New
York Municipal Bond Fund, the National Intermediate Municipal Fund, the U.S.
Government Income Fund, the High Yield Bond Fund, the Strategic Bond Fund and
the Total Return Fund will declare dividends from net investment income daily
and pay them monthly. The Asia Growth Fund will declare dividends from net
investment income annually and pay them annually. The Investors Fund's present
policy is to pay quarterly dividends from net investment income and the
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SALOMON BROTHERS INVESTMENT SERIES
Capital Fund's present policy is to pay annual dividends from net investment
income.
Net investment income is a Fund's investment company taxable income, as that
term is defined in the Code, determined without regard to the deduction for
dividends paid and excluding any net realized capital gains. For the purpose of
calculating dividends, net investment income shall consist of interest earned,
which includes, where applicable, any discount accreted or premium amortized to
the date of maturity, minus estimated expenses.
Shares of a Fund (other than the Cash Management Fund and the New York
Municipal Money Market Fund, as described below) are entitled to dividends
declared beginning on the day after the purchase order is received in good
order. Purchase orders for shares of the Cash Management Fund and the New York
Municipal Money Market Fund for which payment is received in or converted into
federal funds by 12:00 noon, New York time on any business day will become
effective and begin to earn dividends that same day. Purchase orders for shares
of the Cash Management Fund and the New York Municipal Money Market Fund for
which payment is received in or converted into federal funds after 12:00 noon,
New York time, on any business day will become effective and begin to earn
dividends on the following business day. With respect to the Cash Management
Fund and the New York Municipal Money Market Fund, shares redeemed by 12:00
noon, New York time, will accrue dividends through the day prior to redemption
and shares redeemed after 12:00 noon, New York time, will accrue dividends
through the day of redemption. The New York Municipal Bond Fund, the National
Intermediate Municipal Fund, the U.S. Government Income Fund, the High Yield
Bond Fund, the Strategic Bond Fund and the Total Return Fund will accrue
dividends on settled shares through the day of redemption. For Funds that will
declare dividends daily, net investment income for a Saturday, Sunday or holiday
will be declared as a dividend on the previous business day.
Dividends are determined in the same manner and are paid in the same amount for
each Fund share, except certain expenses borne differ by class. In addition,
the maximum distribution and service fees payable by the Class B and Class C
shares of each Fund (other than the Cash Management Fund and the New York
Municipal Money Market Fund, which bear no such fees) are more than the maximum
fees payable by such Fund's Class A and Class O shares. Moreover, Class O
shares are not subject to any distribution or service fees. As a result, the
per share dividends on the Class O shares will generally be higher than Class
A, Class B and Class C shares of each Fund (other than the Cash Management Fund
and the New York Municipal Money Market Fund) and the per share dividends on
Class A shares of each Fund will generally be higher than those on Class B and
Class C shares (other than the Cash Management Fund and the New York Municipal
Money Market Fund).
Net realized short-term capital gains of each Fund, if any, will be distributed
whenever the Directors determine that such distributions would be in the best
interest of shareholders, but in any event at least once a year. Each Fund
distributes annually any net realized long-term capital gains from the sale of
securities (after deducting any net realized losses that may be carried forward
from prior years). The Cash Management Fund and the New York Municipal Money
Market Fund do not expect to realize any long-term capital gains.
If a shareholder elects to receive dividends and/or distributions in cash and
the check cannot be delivered to a shareholder due to an invalid address or
otherwise remains uncashed by the shareholder for a period of six months, each
Fund reserves the right
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SALOMON BROTHERS INVESTMENT SERIES
to reinvest the dividend and/or distribution in a shareholder's account at the
then-current net asset value and to convert the shareholder's election to
automatic reinvestment in shares of the Fund from which the distributions were
made.
If, for any full fiscal year, a Fund's total distributions exceed net
investment income and net realized capital gains, the excess distributions
generally will be treated as a tax-free return of capital (up to the amount of
the shareholder's tax basis in his or her shares). The amount treated as a
tax-free return of capital will reduce a shareholder's adjusted basis in his or
her shares. Pursuant to the requirements of the 1940 Act and other applicable
laws, a notice will accompany any distribution paid from sources other than net
investment income. In the event a Fund distributes amounts in excess of its net
investment income and net realized capital gains, such distributions may have
the effect of decreasing the Fund's total assets, which may increase the Fund's
expense ratio.
Dividend and/or capital gains distributions will be reinvested automatically in
additional shares of the same class of a Fund at the applicable net asset value
per share and such shares will be automatically credited to a shareholder's
account, unless a shareholder elects to receive either dividends or capital
gains distributions in cash. A shareholder who does not have a brokerage
account may inform FDISG, by notice sent to P.O. Box 9109, Boston,
Massachusetts 02205-9109, that he or she wishes to receive such dividends or
distributions in cash directly from FDISG. If such distribution is to be sent
to an address other than the address on record, a signature guarantee is
required. See 'Redemptions by Mail' above for instructions concerning signature
guarantees. Such signature must be signed exactly as registered with FDISG.
Shareholders may change the distribution option at any time by notification to
FDISG or calling 1-800-SALOMON prior to the record date of any such dividend or
distribution.
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Taxation
FEDERAL INCOME TAX MATTERS. Each Fund intends to qualify and elect to be
treated as a regulated investment company under Subchapter M of the Code. If it
so qualifies, a Fund will not be subject to U.S. federal income taxes on its net
investment income (i.e., its investment company taxable income, as that term is
defined in the Code, determined without regard to the deduction for dividends
paid) and net capital gain (i.e., the excess of a Fund's net realized long-term
capital gain over its net realized short-term capital loss), if any, that it
distributes to its shareholders in each taxable year, provided that it
distributes to its shareholders (i) at least 90% of its net investment income
for such taxable year, and (ii) with respect to the New York Municipal Money
Market Fund, the New York Municipal Bond Fund and the National Intermediate
Municipal Fund at least 90% of its net tax-exempt interest income for such
taxable year. If in any year a Fund fails to qualify as a regulated investment
company, such Fund would incur regular corporate
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SALOMON BROTHERS INVESTMENT SERIES
federal income tax on its taxable income for that year and be subject to certain
additional distribution requirements upon requalification.
Each Fund will be subject to federal corporate income tax (currently at a
maximum rate of 35%) on any undistributed income other than tax-exempt income
from municipal obligations and to alternative minimum tax (currently at a
maximum rate of 28%) on alternative minimum taxable income, which includes
interest income on certain 'private activity' obligations that is otherwise
exempt from tax.
Each Fund is subject to a nondeductible 4% excise tax calculated as a
percentage of certain undistributed amounts of ordinary income and net realized
capital gains. To the extent possible, each Fund intends to make sufficient
distributions to avoid the application of both the corporate income and excise
taxes.
All dividends and distributions to shareholders of a Fund of investment company
taxable income will be taxable to shareholders whether paid in cash or
reinvested in additional shares. For federal income tax purposes, distributions
of net investment income which includes the excess of the Fund's net realized
short-term capital gains over net realized long-term capital losses, are
taxable to shareholders as ordinary income.
Distributions of net capital gains designated by a Fund as 'capital gain
dividends' will be taxable as long-term capital gains, whether paid in cash or
additional shares, regardless of how long the shares have been held by such
shareholders, and such distributions will not be eligible for the dividends
received deduction. With respect to each Fund, a portion of each Fund's
dividends may qualify for the dividends received deduction available to
corporations. In general, the maximum federal income tax rate imposed on
individuals with respect to capital gain dividends will be limited to 28%,
whereas the maximum federal income tax rate imposed on individuals with respect
to ordinary income (and short-term capital gains, which currently are taxed at
the same rates as ordinary income) will be 39.6%. With respect to corporate
taxpayers, long-term capital gains currently are taxed at the same federal
income tax rates as ordinary income and short-term capital gains. Investors
should consider the tax implications of buying shares shortly before the record
date of a distribution because distributions will be taxable even though the
net asset value of shares of a Fund is reduced by the distribution.
Funds investing in foreign securities or currencies may be required to pay
withholding or other taxes to foreign governments on dividends and interest.
The investment yield of a Fund investing in foreign securities or currencies
will be reduced by these foreign taxes. Shareholders will bear the cost of any
foreign taxes but may not be able to claim a foreign tax credit or deduction
for these foreign taxes. In addition, a Fund investing in securities of passive
foreign investment companies may be subject to U.S. federal income taxes (and
interest on such taxes) as a result of such investments. The investment yield
of a Fund making such investments will be reduced by these taxes and interest.
Shareholders will bear the cost of these taxes and interest, but will not be
able to claim a deduction for these amounts.
The redemption, sale or exchange of shares of one Fund for shares of another is
a taxable event and may result in a gain or loss. Gain or loss, if any,
recognized on the sale or other disposition of shares of a Fund will be taxed
as capital gain or loss if the shares are capital assets in the shareholder's
hands. Generally, a shareholder's gain or loss will be a long-term gain or loss
if the shares have been held for more than one year. If a shareholder sells or
otherwise disposes of shares of a Fund before holding them for
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more than six months, any loss on the sale or other disposition of such shares
shall be (i) treated as a long-term capital loss to the extent of any capital
gain dividends received by the shareholder with respect to such shares or (ii)
disallowed to the extent of any exempt-interest dividends received by the
shareholder with respect to such shares. A loss realized on a sale or exchange
of shares may be disallowed if other shares are acquired within a 61-day period
beginning 30 days before and ending 30 days after the date that the shares are
disposed of.
Generally, shareholders will be taxable on dividends or distributions in the
year of receipt. However, if a Fund declares a dividend or distribution in
October, November or December to shareholders of record on a specified date in
such a month which is actually paid during the following January, it will be
deemed to have been received by the shareholders and paid by the Fund no later
than December 31 of the year in which the dividend or distribution is declared.
A Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in PIK bonds or
in obligations such as certain Brady Bonds or zero coupon securities having
original issue discount (i.e., an amount equal to the excess of the stated
redemption price of the security at maturity over its issue price), or market
discount (i.e., an amount equal to the excess of the stated redemption price of
the security over the basis of such bond immediately after it was acquired) if
the Fund elects to accrue market discount on a current basis. In addition,
income may continue to accrue for federal income tax purposes with respect to a
non-performing investment. Any such income would be treated as income earned by
a Fund and therefore would be subject to the distribution requirements of the
Code. Because such income may not be matched by a corresponding cash
distribution to a Fund, such Fund may be required to borrow money or dispose of
other securities to be able to make distributions to its investors. The extent
to which a Fund may liquidate securities at a gain may be limited by the
requirement that less than 30% of its annual gross income be derived from the
sale or other disposition of securities and certain other investments held for
less than three months (the 'short-short test'). In addition, if an election is
not made to currently accrue market discount with respect to a market discount
bond, all or a portion of any deduction or any interest expense incurred to
purchase or hold such bond may be deferred until such bond is sold or otherwise
disposed.
Each Fund may be required to withhold federal income tax at a rate of 31%
('backup withholding') from dividends (other than exempt-interest dividends) and
redemption proceeds paid to non-corporate shareholders. This tax may be
withheld from dividends if (i) the payee fails to furnish the Fund with the
payee's correct taxpayer identification number (e.g., an individual's social
security number), (ii) the Internal Revenue Service ('IRS') notifies the Fund
that the payee has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect, or (iii) when
required to do so, the payee fails to certify that he or she is not subject to
backup withholding. Redemption proceeds may be subject to withholding under the
circumstances described in (i) above. Backup withholding is not an additional
tax and any amounts withheld may be credited against the shareholder's federal
income tax liability.
HONG KONG TAX MATTERS. The Asia Growth Fund would be subject to Hong Kong
profits tax, which is currently charged at the rate of 16.5% for corporations
and 15% for individuals, if, by virtue of the fact that SBAM AP is located in
Hong Kong, (a) the Fund or its agents were deemed to carry on a trade,
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SALOMON BROTHERS INVESTMENT SERIES
profession or business in Hong Kong and (b) profits from that trade, profession
or business were to arise in or be derived from Hong Kong. Hong Kong profits tax
will not be payable in respect of profits from the sale of shares and other
securities transacted outside Hong Kong, interest arising or derived from
outside Hong Kong and profits in the nature of capital gains. The sale of
securities will not be treated as the sale of capital assets if the profit or
loss from such sale is regarded as attributable to a trade or business carried
on in Hong Kong. The Asia Growth Fund does not currently believe that it will
be subject to Hong Kong profits tax.
Dividends which the Fund pays to its shareholders are not taxable in Hong Kong
(whether through withholding or otherwise) under current legislation and
practice. No Hong Kong stamp duty will be payable in respect of transactions in
shares of the Asia Growth Fund provided that the register of shareholders is
maintained outside of Hong Kong.
STATE AND LOCAL TAX MATTERS. Depending on the residence of the shareholder for
tax purposes, distributions may also be subject to state and local taxes or
withholding taxes.
Most states provide that a regulated investment company may pass through
(without restriction) to its shareholders state and local income tax exemptions
available to direct owners of certain types of U.S. government securities (such
as U.S. Treasury obligations). Thus, for residents of these states,
distributions derived from a Fund's investment in certain types of U.S.
government securities should be free from state and local income taxes to the
extent that the interest income from such investments would have been exempt
from state and local income taxes if such securities had been held directly by
the respective shareholders themselves. Certain states, however, do not allow a
regulated investment company to pass through to its shareholders the state and
local income tax exemptions available to direct owners of certain types of U.S.
government securities unless the regulated investment company holds at least a
required amount of U.S. government securities. Accordingly, for residents of
these states, distributions derived from a Fund's investment in certain types
of U.S. government securities may not be entitled to the exemptions from state
and local income taxes that would be available if the shareholders had
purchased U.S. government securities directly. Shareholders' dividends
attributable to a Fund's income from repurchase agreements generally are
subject to state and local income taxes, although states and regulations vary
in their treatment of such income. The exemption from state and local income
taxes does not preclude states from asserting other taxes on the ownership of
U.S. government securities. To the extent that a Fund invests to a substantial
degree in U.S. government securities which are subject to favorable state and
local tax treatment, shareholders of such Fund will be notified as to the
extent to which distributions from the Fund are attributable to interest on such
securities.
NEW YORK MUNICIPAL MONEY MARKET FUND, NEW YORK MUNICIPAL BOND FUND AND NATIONAL
INTERMEDIATE MUNICIPAL FUND. The New York Municipal Money Market Fund, the New
York Municipal Bond Fund and the National Intermediate Municipal Fund each
intends to qualify to pay 'exempt-interest dividends,' as that term is defined
in the Code, by holding at the end of each quarter of its taxable year at least
50% of the value of its total assets in the form of obligations described in
section 103(a) of the Code. Each Fund's policy is to pay in each taxable year
exempt-interest dividends equal to at least 90% of such Fund's interest from
tax-exempt obligations net of certain deductions. Except as discussed below,
exempt-interest dividends will be exempt from regular federal
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income tax. In addition, dividends from the New York Municipal Money Market Fund
and the New York Municipal Bond Fund will not be subject to New York State and
New York City personal income taxes to the extent that such distributions
qualify as exempt-interest dividends and represent interest income attributable
to federally tax-exempt obligations of the State of New York and its political
subdivisions (as well as certain other federally tax-exempt obligations the
interest on which is exempt from New York State and New York City personal
income taxes). Dividends from the New York Municipal Money Market Fund and the
New York Municipal Bond Fund, however, are not excluded in determining New York
State or New York City franchise taxes on corporations and financial
institutions.
All or a portion of the gain from sale or redemption of tax-exempt obligations
acquired after April 30, 1993 attributable to market discount will be treated as
ordinary income rather than capital gain. This rule may increase the amount of
ordinary income dividends received by shareholders of the New York Municipal
Money Market Fund, the New York Municipal Bond Fund and the National
Intermediate Municipal Fund.
Although exempt-interest dividends may be excluded from a shareholder's gross
income for regular federal income tax purposes, a portion of the exempt-interest
dividends may be a specific preference item for purposes of determining the
shareholder's liability (if any) under the federal individual and corporate
alternative minimum tax provisions of the Code. Exempt-interest dividends will
constitute a specific preference item for purposes of the federal alternative
minimum tax to the extent that such dividends are derived from certain types of
private activity bonds issued after August 7, 1986. In addition, all
exempt-interest dividends will be a component of the 'adjusted current
earnings' adjustment item for purposes of the federal corporate alternative
minimum tax. Moreover, the receipt of exempt-interest dividends may increase a
corporate shareholder's liability for environmental taxes under Section 59A of
the Code and a foreign corporate shareholder's liability under the branch
profits tax, and may also affect the federal tax liability of certain
Subchapter S corporations and insurance companies. Furthermore, the receipt of
exempt-interest dividends may be a factor in determining the extent to which a
shareholder's Social Security benefits are taxable.
With respect to the New York Municipal Money Market Fund and the New York
Municipal Bond Fund, the exemption of interest income for regular federal income
tax purposes and for New York State and New York City personal income tax
purposes may not result in similar exemptions under the tax law of state and
local taxing authorities outside New York. In general, a state exempts from
state income tax only interest earned on obligations issued by that state or its
political subdivisions and instrumentalities.
Under the Code, interest on indebtedness incurred or continued to purchase or
carry shares of the New York Municipal Money Market Fund, the New York Municipal
Bond Fund and the National Intermediate Municipal Fund, which interest is deemed
to relate to exempt-interest dividends, will not be deductible by shareholders
of the Fund for federal income tax purposes.
The New York Municipal Money Market Fund, the New York Municipal Bond Fund and
the National Intermediate Municipal Fund each intends that substantially all
dividends and distributions it pays to its respective shareholders will be
designated as exempt-interest dividends and as such will be exempt from regular
federal income taxes. However, to the extent the New York Municipal Bond Fund
and the National Intermediate Municipal Fund each earns income from taxable
investments or realizes capital gains, some portion of its respective dividends
and distributions may not qualify
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as exempt-interest dividends and may be subject to regular federal income taxes.
Statements detailing the tax status of each shareholder's dividends and
distributions will be mailed annually.
The foregoing is intended to be general information to shareholders and
potential investors in a Fund and does not constitute tax advice. Shareholders
and potential investors should consult their own tax advisers regarding
federal, state, local and foreign tax consequences of ownership of shares in a
Fund.
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Shareholder Services
Each Fund offers the following shareholder services. See the Statement of
Additional Information for further details about these services or call or
write the Fund.
AUTOMATIC INVESTMENT PLAN
An investor who opens an account and wishes to make subsequent, periodic
investments in a Fund by electronic funds transfer from a bank account may
establish an Automatic Investment Plan on the account. The bank at which the
bank account is maintained must be a member of the Automated Clearing House
(ACH). The investor specifies the frequency with which the investments occur
(monthly, every alternate month, quarterly, etc.) with the exception that no
more than one investment will be processed each month. On or about the tenth of
the month, the Fund will debit the bank account in the specified amount
(minimum of $25 per draft) and the proceeds will be invested at the applicable
offering price determined on the date of the debit. In the event of a full
exchange, this plan will follow into the new Fund unless otherwise specified.
AUTOMATIC DIVIDEND
DIVERSIFICATION ('ADD')
The ADD program allows an investor to have all dividends and any other
distributions from a Fund automatically used to purchase shares of the same
class of any other Fund. The receiving account must be in the same name as the
investor's existing account. The purchase of shares to the Fund receiving the
cross-investment of the dividends will be using the net asset value at the
close of business of the dividend payable date.
SYSTEMATIC INVESTING
An investor may request that shares of any class of a Fund be exchanged monthly
for shares of the same class of any other Fund. A predetermined dollar amount of
at least $50 per exchange will then occur on or about the 15th of each month in
accordance with the instructions provided on the initial account application or
on the Systematic Investing application. This Systematic Investing program is
also referred to as 'Dollar Cost Averaging.'
EXCHANGE PRIVILEGE
Shareholders of any Fund may exchange all or part of their shares for shares of
the same class of any other Fund at the applicable relative net asset value per
share without the imposition of any front end sales charge or CDSC, except as
described below. Shares of a Fund are eligible for exchange 30 days after
purchase. Shares of one class may not be exchanged for shares of any other
class of any Fund.
A front end sales charge will be imposed with respect to Class A shares of a
Fund (except for the Cash Management Fund and the New York Municipal Money
Market Fund) which are issued upon an exchange from Class A Cash Management
Fund shares or Class A New York Municipal Money Market Fund shares and as to
which no front end sales charge had been previously paid or waived.
For purposes of determining a shareholder's holding period in the calculation
of any applicable CDSC, the period of time during which shares were held prior
to an exchange will be added to the holding period of shares acquired in an
exchange. However, the CDSC period is tolled for any period of time in which
shares are held in the Cash Management
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Fund and/or the New York Municipal Money Market Fund. For example, if shares
subject to a CDSC of a Fund other than the Cash Management Fund or the New York
Municipal Money Market Fund are exchanged for shares of the Cash Management
Fund or the New York Municipal Money Market Fund two years after purchase and
are subsequently redeemed one year later, only the first two years of ownership
count in the determination of the applicable CDSC percentage to be applied to
that redemption. Furthermore, when Cash Management Fund shares or New York
Municipal Money Market Fund shares are exchanged for shares of any other Fund
that imposes a CDSC, the CDSC becomes (or, in the case of Cash Management Fund
shares or New York Municipal Money Market Fund shares which were subject to a
CDSC prior to a previous exchange for Cash Management Fund shares or New York
Municipal Money Market Fund shares, again becomes) applicable to those shares
commencing at the time of exchange. If such shares are subsequently redeemed,
only time of ownership spent in Funds that impose a CDSC counts toward
determining the applicable CDSC.
Each Fund reserves the right to refuse a telephone request for exchange if it is
believed advisable to do so. Procedures for exchanging shares by telephone may
be modified or terminated at any time by a Fund. None of the Funds or FDISG
will be liable for following exchange instructions received by telephone, which
are reasonably believed to be genuine, and the shareholder will bear the risk of
loss in the event of unauthorized or fraudulent telephone instructions. The
Funds and FDISG may employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The Funds and/or FDISG may be liable for
any losses due to unauthorized or fraudulent instructions in the absence of
following these procedures. When requesting an exchange by telephone,
shareholders should have available the correct account registration and account
numbers or tax identification number.
The exchange of shares of one Fund for shares of another Fund is treated for
federal income tax purposes as a sale of the shares given in exchange by the
shareholder, and an exchanging shareholder may, therefore, realize a taxable
gain or loss in connection with an exchange. See 'Taxation' above.
The exchange privilege is available to shareholders residing in any state in
which the shares of the Fund being acquired may be legally sold. Salomon
Brothers reserves the right to reject any exchange request. The exchange
privilege may be modified or terminated at any time after notice to
shareholders.
AUTOMATIC WITHDRAWAL PLAN
A shareholder may establish a plan for redemptions to be made automatically at
monthly, quarterly, semiannual or annual intervals with payments sent directly
to him or her or to persons designated by the shareholders as recipients of the
withdrawals. Requests for this service not made on the initial application
require signature guarantees unless the payments are to be made to the
shareholder and mailed to the address of record on the account. Investors are
required to have a minimum account value of $10,000 in a single account in
order to establish a monthly withdrawal plan, and a minimum of $5,000 in a
single account for quarterly, semiannual and annual withdrawal plans. Each
withdrawal constitutes a redemption of shares on which a gain or loss may be
recognized. Class B and Class C shareholders may redeem 12% annually or no more
than 2% monthly of their initial account balances without incurring a CDSC.
With respect to the New York Municipal Bond Fund, the Investors Fund and the
Capital Fund,
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a Withdrawal Plan may be opened with an account having a total value of at least
$7,500, and a shareholder can arrange for automatic distributions to be made
monthly or quarterly in amounts not less than $250, $50 and $50 from the New
York Municipal Bond Fund, the Investors Fund and the Capital Fund, respectively.
Maintenance of an Automatic Withdrawal Plan concurrently with purchases of
additional shares may be disadvantageous to an investor because of the sales
charges on certain purchases and redemptions.
The redemptions will occur on or about the 10th day or the 25th day of the month
and the checks will generally be mailed within two days after the redemption
occurs. No redemption will occur if the account balance falls below the amount
required to meet the requested withdrawal amount. This service may be
terminated at any time.
REINSTATEMENT PRIVILEGE
A shareholder may return any dividend, capital gain or redemption check to a
Fund within 60 days of the transaction and have it reinvested at the applicable
net asset value without incurring a sales charge. With regard to Class A
shares, a shareholder may reinstate at net asset value any portion of shares
which have been previously redeemed if the redemption occurred within 60 days of
the request. With regard to Class B and Class C shares, if an investor redeems
Class B or Class C shares and pays a CDSC upon redemption, and then uses those
proceeds to purchase Class B or Class C shares of any Fund within 60 days, the
Class B or Class C shares purchased will be credited with any CDSC paid in
connection with the prior redemption. There are no restrictions on the number
of times a shareholder may use the Reinstatement Privilege.
Any gain recognized on a redemption or repurchase is taxable despite the
reinstatement in the Fund. Any loss realized as a result of the redemption or
repurchase may not be allowed as a deduction for federal income tax purposes
but may be applied, depending on the amount reinstated, to adjust the cost basis
of the shares acquired upon reinstatement. In addition, if the shares redeemed
or repurchased had been acquired within the 60 days preceding the redemption or
repurchase, the amount of any gain or loss on the redemption or repurchase may
have to be computed without regard to any sales charges incurred on the
redeemed or repurchased shares (except to the extent those sales charges exceed
the sales charges waived in connection with the reinstatement).
SELF-EMPLOYED RETIREMENT PLAN
A prototype defined contribution retirement plan is available for self-employed
individuals who wish to contribute earned income on behalf of themselves and
each of their employees to purchase shares of a Fund and/or certain other
mutual funds managed by SBAM. Shareholders should consult with a financial
adviser regarding such plan.
IRAS
A prototype IRA is available generally for all working individuals who receive
compensation (which for self-employed individuals includes earned income) for
services rendered and for certain individuals who receive alimony or separate
maintenance payments pursuant to a divorce or separation instrument.
Contributions to an IRA made available by the Funds may be invested in shares of
a Fund and/or certain other mutual funds managed by SBAM. The New York
Municipal Money Market Fund, the New York Municipal Bond Fund and the National
Intermediate Municipal Fund may not be suitable investments for IRAs.
Shareholders should consult with a financial adviser regarding an IRA.
PAGE 124
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<PAGE>
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Account Services
Shareholders of each Fund are kept informed through semi-annual reports showing
diversification of investments and other financial data for such Fund. Annual
reports for all Funds include audited financial statements. Shareholders of each
Fund will receive a Statement of Account following each share transaction,
except for shareholders of the Cash Management Fund, the New York Municipal Bond
Fund and the National Intermediate Municipal Fund who will receive a Statement
of Account at least monthly showing transactions in the account, the total
number of shares owned, and any dividends or distributions paid. Shareholders
can write or call a Fund at the address and telephone number on the first page
of this Prospectus with any questions relating to their investment in shares of
such Fund.
- -----------------------------------------------------------------------
Capital Stock
The Series Funds was incorporated in Maryland on April 17, 1990. The authorized
capital stock of the Series Funds consists of 10,000,000,000 shares having a par
value of $.001 per share. Pursuant to the Series Funds' Articles of
Incorporation and Articles Supplementary, the Directors have authorized the
issuance of ten series of shares, each representing shares in one of ten
separate Funds. The National Intermediate Municipal Fund, U.S. Government Income
Fund, High Yield Bond Fund, Strategic Bond Fund, Total Return Fund and Asia
Growth Fund are newly or recently organized portfolios of the Series Funds. In
addition, the Series Funds includes the Cash Management Fund, the New York
Municipal Money Market Fund, the New York Municipal Bond Fund and the Salomon
Brothers Institutional Money Market Fund (formerly called the U.S. Treasury
Securities Money Market Fund). The assets of each Fund are segregated and
separately managed. The Series Funds' Board of Directors may, in the future,
authorize the issuance of additional classes of capital stock representing
shares of additional investment portfolios. As of the date of this Prospectus,
Salomon Brothers Holding Company Inc, the parent company of SBAM, owns a
significant percentage of the outstanding shares of the National Intermediate
Municipal Fund, U.S. Government Income Fund, High Yield Bond Fund, Strategic
Bond Fund, Total Return Fund and Asia Growth Fund and consequently is a
controlling person of such Funds.
The Investors Fund was incorporated in Maryland on April 2, 1958. The authorized
capital stock of the Fund consists of 50,000,000 shares having a par value of
$1.00 per share.
The Capital Fund was incorporated in Maryland on August 23, 1976. The authorized
capital of the Fund consists of 25,000,000 shares having a par value of $.001
per share.
Although each Fund is offering only its own shares, it is possible that a Fund
could
PAGE 125
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<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
become liable for a misstatement in this Prospectus about another Fund. The
Directors of the Series Funds, the Investors Fund and the Capital Fund have
considered this factor in approving the use of a combined Prospectus.
Shares of each class of a Fund represent interests in that Fund in proportion to
each share's net asset value. The per share net asset value of each class of
shares in a Fund is calculated separately and may differ as between classes as a
result of the differences in distribution and service fees payable by the
classes and the allocation of certain incremental class-specific expenses to the
appropriate class to which such expenses apply.
All shares of each Fund have equal voting rights and will be voted in the
aggregate, and not by series or class, except where voting by series or class is
required by law or where the matter involved affects only one series or class.
Each shareholder is entitled to cast, at all meetings of shareholders, such
number of votes as is equal to the number of full and fractional shares held by
such shareholder. All shares of each Fund will, when issued, be fully paid and
nonassessable. None of the Funds will issue any senior securities. Under the
corporate law of Maryland, the state of incorporation of the Series Funds, the
Investors Fund and the Capital Fund, and the By-Laws of each of the Series
Funds, the Investors Fund and the Capital Fund, neither the Series Fund, the
Investors Fund nor the Capital Fund is required and does not currently intend to
hold annual meetings of shareholders for the election of directors except as
required under the 1940 Act. A more complete statement of the voting rights of
shareholders is contained in the Statement of Additional Information.
PAGE 126
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<PAGE>
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Appendix A:
Description of Ratings
A DESCRIPTION OF THE RATING POLICIES OF MOODY'S, S&P AND FITCH WITH RESPECT TO
BONDS AND COMMERCIAL PAPER APPEARS BELOW.
MOODY'S CORPORATE BOND RATINGS
Aaa -- Bonds which are rated 'Aaa' are judged to be of the best quality and
carry the smallest degree of investment risk. 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 which are 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 which are rated 'A' possess many favorable investment qualities 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 sometime in the future.
Baa -- Bonds which are 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 which are 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 thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated 'B' generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated 'Caa' are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated 'Ca' represent obligations which are speculative to
a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated 'C' are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
PAGE A-1
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
Moody's applies numerical modifiers '1', '2' and '3' to certain of its rating
classifications. The modifier '1' indicates that the security ranks in the
higher end of its generic rating category; the modifier '2' indicates a
mid-range ranking; and the modifier '3' indicates that the issue ranks in the
lower end of its generic rating category.
S&P's CORPORATE BOND RATINGS
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to repay principal and pay interest.
AA -- Bonds rated 'AA' also qualify as high quality debt obligations. Capacity
to pay principal and interest is very strong, and differs from 'AAA' issues
only in small degree.
A -- Bonds rated 'A' have a strong capacity to repay principal and pay interest,
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 repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher-rated categories.
BB-B-CCC-CC-C -- Bonds rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates 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.
CI -- Bonds rated 'CI' are income bonds on which no interest is being paid.
D -- Bonds rated 'D' are in default. The 'D' category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The 'D' rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
MOODY'S COMMERCIAL PAPER RATINGS
PRIME-1 -- Issuers (or related supporting institutions) rated 'Prime-1' have a
superior ability for repayment of senior short-term debt obligations. 'Prime-1'
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
PAGE A-2
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
PRIME-2 -- Issuers (or related supporting institutions) rated 'Prime-2' have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
PRIME-3 -- Issuers (or related supporting institutions) rated 'Prime-3' have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME -- Issuers rated 'Not Prime' do not fall within any of the Prime
rating categories.
S&P's RATINGS GROUP COMMERCIAL PAPER RATINGS
A -- S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from 'A-1' for the highest
quality obligations to 'D' for the lowest. The four categories are as follows:
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3 -- Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B -- Issues rated 'B' are regarded as having only speculative capacity for
timely payment.
C -- This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D -- Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
MOODY'S MUNICIPAL BOND RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. 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.
PAGE A-3
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
Aa -- Bonds which are 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 which are rated A possess many favorable investment qualities 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 sometime in the future.
Baa -- Bonds which are 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.
Moody's applies numerical modifiers '1', '2' and '3' to certain of its rating
classifications. The modifier '1' indicates that the security ranks in the
higher end of its generic rating category; the modifier '2' indicates a
mid-range ranking; and the modifier '3' indicates that the issue ranks in the
lower end of its generic rating category.
S&P's MUNICIPAL BOND RATINGS
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degrees.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES
MIG-1/VMIG-1 -- Notes rated MIG-1/VMIG-1 are of the best quality. There is
present strong protection by established cash flows, superior liquidity support
or broad-based access to the market for refinancing.
MIG-2/VMIG-2 -- Notes which are rated MIG-2/VMIG-2 are of high-quality. Margins
of protection are ample though not so large as in the preceding group.
PAGE A-4
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
S&P's RATINGS OF STATE AND MUNICIPAL NOTES
SP-1 -- Notes which are rated SP-1 have a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 -- Notes which are rated SP-2 have a satisfactory capacity to pay
principal and interest.
FITCH MUNICIPAL BOND RATINGS
AAA -- Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds rated AA by Fitch are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated F-1+ by Fitch.
A -- Bonds rated A by Fitch are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB -- Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse consequences on
these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
Plus and minus signs are used by Fitch to indicate the relative position of a
credit within a rating category. Plus and minus signs, however, are not used in
the AAA category.
FITCH SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Fitch's short-term ratings are as follows:
F-1+ -- Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
F-1 -- Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
PAGE A-5
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
F-2 -- Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as for issues assigned
F-1+ and F-1 ratings.
F-3 -- Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, although near-term adverse
changes could cause these securities to be rated below investment grade.
LOC -- The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
Like higher-rated bonds, bonds rated in the Baa or BBB categories are
considered to have adequate capacity to pay principal and interest. However,
such bonds may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds.
After purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by such Fund. Neither event will
require a sale of such security by a Fund. However, a Fund's investment manager
will consider such event in its determination of whether such Fund should
continue to hold the security. To the extent the ratings given by Moody's, S&P
or Fitch may change as a result of changes in such organizations or their
rating systems, a Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in this
Prospectus and in the Statement of Additional Information.
For each Fund that invested more than an average of 5% of its total assets in
below investment grade securities during the period ended December 31, 1995,
the following tables indicate the percentage of assets of each such Fund
invested in the rating categories shown. The percentage corresponding to each
category is calculated using the dollar-weighted average of the month-end
percentages during the period from commencement of investment operations of
each such Fund through December 31, 1995. 'Rating' reflects the rating of S&P,
or in the case of certain U.S. and foreign government debt securities, the
implicit rating of the related government.
HIGH YIELD BOND FUND
(FOR THE PERIOD FROM COMMENCEMENT OF INVESTMENT OPERATIONS ON
FEBRUARY 22, 1995 THROUGH DECEMBER 31, 1995)
<TABLE>
<CAPTION>
RATING PERCENTAGE
<S> <C> <C>
INVESTMENT GRADE
AAA 1.03%
Highest Quality
AA 0.00%
High Quality
Trsy 8.91%
Repurchase Agreements Backed by the US Treasury
A 0.00%
Uppermedium grade
BBB 2.72%
Medium grade
LOWER QUALITY
BB 13.93%
Moderately speculative
B 54.63%
Speculative
CCC 8.95%
Highly speculative
CC 0.00%
Poor Quality
C 0.40%
Lowest quality
D 0.00%
In default
N/R 9.44%
NOT RATED
-----------
100.00%
-----------
-----------
</TABLE>
PAGE A-6
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
STRATEGIC BOND FUND
(FOR THE PERIOD FROM COMMENCEMENT OF INVESTMENT OPERATIONS ON
FEBRUARY 22, 1995 THROUGH DECEMBER 31, 1995)
<TABLE>
<CAPTION>
RATING PERCENTAGE
<S> <C> <C>
INVESTMENT GRADE
AAA 23.43%
Highest Quality
AA 0.17%
High Quality
Trsy 16.54%
Repurchase Agreements Backed by the US Treasury
A 1.58%
Uppermedium grade
BBB 3.59%
Medium grade
LOWER QUALITY
BB 5.45%
Moderately speculative
B 32.21%
Speculative
CCC 9.45%
Highly speculative
CC 0.00%
Poor Quality
C 0.00%
Lowest quality
D 0.00%
In default
N/R 7.59%
NOT RATED
-----------
100.00%
-----------
-----------
</TABLE>
TOTAL RETURN FUND
(FOR THE PERIOD FROM COMMENCEMENT OF INVESTMENT OPERATIONS ON
SEPTEMBER 11, 1995 THROUGH DECEMBER 31, 1995)
<TABLE>
<CAPTION>
RATING PERCENTAGE
<S> <C> <C>
INVESTMENT GRADE
AAA 14.45%
Highest Quality
AA 0.12%
High Quality
Trsy 22.51%
Repurchase Agreements Backed by the US Treasury
A 5.98%
Uppermedium grade
BBB 2.33%
Medium grade
LOWER QUALITY
BB 4.62%
Moderately speculative
B 10.77%
Speculative
CCC 0.95%
Highly speculative
CC 0.00%
Poor Quality
C 0.00%
Lowest quality
D 0.00%
In default
N/R 0.70%
NOT RATED
37.56%
EQUITY SECURITIES
-----------
100.00%
-----------
-----------
</TABLE>
PAGE A-7
<PAGE>
<PAGE>
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Appendix B:
General Characteristics
and Risks of Derivatives
A detailed discussion of Derivatives (as defined below) that may be used by the
investment manager on behalf of certain Funds follows below. The description in
this Prospectus of each Fund indicates which, if any, of these types of
transactions may be used by that Fund. A Fund will not be obligated, however,
to use any Derivatives and makes no representation as to the availability of
these techniques at this time or at any time in the future. 'Derivatives,' as
used in this Appendix B, refers to interest rate, currency or stock or bond
index futures contracts, currency forward contracts and currency swaps, the
purchase and sale (or writing) of exchange listed and over-the-counter ('OTC')
put and call options on debt and equity securities, currencies, interest rate,
currency or stock index futures and fixed-income and stock indices and other
financial instruments, entering into various interest rate transactions such as
swaps, caps, floors, collars, entering into equity swaps, caps, floors, the
purchase and sale of indexed debt securities or trading in other similar types
of instruments.
A Fund's ability to pursue certain of these strategies may be limited by the
Commodity Exchange Act, as amended, applicable regulations of the CFTC
thereunder and the federal income tax requirements applicable to regulated
investment companies which are not operated as commodity pools.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural characteristics
and operational mechanics regardless of the underlying instrument on which they
are purchased or sold. Thus, the following general discussion relates to each
of the particular types of options discussed in greater detail below. In
addition, many Derivatives involving options require segregation of Fund assets
in special accounts, as described below under 'Use of Segregated and Other
Special Accounts.'
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer of the obligation to buy, the underlying
security, index, currency or other instrument at the exercise price. A Fund's
purchase of a put option on a security, for example, might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value of such
instrument by giving the Fund the right to sell the instrument at the option
exercise price. A call option, upon payment of a premium, gives the purchaser
of the option the right to buy, and the seller the obligation to sell, the
underlying instrument at the exercise price. A Fund's purchase of a call option
on a security, financial futures contract, index, currency or other instrument
might be intended to protect the Fund against an increase in the price of the
underlying instrument that it intends to purchase in the future by fixing the
price at which it may purchase the instrument. An 'American' style put or call
option may be exercised at any time during the option period, whereas a
'European' style put or call option may be exercised only upon expiration or
during a fixed period prior to expiration. Exchange-listed options are issued
by a regulated intermediary such as the Options Clearing Corporation ('OCC'),
which guarantees the performance of the obligations of
PAGE B-1
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<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
the parties to the options. The discussion below uses the OCC as an example,
but is also applicable to other similar financial intermediaries.
OCC-issued and exchange-listed options, with certain exceptions, generally
settle by physical delivery of the underlying security or currency, although in
the future, cash settlement may become available. Index options are cash
settled for the net amount, if any, by which the option is 'in-the-money' (that
is, the amount by which the value of the underlying instrument exceeds, in the
case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A Fund's ability to close out its position as a purchaser or seller of an
OCC-issued or exchange-listed put or call option is dependent, in part, upon
the liquidity of the particular option market. Among the possible reasons for
the absence of a liquid option market on an exchange are: (1) insufficient
trading interest in certain options, (2) restrictions on transactions imposed
by an exchange, (3) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities, including reaching daily price limits, (4) interruption of the
normal operations of the OCC or an exchange, (5) inadequacy of the facilities
of an exchange or the OCC to handle current trading volume or (6) a decision by
one or more exchanges to discontinue the trading of options (or a particular
class or series of options), in which event the relevant market for that option
on that exchange would cease to exist, although any such outstanding options on
that exchange would continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that would not be reflected in the corresponding option
markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as 'Counterparties' and
individually referred to as a 'Counterparty') through a direct bilateral
agreement with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all of the terms
of an OTC option, including such terms as method of settlement, term, exercise
price, premium, guaranties and security, are determined by negotiation of the
parties. It is anticipated that any Portfolio authorized to use OTC options
will generally only enter into OTC options that have cash settlement provisions,
although it will not be required to do so.
Unless the parties provide for it, no central clearing or guaranty function is
involved in an OTC option. As a result, if a Counterparty fails to make or take
delivery of the security, currency or other instrument underlying an OTC option
it has entered into with the Fund or fails to make a cash settlement payment
due in accordance with the terms of that option, the Fund will lose any premium
it paid for the option as well as any anticipated benefit of the transaction.
Thus, the investment manager must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
met. A Fund will enter into OTC option transactions only with U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York as
'primary dealers,' or broker-dealers, domestic or foreign banks, or other
financial institutions that the investment
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SALOMON BROTHERS INVESTMENT SERIES
manager deems to be creditworthy. In the absence of a change in the current
position of the staff of the SEC, OTC options purchased by a Fund and the
amount of a Fund's obligation pursuant to an OTC option sold by the Fund (the
cost of the sell-back plus the in-the-money amount, if any) or the value of the
assets held to cover such options will be deemed illiquid.
If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments held by the Fund or will
increase the Fund's income. Similarly, the sale of put options can also provide
gains for a Fund.
A Fund may purchase and sell call options on securities that are traded on U.S.
and foreign securities exchanges and in the OTC markets, and on securities
indices, currencies and futures contracts. All calls sold by a Fund must be
'covered' (that is, the Fund must own the securities or futures contract
subject to the call), or must otherwise meet the asset segregation requirements
described below for so long as the call is outstanding. Even though the Fund
will receive the option premium to help protect it against loss, a call sold by
a Fund will expose the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or
instrument that it might otherwise have sold.
A Fund reserves the right to purchase or sell options on instruments and
indices which may be developed in the future to the extent consistent with
applicable law, the Fund's investment objective and the restrictions set forth
herein.
A Fund may purchase and sell put options on securities (whether or not it holds
the securities in its portfolio) and on securities indices, currencies and
futures contracts. In selling put options, a Fund faces the risk that it may be
required to buy the underlying security at a disadvantageous price above the
market price.
GENERAL CHARACTERISTICS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A Fund may trade financial futures contracts or purchase or sell put and call
options on those contracts as a hedge against anticipated interest rate,
currency or market changes, and for risk management purposes, or a Fund may
seek to increase its income or gain. Futures contracts are generally bought and
sold on the commodities exchanges on which they are listed with payment of
initial and variation margin as described below. The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the
specific type of financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to certain instruments, the
net cash amount). Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract and obligates the seller to deliver that position.
A Fund's use of financial futures contracts and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the CFTC. Maintaining a futures contract or
selling an option on a futures contract will typically require the Fund to
deposit with a financial intermediary, as security for its obligations, an
amount of cash or other specified assets ('initial margin') that initially is
from 1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets ('variation margin') may be required
to be deposited thereafter daily as the mark-to-market value of the futures
contract fluctuates.
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The purchase of an option on a financial futures contract involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potentially variation margin) for the resulting
futures position just as it would for any futures position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction, but no assurance can be given that a position can be offset prior
to settlement or that delivery will occur.
A Fund will not enter into a futures contract or option thereon if, immediately
thereafter, the sum of the amount of its initial margin and premiums required
to maintain permissible non-bona fide hedging positions in futures contracts
and options thereon would exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and losses on existing
contracts; however, in the case of an option that is in-the-money at the time
of the purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The value of all futures contracts sold by the Fund (adjusted for
the historical volatility relationship between the Fund and the contracts) will
not exceed the total market value of the Fund's securities. The segregation
requirements with respect to futures contracts and options thereon are
described below under 'Use of Segregated and Other Special Accounts.'
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES
A Fund may purchase and sell call and put options on securities indices and
other financial indices. In so doing, the Fund can achieve many of the same
objectives it would achieve through the sale or purchase of options on
individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other
instrument except that, rather than settling by physical delivery of the
underlying instrument, options on indices settle by cash settlement; that is,
an option on an index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the index upon which the
option is based exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option (except if, in the case of an OTC
option, physical delivery is specified). This amount of cash is equal to the
excess of the closing price of the index over the exercise price of the option,
which also may be multiplied by a formula value. The seller of the option is
obligated, in return for the premium received, to make delivery of this amount.
The gain or loss on an option on an index depends on price movements in the
instruments comprising the market, market segment, industry or other composite
on which the underlying index is based, rather than price movements in
individual securities, as is the case with respect to options on securities.
CURRENCY TRANSACTIONS
A Fund may engage in currency transactions with Counterparties to hedge the
value of portfolio securities denominated in particular currencies against
fluctuations in relative value or to generate income or gain. Currency
transactions include currency forward contracts, exchange-listed currency
futures contracts and options thereon, exchange-listed and OTC options on
currencies, and currency swaps. A forward currency contract involves a
privately negotiated obligation to purchase or sell (with delivery generally
required) a specific currency at a future date, which may be any fixed number
of days from the date of the contract agreed upon by the parties, at a price
set at the time of the contract. A currency swap is an agreement to exchange
cash flows based on the notional difference
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SALOMON BROTHERS INVESTMENT SERIES
among two or more currencies and operates similarly to an interest rate swap,
which is described below under 'Swaps, Caps, Floors and Collars.' A Fund may
enter into currency transactions only with Counterparties that the investment
manager deems to be creditworthy.
Transaction hedging is entering into a currency transaction with respect to
specific assets or liabilities of the Fund, which will generally arise in
connection with the purchase or sale of the Fund's portfolio securities or the
receipt of income from them. Position hedging is entering into a currency
transaction with respect to portfolio securities positions denominated or
generally quoted in that currency. A Fund will not enter into a transaction to
hedge currency exposure to an extent greater, after netting all transactions
intended wholly or partially to offset other transactions, than the aggregate
market value (at the time of entering into the transaction) of the securities
held by the Fund that are denominated or generally quoted in or currently
convertible into the currency, other than with respect to proxy hedging as
described below.
A Fund may cross-hedge currencies by entering into transactions to purchase or
sell one or more currencies that are expected to increase or decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have exposure. To reduce the effect of currency fluctuations on the value of
existing or anticipated holdings of its securities, a Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the
Fund's holdings is exposed is difficult to hedge generally or difficult to
hedge against the dollar. Proxy hedging entails entering into a forward
contract to sell a currency, the changes in the value of which are generally
considered to be linked to a currency or currencies in which some or all of the
Fund's securities are or are expected to be denominated, and to buy dollars.
The amount of the contract would not exceed the market value of the Fund's
securities denominated in linked currencies.
Currency transactions are subject to risks different from other portfolio
transactions, as discussed below under 'Risk Factors.' If a Fund enters into a
currency hedging transaction, the Fund will comply with the asset segregation
requirements described below under 'Use of Segregated and Other Special
Accounts.'
COMBINED TRANSACTIONS
A Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts), multiple interest rate transactions and
any combination of futures, options, currency and interest rate transactions,
instead of a single Derivative, as part of a single or combined strategy when,
in the judgment of the investment manager, it is in the best interests of the
Fund to do so. A combined transaction will usually contain elements of risk
that are present in each of its component transactions. Although combined
transactions will normally be entered into by a Fund based on the investment
manager's judgment that the combined strategies will reduce risk or otherwise
more effectively achieve the desired portfolio management goal, it is possible
that the combination will instead increase the risks or hinder achievement of
the Fund management objective.
SWAPS, CAPS, FLOORS AND COLLARS
A Fund may enter into interest rate, currency and equity swaps, the purchase or
sale of related caps, floors and collars and other similar arrangements. A Fund
will enter into these transactions primarily to seek to preserve a return or
spread on a particular
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SALOMON BROTHERS INVESTMENT SERIES
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique, to protect against any
increase in the price of securities the Fund anticipates purchasing or selling
at a later date or to generate income or gain. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest (for example, an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal). An equity
swap is an agreement to exchange cash flows on a notional principal amount based
on changes in the values of the reference index. A currency swap is an
agreement to exchange cash flows on a notional amount based on changes in the
values of the currency exchange rates. The purchase of a cap entitles the
purchaser to receive payments on a notional principal amount from the party
selling the cap to the extent that a specified interest rate, currency exchange
rate or index exceeds a predetermined rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling the floor to the extent that a specified interest rate,
currency exchange rate or index falls below a predetermined rate or amount. A
collar is a combination of a cap and a floor that preserves a certain return
with a predetermined range of rates or values.
A Fund will usually enter into swaps on a net basis, that is, the two payments
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. A Fund will not enter into any
swap, cap, floor, collar or other similar type of transaction unless the
investment manager deems the Counterparty to be creditworthy. If a Counterparty
defaults, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps, floors and collars
are more recent innovations for which standardized documentation has not yet
been fully developed and, for that reason, they are less liquid than swaps.
The liquidity of swap agreements will be determined by the investment manager
based on various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the Fund's rights and
obligations relating to the investment). Such determination will govern whether
a swap will be deemed within the percentage restriction on investments in
securities that are not readily marketable.
A Fund will maintain cash, cash equivalents or other appropriate liquid assets
(i.e., high grade debt securities) in a segregated custodial account to cover
its current obligations under swap agreements. If a Fund enters into a swap
agreement on a net basis, it will segregate assets with a daily value at least
equal to the excess, if any, of the Fund's accrued obligations under the swap
agreement over the accrued amount the Fund is entitled to receive under the
agreement. If a Fund enters into a swap agreement on other than a net basis, it
will segregate assets with a value equal to the full amount of the Fund's
accrued obligations under the agreement. See 'Use of Segregated and Other
Special Accounts' below.
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INDEXED SECURITIES
A Fund may purchase securities whose prices are indexed to the prices of other
securities, securities indices, currencies, or other financial indicators.
Indexed securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Currency-indexed securities typically are short-term
to intermediate-term debt securities whose maturity values or interest rates
are determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign currency-denominated instrument, or their maturity value
may decline when foreign currencies increase, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
RISK FACTORS
Derivatives have special risks associated with them, including possible default
by the Counterparty to the transaction, illiquidity and, to the extent the
investment manager's view as to certain market movements is incorrect, the risk
that the use of the Derivatives could result in losses greater than if they had
not been used. Use of put and call options could result in losses to a Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, or cause a Fund to hold a security it might
otherwise sell.
The use of futures and options transactions entails certain special risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related securities position of a
Fund could create the possibility that losses on the hedging instrument are
greater than gains in the value of the Fund's position. In addition, futures
and options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. As a result, in certain
markets, a Fund might not be able to close out a transaction without incurring
substantial losses. Although a Fund's use of futures and options transactions
for hedging should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time it will tend to limit any
potential gain to the Fund that might result from an increase in value of the
position. There is also the risk of loss by a Fund of margin deposits in the
event of bankruptcy of a broker with whom the Fund has an open position in a
futures contract or option thereon. Finally, the daily variation margin
requirements for futures contracts create a greater ongoing potential financial
risk than would purchases of options, in which case the exposure is limited to
the cost of the initial premium. However, because option premiums paid by a
Fund are small in relation to the market value of the investments underlying
the options, buying options can result in large amounts of leverage. The
leverage offered by trading in options could cause a Fund's net asset value to
be subject to more frequent and wider fluctuation than would be the case if the
Fund did not invest in options.
As is the case with futures and options strategies, the effective use of swaps
and related transactions by a Fund may depend, among other things, on a Fund's
ability to terminate the transactions at times when SBAM deems it desirable to
do so. To the extent a Fund
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SALOMON BROTHERS INVESTMENT SERIES
does not, or cannot, terminate such a transaction in a timely manner, a Fund
may suffer a loss in excess of any amounts that it may have received, or
expected to receive, as a result of entering into the transaction.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to a Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, the risk exists that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
Currency transactions are also subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be adversely affected by
government exchange controls, limitations or restrictions on repatriation of
currency, and manipulations or exchange restrictions imposed by governments.
These forms of governmental actions can result in losses to a Fund if it is
unable to deliver or receive currency or monies in settlement of obligations
and could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transaction costs.
Buyers and sellers of currency futures contracts are subject to the same risks
that apply to the use of futures contracts generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures contracts
is relatively new, and the ability to establish and close out positions on
these options is subject to the maintenance of a liquid market that may not
always be available. Currency exchange rates may fluctuate based on factors
extrinsic to that country's economy.
Because the amount of interest and/or principal payments which the issuer of
indexed debt securities is obligated to make is linked to the prices of other
securities, securities indices, currencies, or other financial indicators, such
payments may be significantly greater or less than payment obligations in
respect of other types of debt securities. As a result, an investment in
indexed debt securities may be considered speculative. Moreover, the
performance of indexed securities depends to a great extent on the performance
of and may be more volatile than the security, currency, or other instrument to
which they are indexed, and may also be influenced by interest rate changes in
the United States and abroad. At the same time, indexed securities are subject
to the credit risks associated with the issuer of the security, and their
values may decline substantially if the issuer's creditworthiness deteriorates.
Losses resulting from the use of Derivatives will reduce a Fund's net asset
value, and possibly income, and the losses can be greater than if Derivatives
had not been used.
RISKS OF DERIVATIVES OUTSIDE THE UNITED STATES
When conducted outside the United States, Derivatives may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and will be subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and
other instruments. In addition, the price of any foreign futures or foreign
options contract and, therefore, the potential profit and loss thereon, may be
affected by any variance in the foreign exchange rate between the time an order
is placed and the time it is liquidated, offset or exercised. The value of
positions taken as part of non-U.S. Derivatives also could be adversely
affected by: (1) other complex foreign political, legal and economic factors,
(2) lesser availability of data on which to make
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SALOMON BROTHERS INVESTMENT SERIES
trading decisions than in the United States, (3) delays in the Fund's ability
to act upon economic events occurring in foreign markets during nonbusiness
hours in the United States, (4) the imposition of different exercise and
settlement terms and procedures and margin requirements than in the United
States and (5) lower trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Use of many Derivatives by a Fund will require, among other things, that the
Fund segregate cash, cash equivalents, liquid high grade debt obligations or
other assets with its custodian, or a designated sub-custodian, to the extent
the Fund's obligations are not otherwise 'covered' through ownership of the
underlying security, financial instrument or currency. In general, either the
full amount of any obligation by a Fund to pay or deliver securities or assets
must be covered at all times by the securities, instruments or currency
required to be delivered, or, subject to any regulatory restrictions, an amount
of cash, cash equivalents or other liquid high grade debt obligations at least
equal to the current amount of the obligation must be segregated with the
custodian or sub-custodian. The segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. A call option on securities written by a Fund, for
example, will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade debt obligations sufficient to
purchase and deliver the securities if the call is exercised. A call option
sold by a Fund on an index will require the Fund to own portfolio securities
that correlate with the index or to segregate liquid high grade debt
obligations equal to the excess of the index value over the exercise price on a
current basis. A put option on securities written by a Fund will require the
Fund to segregate liquid high grade debt obligations equal to the exercise
price. Except when a Fund enters into a forward contract in connection with the
purchase or sale of a security denominated in a foreign currency or for other
non-speculative purposes, which requires no segregation, a currency contract
that obligates the Fund to buy or sell a foreign currency will generally
require the Fund to hold an amount of that currency or liquid securities
denominated in that currency equal to the Fund's obligations or to segregate
liquid high grade debt obligations equal to the amount of the Fund's
obligations.
OTC options entered into by a Fund, including those on securities, currency,
financial instruments or indices, and OCC-issued and exchange-listed index
options will generally provide for cash settlement, although the Fund will not
be required to do so. As a result, when a Fund sells these instruments it will
segregate an amount of assets equal to its obligations under the options.
OCC-issued and exchange-listed options sold by a Fund other than those
described above generally settle with physical delivery, and the Fund will
segregate an amount of assets equal to the full value of the option. OTC
options settling with physical delivery or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option on a futures contract, a Fund
must deposit initial margin and, in some instances, daily variation margin in
addition to segregating assets sufficient to meet its obligations to purchase
or provide securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract. These assets may consist of
cash, cash equivalents, liquid debt or equity securities or other acceptable
assets. A Fund will accrue the net amount of the excess, if any, of its
obligations relating to swaps over its entitlements with respect to each swap
on a daily basis and will segregate with its custodian, or designated
sub-custodian, an amount of cash, cash equivalents or
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other liquid high grade debt obligations having an aggregate value equal to at
least the accrued excess. Caps, floors and collars require segregation of
assets with a value equal to the Fund's net obligation, if any.
Derivatives may be covered by means other than those described above when
consistent with applicable regulatory policies. A Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related
Derivatives. A Fund could purchase a put option, for example, if the strike
price of that option is the same or higher than the strike price of a put
option sold by the Fund. Moreover, instead of segregating assets if it holds a
futures contract or forward contract, a Fund could purchase a put option on the
same futures contract or forward contract with a strike price as high or higher
than the price of the contract held. Other Derivatives may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction, no segregation is required, but if it terminates prior
to that time, assets equal to any remaining obligation would need to be
segregated.
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TELEPHONES
(800) SALOMON
(800) 725-6666
DISTRIBUTOR
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
INVESTMENT MANAGER
Salomon Brothers Asset
Management Inc
Seven World Trade Center
New York, New York 10048
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
First Data Investor Services Group, Inc.
P.O. Box 5127
Westborough, Massachusetts 01581-5127
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
New York, New York 10017
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY A FUND, THE DISTRIBUTOR OR THE INVESTMENT MANAGER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
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SALOMON BROTHERS ASSET MANAGEMENT
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Salomon Brothers Investment Series
ACCOUNT APPLICATION Please Note: A separate application must be used to open an
IRA account.
- --------------------------------------------------------------------------------
1. TYPE OF ACCOUNT (Please print) (Account will not be opened without Taxpayer
I.D. No. or Social Security No.)
[ ] INDIVIDUAL [ ] JOINT Social Security No. or Taxpayer I.D. No.
Name ___________________________________________ ______________________________
Joint Registrant (if any)1,2 Social Security No. or Taxpayer I.D. No.
Name ___________________________________________ ______________________________
1 Use only the Social Security Number or Taxpayer Indentification Number of the
first listed joint tenant.
2 For joint registrations, the account registrants will be joint tenants with
right of survivorship and not tenants in common unless tenants in common or
community property registrations are requested.
- --------------------------------------------------------------------------------
[ ] UNIFORM GIFT TO MINORS OR [ ] UNIFORM TRANSFER TO MINORS (where allowed
by law)
Name of Adult Custodian (only one permitted)
Name___________________________________________
Minor's Date of Birth _________________________
Name of Minor (only one permitted) Minor's Social Security No.
Name ___________________________________________ ______________________________
(Account will not be opened without minor's Social Security No.)
under the__________________________Uniform Gifts/Transfer to Minors Act.
State of Residence of Minor
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
[ ] CORPORATION [ ] PARTNERSHIP Social Security No. or Taxpayer I.D. No.
[ ] TRUST* [ ] OTHER ________________________________
</TABLE>
(Account will not be opened without Taxpayer I.D. No. or Social Security No.)
Name of Corporation, Partnership, or Other _____________________________________
________________________________________________________________________________
Name(s) of Trustee(s) __________________________________________________________
*If a Trust, include date of trust instrument and list trustees
if they are to be named in the registration.
Date of the Trust Agreement_________________
- --------------------------------------------------------------------------------
2. MAILING ADDRESS
Street or P.O. Box _____________________________________________________________
_____________________________________________________________
City_________________________________________ State_______________ Zip_________
Business Telephone___________________________ Home Telephone____________________
- --------------------------------------------------------------------------------
3. INVESTMENT INFORMATION
METHOD OF INVESTMENT.
[ ] I have enclosed a check for the minimum of $500 per Fund.
[ ] I have enclosed a check for the minimum of $25 per Fund and completed the
Automatic Investment Plan information in Section 13.
[ ] I purchased ____ shares of ____ through my broker on ____/____/____. Confirm
#___________________________________________________________________________
[ ] I will wire money from my bank account to Salomon Brothers Inc. Please call
me at (____) ________________________________________________________ to confirm
my new account number.
PLEASE MAKE MY INVESTMENT IN THE FUNDS DESIGNATED BELOW:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C SALOMON BROTHERS INVESTMENT SERIES INVESTMENT
<C> <C> <C> <S> <C>
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Cash Management Fund $
- -------- -------- --------
New York Municipal Money Market Fund $
- -------- -------- --------
New York Municipal Bond Fund $
- -------- -------- --------
National Intermediate Municipal Fund $
- -------- -------- --------
U.S. Government Income Fund $
- -------- -------- --------
High Yield Bond Fund $
- -------- -------- --------
Strategic Bond Fund $
- -------- -------- --------
Total Return Fund $
- -------- -------- --------
Investors Fund $
- -------- -------- --------
Asia Growth Fund $
- -------- -------- --------
Capital Fund $
- -------- -------- --------
TOTAL INVESTMENT AMOUNT $
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
4. REDUCED SALES CHARGE (Available for CLASS A Shares Only)
METHOD OF INVESTMENT.
Are you a shareholder in another Salomon Brothers Investment Series
Fund? [ ] Yes [ ] No
[ ] I apply for Right of Accumulation reduced sales charges based on the
following Salomon Brothers Investment Series Fund accounts (excluding Class
B and Class C Shares).
Fund Account No. or Social
Security No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LETTER OF INTENT.
[ ] I agree to the Letter of Intent provisions in the Fund's current prospectus.
During a 13-month period, I plan to invest a dollar amount of at least:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
- --------------------------------------------------------------------------------
5. DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS
Dividends and capital gains will be reinvested in the same Fund if no other
option is selected.
<TABLE>
<S> <C>
DIVIDENDS CAPITAL GAINS
[ ] I wish to reinvest dividends in the same Fund. [ ] I wish to reinvest capital gains in the same
Fund.
[ ] I wish to have dividends paid in cash. [ ] I wish to have capital gains paid in cash.
</TABLE>
The AUTOMATIC DIVIDEND DIVERSIFICATION PROGRAM allows an investor to have
dividends and any other distributions from a Fund automatically used to purchase
shares of the same class of any other Fund. The receiving account must be in the
same name as your existing account.
[ ] Please reinvest dividends and capital gains from the __ Fund to the __ Fund.
OPTIONAL FEATURES
- --------------------------------------------------------------------------------
6. AUTOMATIC WITHDRAWAL PLAN
I would like to receive payments of _______________ :
[ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually Startup
Month ______________________________
Payments will be made on or near the 10th or the 25th of the month. [ ] 10th of
the month OR [ ] 25th of the month
A minimum account value of $10,000 in a single account is required to establish
a monthly withdrawal plan. For quarterly, semi-annual and annual withdrawal
plans a minimum of $5,000 in a single account is required.
For the New York Municipal Bond Fund, the Investors Fund and the Capital Fund,
shareholders are required to have a minimum value of $7,500 in a single account.
A shareholder can arrange for automatic distributions to be made monthly or
quarterly for amounts not less than $250, $50 and $50 from the New York
Municipal Bond Fund, Investors Fund and Capital Fund, respectively.
<TABLE>
<S> <C>
Please mail checks to: Wire transfers to:
[ ] Address of Record (named in Section 2) [ ] Bank of Record (named in Section 10)
</TABLE>
Name____________________________________________________________________________
Address_________________________________________________________________________
City____________________________________________ State________________ Zip______
7. SYSTEMATIC INVESTMENT PLAN
I would like to exchange shares in my __________________ Fund account, for which
no certificates have been issued, to:
$ _______________ into the _________________________ Fund, Account # ___________
$50 Minimum
$ _______________ into the _________________________ Fund, Account # ___________
$50 Minimum
$ _______________ into the _________________________ Fund, Account # ___________
$50 Minimum
The exchange will occur on or about the 15th of each month, beginning in the
month of
- --------------------------------------------------------------------------------
8. TELEPHONE EXCHANGE PRIVILEGE
Unless indicated below, I authorize the Transfer Agent to accept instructions
from any person to exchange shares in my account(s) by telephone, in accordance
with the procedures and conditions set forth in the Funds' current prospectus.
[ ] I DO NOT want the Telephone Exchange Privilege.
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
9. TELEPHONE REDEMPTION PRIVILEGE
Unless indicated below, I authorize the Transfer Agent to accept instructions
from any person to redeem shares in my account (s) by telephone, in accordance
with the procedures and conditions set forth in the Fund's current prospectus.
Checks for redemption of proceeds will be sent by check via U.S. Mail to the
address of record, unless the information in Section 10 is completed for
redemption by wire of $500 or more.
[ ] I DO NOT want the Telephone Redemption Privilege.
- --------------------------------------------------------------------------------
10. BANK OF RECORD
Please attach a voided check in the space provided in Section 13.
<TABLE>
<S> <C>
Bank Name ___________________________________________________________________________________
Address ___________________________________________________________________________________
City ________________________________________ State ______________ Zip ________________
Bank ABA No. ________________________________________
Bank Account No. ________________________________________
Account Name ___________________________________________________________________________________
</TABLE>
SIGNATURE AND DEALER INFORMATION
- --------------------------------------------------------------------------------
11. SIGNATURE AND TAXPAYER CERTIFICATION
The undersigned warrants that I (we) have full authority and, if a natural
person, I (we) am (are) of legal age to purchase shares pursuant to this
Application, and have received a current prospectus for the Salomon Brothers
Investment Series Fund (s) in which I (we) am (are) investing. THE UNDERSIGNED
ACKNOWLEDGES THAT THE TELEPHONE EXCHANGE PRIVILEGE IS AUTOMATIC AND THAT I
(WE) MAY BEAR THE RISK OF LOSS IN THE EVENT OF FRAUDULENT USE OF THE PRIVILEGE.
If I (we) do not want the Telephone Exchange Privilege, I (we) have so indicated
on this Application.
Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required
to have the following certification:
Under the penalty of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because (a) I am exempt from backup
withholding or (b) I have not been notified by the Internal Revenue Service that
I am subject to backup withholding as a result of a failure to report all
interest or dividends or (c) the IRS has notified me that I am no longer subject
to backup withholding.
Certification Instructions -- You must cross out item (2) above if you have
been notified by the IRS that you are currently subject to backup withholding
because of underreporting of interest or dividends on your tax return. For real
estate transactions, item (2) does not apply. For mortgage interest paid, the
acquisition or abandonment of secured property, contributions to an individual
retirement account (IRA), and generally payments other than interest and
dividends, you are not required to sign the Certification, but you must provide
your correct Taxpayer Identification Number.
[ ] Exempt from Backup Withholding (i.e., exempt entity as described in
Application Instructions)
[ ] Nonresident alien [form W-8 attached] Country of
Citizenship _________________________
Authorized signature ______________ Title ____________________ Date ____________
Authorized signature ______________ Title ____________________ Date ____________
- --------------------------------------------------------------------------------
12. FOR DEALER USE ONLY (Please print)
We hereby authorize Salomon Brothers Inc to act as our agent in connection with
transactions authorized by the Application and agree to notify Salomon Brothers
Inc of any purchases made under a Letter of Intent or Right of Accumulation. If
this Application includes a Telephone Exchange Privilege authorization, a
Telephone Redemption Privilege authorization or an Automatic Withdrawal Plan
request, we guarantee the signature(s) above.
Dealers's Name__________________________________________________________________
Main Office Address_____________________________________________________________
Dealer Number________________ Branch #______________ Rep #____________________
Representative's Name __________________________________________________________
Branch Address_______________________________________ Telephone No._____________
Authorized Signature of Dealer ______________________________ Title ____________
If desired, I elect to have third party statements sent to the following
address:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
13. AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan, which is available to shareholders of the Salomon
Brothers Investment Series Funds, makes possible regular monthly purchases of
Fund shares to allow dollar-cost averaging. The Funds' transfer agent can
arrange for an amount of money selected by you ($25 minimum) to be deducted
from your checking account and used to purchase shares of a specified Salomon
Brothers Investment Series Fund.
Please withdraw $__________________ from my checking account (named in
Section 10) on or about the 10th of the month for investment:
<TABLE>
<S> <C> <C>
[ ] Monthly [ ] Every alternate month [ ] Other
[ ] Quarterly [ ] Semianually
</TABLE>
No more than one investment will be processed per month.
$ _______________ into the_____________________________________ Fund
$25 Minimum
$ _______________ into the_____________________________________ Fund
$25 Minimum
$ _______________ into the_____________________________________ Fund
$25 Minimum
If you are applying for the Telephone Redemption Privilege or Automatic
Investment Plan, please tape your voided check on
top of our sample below.
<TABLE>
<S> <C>
JOHN DOE 000
123 Main Street
Anywhere, USA 12345
___________________________________________________$
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SERVICE ASSISTANCE
Our knowledgeable Client Services Representatives are available to assist you
between 9:00 a.m. and 5:00 p.m. Eastern Time at:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 - 8 0 0 - 4 4 6 - 1 0 1 3
</TABLE>
- --------------------------------------------------------------------------------
MAILING INSTRUCTIONS
<TABLE>
<S> <C> <C>
Mail your completed account application and check OR (for overnight and express mail delivery)
made payable to Salomon Brothers Inc to:
SALOMON BROTHERS INVESTMENT SERIES SALOMON BROTHERS INVESTMENT SERIES
C/O FIRST DATA INVESTOR SERVICES GROUP, INC. C/O FIRST DATA INVESTOR SERVICES GROUP, INC.
P.O. BOX 9109 4400 COMPUTER DRIVE
BOSTON, MA 02205 - 9109 WESTBOROUGH MA 01581-5120
</TABLE>
Salomon Brothers Inc SBAPP-9/95
<PAGE>
<PAGE>
SIGNATURE CARD
CASH MANAGEMENT FUND
NEW YORK MUNICIPAL MONEY MARKET FUND
Boston Safe Deposit and Trust Company
ACCOUNT NUMBER
- --------------------------------------------------------------------------------
- -
ACCOUNT NAME(S) AS REGISTERED
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE(S) -- Individuals must sign as their names appear in
account registration
1 ______________________________________________________________________________
2 ______________________________________________________________________________
3 ______________________________________________________________________________
4 ______________________________________________________________________________
[ ] Check if all signatures are required
[ ] Check if only one signature is required Date _____________
[ ] Check if combination of signatures is required and specify number and/or
individual(s)
SUBJECT TO CONDITION ON REVERSE SIDE
THE PAYMENT OF FUNDS IS AUTHORIZED BY THE SIGNATURE(S) APPEARING ON REVERSE
SIDE.
By signing this signature card, I (we) hereby authorize Boston Safe Deposit
and Trust Company ('Bank') to honor checks drawn by me (us) on my (our)
Account in the Investment Company ('Fund') indicated on the reverse side of
this form with payment therefore to be made by redeeming sufficient full and
fractional shares in that Account without a signature guarantee.
If this card is signed by more than one person, all checks will require only
one of the signatures appearing on the reverse side unless the requirement of
more than one signature is indicated.
Checks may not be for less than $500 or such other minimum or maximum as may
from time to time be established by the Fund. Shares for which certificates
have been issued may not be redeemed by check. No redemption of shares
purchased by check will be permitted pursuant to this Check Redemption
Service until 15 days after such shares were credited to the shareholder's
account. The Bank has the right not to honor checks in amounts exceeding the
value of the shareholder's account at the time the check is presented for
payment.
Neither the Bank nor the Fund shall incur any liability to me (us) for
honoring my (our) redemption checks, or for effecting redemptions pursuant to
the Check Redemption Service or for returning checks which have not been
honored. The Bank and the Fund shall be liable only for their own negligence.
I (we) understand and agree that this Check Redemption Service is in all
respects subject to the procedures, rules and regulations of the Bank
governing checking accounts, and also to the terms and conditions in the
Fund's current Prospectus and Statement of Additional Information, and that
the Bank and the Fund reserve the right to change, modify or terminate the
Service at any time upon notification in writing mailed to my (our) address
of record.
<PAGE>
<PAGE>
VOID
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) SALOMON
(800) 725-6666
STATEMENT OF ADDITIONAL INFORMATION
Salomon Brothers Investment Series consists of Salomon Brothers Cash
Management Fund (the 'Cash Management Fund'), Salomon Brothers New York
Municipal Money Market Fund (the 'New York Municipal Money Market Fund'),
Salomon Brothers New York Municipal Bond Fund (the 'New York Municipal Bond
Fund'), Salomon Brothers National Intermediate Municipal Fund (the 'National
Intermediate Municipal Fund'), Salomon Brothers U.S. Government Income Fund (the
'U.S. Government Income Fund'), Salomon Brothers High Yield Bond Fund (the 'High
Yield Bond Fund'), Salomon Brothers Strategic Bond Fund (the 'Strategic Bond
Fund'), Salomon Brothers Total Return Fund (the 'Total Return Fund'), Salomon
Brothers Asia Growth Fund (the 'Asia Growth Fund'), Salomon Brothers Investors
Fund Inc (the 'Investors Fund') and Salomon Brothers Capital Fund Inc (the
'Capital Fund') (each a 'Fund' and collectively, the 'Funds'). Each of the
Funds, except for the Investors Fund and the Capital Fund, is an investment
portfolio of the Salomon Brothers Series Funds Inc (the 'Series Funds'), an
open-end investment company incorporated in Maryland on April 17, 1990. The Asia
Growth Fund is a non-diversified portfolio and the other Funds which are part of
the Series Funds are diversified portfolios. The National Intermediate Municipal
Fund, U.S. Government Income Fund, High Yield Bond Fund, Strategic Bond Fund,
Total Return Fund and Asia Growth Fund are newly or recently organized
portfolios of the Series Funds. The Investors Fund is a diversified open-end
management investment company incorporated in Maryland on April 2, 1958. The
Capital Fund is a non-diversified open-end management investment company
incorporated in Maryland on August 23, 1976. The investment objective of each
Fund is described in the Prospectus dated November 1, 1996, as the same may be
amended or supplemented from time to time (the 'Prospectus').
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Prospectus. This
Statement of Additional Information contains additional information to that set
forth in the Prospectus and should be read in conjunction with the Prospectus,
additional copies of which may be obtained without charge by writing or calling
the Funds at the address and telephone number printed above.
November 1, 1996
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Additional Information on Portfolio Instruments and Investment Policies......................... 3
Special Factors Affecting the Fund's Investment in New York Municipal Obligations............... 17
Investment Limitations.......................................................................... 36
Management...................................................................................... 42
Portfolio Transactions.......................................................................... 61
Net Asset Value................................................................................. 62
Additional Purchase Information................................................................. 63
Additional Redemption Information............................................................... 64
Additional Information Concerning Taxes......................................................... 64
Performance Data................................................................................ 69
Shareholder Services............................................................................ 74
Capital Stock................................................................................... 76
Custodian and Transfer Agent.................................................................... 76
Validity of shares.............................................................................. 77
Independent Accountants......................................................................... 77
Counsel......................................................................................... 77
Other Information............................................................................... 77
</TABLE>
2
<PAGE>
<PAGE>
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
AND INVESTMENT POLICIES
The Prospectus indicates the extent to which each Fund may purchase the
instruments or engage in the investment activities described below. The
discussion below supplements the information set forth in the Prospectus under
'Investment Objectives and Policies,' 'Additional Investment Activities and Risk
Factors' and 'Appendix B -- General Characteristics and Risks of Derivatives.'
References herein to the investment manager means Salomon Brothers Asset
Management Inc ('SBAM'), except with respect to the Asia Growth Fund, in which
case it means Salomon Brothers Asset Management Asia Pacific Limited ('SBAM
AP').
Foreign Securities. As discussed in the Prospectus, investing in the
securities of foreign issuers generally, and particularly in emerging market
issuers, involves special considerations which are not typically associated with
investing in securities of U.S. issuers. The following discussion supplements
the discussion contained in the Prospectus under 'Additional Investment
Activities and Risk Factors -- Foreign Securities' and ' -- High Yield
Securities -- High Yield Foreign Sovereign Debt Securities.' See also ' -- Brady
Bonds' below.
Certain of the risks associated with international investments and
investing in smaller capital markets are heightened for investments in emerging
market countries. For example, some of the currencies of emerging market
countries have experienced devaluations relative to the U.S. dollar, and major
adjustments have been made periodically in certain of such currencies. Certain
of such countries face serious exchange constraints. In addition, governments of
many emerging market countries have exercised and continue to exercise
substantial influence over many aspects of the private sector. In certain cases,
the government owns or controls many companies, including the largest in the
country. Accordingly, government actions in the future could have a significant
effect on economic conditions in developing countries which could affect private
sector companies and a Fund, as well as the value of securities in the Fund.
Certain markets are in only the earliest stages of development. There is
also a high concentration of market capitalization and trading volume in a small
number of issuers representing a limited number of industries, as well as a high
concentration of investors and financial intermediaries. Many of such markets
also may be affected by developments with respect to more established markets in
the region. Brokers in emerging market countries typically are fewer in number
and less capitalized than brokers in the United States. These factors, combined
with the U.S. regulatory requirements for open-end investment companies and the
restrictions on foreign investment, result in potentially fewer investment
opportunities for a Fund and may have an adverse impact on the investment
performance of a Fund.
There generally is less governmental supervision and regulation of
exchanges, brokers and issuers in foreign countries than there is in the United
States. For example, there may be no comparable provisions under certain foreign
laws to insider trading and similar investor protection securities laws that
apply with respect to securities transactions consummated in the United States.
Further, brokerage commissions and other transaction costs on foreign securities
exchanges generally are higher than in the United States.
With respect to investments in certain emerging market countries, archaic
legal systems may have an adverse impact on a Fund. For example, while the
potential liability of a shareholder in a U.S. corporation with respect to acts
of the corporation is generally limited to the amount of the shareholder's
investment, the notion of limited liability is less clear in certain emerging
market countries. Similarly, the rights of investors in emerging market
companies may be more limited than those of shareholders of U.S. corporations.
In some countries, banks or other financial institutions may constitute a
substantial number of the leading companies or companies with the most actively
traded securities. The Investment Company Act of 1940, as amended (the '1940
Act'), limits a Fund's ability to invest in any equity security of an issuer
which, in its most recent fiscal year, derived more than 15% of its revenues
from 'securities related activities', as defined by the rules thereunder. These
provisions may also restrict a Fund's investments in certain foreign banks and
other financial institutions.
3
<PAGE>
<PAGE>
The manner in which foreign investors may invest in companies in certain
emerging market countries, as well as limitations on such investments, also may
have an adverse impact on the operations of a Fund. For example, the Fund may be
required in certain of such countries to invest initially through a local broker
or other entity and then have the shares purchased re-registered in the name of
the Fund. Re-registration may in some instances not be able to occur on a timely
basis, resulting in a delay during which the Fund may be denied certain of its
rights as an investor.
Foreign markets have different clearance and settlement procedures, and in
certain markets there have been times when settlements have failed to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Further, satisfactory custodial services for investment securities
may not be available in some countries having smaller, emerging capital markets,
which may result in a Fund incurring additional costs and delays in transporting
and custodying such securities outside such countries. Delays in settlement or
other problems could result in periods when assets of a Fund are uninvested and
no return is earned thereon. The inability of a Fund to make intended security
purchases due to settlement problems or the risk of intermediary counterparty
failures could cause a Fund to miss attractive investment opportunities. The
inability to dispose of a portfolio security due to settlement problems could
result either in losses to a Fund due to subsequent declines in the value of
such portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
Rules adopted under the 1940 Act permit a Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and
securities depositories. Certain banks in foreign countries may not be eligible
sub-custodians for a Fund, in which event the Fund may be precluded from
purchasing securities in certain foreign countries in which it otherwise would
invest or which may result in the Fund's incurring additional costs and delays
in providing transportation and custody services for such securities outside of
such countries. A Fund may encounter difficulties in effecting on a timely basis
portfolio transactions with respect to any securities of issuers held outside
their countries. Other banks that are eligible foreign sub-custodians may be
recently organized or otherwise lack extensive operating experience. In
addition, in certain countries there may be legal restrictions or limitations on
the ability of a Fund to recover assets held in custody by foreign
sub-custodians in the event of the bankruptcy of the sub-custodian.
U.S. GOVERNMENT OBLIGATIONS
In addition to the U.S. Treasury obligations described in the Prospectus, a
Fund may invest in separately traded interest components of securities issued or
guaranteed by the U.S. Treasury. The interest components of selected securities
are traded independently under the Separate Trading of Registered Interest and
Principal of Securities program ('STRIPS'). Under the STRIPS program, the
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently.
Securities issued or guaranteed by U.S. government agencies and
instrumentalities include obligations that are supported by (a) the full faith
and credit of the U.S. Treasury (e.g., direct pass-through certificates of the
Government National Mortgage Association ('Ginnie Mae')); (b) the limited
authority of the issuer or guarantor to borrow from the U.S. Treasury (e.g.,
obligations of Federal Home Loan Banks); or (c) only the credit of the issuer or
guarantor (e.g., obligations of the Federal Home Loan Mortgage Corporation
('Freddie Mac')). In the case of obligations not backed by the full faith and
credit of the U.S. Treasury, the agency issuing or guaranteeing the obligation
is principally responsible for ultimate repayment.
Agencies and instrumentalities that issue or guarantee debt securities and
that have been established or sponsored by the U.S. government include, in
addition to those identified above, the Bank for Cooperatives, the Export-Import
Bank, the Federal Farm Credit System, the Federal Intermediate Credit Banks, the
Federal Land Banks, the Federal National Mortgage Association and the Student
Loan Marketing Association.
4
<PAGE>
<PAGE>
BANK OBLIGATIONS
As stated in the Prospectus, bank obligations that may be purchased by a
Fund include certificates of deposit, banker's acceptances and fixed time
deposits. A certificate of deposit is a short-term negotiable certificate issued
by a commercial bank against funds deposited in the bank and is either
interest-bearing or purchased on a discount basis. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. The borrower is liable for payment
as is the bank, which unconditionally guarantees to pay the draft at its face
amount on the maturity date. Fixed time deposits are obligations of branches of
U.S. banks or foreign banks which are payable at a stated maturity date and bear
a fixed rate of interest. Although fixed time deposits do not have a market,
there are no contractual restrictions on the right to transfer a beneficial
interest in the deposit to a third party.
Bank obligations may be general obligations of the parent bank or may be
limited to the issuing branch by the terms of the specific obligations or by
government regulation.
FLOATING AND VARIABLE RATE INSTRUMENTS
As stated in the Prospectus, certain of the floating or variable rate
obligations that may be purchased by a Fund may carry a demand feature that
would permit the holder to tender them back to the issuer of the instrument or
to a third party at par value prior to maturity. Some of the demand instruments
purchased by a Fund are not traded in a secondary market and derive their
liquidity solely from the ability of the holder to demand repayment from the
issuer or third party providing credit support. If a demand instrument is not
traded in a secondary market, each Fund will nonetheless treat the instrument as
'readily marketable' for the purposes of its investment restriction limiting
investments in illiquid securities unless the demand feature has a notice period
of more than seven days; if the notice period is greater than seven days, such a
demand instrument will be characterized as 'not readily marketable' for such
purpose.
A Fund's right to obtain payment at par on a demand instrument could be
affected by events occurring between the date such Fund elects to demand payment
and the date payment is due that may affect the ability of the issuer of the
instrument or third party providing credit support to make payment when due,
except when such demand instruments permit same day settlement. To facilitate
settlement, these same day demand instruments may be held in book entry form at
a bank other than a Fund's custodian subject to a sub-custodian agreement
approved by such Fund between that bank and the Fund's custodian.
ASSET-BACKED SECURITIES
Asset-backed securities are generally issued as pass through certificates,
which represent undivided fractional ownership interests in the underlying pool
of assets, or as debt instruments, which are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. Asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different parties.
Asset-backed securities frequently carry credit protection in the form of extra
collateral, subordinated certificates, cash reserve accounts, letters of credit
or other enhancements. For example, payments of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or other enhancement issued by a financial institution unaffiliated with
the entities issuing the securities. Assets which, to date, have been used to
back asset-backed securities include motor vehicle installment sales contracts
or installment loans secured by motor vehicles, and receivables from revolving
credit (credit card) agreements.
Asset-backed securities present certain risks which are, generally, related
to limited interests, if any, in related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these
5
<PAGE>
<PAGE>
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. Other types of
asset-backed securities will be subject to the risks associated with the
underlying assets. If a letter of credit or other form of credit enhancement is
exhausted or otherwise unavailable, holders of asset-backed securities may also
experience delays in payments or losses if the full amounts due on underlying
assets are not realized. Because asset-backed securities are relatively new, the
market experience in these securities is limited and the market's ability to
sustain liquidity through all phases of the market cycle has not been tested.
MUNICIPAL LEASE OBLIGATIONS
Municipal lease obligations are secured by revenues derived from the lease
of property to state and local government units. The underlying leases typically
are renewable annually by the governmental user, although the lease may have a
term longer than one year. If the governmental user does not appropriate
sufficient funds for the following year's lease payments, the lease will
terminate, with the possibility of default on the lease obligations and
significant loss to a Fund. In the event of a termination, assignment or
sublease by the governmental user, the interest paid on the municipal lease
obligation could become taxable, depending upon the identity of the succeeding
user.
LOANS OF PORTFOLIO SECURITIES
Certain Funds may lend portfolio securities to brokers or dealers or other
financial institutions. The Capital Fund may lend portfolio securities to
selected member firms of the New York Stock Exchange ('NYSE'). The procedure for
the lending of securities will include the following features and conditions.
The borrower of the securities will deposit cash with the Fund in an amount
equal to a minimum of 100% of the market value of the securities lent. The Fund
will invest the collateral in short-term debt securities or cash equivalents and
earn the interest thereon. A negotiated portion of the income so earned may be
paid to the borrower or the broker who arranged the loan. If the deposit drops
below the required minimum at any time, the borrower may be called upon to post
additional cash. If the additional cash is not paid, the loan will be
immediately due and the Fund may use the collateral or its own cash to replace
the securities by purchase in the open market charging any loss to the borrower.
These will be 'demand' loans and may be terminated by the Fund at any time. A
Fund will receive any dividends and interest paid on the securities lent and the
loans will be structured to assure that the Fund will be able to exercise its
voting rights on the securities. Such loans will be authorized only to the
extent that the receipt of income from such activity would not cause any adverse
tax consequences to a Fund's shareholders and only in accordance with applicable
rules and regulations. The borrowers may not be affiliated, directly or
indirectly, with a Fund. Each of the U.S. Government Income Fund, the High Yield
Bond Fund, the Strategic Bond Fund, the Total Return Fund, the Investors Fund
and the Capital Fund did not lend any of its portfolio securities during 1995
and with the exception of the Capital Fund and the Investors Fund, each of these
Funds, along with the Asia Growth Fund, has no present intention to do so. None
of the Cash Management Fund, the New York Municipal Money Market Fund, the New
York Municipal Bond Fund nor the National Intermediate Municipal Fund may lend
portfolio securities.
The foregoing policy regarding the lending of portfolio securities is a
fundamental policy of the Capital Fund which may be changed only when approved
by the holders of a majority of the Fund's outstanding voting securities, as
defined in the 1940 Act.
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RULE 144A SECURITIES
As indicated in the Prospectus, certain Funds may purchase certain
restricted securities ('Rule 144A securities') for which there is a secondary
market of qualified institutional buyers, as contemplated by Rule 144A under the
Securities Act of 1933, as amended (the '1933 Act'). Rule 144A provides an
exemption from the registration requirements of the 1933 Act for the resale of
certain restricted securities to qualified institutional buyers.
One effect of Rule 144A is that certain restricted securities may now be
liquid, though there is no assurance that a liquid market for Rule 144A
securities will develop or be maintained. In promulgating Rule 144A, the
Securities and Exchange Commission (the 'Commission') stated that the ultimate
responsibility for liquidity determinations is that of an investment company's
board of directors. However, the Commission stated that the board may delegate
the day-to-day function of determining liquidity to the fund's investment
adviser, provided that the board retains sufficient oversight. The Board of
Directors of each Fund has adopted policies and procedures for the purpose of
determining whether securities that are eligible for resale under Rule 144A are
liquid or illiquid for purposes of a Fund's limitation on investment in illiquid
securities. Pursuant to those policies and procedures, each Board of Directors
has delegated to the investment manager the determination as to whether a
particular security is liquid or illiquid, requiring that consideration be given
to, among other things, the frequency of trades and quotes for the security, the
number of dealers willing to sell the security and the number of potential
purchasers, dealer undertakings to make a market in the security, the nature of
the security and the time needed to dispose of the security. The Board of
Directors periodically reviews Fund purchases and sales of Rule 144A securities.
To the extent that liquid Rule 144A securities that a Fund holds become
illiquid, due to the lack of sufficient qualified institutional buyers or market
or other conditions, the percentage of a Fund's assets invested in illiquid
assets would increase. The investment manager, under the supervision of the
Boards of Directors, will monitor Fund investments in Rule 144A securities and
will consider appropriate measures to enable a Fund to maintain sufficient
liquidity for operating purposes and to meet redemption requests.
MORTGAGE-BACKED SECURITIES
The following describes certain characteristics of mortgage-backed
securities. Mortgage-backed securities acquired by the U.S. Government Income
Fund will be limited to those issued or guaranteed by the U.S. government, its
agencies and instrumentalities. The Strategic Bond Fund and the Total Return
Fund may, in addition, purchase privately issued mortgage securities which are
not guaranteed by the U.S. government, its agencies or instrumentalities. It
should be noted that new types of mortgage-backed securities are developed and
marketed from time to time and that, consistent with its investment limitations,
a Fund may invest in those new types of mortgage-backed securities that the
investment manager believes may assist it in achieving its investment
objective(s).
Background. Mortgage-backed securities were introduced in the 1970s when
the first pool of mortgage loans was converted into a mortgage pass-through
security. Since the 1970s, the mortgage-backed securities market has vastly
expanded and a variety of structures have been developed to meet investor needs.
Yield Characteristics. Interest and principal payments on mortgage-backed
securities are typically made monthly, and principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be prepaid
at any time. As a result, if a Fund purchases such a security at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if a Fund purchases these
securities at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will reduce, yield to maturity.
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing
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decisions. Generally, however, prepayments on fixed rate mortgage loans will
increase during a period of falling interest rates. Accordingly, amounts
available for reinvestment by a Fund are likely to be greater during a period of
relatively low interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of relatively high interest rates. This
prepayment effect has been particularly pronounced during recent years as
borrowers have refinanced higher interest rate mortgages into lower interest
rate mortgages available in the marketplace. Mortgage-backed securities may
decrease in value as a result of increases in interest rates and may benefit
less than other fixed income securities from declining interest rates because of
the risk of prepayment.
Guaranteed Mortgage Pass-Through Securities. The U.S. Government Income,
Strategic Bond and Total Return Funds may invest in mortgage pass-through
securities representing participation interests in pools of residential mortgage
loans originated by U.S. governmental or private lenders and guaranteed, to the
extent provided in such securities, by the U.S. government or one of its
agencies or instrumentalities. Any guarantee of such securities runs only to
principal and interest payments on the securities and not to the market value of
such securities or the principal and interest payments on the underlying
mortgages. In addition, the guarantee only runs to the portfolio securities held
by a Fund and not to the purchase of shares of the Fund. Such securities, which
are ownership interests in the underlying mortgage loans, differ from
conventional debt securities, which provide for periodic payment of interest in
fixed amounts (usually semi-annually) and principal payments at maturity or on
specified call dates. Mortgage pass-through securities provide for monthly
payments that are a 'pass-through' of the monthly interest and principal
payments (including any prepayments) made by the individual borrowers on the
pooled mortgage loans, net of any fees paid to the guarantor of such securities
and the servicer of the underlying mortgage loans. Guaranteed mortgage
pass-through securities are often sold on a to-be-acquired or 'TBA' basis. Such
securities are typically sold one to three months in advance of issuance, prior
to the identification of the underlying pools of mortgage securities but with
the interest payment provisions fixed in advance. The underlying pools of
mortgage securities are identified shortly before settlement and must meet
certain parameters.
The guaranteed mortgage pass-through securities in which a Fund may invest
may include those issued or guaranteed by Ginnie Mae, the Federal National
Mortgage Association ('Fannie Mae') and Freddie Mac.
Ginnie Mae Certificates. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The full faith and credit of the U.S. government is pledged to the
payment of amounts that may be required to be paid under any guarantee, but not
as to the market value of such securities. The Ginnie Mae Certificates will
represent a pro rata interest in one or more pools of the following types of
mortgage loans: (i) fixed rate level payment mortgage loans; (ii) fixed rate
graduated payment mortgage loans; (iii) fixed rate growing equity mortgage
loans; (iv) fixed rate mortgage loans secured by manufactured (mobile) homes;
(v) mortgage loans on multifamily residential properties under construction;
(vi) mortgage loans on completed multifamily projects; (vii) fixed rate mortgage
loans as to which escrowed funds are used to reduce the borrower's monthly
payments during the early years of the mortgage loans ('buydown' mortgage
loans); (viii) mortgage loans that provide for adjustments in payments based on
periodic changes in interest rates or in other payment terms of the mortgage
loans; and (ix) mortgage-backed serial notes. All of these mortgage loans will
be Federal Housing Administration Loans ('FHA Loans') or Veterans'
Administration Loans ('VA Loans') and, except as otherwise specified above, will
be fully-amortizing loans secured by first liens on one- to four-family housing
units.
Fannie Mae Certificates. Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act. Each Fannie Mae Certificate will entitle the registered
holder thereof to receive amounts representing such holder's pro rata interest
in scheduled principal payments and interest payments (at such Fannie Mae
Certificate's pass-through rate, which is net of any servicing and guarantee
fees on the underlying mortgage loans), and any principal prepayments on the
mortgage loans in the pool represented by such Fannie Mae Certificate
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and such holder's proportionate interest in the full principal amount of any
foreclosed or otherwise finally liquidated mortgage loan. The full and timely
payment of principal of and interest on each Fannie Mae Certificate, but not the
market value thereof, will be guaranteed by Fannie Mae, which guarantee is not
backed by the full faith and credit of the U.S. government. Each Fannie Mae
Certificate will represent a pro rata interest in one or more pools of FHA
Loans, VA Loans or conventional mortgage loans (i.e., mortgage loans that are
not insured or guaranteed by any governmental agency) of the following types:
(i) fixed rate level payment mortgage loans; (ii) fixed rate growing equity
mortgage loans; (iii) fixed rate graduated payment mortgage loans; (iv) variable
rate California mortgage loans; (v) other adjustable rate mortgage loans; and
(vi) fixed rate mortgage loans secured by multifamily projects.
Freddie Mac Certificates. Freddie Mac is a corporate instrumentality of the
United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the 'FHLMC Act'). Freddie Mac guarantees to each registered holder of a
Freddie Mac Certificate ultimate collection of all principal of the related
mortgage loans, without any offset or deduction, but does not, generally,
guarantee the timely payment of scheduled principal or the market value of the
securities. Freddie Mac may remit the amount due on account of its guarantee of
collection of principal at any time after default on an underlying mortgage
loan, but not later than 30 days following (i) foreclosure sale; (ii) payment of
a claim by any mortgage insurer; or (iii) the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. The obligations of Freddie Mac under its guarantee are obligations
solely of Freddie Mac and are not backed by the full faith and credit of the
U.S. government.
Freddie Mac Certificates represent a pro rata interest in a group of
mortgage loans (a 'Freddie Mac Certificate group') purchased by Freddie Mac. The
mortgage loans underlying the Freddie Mac Certificates will consist of fixed
rate or adjustable rate mortgage loans with original terms to maturity of
between ten and thirty years, substantially all of which are secured by first
liens on one- to four-family residential properties or multifamily projects.
Each mortgage loan must meet the applicable standards set forth in the FHLMC
Act. A Freddie Mac Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
BRADY BONDS
Brady Bonds are debt securities, generally denominated in U.S. dollars,
issued under the framework of the Brady Plan. The Brady Plan is an initiative
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
commercial bank indebtedness. In restructuring its external debt under the Brady
Plan framework, a debtor nation negotiates with its existing bank lenders as
well as multilateral institutions such as the International Bank for
Reconstruction and Development (the 'World Bank') and the International Monetary
Fund (the 'IMF'). The Brady Plan framework, as it has developed, contemplates
the exchange of external commercial bank debt for newly issued bonds (Brady
Bonds). Brady Bonds may also be issued in respect of new money being advanced by
existing lenders in connection with the debt restructuring. The World Bank
and/or the IMF support the restructuring by providing funds pursuant to loan
agreements or other arrangements which enable the debtor nation to collateralize
the new Brady Bonds or to repurchase outstanding bank debt at a discount. Under
these arrangements with the World Bank and/or the IMF, debtor nations have been
required to agree to the implementation of certain domestic monetary and fiscal
reforms. Such reforms have included the liberalization of trade and foreign
investment, the privatization of state-owned enterprises and the setting of
targets for public spending and borrowing. These policies and programs seek to
promote the debtor country's economic growth and development. Investors should
also recognize that the Brady Plan only sets forth general guiding principles
for economic reform and debt reduction, emphasizing that solutions must be
negotiated on a case-by-case basis between debtor nations and their
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creditors. SBAM believes that economic reforms undertaken by countries in
connection with the issuance of Brady Bonds make the debt of countries which
have issued or have announced plans to issue Brady Bonds an attractive
opportunity for investment. However, there can be no assurance that SBAM's
expectations with respect to Brady Bonds will be realized.
Investors should recognize that Brady Bonds have been issued only recently,
and accordingly, do not have a long payment history. Brady Bonds which have been
issued to date are rated in the categories 'BB' or 'B' by Standard & Poor's
Corporation ('S&P') or 'Ba' or 'B' by Moody's Investors Service, Inc.
('Moody's') or, in cases in which a rating by S&P or Moody's has not been
assigned, are generally considered by the investment manager to be of comparable
quality.
Agreements implemented under the Brady Plan to date are designed to achieve
debt and debt-service reduction through specific options negotiated by a debtor
nation with its creditors. As a result, the financial packages offered by each
country differ. The types of options have included the exchange of outstanding
commercial bank debt for bonds issued at 100% of face value of such debt which
carry a below-market stated rate of interest (generally known as par bonds),
bonds issued at a discount from the face value of such debt (generally known as
discount bonds), bonds bearing an interest rate which increases over time and
bonds issued in exchange for the advancement of new money by existing lenders.
Discount bonds issued to date under the framework of the Brady Plan have
generally borne interest computed semiannually at a rate equal to 13/16 of 1%
above the then current six month London Inter-Bank Offered Rate ('LIBOR') rate.
Regardless of the stated face amount and stated interest rate of the various
types of Brady Bonds, the applicable Funds will purchase Brady Bonds in
secondary markets, as described below, in which the price and yield to the
investor reflect market conditions at the time of purchase. Brady Bonds issued
to date have traded at a deep discount from their face value. Certain sovereign
bonds are entitled to 'value recovery payments' in certain circumstances, which
in effect constitute supplemental interest payments but generally are not
collateralized. Certain Brady Bonds have been collateralized as to principal due
at maturity (typically 30 years from the date of issuance) by U.S. Treasury zero
coupon bonds with a maturity equal to the final maturity of such Brady Bonds,
although the collateral is not available to investors until the final maturity
of the Brady Bonds. Collateral purchases are financed by the IMF, the World Bank
and the debtor nations' reserves. In addition, interest payments on certain
types of Brady Bonds may be collateralized by cash or high-grade securities in
amounts that typically represent between 12 and 18 months of interest accruals
on these instruments with the balance of the interest accruals being
uncollateralized. The applicable Funds may purchase Brady Bonds with no or
limited collateralization, and will be relying for payment of interest and
(except in the case of principal collateralized Brady Bonds) principal primarily
on the willingness and ability of the foreign government to make payment in
accordance with the terms of the Brady Bonds. Brady Bonds issued to date are
purchased and sold in secondary markets through U.S. securities dealers and
other financial institutions and are generally maintained through European
transnational securities depositories. A substantial portion of the Brady Bonds
and other sovereign debt securities in which the Fund invests are likely to be
acquired at a discount, which involves certain considerations discussed below
under 'Additional Information Concerning Taxes.'
INVERSE FLOATING RATE OBLIGATIONS
Certain Funds may invest in inverse floating rate obligations, or 'inverse
floaters.' Inverse floaters have coupon rates that vary inversely at a multiple
of a designated floating rate (which typically is determined by reference to an
index rate, but may also be determined through a dutch auction or a remarketing
agent) (the 'reference rate'). Inverse floaters may constitute a class of
Collateralized Mortgage Obligations ('CMOs ') with a coupon rate that moves
inversely to a designated index, such as LIBOR or COFI (Cost of Funds Index).
Any rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates causes a drop in the coupon rate while any drop in
the reference rate of an inverse
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floater causes an increase in the coupon rate. In addition, like most other
fixed income securities, the value of inverse floaters will generally decrease
as interest rates increase.
Inverse floaters exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
DERIVATIVES
The description in the Prospectus of each Fund indicates which, if any, of
these types of transactions may be used by that Fund.
Forward Currency Exchange Contracts. As indicated in the Prospectus, in
order to hedge against currency exchange rate risks or to increase income or
gain, certain Funds may enter into forward currency exchange contracts with
securities dealers, financial institutions or other parties, through direct
bilateral agreements with such counterparties. A Fund will enter into forward
currency exchange contracts only with counterparties which the investment
manager deems creditworthy. In connection with a Fund's forward currency
transactions, the Fund will set aside in a segregated account with its
custodian, cash, cash equivalents or high quality debt securities in an amount
equal to the amount of the contract, to be used to pay for the commitment. The
segregated account will be marked-to-market on a daily basis. In addition to the
circumstances set forth in the Prospectus, a Fund may enter into forward
currency exchange contracts when the investment manager believes that the
currency of a particular country may suffer a substantial decline against the
U.S. dollar. In those circumstances, a Fund may enter into a forward contract to
sell, for a fixed amount of U.S. dollars, the amount of that currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such currency. Forward contracts may limit potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies.
Futures Contracts. As indicated in the Prospectus, certain Funds may trade
futures contracts (1) on domestic and foreign exchanges on currencies, interest
rates and bond indices and (2) on domestic and, to the extent permitted by the
Commodity Futures Trading Commission ('CFTC'), foreign exchanges on stock
indices. None of the Funds is a commodity pool, and a Fund will use futures
contracts and options thereon solely (i) for bona fide hedging purposes and (ii)
for other purposes in amounts permitted by the rules and regulations promulgated
by the CFTC. A Fund may not enter into any futures contract or related option
other than for bona fide hedging purposes if, immediately thereafter, the sum of
the amount of aggregate initial margin deposits on the Fund's existing futures
contracts and premiums paid for options on futures contracts would exceed 5% of
the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and losses on existing contracts. In addition, the value of a
Fund's long futures and options positions (futures contracts on stock or bond
indices, interest rates or foreign currencies and call options on such futures
contracts) will not exceed the sum of (a) cash, cash equivalents or high quality
debt securities segregated for this purpose, (b) cash proceeds on existing
investments due within thirty days and (c) accrued profits on the particular
futures or options positions. Furthermore, with respect to the sale of futures
contracts by a Fund, the value of such contracts may not exceed the total market
value of such Fund's portfolio securities.
Interest Rate Futures Contracts. A Fund may enter into interest rate
futures contracts in order to protect it from fluctuations in interest rates
without necessarily buying or selling fixed income securities. An interest rate
futures contract is an agreement to take or make delivery of either (i) an
amount of cash equal to the difference between the value of a particular index
of debt securities at the beginning and at the end of the contract period or
(ii) a specified amount of a particular debt security at a future date at a
price set at time of the contract. For example, if a Fund owns bonds, and
interest rates are expected to increase, the Fund might sell futures contracts
on debt securities having characteristics similar to those held in the
portfolio. Such a sale would have much the same effect as selling an equivalent
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value of the bonds owned by the Fund. If interest rates did increase, the value
of the debt securities in the portfolio would decline, but the value of the
futures contracts to the Fund would increase at approximately the same rate,
thereby keeping the net asset value of each class of the Fund from declining as
much as it otherwise would have. A Fund could accomplish similar results by
selling bonds with longer maturities and investing in bonds with shorter
maturities when interest rates are expected to increase. However, since the
futures market may be more liquid than the cash market, the use of futures
contracts as a risk management technique allows a Fund to maintain a defensive
position without having to sell its portfolio securities.
Similarly, when the investment manager expects that interest rates may
decline, a Fund may purchase interest rate futures contracts in an attempt to
hedge against having to make subsequently anticipated purchases of bonds at the
higher prices subsequently expected to prevail. Since the fluctuations in the
value of appropriately selected futures contracts should be similar to that of
the bonds that will be purchased, a Fund could take advantage of the anticipated
rise in the cost of the bonds without actually buying them until the market had
stabilized. At that time, a Fund could make the intended purchase of the bonds
in the cash market and the futures contracts could be liquidated.
At the time of delivery of securities pursuant to an interest rate futures
contract, adjustments are made to recognize differences in value arising from
the delivery of securities with a different interest rate from that specified in
the contract. In some (but not many) cases, securities called for by a futures
contract may have a shorter term than the term of the futures contract and,
consequently, may not in fact have been issued when the futures contract was
entered.
Municipal Bond Index Futures Contracts. A municipal bond index futures
contract is an agreement to take or make delivery of an amount of cash equal to
the difference between the value of the index at the beginning and at the end of
the contract period. Certain Funds may enter into short municipal bond index
futures contracts in anticipation of or during a market decline to attempt to
offset the potential decrease in market value of securities in its portfolio.
When a Fund is not fully invested in securities and anticipates a significant
market advance, it may enter into long municipal bond index futures contracts in
order to gain rapid market exposure that may wholly or partially offset
increases in the costs of securities that it intends to purchase. In a
substantial majority of these transactions, a Fund will purchase such securities
upon termination of the futures position but, under unusual market conditions, a
futures position may be terminated without the corresponding purchase of
securities.
Options. As indicated in the Prospectus, in order to hedge against adverse
market shifts or to increase income or gain, certain Funds may purchase put and
call options or write 'covered' put and call options on futures contracts on
stock indices, interest rates and currencies. In addition, in order to hedge
against adverse market shifts or to increase its income, a Fund may purchase put
and call options and write 'covered' put and call options on stocks, stock
indices and currencies. A Fund may utilize options on currencies in order to
hedge against currency exchange rate risks. A call option is 'covered' if, so
long as the Fund is obligated as the writer of the option, it will own (i) the
underlying investment subject to the option; (ii) securities convertible or
exchangeable without the payment of any consideration into the securities
subject to the option or (iii) a call option on the relevant security or
currency with an exercise price no higher than the exercise price on the call
option written. A put option is 'covered' if, to support its obligation to
purchase the underlying investment if a put option that a Fund writes is
exercised, the Fund will either (a) deposit with its custodian in a segregated
account cash, cash equivalents, U.S. government securities or other high grade
liquid debt obligations having a value at least equal to the exercise price of
the underlying investment or (b) continue to own an equivalent number of puts of
the same 'series' (that is, puts on the same underlying investment having the
same exercise prices and expiration dates as those written by the Fund), or an
equivalent number of puts of the same 'class' (that is, puts on the same
underlying investment) with exercise prices greater than those that it has
written (or, if the exercise prices of the puts it holds are less than the
exercise prices of those it has written, it will deposit the difference with its
custodian in a segregated account). Parties to options transactions must make
certain
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payments and/or set aside certain amounts of assets in connection with each
transaction, as described in the Prospectus.
In all cases except for certain options on interest rate futures contracts,
by writing a call, a Fund will limit its opportunity to profit from an increase
in the market value of the underlying investment above the exercise price of the
option for as long as the Fund's obligation as writer of the option continues.
By writing a put, a Fund will limit its opportunity to profit from a decrease in
the market value of the underlying investment below the exercise price of the
option for as long as the Fund's obligation as writer of the option continues.
Upon the exercise of a put option written by a Fund, the Fund may suffer an
economic loss equal to the difference between the price at which the Fund is
required to purchase the underlying investment and its market value at the time
of the option exercise, less the premium received for writing the option. Upon
the exercise of a call option written by a Fund, the Fund may suffer an economic
loss equal to an amount not less than the excess of the investment's market
value at the time of the option exercise over the Fund's acquisition cost of the
investment, less the sum of the premium received for writing the option and the
positive difference, if any, between the call price paid to the Fund and the
Fund's acquisition cost of the investment.
In all cases except for certain options on interest rate futures contracts,
in purchasing a put option, a Fund will seek to benefit from a decline in the
market price of the underlying investment, while in purchasing a call option, a
Fund will seek to benefit from an increase in the market price of the underlying
investment. If an option purchased is not sold or exercised when it has
remaining value, or if the market price of the underlying investment remains
equal to or greater than the exercise price, in the case of a put, or remains
equal to or below the exercise price, in the case of a call, during the life of
the option, the Fund will lose its investment in the option. For the purchase of
an option to be profitable, the market price of the underlying investment must
decline sufficiently below the exercise price, in the case of a put, and must
increase sufficiently above the exercise price, in the case of a call, to cover
the premium and transaction costs.
In the case of certain options on interest rate futures contracts, a Fund
may purchase a put option in anticipation of a rise in interest rates, and
purchase a call option in anticipation of a fall in interest rates. By writing a
covered call option on interest rate futures contracts, a Fund will limit its
opportunity to profit from a fall in interest rates. By writing a covered put
option on interest rate futures contracts, a Fund will limit its opportunity to
profit from a rise in interest rates.
A Fund may choose to exercise the options it holds, permit them to expire
or terminate them prior to their expiration by entering into closing
transactions. A Fund may enter into a closing purchase transaction in which the
Fund purchases an option having the same terms as the option it had written or a
closing sale transaction in which the Fund sells an option having the same terms
as the option it had purchased. A covered option writer unable to effect a
closing purchase transaction will not be able to sell the underlying security
until the option expires or the underlying security is delivered upon exercise,
with the result that the writer will be subject to the risk of market decline in
the underlying security during such period. Should a Fund choose to exercise an
option, the Fund will purchase in the open market the securities, commodities or
commodity futures contracts underlying the exercised option.
Exchange-listed options on securities and currencies, with certain
exceptions, generally settle by physical delivery of the underlying security or
currency, although in the future, cash settlement may become available.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option. Index options are cash settled for the net amount,
if any, by which the option is 'in-the-money' (that is, the amount by which the
value of the underlying instrument exceeds, in the case of a call option, or is
less than, in the case of a put option, the exercise price of the option) at the
time the option is exercised.
A Fund's ability to close out its position as a purchaser or seller of an
exchange-listed put or call option is dependent upon the existence of a liquid
secondary market on option
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exchanges. Among the possible reasons for the absence of a liquid secondary
market on an exchange are: (i) insufficient trading interest in certain options;
(ii) restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange or
the Options Clearing Corporation ('OCC') to handle current trading volume; or
(vi) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been listed by the
OCC as a result of trades on that exchange would generally continue to be
exercisable in accordance with their terms.
Over-the-counter options are purchased from or sold to securities dealers,
financial institutions or other parties, through direct bilateral agreement with
such counterparties. A Fund will purchase and sell over-the-counter options only
from and to counterparties which the investment manager deems to be
creditworthy.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot be
reflected in the options markets.
(a) Options on Stocks and Stock Indices. A Fund may purchase put and call
options and write covered put and call options on stocks and stock indices
listed on domestic and foreign securities exchanges in order to hedge against
movements in the equity markets or to increase income or gain to the Fund. In
addition, the Fund may purchase options on stocks that are traded
over-the-counter. Options on stock indices are similar to options on specific
securities. However, because options on stock indices do not involve the
delivery of an underlying security, the option represents the holder's right to
obtain from the writer cash in an amount equal to a fixed multiple of the amount
by which the exercise price exceeds (in the case of a put) or is less than (in
the case of a call) the closing value of the underlying stock index on the
exercise date. Currently, options traded include the Standard & Poor's 100 Index
of Composite Stocks, Standard & Poor's 500 Index of Composite Stocks (the 'S&P
500 Index'), the NYSE Composite Index, the American Stock Exchange ('AMEX')
Market Value Index, the National Over-the-Counter Index and other standard
broadly based stock market indices. Options are also traded in certain industry
or market segment indices such as the Oil Index, the Computer Technology Index
and the Transportation Index. Stock index options are subject to position and
exercise limits and other regulations imposed by the exchange on which they are
traded.
If the investment manager expects general stock market prices to rise, a
Fund might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it wants ultimately to buy. If the stock index does rise, the price of the
particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of the Fund's
index option or futures contract resulting from the increase in the index. If,
on the other hand, the investment manager expects general stock market prices to
decline, it might purchase a put option or sell a futures contract on the index.
If that index does decline, the value of some or all of the equity securities in
a Fund's portfolio may also be expected to decline, but that decrease would be
offset in part by the increase in the value of the Fund's position in such put
option or futures contract.
(b) Options on Currencies. A Fund may invest in options on currencies
traded on domestic and foreign securities exchanges in order to hedge against
currency exchange rate risks or to increase income or gain, as described above
in 'Forward Currency Exchange Contracts.'
(c) Options on Futures Contracts. A Fund may purchase put and call options
and write covered put and call options on futures contracts on stock indices,
interest rates and currencies traded on domestic and, to the extent permitted by
the CFTC, foreign exchanges, in order to hedge all or a portion of its
investments or to increase income or gain and may enter into closing
transactions in order to terminate existing positions. There is no guarantee
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that such closing transactions can be effected. An option on a stock index
futures contract, interest rate futures contract or currency futures contract,
as contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in the
underlying contract at a specified exercise price at any time on or before the
expiration date of the option. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). While the price of the option is fixed at the point of sale, the value
of the option does change daily and the change would be reflected in the net
asset value of the Fund.
Interest Rate and Equity Swaps and Related Transactions. Certain Funds may
enter into interest rate and equity swaps and may purchase or sell (i.e., write)
interest rate and equity caps, floors and collars. A Fund expects to enter into
these transactions in order to hedge against either a decline in the value of
the securities included in the Fund's portfolio, or against an increase in the
price of the securities which it plans to purchase, or in order to preserve or
maintain a return or spread on a particular investment or portion of its
portfolio or to achieve a particular return on cash balances, or in order to
increase income or gain. Interest rate and equity swaps involve the exchange by
a Fund with another party of their respective commitments to make or receive
payments based on a notional principal amount. The purchase of an interest rate
or equity cap entitles the purchaser, to the extent that a specified index
exceeds a predetermined level, to receive payments on a contractually-based
principal amount from the party selling the interest rate or equity cap. The
purchase of an interest rate or equity floor entitles the purchaser, to the
extent that a specified index falls below a predetermined rate, to receive
payments on a contractually-based principal amount from the party selling the
interest rate or equity floor. A collar is a combination of a cap and a floor
which preserve a certain return within a predetermined range of values.
A Fund may enter into interest rate and equity swaps, caps, floors and
collars on either an asset-based or liability-based basis, depending on whether
it is hedging its assets or its liabilities, and will usually enter into
interest rate and equity swaps on a net basis (i.e., the two payment streams are
netted out), with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any, of a Fund's
obligations over its entitlements with respect to each interest rate or equity
swap will be accrued on a daily basis, and an amount of cash and/or liquid high
grade debt securities having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the Fund's
custodian. If a Fund enters into an interest rate or equity swap on other than a
net basis, the Fund will maintain a segregated account in the full amount
accrued on a daily basis of the Fund's obligations with respect to the swap. A
Fund will only enter into interest rate and equity swap, cap, floor or collar
transactions with counterparties the investment manager deems to be
creditworthy. The investment manager will monitor the creditworthiness of
counterparties to its interest rate and equity swap, cap, floor and collar
transactions on an ongoing basis. If there is a default by the other party to
such a transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and agents utilizing standardized swap documentation. The
investment manager determined that, as a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been developed and, accordingly,
they are less liquid than swaps. To the extent a Fund sells caps, floors and
collars it will maintain in a segregated account cash and/or, cash equivalents
or other liquid high grade debt securities having an aggregate net asset value
at least equal to the full amount, accrued on a daily basis, of the Fund's
obligations with respect to the caps, floors or collars. The use of interest
rate and equity swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the investment manager is incorrect in its forecasts
of market values, interest rates and other applicable factors, the investment
performance of a Fund would diminish compared with what it would have been if
these investment techniques were
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not utilized. Moreover, even if the investment manager is correct in its
forecasts, there is a risk that the swap position may correlate imperfectly with
the price of the asset or liability being hedged.
There is no limit on the amount of interest rate and equity swap
transactions that may be entered into by a Fund. These transactions do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate and equity swaps is
limited to the net amount of payments that a Fund is contractually obligated to
make, if any. The effective use of swaps and related transactions by a Fund may
depend, among other things, on the Fund's ability to terminate the transactions
at times when the investment manager deems it desirable to do so. Because swaps
and related transactions are bilateral contractual arrangements between a Fund
and counterparties to the transactions, the Fund's ability to terminate such an
arrangement may be considerably more limited than in the case of an exchange
traded instrument. To the extent a Fund does not, or cannot, terminate such a
transaction in a timely manner, the Fund may suffer a loss in excess of any
amounts that it may have received, or expected to receive, as a result of
entering into the transaction. If the other party to a swap defaults, a Fund's
risk of loss is the net amount of payments that the Fund contractually is
entitled to receive, if any. A Fund may purchase and sell caps, floors and
collars without limitation, subject to the segregated account requirement
described above.
OTHER INVESTMENT COMPANIES
As indicated under 'Investment Limitations' below, a Fund may from time to
time invest in securities of other investment companies. The return on such
investments will be reduced by the operating expenses, including investment
advisory and administration fees, of such investment funds, and will be further
reduced by Fund expenses, including management fees; that is, there will be a
layering of certain fees and expenses.
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SPECIAL FACTORS AFFECTING THE FUND'S INVESTMENT
IN NEW YORK MUNICIPAL OBLIGATIONS
Some of the significant financial considerations relating to the
investments of the New York Municipal Bond Fund in New York municipal securities
are summarized below. The following information constitutes only a brief
summary, does not purport to be a complete description and is largely based on
information drawn from official statements relating to securities offerings of
New York municipal obligations available as of the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in such offering statements has not been independently verified.
NEW YORK STATE
New York State Financing Activities. There are a number of methods by which
New York State (the 'State') may incur debt. Under the State Constitution, the
State may not, with limited exceptions for emergencies, undertake long-term
general obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
New York State Legislature (the 'Legislature') and approved by the voters. There
is no limitation on the amount of long-term general obligation debt that may be
so authorized and subsequently incurred by the State. With the exception of
general obligation housing bonds (which must be paid in equal annual
installments or installments that result in substantially level or declining
debt service payments, within 50 years after issuance, commencing no more than
three years after issuance), general obligation bonds must be paid in equal
annual installments or installments that result in substantially level or
declining debt service payments, within 40 years after issuance, beginning not
more than one year after issuance of such bonds.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes ('TRANs'), and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes ('BANs'). TRANs must mature within one year from their dates
of issuance and may not be refunded or refinanced beyond such period. BANS may
only be issued for the purposes and within the amounts for which bonds may be
issued pursuant to voter authorizations. Such BANs must be paid from the
proceeds of the sale of bonds in anticipation of which they were issued or from
other sources within two years of the date of issuance or, in the case of BANs
for housing purposes, within five years of the date of issuance.
The State may also, pursuant to specific constitutional authorization,
directly guarantee certain public authority obligations. The State Constitution
provides for the State guarantee of the repayment of certain borrowings for
designated projects of the New York State Thruway Authority, the Job Development
Authority and the Port Authority of New York and New Jersey. The State has never
been called upon to make any direct payments pursuant to such guarantees. The
constitutional provisions allowing a State-guarantee of certain Port Authority
of New York and New Jersey debt stipulates that no such guaranteed debt may be
outstanding after December 31, 1996. State-guaranteed bonds issued by the
Thruway Authority were fully retired on July 1, 1995.
Payments of debt service on State general obligation and State-guaranteed
bonds and notes are legally enforceable obligations of the State.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financing, which involve obligations of public
authorities or municipalities that are State-supported but not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of
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money to the State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the New York Local Government
Assistance Corporation ('LGAC') to restructure the way the States makes certain
local aid payments. The State also participates in the issuance of certificates
of participation ('COPs') in a pool of leases entered into by the State's Office
of General Services on behalf of several State departments and agencies interest
in acquiring operational equipment, or in certain cases, real property.
Legislation enacted in 1986 established restrictions upon and centralized State
control, through the Comptroller and the Director of the Budget, over the
issuance of COPs representing the State's contractual obligation, subject to
annual appropriation by the Legislature and availability of money, to make
installment or lease-purchase payments for the State's acquisition of such
equipment or real property.
The State has never defaulted on any of its general obligation indebtedness
or its obligations under lease-purchase or contractual-obligation financing
arrangements and has never been called upon to make any direct payments pursuant
to its guarantees although there can be no assurance that such a default or call
will not occur in the future.
The State also employs moral obligations financing. Moral obligation
financing generally involves the issuance of debt by a public authority to
finance a revenue-producing project or other activity. The debt is secured by
project revenues and includes statutory provisions requiring the State, subject
to appropriation by the Legislature, to make up any deficiencies which may occur
in the issuer's debt service reserve fund. There has never been a default on any
moral obligation debt of any public authority although there can be no assurance
that such a default will not occur in the future.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and public authorities in the 1996-97 fiscal
year. The State expects to issue $411 million in general obligation bonds
(including $153.6 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $101 million in COPs during the State's 1996-97
fiscal year for equipment purchases. The projection of the State regarding its
borrowings for the 1996-97 fiscal year may change if circumstances require.
Borrowings by other public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total $2.15 billion, including costs of issuances, reserve funds,
and other costs, net of anticipated refundings and other adjustments for 1996-97
capital projects. Included therein are borrowings by (i) DASNY for SUNY, The
City University of New York ('CUNY'), health facilities, and mental health
facilities; (ii) Thruway Authority for the Dedicated Highway and Bridge Trust
Fund and Consolidated Highway Improvement Program; (iii) UDC (doing business as
the Empire State Development Corporation) for prison and youth facilities; (iv)
the Housing Finance Agency ('HFA') for housing programs; and (v) borrowings by
the Environmental Facilities Corporation ('EFC') or other authorities. In
addition, the Legislature has authorized DASNY to refinance a $787 million
pension obligation of the State.
In the 1996 legislative session, the Legislature approved the Governor's
proposal to present to the voters in November 1996 a $1.75 billion State general
obligation bond referendum to finance various environmental improvement and
remediation projects. If the Clean Water, Clean Air Bond Act is approved by the
voters, the amount of general obligation bonds issued during the 1996-97 fiscal
year may increase above the $411 million currently included in the 1996-97
Borrowing Plan to finance a portion of this new program.
In addition to the arrangements described above, State law provides for
State municipal assistance corporations, which are Authorities authorized to aid
financially troubled localities. The Municipal Assistance Corporation for The
City of New York ('MAC'), created to provide financing assistance to New York
City (the 'City'), is the only municipal assistance corporation created to date.
To enable MAC to pay debt service on its obligations, MAC receives, subject to
annual appropriation by the Legislature, receipts from the 4% New York State
Sales Tax for the Benefit of New York City, the State-imposed Stock Transfer Tax
and, subject to certain prior liens, certain local assistance payments otherwise
payable to the City. The legislation creating MAC also includes a moral
obligation provision. Under its
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enabling legislation, MAC's authority to issue bonds and notes (other than
refunding bonds and notes) expired on December 31, 1984.
State Financial Operations. The State has historically been one of the
wealthiest states in the nation. For decades, however, the State economy has
grown more slowly than that of the nation as a whole, gradually eroding the
State's relative economic affluence. Statewide, urban centers have experienced
significant changes involving migration of the more affluent to the suburbs and
an influx of generally less affluent residents. Regionally, the older Northeast
cities have suffered because of the relative success that the South and the West
have had in attracting people and business. The City has also had to face
greater competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
Although the State ranks 22nd in the nation for its State tax burden, the
State has the second highest combined state and local tax burden in the United
States. In 1991, total State and local taxes in New York were $3,349 per capita,
compared with $1,475 per capita in 1980. Between 1980 and 1991, State and local
taxes per capita increased at approximately the same rate in the State as in the
nation as a whole with per capita taxes in the State increasing by 127% while
such taxes increased 111% in the nation. The State Division of the Budget
('DOB') believes, however, that it is more informative to describe the state and
local tax burden in terms of its relationship to personal income. In 1992, total
State and local taxes in New York were $154.70 per $1,000 of personal income,
compared with $152.70 in 1980. Between 1980 and 1992, State and local taxes per
$1,000 of personal income increased at a slower rate in the State than in the
nation as a whole with such taxes in the State increasing by 1.3 percent while
such taxes increased 4 percent in the nation. The burden of State and local
taxation, in combination with the many other causes of regional economic
dislocation, may have contributed to the decisions of some businesses and
individuals to relocate outside, or not locate within the State. The State and
its localities have used these taxes to develop and maintain their respective
transportation networks, public schools and colleges, public health systems,
other social services, and recreational facilities. Despite these benefits, the
burden of State and local taxation, in combination with the many other causes of
regional economic dislocation, may have contributed to the decisions of some
businesses and individuals to relocate outside, or not locate within, the State.
The national economy began expanding in 1991 and has added over 7 million
jobs since early 1992. However, the recession lasted longer in the State and the
State's economic recovery has lagged behind the nation's. Although the State has
added approximately 185,000 jobs since November 1992, employment growth in the
State has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, defense, and banking industries.
DOB forecasted that national economic growth would weaken, but not turn
negative, during the course of 1995 before beginning to rebound. This dynamic is
often described as a 'soft landing.'
The national economy achieved the desired 'soft landing' in 1995, as growth
slowed from 6.2 percent in 1994 to a rate sufficiently slow to inhibit the
buildup of inflationary pressures. This was achieved without any material pause
in the economic expansion, although recession worries flared in the late spring
and early summer. Growth in the national economy is expected to moderate during
1996. Real GDP grew only 0.9 percent in the fourth quarter of 1995, and there
were declines in the leading economic indicators in four of the past five
months. It is anticipated that slow economic growth will continue through the
first half of 1996 and inflationary pressures will be modest in 1996. Economic
growth will gradually accelerate in the second half of 1996 as the lower level
of interest rates over the last year is expected to stimulate economic activity.
Economic growth, as measured by the nation's nominal GDP, is projected to expand
by 4.3 percent in 1996 versus 4.6 in 1995. In 1992 dollars, real GDP is expected
to grow 1.8 percent as compared with the 2.1 percent growth in 1995. By either
measure, economic growth is projected to be noticeably slower for 1996 than
1995.
To stimulate economic growth, the State has developed programs, including
the provision of direct financial assistance, designed to assist businesses to
expand existing operations located within the State and to attract new
businesses to the State. In addition,
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the State has provided various tax incentives to encourage business relocation
and expansion. These programs include direct tax abatements from local property
taxes for new facilities (subject to locality approval) and investment tax
credits that are applied against the State corporation franchise tax.
Furthermore, the State has created 40 'economic development zones' in
economically distressed regions of the States. Businesses in these zones are
provided a variety of tax and other incentives to create jobs and make
investments in the zones. There can be no assurance that these programs will be
successful.
From 1994 to 1995 the annual growth rates of most economic indicators for
the State improved. The pace of private sector employment expansion and personal
income and wage growth all accelerated. Government employment fell as workforce
reductions were implemented at federal, State and local levels. Similar to the
nation, some moderation of growth is expected in the year ahead. Private sector
employment is expected to continue to rise, although somewhat more slowly than
in 1995, while public employment should continue to fall, reflecting government
budget cutbacks. Anticipated continued restraint in wage settlements, a lower
rate of employment growth and falling interest rates are expected to slow
personal income growth significantly.
The State's current fiscal year commenced on April 1, 1995, and ends on
March 31, 1996, and is referred to herein as the State's 1995-96 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1995-96 fiscal year (the '1995-96 State Financial Plan')
was formulated on June 20, 1995 and is based on the State's budget as enacted by
the Legislature and signed into law by the Governor. The State Financial Plan is
updated quarterly pursuant to law in July, October and January.
The 1995-96 budget is the first to be enacted in the administration of
Governor George Pataki, who assumed office on January 1, 1995. It is the first
budget in over half a century which proposed and, as enacted, projects an
absolute year-over-year decline in General Fund disbursements. Spending for
State operations is projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (i.e., excluding Federal aid) is
proposed to increase by only 2.5 percent from the prior fiscal year, in contrast
to the prior decade when such spending growth averaged more than 6.0 percent
annually.
In his Executive Budget, the Governor indicated that in the 1995-96 fiscal
year, the 1995-96 State Financial Plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing disparity
between sluggish growth in receipts, the effect of prior-year tax changes, and
the rapid acceleration of spending growth; the impact of unfunded 1994-95
initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts to
spur economic growth and provide relief for low and middle-income tax payers,
which were larger than those ultimately adopted, and which added $240 million to
the then projected imbalance or budget gap, bringing the total to approximately
$5 billion.
The 1995-96 State Financial Plan contemplates closing this gap based on the
enacted budget, through a series of actions, mainly spending reductions and cost
containment measures and certain reestimates that are expected to be recurring,
but also through the use of one-time solutions. The 1995-96 State Financial Plan
projects (i) nearly $1.6 billion in savings from cost containment, disbursement
reestimates, and other savings in social welfare programs, including Medicaid,
income maintenance and various child and family care programs; (ii) $2.2 billion
in savings from State agency actions to reduce spending on the State workforce,
SUNY and CUNY, mental hygiene programs, capital projects, the prison system and
fringe benefits; (iii) $300 million in savings from local assistance reforms,
including actions affecting school aid and revenue sharing while proposing
program legislation to provide relief from certain mandates that increase local
spending; (iv) over
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$400 million in revenue measures, primarily a new Quick Draw Lottery game,
changes to tax payment schedules, and the sale of assets; and (v) $300 million
from reestimates in receipts.
The following discussion summarizes updates to the 1995-96 State Financial
Plan and recent fiscal years with particular emphasis on the State's General
Fund. Pursuant to statute, the State updates the financial plan at least on a
quarterly basis. Due to changing economic conditions and information, public
statements or reports may be released by the Governor, members of the
Legislature, and their respective staffs, as well as others involved in the
budget process from time to time. Those statements or reports may contain
predictions, projections or other items of information relating to the State's
financial condition, including potential operating results for the current
fiscal year and projected baseline gaps for future fiscal years, that may vary
materially and adversely from the information provided herein.
The General Fund is the principal operating fund of the State and is used
to account for all financial transactions, except those required to be accounted
for in another fund. It is the State's largest fund and receives almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 1995-96 fiscal year, the General Fund is expected by the State to
account for approximately 49 percent of total governmental-fund receipts and 71
percent of total governmental-fund disbursements. General Fund moneys are also
transferred to other funds, primarily to support certain capital projects and
debt service payments in other fund types.
The General Fund is projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts are projected to be $33.110 billion, an
increase of $48 million over total receipts in the prior fiscal year. Total
General Fund disbursements are projected to be $33.055 billion, an increase of
$344 million over the total amount disbursed and transferred in the prior fiscal
year.
In addition to the General Fund, the State Financial Plan includes Special
Revenue Funds, Capital Projects Funds and Debt Service Funds.
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as Federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes.
Although activity in this fund type is expected to comprise more than 40 percent
of total government funds receipts and disbursements in the 1995-96 fiscal year,
about three-quarters of that activity relates to Federally-funded programs.
Projected receipts in this fund type total $25.547 billion, an increase of
$1.316 billion over the prior year. Projected disbursements in this fund type
total $26.002 billion, an increase of $1.641 billion over 1994-95 levels.
Disbursements from Federal funds, primarily the Federal share of Medicaid and
other social services programs, are projected to total $19.209 billion in the
1995-96 fiscal year. Remaining projected spending of $6.793 billion primarily
reflects aid to SUNY supported by tuition and dormitory fees, education aid
funded from lottery receipts, operating aid payments to the Metropolitan
Transportation Authority (the 'MTA') funded from the proceeds of dedicated
transportation taxes, and costs of a variety of self-supporting programs which
deliver services financed by user fees.
Capital Projects Funds are used to account for the financial resources used
for the acquisition, construction, or rehabilitation of major State capital
facilities and for capital assistance grants to certain local governments or
public authorities. This fund type consists of the Capital Projects Fund, which
is supported by tax dollars transferred from the General Fund, and 37 other
capital funds established to distinguish specific capital construction purposes
supported by other revenues. In the 1996-97 fiscal year, activity in these funds
is expected to comprise 6 percent of total governmental receipts and
disbursements.
Total receipts in this fund type are projected at $3.58 billion.
Disbursements from this fund type are projected to be $3.85 billion, a decrease
of $120 million (3.1 percent) over prior-year levels, due in part to a
reclassification of economic development projects to the category of grants to
local governments in the General Fund. The Dedicated Highway and Bridge Trust
Fund is the single largest dedicated fund, comprising an estimated $920 million
(24 percent) of the activity in this fund type. Total spending for capital
projects will be financed through a combination of sources: federal grants (28
percent), public authority bond
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proceeds (34 percent), general obligation bond proceeds (12 percent), and
pay-as-you-go revenues (26 percent).
Debt Service Funds are used to account for the payment of principal of, and
interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements. This
fund is expected to comprise 4 percent of total governmental fund receipts and
disbursements in the 1996-97 fiscal year. Receipts in these funds in excess of
debt service requirements are transferred to the General Fund and Special
Revenue Funds, pursuant to law.
The Debt Service Fund type consists of the General Debt Service Fund, which
is supported primarily by tax dollars transferred from the General Fund, and
other funds established to accumulate moneys for the payment of debt service. In
the 1996-97 fiscal year, total disbursements in this fund type are projected at
$2.58 billion, an increase of $164 million or 16.8 percent. The projected
transfer from the General Fund of $1.59 billion is expected to finance 62
percent of these payments.
The General Fund is the principal operating fund of the State and is used
to account for all financial transactions, except those required to be accounted
for in another fund. It is the State's largest fund and receives almost all
State taxes and other resources not dedicated to particular purposes. General
Fund moneys are also transferred to other funds, primarily to support certain
capital projects and debt service payments in other fund types. A narrative
description of cash-basis results in the General Fund is presented below,
followed by a tabular presentation of the actual General Fund results for the
prior three fiscal years.
New York State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of
TRANs. A national recession, followed by the lingering economic slowdown in the
New York and regional economy, resulted in repeated shortfalls in receipts and
three budget deficits during those years. During its last four fiscal years,
however, the State has recorded balanced budgets on a cash basis, with positive
fund balances as described below.
The State ended its 1995-96 fiscal year on March 31, 1996 with a General
Fund cash surplus. The Division of the Budget reported that revenues exceeded
projections by $270 million, while spending for social service programs was
lower than forecast by $120 million and all other spending was lower by $55
million. From the resulting benefit of $445 million, a $65 million voluntary
deposit was made into the TSRF, and $380 million was used to reduce 1996-97
Financial Plan liabilities by accelerating 1996-97 payments, deferring 1995-96
revenues, and making a deposit to the tax refund reserve account.
The General Fund closing fund balance was $287 million, an increase of $129
million from 1994-95 levels. The $129 million change in fund balance is
attributable to the $65 million voluntary deposit to the TSRF, a $15 million
required deposit to the TSRF, a $40 million deposit to the CRF, and a $9 million
deposit to the Revenue Accumulation Fund. The closing fund balance includes $237
million on deposit in the TSRF, to be used in the event of any future General
Fund deficit as provided under the State Constitution and State Finance Law. In
addition, $41 million is on deposit in the CRF. The CRF was established in State
fiscal year 1993-94 to assist the State in financing the costs of extraordinary
litigation. The remaining $9 million reflects amounts on deposit in the Revenue
Accumulation Fund. This fund was created to hold certain tax receipts
temporarily before their deposit to other accounts. In addition, $678 million
was on deposit in the tax refund reserve account, of which $521 million was
necessary to complete the restructuring of the State's cash flow under the LGAC
program.
General Fund receipts totaled $32.81 billion, a decrease of 1.1 percent
from 1994-95 levels. This decrease reflects the impact of tax reductions enacted
and effective in both 1994 and 1995. General Fund disbursements totaled $32.68
billion for the 1995-96 fiscal year, a decrease of 2.2 percent from 1994-95
levels. Mid-year spending reductions, taken as part of a management review
undertaken in October at the direction of the Governor, yielded savings from
Medicaid utilization controls, office space consolidation, overtime and
contractual expense reductions, and statewide productivity improvements achieved
by State agencies.
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Together with decreased social services spending, this management review
accounts for the bulk of the decline in spending.
The State ended its 1994-95 fiscal year with the General Fund in balance.
The $241 million decline in the fund balance reflects the planned use of $264
million from the CRF, partially offset by the required deposit of $23 million to
the TSRF. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited to continue the process of
restructuring the State's cash flow as part of the LGAC program. The closing
fund balance of $158 million reflects $157 million in the TSRF and $1 million in
the CRF.
General Fund receipts totaled $33.16 billion, an increase of 2.9 percent
from 1993-94 levels. General Fund disbursements totaled $33.40 billion for the
1994-95 fiscal year, an increase of 4.7 percent from the previous fiscal year.
The increase in disbursements was primarily the result of one-time litigation
costs for the State, funded by the use of the CRF, offset by $188 million in
spending reductions initiated in January 1995 to avert a potential gap in the
1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects.
The State ended its 1993-94 fiscal year with a General Fund cash surplus,
primarily the result of an improving national economy, State employment growth,
tax collections that exceeded earlier projections and disbursements that were
below expectations. A deposit of $268 million was made to the CRF, with a
withdrawal during the year of $3 million, and a deposit of $67 million was made
to the TSRF. These three transactions result in the change in fund balance of
$332 million. In addition, a deposit of $1.14 billion was made to the tax refund
reserve account, of which $1.03 billion was available for budgetary purposes in
the 1994-95 fiscal year. (For more information on the personal income tax refund
reserve account, see Table 5.) The remaining $114 million was redeposited in the
tax refund reserve account at the end of the State's 1994-95 fiscal year to
continue the process of restructuring the State's cash flow as part of the LGAC
program. The General Fund closing balance was $399 million, of which $265
million was on deposit in the CRF and $134 million in the TSRF. The CRF was
initially funded with a transfer of $100 million attributable to a positive
margin recorded in the 1992-93 fiscal year.
General Fund receipts totaled $32.23 billion, an increase of 2.6 percent
from 1992-93 levels. General Fund disbursements totaled $31.90 billion for the
1993-94 fiscal year, 3.5 percent higher than the previous fiscal year. Receipts
were higher in part due to improved tax collections from renewed State economic
growth, although the State continued to lag behind the national economic
recovery. Disbursements were higher due in part to increased local assistance
costs for school aid and social services, accelerated payment of certain
Medicaid expenses, and the cost of an additional payroll for State employees.
Activity in the three other governmental funds has remained relatively
stable over the last three fiscal years, with federally-funded programs
comprising approximately two-thirds of these funds. The most significant change
in the structure of these funds has been the redirection, beginning in the
1993-94 fiscal year, of a portion of transportation-related revenues from the
General Fund to two new dedicated funds in the Special Revenue and Capital
Projects Fund types. These revenues are used to support the capital programs of
the Department of Transportation and the MTA.
In the Special Revenue Funds, disbursements increased from $22.72 billion
to $26.26 billion over the last three years, primarily as a result of increased
costs for the federal share of Medicaid. Other activity reflected dedication of
taxes to a new fund for mass transportation, new lottery games, and new fees for
criminal justice programs.
Disbursements in the Capital Projects Funds grew from $3.10 billion to
$3.97 billion over the last three years, as spending for transportation and
mental hygiene programs increased, partially offset by declines for corrections
and environmental programs. The composition of this fund type's receipts also
changed as the dedicated transportation taxes began to be deposited, general
obligation bond proceeds declined substantially, federal grants remained stable,
and reimbursements from public authority bonds (primarily
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transportation related) increased. The increase in the negative fund balance in
1994-95 resulted from delays in reimbursements caused by delays in the timing of
public authority bond sales.
Activity in the Debt Service Funds reflected increased use of bonds during
the three-year period for improvements to the State's capital facilities and the
continued implementation of the LGAC fiscal reform program. The increases were
moderated by the refunding savings achieved by the State over the last several
years using strict present value savings criteria. The growth in LGAC debt
service was offset by reduced short-term borrowing costs reflected in the
General Fund.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. These factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. For example, various proposals relating
to federal tax and spending policies that are currently being publicly discussed
and debated could, if enacted, have a significant impact on the State's
financial condition in the current and future fiscal years. Because of the
uncertainty and unpredictability of the changes, their impact cannot, as a
practical matter, be included in the assumptions underlying the State's
projections at this time.
The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of State
and national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, federal fiscal and monetary policies,
the level of interest rates, and the condition of the world economy, which could
have an adverse effect on the State. There can be no assurance that the State
economy will not experience results in the current fiscal year that are worse
than predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are based
on the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. In preparing projections of State receipts, economic forecasts
relating to personal income, wages, consumption, profits and employment have
been particularly important. The projection of receipts from most tax or revenue
sources is generally made by estimating the change in yield of such tax or
revenue source caused by economic and other factors, rather than by estimating
the total yield of such tax or revenue source from its estimated tax base. The
forecasting methodology, however, ensures that State fiscal year estimates for
taxes that are based on a computation of annual liability, such as the business
and personal income taxes, are consistent with estimates of total liability
under such taxes.
Projections of total State disbursements are based on assumptions relating
to economic and demographic factors, levels of disbursements for various
services provided by local governments (where the cost is partially reimbursed
by the State), and the results of various administrative and statutory
mechanisms in controlling disbursements for State operations. Factors that may
affect the level of disbursements in the fiscal year include uncertainties
relating to the economy of the nation and the State, the policies of the federal
government, and changes in the demand for and use of State services.
The Division of the Budget believes that its projections of receipts and
disbursements relating to the current State Financial Plan, and the assumptions
on which they are based, are reasonable. Actual results, however, could differ
materially and adversely from the projections set forth in this Annual
Information Statement. In the past, the State has taken management actions and
made use of internal sources to address potential State Financial Plan
shortfalls, and DOB believes it could take similar actions should variances
occur in its projections for the current fiscal year.
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In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy, actions
of the federal government and other factors, have created structural budget gaps
for the State. These gaps resulted from a significant disparity between
recurring revenues and the costs of maintaining or increasing the level of
support for State programs. To address a potential imbalance in any given fiscal
year, the State would be required to take actions to increase receipts and/or
reduce disbursements as it enacts the budget for that year, and under the State
Constitution, the Governor is required to propose a balanced budget each year.
There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
On January 13, 1992, Standard & Poor's ('S&P') lowered its rating on the
State's general obligation bonds from A to A - and, in addition, reduced its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. S&P also continued its negative rating outlook
assessment on State general obligation debt. On April 26, 1993 S&P revised the
rating outlook assessment to stable. On February 14, 1994, S&P revised its
outlook to positive and, on October 3, 1995, confirmed its A - rating. On
January 6, 1992, Moody's reduced its ratings on outstanding limited-liability
State lease purchase and contractual obligations from A to Baa1. On October 2,
1995, Moody's reconfirmed its A rating on the State's general obligation
long-term indebtedness.
On June 6, 1990, Moody's changed its ratings on all of the State's
outstanding general obligation bonds from A1 to A, the rating having been A1
since May 27, 1986. On November 12, 1990, Moody's confirmed the A rating. In
1992, S&P lowered the State's general obligation bond rating to A - , where it
currently remains and was affirmed on July 13, 1995. Prior to this, on March 26,
1990, S&P lowered its rating of all of the State's outstanding general
obligation bonds from AA - to A. Previous S&P ratings were AA - from August,
1987 to March, 1990 and A+ from November, 1982 to August, 1987.
Authorities. The fiscal stability of the State is related, in part, to the
fiscal stability of its public authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Public authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially adversely affected, if any of its public authorities were to default
on their respective obligations. As of September 30, 1995 there were 17
Authorities that had outstanding debt of $100 million or more, and the aggregate
outstanding debt, including refunding bonds, of all state public authorities was
$73.45 billion.
There are numerous public authorities, with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authority operating expenses and debt service costs are
generally paid by revenues generated by the projects financed or operated, such
as tolls charged for the use of highways, bridges or tunnels, rentals charged
for housing units, and charges for occupancy at medical care facilities.
In addition, State legislation authorizes several financing techniques for
public authorities. Also, there are statutory arrangements providing for State
local assistance payments otherwise payable to localities to be made under
certain circumstances to public authorities. Although the State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to public authorities under these arrangements if local
assistance payments are so diverted, the affected localities could seek
additional State assistance.
Some authorities also receive monies from State appropriations to pay for
the operating costs of certain of their programs. As described below, the MTA
receives the bulk of this money in order to carry out mass transit and commuter
services.
The State's experience has been that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit
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markets and the market price of the State's outstanding bonds and notes may be
adversely affected. The New York State Housing Finance Agency, the New York
State Urban Development Corporation and certain other Authorities have in the
past required and continue to require substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or other,
Authorities in the future. In addition, certain other statutory arrangements
provide for State local assistance payments otherwise payable to localities to
be made under certain circumstances to certain Authorities. The State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to Authorities under these arrangements. However, in the
event that such local assistance payments are so diverted, the affected
localities could seek additional State funds.
Metropolitan Transportation Authority. The MTA oversees the operation of
the City's subway and bus lines by its affiliates, the New York City Transit
Authority and the Manhattan and Bronx Surface Transit Operating Authority
(collectively, the 'TA'). The MTA operates certain commuter rail and bus lines
in the New York Metropolitan area through MTA's subsidiaries, the Long Island
Rail Road Company, the Metro-North Commuter Railroad Company and the
Metropolitan Suburban Bus Authority. In addition, the Staten Island Rapid
Transit Operating Authority, an MTA subsidiary, operates a rapid transit line on
Staten Island. Through its affiliated agency, the Triborough Bridge and Tunnel
Authority (the 'TBTA'), the MTA operates certain intrastate toll bridges and
tunnels. Because fare revenues are not sufficient to finance the mass transit
portion of these operations, the MTA has depended, and will continue to depend
for operating support upon a system of State, local government and TBTA support,
and, to the extent available, Federal operating assistance, including loans,
grants and operating subsidies. If current revenue projections are not realized
and/or operating expenses exceed current projections, the TA or commuter
railroads may be required to seek additional State assistance, raise fares or
take other actions.
Since 1980, the State has enacted several taxes -- including a surcharge on
the profits of banks, insurance corporations and general business corporations
doing business in the 12-county Metropolitan Transportation Region served by the
MTA and a special one-quarter of 1 percent regional sales and use tax -- that
provide revenues for mass transit purposes, including assistance to the MTA. In
addition, since 1987, State law has required that the proceeds of a one quarter
of 1% mortgage recording tax paid on certain mortgages in the Metropolitan
transportation Region be deposited in a special MTA fund for operating or
capital expenses. Further, in 1993 the State dedicated a portion of the State
petroleum business tax to fund operating or capital assistance to the MTA. For
the 1996-97 fiscal year, total State assistance to the MTA is estimated by the
State to be approximately $1.09 billion.
State legislation accompanying the 1996-97 adopted State budget authorized
the MTA, TBTA and TA to issue an aggregate of $6.5 billion in bonds to finance a
portion of a new $11.98 billion MTA capital plan for the 1995 through 1999
calendar years (the '1995-99 Capital Program'), and authorized the MTA to submit
the 1995-99 Capital Program to the Capital Program Review Board for approval.
This plan will supersede the overlapping portion of the MTA's 1992-96 Capital
Program. This is the fourth capital plan since the Legislature authorized
procedures for the adoption, approval and amendment of MTA capital programs and
is designed to upgrade the performance of the MTA's transportation systems by
investing in new rolling stock, maintaining replacement schedules for existing
assets and bringing the MTA system into a state of good repair. The 1995-99
Capital Program assumes the issuance of an estimated $5.1 billion in bonds under
this $6.5 billion aggregate bonding authority. The remainder of the plan is
projected to be financed through assistance from the State, the federal
government, and the City of New York, and from various other revenues generated
from actions taken by the MTA.
There can be no assurance that all the necessary governmental actions for
the 1995-99 Capital Program will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1995-99 Capital
Program, or parts thereof, will not be delayed or reduced. If the 1995-99
Capital Program is delayed or reduced, ridership and fare revenues
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may decline, which could, among other things, impair the MTA's ability to meet
its operating expenses without additional assistance.
Localities. Certain localities outside the City have experienced financial
problems and have requested and received additional State assistance during the
last several State fiscal years. The potential impact on the State of any future
requests by localities for additional assistance is not included in the
projections of the State's receipts and disbursements for the State's 1996-97
fiscal year.
Fiscal difficulties experienced by the City of Yonkers resulted in the
re-establishment of the Financial Control Board for the City of Yonkers by the
State in 1984. That Board is charged with oversight of the fiscal affairs of
Yonkers. Future actions taken by the State to assist Yonkers could result in
increased State expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding.
Seventeen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities.
Municipal Indebtedness. Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1994, the total indebtedness
of all localities in the State other than the City was approximately $17.7
billion. A small portion (approximately $82.9 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
State enabling legislation. State law requires the Comptroller to review and
make recommendations concerning the budgets of those local government units
other than the City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Fifteen localities
had outstanding indebtedness for deficit financing at the close of their fiscal
year ending in 1994.
From time to time, proposed Federal expenditure reductions could reduce, or
in some cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within the State could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. Long-range potential problems of
declining urban population, increasing expenditures and other economic trends
could adversely affect certain localities and require increasing State
assistance in the future.
Litigation. Certain litigation pending against the State or its officers or
employees could have a substantial or long-term adverse effect on State
finances. Among the more significant of these cases are those that involve: (i)
employee welfare benefit plans seeking a declaratory judgment nullifying on the
ground of federal preemption provisions of Section 2807-c of the Public Health
Law and implementing regulations which impose a bad debt and charity care
allowance on all hospital bills and a 13 percent surcharge on inpatient bills
paid by employee welfare benefit plans; (ii) several challenges to provisions of
Chapter 81 of the Laws of 1995 which after the nursing home Medicaid
reimbursement methodology; (iii) the validity of agreements and treaties by
which various Indian tribes transferred title to the State of certain land in
central and upstate New York; (iv) challenges to the practice of using patients'
Social Security benefits for the costs of care of patients of State Office of
Mental Health facilities; (v) an action against State and City officials
alleging that the present level of shelter allowance for public assistance
recipients is inadequate under statutory standards to maintain proper housing;
(vi) challenges to the practice of reimbursing certain Office of Mental Health
patient care expenses from the client's Social Security benefits; (vii) alleged
responsibility of State officials to assist in remedying racial segregation in
the City of Yonkers; (viii) alleged responsibility of the State Department of
Environmental Conservation for a plaintiff's
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inability to complete construction of a cogeneration facility in a timely
fashion and the damages suffered thereby; (ix) challenges to the promulgation of
the State's proposed procedure to determine the eligibility for and nature of
home care services for Medicaid recipients; (x) a challenge to State
implementation of a program which reduces Medicaid benefits to certain
home-relief recipients; (xi) a challenge to the constitutionality of petroleum
business tax assessments authorized by Tax Law SS 301; and (xii) an action for
reimbursement from the State for certain costs arising out of the provision of
preschool services and programs for children with handicapping conditions,
pursuant to Sections 4410 (10) and (11) of the Education Law.
Adverse developments in the proceedings described above or the initiation
of new proceedings could affect the ability of the State to maintain a balanced
1996-97 State Financial Plan. In its Notes to its General Purpose Financial
Statements for the fiscal year ended March 31, 1996, the State reports its
estimated liability for awards and anticipated unfavorable judgments at $474
million. There can be no assurance that an adverse decision in any of the above
cited proceedings would not exceed the amount of the 1996-97 State Financial
Plan reserves for the payment of judgments and, therefore, could affect the
ability of the State to maintain a balanced 1996-97 State Financial Plan.
NEW YORK CITY
The fiscal health of the State may also be impacted by the fiscal health of
its localities, particularly the City, which continues to require significant
financial assistance from the State. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. The
State could also be affected by the ability of the City to market its securities
successfully in the public credit markets. The City has achieved balanced
operating results for each of its fiscal years since 1981 as reported in
accordance with the then-applicable GAAP standards. The City's financial plans
are usually prepared quarterly, and the annual financial report for its most
recent completed fiscal year is prepared at the end of October of each year.
In response to the City's fiscal crisis in 1975, the State took action to
assist the City in returning to fiscal stability. Among these actions, the State
established the Municipal Assistance Corporation for the City of New York
('MAC') to provide financing assistance to the City. The State also enacted the
New York State Financial Emergency Act for The City of New York (the 'Financial
Emergency Act') which, among other things, established the New York State
Financial Control Board (the 'Control Board') to oversee the City's financial
affairs. The State also established the Office of the State Deputy Comptroller
for the City of New York ('OSDC') to assist the Control Board in exercising its
powers and responsibilities; and a 'Control Period' from 1975 to 1986 during
which the City was subject to certain statutorily-prescribed fiscal-monitoring
arrangements. Although the Control Board terminated the Control Period in 1986
when certain statutory conditions were met, thus suspending certain Control
Board powers, the Control Board, MAC and OSDC continue to exercise various
fiscal-monitoring functions over the City, and upon the occurrence or
'substantial likelihood and imminence' of the occurrence of certain events,
including, but not limited to a City operating budget deficit of more than $100
million, the Control Board is required by law to reimpose a Control Period.
Currently, the City and its Covered Organizations (i.e., those which receive or
may receive money from the City directly, indirectly or contingently) operate
under a four-year financial plan, which the City prepares annually and updates
periodically and which includes the City's capital revenue and expense
projections and outlines proposed gap-closing programs for years with projected
budget gaps. The City's current four-year financial plan projects substantial
budget gaps for each of the 1997 through 1999 fiscal years, before
implementation of the proposed gap-closing program contained in the current
financial plan. The City is required to submit its financial plans to review
bodies, including the New York State Financial Control Board.
Although the City has balanced its budget since 1981, estimates of the
City's revenues and expenditures, which are based on numerous assumptions, are
subject to various uncertainties. If, for example, expected Federal or State aid
is not forthcoming, if unforeseen developments in the economy significantly
reduce revenues derived from economically
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sensitive taxes or necessitate increased expenditures for public assistance, if
the City should negotiate wage increases for its employees greater than the
amounts provided for in the City's financial plan or if other uncertainties
materialize that reduce expected revenues or increase projected expenditures,
then, to avoid operating deficits, the City may be required to implement
additional actions, including increases in taxes and reductions in essential
City services. The City might also seek additional assistance from the State.
Unforseen developments and changes in major assumptions could significantly
affect the City's ability to balance its budget as required by State law and to
meet its annual cash flow and financing requirements.
Implementation of the Financial Plan is also dependent upon the ability of
the City and certain Covered Organizations to market their securities
successfully. The City issues securities to finance, refinance and rehabilitate
infrastructure and other capital needs, as well as for seasonal financing needs.
The City currently projects that if no action is taken, it will exceed its State
Constitutional general debt limit beginning in City fiscal year 1998. The
current Financial Plan includes certain alternative methods of financing a
portion of the City's capital program which require State or other outside
approval. Future developments concerning the City or its Covered Organizations,
and public discussion of such developments, as well as prevailing market
conditions and securities credit ratings, may affect the ability or cost to sell
securities issued by the City or such Covered Organizations and may also affect
the market for their outstanding securities.
The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's Financial Plans which analyze the City's
forecasts of revenues and expenditures, cash flow, and debt service requirements
for, and Financial Plan compliance by, the City and its Covered Organizations.
According to recent staff reports, the City's economy has experienced weak
employment and moderate wage and income growth throughout the mid-1990s.
Although this trend is expected to continue for the rest of the decade, there is
the risk of a slowdown in the City's economy in the next few years, which would
depress revenue growth and put further strains on the City's budget. These
reports have also indicated that recent City budgets have been balanced in part
through the use of non-recurring resources; that the City's Financial Plan tends
to rely on actions outside its direct control; that the City has not yet brought
its long-term expenditure growth in line with recurring revenue growth; and that
the City is therefore likely to continue to face substantial future budget gaps
that must be closed with reduced expenditures and/or increased revenues.
The 1997-2000 Financial Plan projects revenues and expenditures for the
1997 fiscal year balanced in accordance with GAAP. The projections for the 1997
fiscal year reflect proposed actions to close a previously projected gap of
approximately $2.6 billion for the 1997 fiscal year. The proposed actions for
the 1997 fiscal year include (i) additional agency actions totaling $1.2
billion; (ii) a revised tax reduction program which would increase projected tax
revenues by $385 million due to the four year extension of the 12.5% personal
income tax surcharge and other actions; (iii) savings resulting from cost
containment in entitlement programs to reduce City expenditures and additional
proposed State aid of $75 million; (iv) the assumed receipt of revenues relating
to rent payments for the City's airports totaling $269 million, which are
currently the subject of a dispute with the Port Authority; (v) the sale of the
City's television station for $207 million; and (vi) pension cost savings
totaling $134 million resulting from a proposed increase in the earnings
assumption for pension assets from 8.5% to 8.75%, $40 million of which the City
currently does not expect to be achieved.
The Financial Plan also sets forth projections for the 1998 through 2000
fiscal years and projects gaps of $1.7 billion, $2.7 billion and $3.4 billion
for the 1998, 1999 and 2000 fiscal years, respectively.
The projections for the 1997 through 2000 fiscal years assume (i) approval
by the Governor and the State Legislature of the extension of the 12.5% personal
income tax surcharge, which is projected to provide revenue of $171 million,
$447 million, $478 million and $507 million in the 1997 through 2000 fiscal
years, respectively, (ii) collection of the projected rent payments for the
City's airports, which may depend on the successful completion of negotiations
with the Port Authority or the enforcement of the City's rights under the
existing leases thereto through pending legal actions; (iii) the ability of HHC
and
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BOE to identify actions to offset substantial City and State revenue reductions
and the receipt by BOE of additional State aid; and (iv) State approval of the
cost containment initiatives and State aid proposed by the City. The Financial
Plan does not reflect any increased costs which the City might incur as a result
of welfare legislation recently enacted by Congress.
The City's financial plans have been the subject of extensive public
comment and criticism. On July 16, 1996, the staff of the City Comptroller
issued a report on the Financial Plan. The report concluded that the City's
fiscal situation remains serious, and that the City faces budgetary risks of
approximately $787 million to $941 million for the 1997 fiscal year, which
increase to $4.16 billion to $4.31 billion for fiscal year 2000.
In connection with the Financial Plan, the City has outlined a gap-closing
program for the 1998 through 2000 fiscal years to substantially reduce the
remaining $1.7 billion, $2.7 billion and $3.4 billion projected budget gaps for
such fiscal years. This program, which is not specified in detail, assumes
additional agency programs to reduce expenditures or increase revenues by $674
million, $959 million and $1.1 billion in the 1998 through 2000 fiscal years,
respectively; additional reductions in entitlement cost of $400 million, $750
million and $1.0 billion in the 1998 through 2000 fiscal years, respectively;
additional savings of $250 million, $300 million and $500 million in the 1998
through 2000 fiscal years, respectively, resulting from restructuring City
government by consolidating operations, privatization and mandate management and
other initiatives; additional proposed Federal and State aid of $105 million,
$200 million and $300 million in the 1998 through 2000 fiscal years,
respectively; additional revenue initiatives and asset sales of $155 million,
$350 million and $400 million in the 1998 through 2000 fiscal years,
respectively; and the availability in each of the 1998 through 2000 fiscal years
of $100 million of the General Reserve.
The City's projected budget gaps for the 1999 and 2000 fiscal years do not
reflect the savings expected to result from prior years' programs to close the
gaps set forth in the Financial Plan. Thus, for example, recurring savings
anticipated from the actions which the City proposes to take to balance the
fiscal year 1998 budget are not taken into account in projecting the budget gaps
for the 1999 and 2000 fiscal years.
Although the City has maintained balanced budgets in each of its last
fifteen fiscal years, and is projected to achieve balanced operating results for
the 1996 fiscal year, there can be no assurance that the gap-closing actions
proposed in the Financial Plan can be successfully implemented or that the City
will maintain a balanced budget in future years without additional State aid,
revenue increases or expenditure reductions. Additional tax increases and
reductions in essential City services could adversely affect the City's economic
base.
ASSUMPTIONS
The 1997-2000 Financial Plan is based on numerous assumptions, including
the condition of the City's and the region's economy and a modest employment
recovery and the concomitant receipt of economically sensitive tax revenues in
the amounts projected. The 1997-2000 Financial Plan is subject to various other
uncertainties and contingencies relating to, among other factors, the extent, if
any, to which wage increases for City employees exceed the annual wage costs
assumed for the 1997 through 2000 fiscal years; continuation of projected
interest earnings assumptions for pension fund assets and current assumptions
with respect to wages for City employees affecting the City's required pension
fund contributions; the willingness and ability of the State, in the context of
the State's current financial condition, to provide the aid contemplated by the
Financial Plan and to take various other actions to assist the City; the ability
of HHC, BOE and other such agencies to maintain balanced budgets; the
willingness of the Federal government to provide the amount of Federal aid
contemplated in the Financial Plan; adoption of the City's budgets by the City
Council in substantially the forms submitted by the Mayor; the ability of the
City to implement proposed reductions in City personnel and other cost reduction
initiatives, and the success with which the City controls expenditures; the
impact of conditions in the real estate market on real estate tax revenues; the
City's ability to market its securities successfully in the public credit
markets; and unanticipated expenditures that may be
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incurred as a result of the need to maintain the City's infrastructure. Certain
of these assumptions have been questioned by the City Comptroller and other
public officials.
The projections and assumptions contained in the 1997-2000 Financial Plan
are subject to revision which may involve substantial change, and no assurance
can be given that these estimates and projections, which include actions which
the City expects will be taken but which are not within the City's control, will
be realized. The principal projections and assumptions described below are based
on information available in May 1996.
Substantially all of the City's full-time employees are members of labor
unions. The Financial Emergency Act requires that all collective bargaining
agreements entered into by the City and the Covered Organizations be consistent
with the City's current financial plan, except for certain awards arrived at
through impasse procedures. During a Control Period, and subject to the
foregoing exception, the Control Board would be required to disapprove
collective bargaining agreements that are inconsistent with the City's current
financial plan.
Under applicable law, the City may not make unilateral changes in wages,
hours or working conditions under any of the following circumstances: (i) during
the period of negotiations between the City and a union representing municipal
employees concerning a collective bargaining agreement; (ii) if an impasse panel
is appointed, then during the period commencing on the date on which such panel
is appointed and ending sixty days thereafter or thirty days after it submits
its report, whichever is sooner, subject to extension under certain
circumstances to permit completion of panel proceedings; or (iii) during the
pendency of an appeal to the Board of Collective Bargaining. Although State law
prohibits strikes by municipal employees, strikes and work stoppages by
employees of the City and the Covered Organizations have occurred.
The 1997-2000 Financial Plan projects that the authorized number of
City-funded employees whose salaries are paid directly from City funds, as
opposed to Federal or State funds, will decrease from an estimated level of
206,716 on June 30, 1996 to an estimated level of 203,793 by June 30, 2000,
before implementation of the gap closing program outlined in the Financial Plan.
Contracts with all of the City's municipal unions expired in the 1995 and
1996 fiscal years. The City has reached settlements with unions representing
approximately two-thirds of the City's workforce. The Financial Plan reflects
the costs of the settlements and assumes similar increases for all other
City-funded employees. For additional information see 'SECTION I: RECENT
FINANCIAL DEVELOPMENTS -- Collective Bargaining Agreements'.
The terms of wage settlements could be determined through the impasse
procedure in the New York City Collective Bargaining Law, which can impose a
binding settlement. Legislation passed in February 1996 will place collective
bargaining matters relating to police and firefighters, including impasse
proceedings, under the jurisdiction of the State Public Employment Relations
Board ('PERB'), instead of the New York City Office of Collective Bargaining
('OCB'). OCB considers wage levels of municipal employees in similar cities in
the United States in reaching its determinations, while PERB's determinations
take into account wage levels in both private and public employment in
comparable communities, particularly within the State. In addition, PERB can
approve only two-year contracts, unlike OCB which can approve longer contracts.
For these reasons, among others, PERB jurisdiction could result in labor
settlements which impose higher costs on the City than those reached under
existing procedures. On January 23, 1996, the City requested the Office of
Collective Bargaining to declare an impasse against the PBA and the UFA. In
addition, on February 29, 1996, the City commenced an action in the State
Supreme Court seeking a declaratory judgment confirming that OCB, rather than
PERB, has jurisdiction over collective bargaining matters relating to police. On
April 10, 1996, the Court issued a decision which found the legislation in
violation of the home rule provisions of the State Constitution, and held that
OCB and not PERB had jurisdiction over collective bargaining matters relating to
police. The PBA has appealed this decision.
The projections for the 1997 through 2000 fiscal years reflect the costs of
the settlements with the United Federation of Teachers ('UFT') and a coalition
of unions headed by District Council 37 of the American Federation of State,
County and Municipal Employees
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('District Council 37'), which together represent approximately two-thirds of
the City's workforce, and assume that the City will reach agreement with its
remaining municipal unions under terms which are generally consistent with such
settlements. The settlement provides for a wage freeze in the first two years,
followed by a cumulative effective wage increase of 11% by the end of the five
year period covered by the proposed agreements, ending in fiscal years 2000 and
2001. Additional benefit increases would raise the total cumulative effective
increase to 13% above present costs. Costs associated with similar settlements
for all City-funded employees would total $49 million, $459 million and $1.2
billion in the 1997, 1998 and 1999 fiscal years, respectively, and exceed $2
billion in each fiscal year after the 1999 fiscal year. There can be no
assurance that the City will reach an agreement with the unions that have not
yet reached a settlement with the City on the terms contained in the Financial
Plan.
In the event of a collective bargaining impasse, the terms of wage
settlements could be determined through statutory impasse procedures, which can
impose a binding settlement except in the case of collective bargaining with the
UFT, which may be subject to non-binding arbitration. On January 23, 1996, the
City requested the Office of Collective Bargaining to declare an impasse against
the Patrolmen's Benevolent Association ('PBA') and the Uniformed Firefighters
Association ('UFA').
From time to time, the Control Board staff, MAC, OSDC, the City Comptroller
and others issue reports and make public statements regarding the City's
financial condition, commenting on, among other matters, the City's financial
plans, projected revenues and expenditures and actions by the City to eliminate
projected operating deficits. Some of these reports and statements have warned
that the City may have underestimated certain expenditures and overestimated
certain revenues and have suggested that the City may not have adequately
provided for future contingencies. Certain of these reports have analyzed the
City's future economic and social conditions and have questioned whether the
City has the capacity to generate sufficient revenues in the future to meet the
costs of its expenditure increases and to provide necessary services. It is
reasonable to expect that reports and statements will continue to be issued and
to engender public comment.
From time to time, the Control Board staff, MAC, OSDC, the City Comptroller
and others issue reports and make public statements regarding the City's
financial condition, commenting on, among other matters, the City's financial
plans, projected revenues and expenditures and actions by the City to eliminate
projected operating deficits. Some of these reports and statements have warned
that the City may have underestimated certain expenditures and overestimated
certain revenues and have suggested that the City may not have adequately
provided for future contingencies. Certain of these reports have analyzed the
City's future economic and social conditions and have questioned whether the
City has the capacity to generate sufficient revenues in the future to meet the
costs of its expenditure increases and to provide necessary services. It is
reasonable to expect that reports and statements will continue to be issued and
to engender public comment.
On July 16, 1996, the City Comptroller issued a report on the Financial
Plan, which concluded that the City's fiscal situation remains serious. With
respect to the 1997 fiscal year, the report identified between $787 million and
$941 million in potential risks, including (i) $319 million in airport related
payments from the Port Authority that are the subject of arbitration; (ii) $202
million to $266 million in risks related to BOE resulting primarily from
unidentified expenditure reductions and projected State aid which has not been
appropriated by the State Legislature; (iii) possible tax revenue shortfalls
totaling $69 million, reflecting the potential impact that rising interest rates
may have on the economy; and (iv) $144 million relating to projected overtime
savings. In addition, the report noted that HHC has not provided any details
with respect to assumed expenditure reductions and revenue enhancements to close
a projected deficit for the 1997 fiscal year, and that HHC faces additional
uncertainties, including the impact of reform of the State's health care
reimbursement methodology, lower Medicaid and Medicare revenues due to proposed
reductions by the Federal Government and the impact of proposals to privatize
certain hospital facilities. The report also noted that the City's capital
budget includes risks in the 1997 fiscal year of $777 million, including $607
million in capital from the proposed sale of
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the City's water and sewer system, which the City Comptroller has opposed and
which was ruled unconstitutional in a unanimous decision of the Appellate
Division of the State Supreme Court.
With respect to fiscal years 1998 through 2000, the report identified total
risks of between $2.47 billion and $2.58 billion for the 1998 fiscal year, $3.38
billion and $3.53 billion for the 1999 fiscal year and $4.16 billion and $4.31
billion for fiscal year 2000, which include the gaps identified in the Financial
Plan and the same categories of risks for fiscal years 1998 through 2000 that
the report identified for the 1997 fiscal year. With respect to the City's
capital budget for the 1998 through 2000 fiscal years, the report identified
risks of $1.5 billion, $1.7 billion and $1.4 billion, respectively, including
the risk that the proposed Infrastructure Finance Agency may not be approved by
the State Legislature. The report also noted that the City's reliance on $1.5
billion of nonrecurring actions for the 1997 fiscal year to close current year
budget gaps and, therefore, defer them into future fiscal years, has resulted in
a rapid increase in the size of estimated budget gaps for the later years of the
Financial Plan. The largest of these recent budget actions include City labor
contracts, which defer major costs until the end of the contract period, bond
refundings, and the sale of Mitchell-Lama mortgages.
On July 18, 1996, the staff of the OSDC issued a report on the Financial
Plan. The report concluded that, while the City will end the 1996 fiscal year
with a balanced budget, the City has made no progress towards structural budget
balance, despite its headcount and entitlement reduction programs and higher
revenue collections. The report noted that the City relied on $1.4 billion in
non-recurring resources to achieve budget balance in the 1996 fiscal year and,
as a result, future projected gaps have increased to the largest the City has
ever faced. The report projected budget gaps of $74 million, $1.8 billion, $2.7
billion and $3.5 billion, and identified additional risks of $774 million, $1.3
billion, $1.0 billion and $1.1 billion, for the 1997 through 2000 fiscal years,
respectively. The principal risks identified in the report relate to (i)
uncertain State education aid and mandate relief, and unspecified expenditure
reductions, relating to BOE, totaling $327 million in the 1997 fiscal year and
$402 million in each of the 1998, 1999 and 2000 fiscal years; (ii) the receipt
of Port Authority lease payments totaling $314 million and $226 million in the
1997 and 1998 fiscal years, respectively; (iii) State approval of a four-year
extension to the City's personal income tax surcharge which would generate
revenues of $171 million, $447 million, $478 million and $507 million in the
1997 through 2000 fiscal years, respectively; and (iv) the receipt of $200
million in the 1998 fiscal year in connection with a proposed sale of the New
York Coliseum. The report noted that the large future budget gaps result
primarily from tax cuts and the cost of labor agreements, and that revenues are
projected to increase 1.2% per year during the period covered by the Financial
Plan, while expenditures are projected to increase 6% per year. The report
further noted that the City's economy is heavily dependent on profits in the
securities sector, which are volatile, and that there is a strong likelihood of
a downturn in the national and local economies during the period of the
Financial Plan, which creates a risk to City tax collections beyond those
quantified in the report. In addition, the report noted that HHC could face a
budget gap of approximately $370 million for the 1997 fiscal year, resulting
from lower hospital utilization and other factors, and, with respect to the
capital plan, the report noted that the City anticipates funding over the next
four years of approximately $5.7 billion which is uncertain, including financing
from the proposed sale of the water and sewer system, savings from amendments to
the Wicks Law and the proceeds from the sale of bonds issued by the proposed
Infrastructure Finance Authority.
On July 18, 1996, the staff of the Control Board issued a report on the
Financial Plan. The report identified risks totaling $594 million, $1.1 billion,
$851 million and $813 million, for the 1997 fiscal year, the 1998 fiscal year,
the 1999 fiscal year and fiscal year 2000, respectively. The principal risks
identified in the report included (i) revenues from the proposed extension of
the 12.5% personal income tax surcharge totaling $171 million, $394 million,
$419 million and $445 million in the 1997 through 2000 fiscal years,
respectively, which requires State legislation; (ii) implementation by BOE of
various actions, totaling $56 million in the 1997 fiscal year and $334 million
in each of the 1998 through 2000 fiscal years, which include unspecified
reductions and uncertain State funding; (iii) the receipt of $314 million and
$226 million from the Port Authority in the 1997 and 1998 fiscal years,
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respectively, which is the subject of arbitration; and (iv) the potential for
greater than forecast overtime spending totaling between $71 and $77 million in
each of the 1997 through 2000 fiscal years. Taking into account the risks
identified in the report and the unprecedented gaps projected in the Financial
Plan, the Control Board identified projected gaps of $2.8 billion, $3.5 billion
and $4.2 billion for the 1998 fiscal year, the 1999 fiscal year and fiscal year
2000, respectively. The report concluded that the City has not addressed its
underlying problems, which include inadequate and unstable revenue growth, high
debt service expenditures and increasing costs of health care and employee
fringe benefits. The report noted that by fiscal year 2000, City-funded revenues
will have grown by only 6.1% since the 1996 fiscal year, which is substantially
below the expected rate of inflation, while expenditures are expected to grow at
about the expected rate of inflation. The report noted that this problem is
increased by the volatility and cyclicality of the City's tax revenues, which do
not grow uniformly from one year to the next and which are sensitive to
fluctuations of the securities industry. The report further noted that the City
is approaching the limit on outstanding general obligation debt permitted under
the State Constitution and, as a result, has proposed the creation of the
Infrastructure Finance Authority. In addition, the report stated that the City's
structural imbalance has led to insufficient funding for maintaining the
existing capital plant through the expense budget, and questioned whether the
current capital plan is affordable over the long term.
On October 9, 1995, Standard & Poor's issued a report which concluded that
proposals to replace the graduated Federal income tax system with a 'flat' tax
could be detrimental to the creditworthiness of certain municipal bonds. The
report noted that the elimination of Federal income tax deductions currently
available, including residential mortgage interest, property taxes and state and
local income taxes, could have a severe impact on funding methods under which
municipalities operate. With respect to property taxes, the report noted that
the total valuation of a municipality's tax base is affected by the
affordability of real estate and that elimination of mortgage interest deduction
would result in a significant reduction in affordability and, thus, in the
demand for, and the valuation of, real estate. The report noted that rapid
losses in property valuations would be felt by many municipalities, hurting
their revenue raising abilities. In addition, the report noted that the loss of
the current deduction for real property and state and local income taxes from
Federal income tax liability would make rate increases more difficult and
increase pressures to lower existing rates, and that the cost of borrowing for
municipalities could increase if the tax-exempt status of municipal bond
interest is worth less to investors. Finally, the report noted that tax
anticipation notes issued in anticipation of property taxes could be hurt by the
imposition of a flat tax, if uncertainty is introduced with regard to their
repayment revenues, until property values fully reflect the loss of mortgage and
property tax deductions.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. The City's current monthly cash flow forecast for the 1997
fiscal year shows a need of $2.4 billion of seasonal financing for the 1997
fiscal year, a portion of which will be met with the proceeds of the issuance of
$800 million of short-term obligations. Seasonal financing requirements for the
1996 fiscal year increased to $2.4 billion from $2.2 billion and $1.75 billion
in the 1995 and 1994 fiscal years, respectively. Seasonal financing requirements
were $1.4 billion and $2.25 billion in the 1993 and 1992 fiscal years,
respectively. The delay in the adoption of the State's budget in certain past
fiscal years has required the City to issue short-term notes exceeding those
expected early in such fiscal years.
The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
alleged torts, alleged breaches of contracts and other violations of law and
condemnation proceedings. While the ultimate outcome and fiscal impact, if any,
on the proceedings and claims are not currently predictable, adverse
determinations in certain of them might have a material adverse effect upon the
City's ability to carry out the 1997-2000 Financial Plan. The City is a party to
numerous lawsuits and is the subject of numerous claims and investigations. The
City has estimated that its potential future liability on account of outstanding
claims against it as of June 30, 1995 amounted to approximately $2.5 billion.
This estimate was made by categorizing the various claims and
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applying a statistical model, based primarily on actual settlements by type of
claim during the preceding ten fiscal years, and by supplementing the estimated
liability with information supplied by the City's Corporation Counsel.
On July 10, 1995, S&P revised downward its rating on City general
obligation bonds from A - to BBB+ and removed City bonds from CreditWatch. S&P
stated that 'structural budgetary balance remains elusive because of persistent
softness in the City's economy, highlighted by weak job growth and a growing
dependence on the historically volatile financial services sector.' Other
factors identified by S&P's in lowering its rating on City bonds included a
trend of using one-time measures, including debt refinancings, to close
projected budget gaps, dependence on unratified labor savings to help balance
the Financial Plan, optimistic projections of additional federal and State aid
or mandate relief, a history of cash flow difficulties caused by State budget
delays and continued high debt levels.
Fitch Investors Service, Inc. ('Fitch') rates City general obligation bonds
A - . Moody's rating for City general obligation bonds is Baa1. On March 1,
1996, Moody's stated that the rating for the City's Baa1 general obligation
bonds remains under review for a possible downgrade pending the outcome of the
adoption of the City's budget for the 1997 fiscal year and in light of the
status of the debate on public assistance and Medicaid reform; the enactment of
a State budget, upon which major assumptions regarding State aid are dependent,
which may be extensively delayed; and the seasoning of the City's economy with
regard to its strength and direction in the face of a potential national
economic slowdown. Since July 15, 1993, Fitch has rated City bonds A - . On
February 28, 1996, Fitch placed the City's general obligation bonds on
FitchAlert with negative implications. There is no assurance that such ratings
will continue for any given period of time or that they will not be revised
downward or withdrawn entirely. Any such downward revision or withdrawal could
have an adverse effect on the market prices of the City's general obligation
bonds.
In 1975, S&P suspended its A rating of City bonds. This suspension remained
in effect until March 1981, at which time the City received an investment grade
rating of BBB from S&P. On July 2, 1985, S&P revised its rating of City bonds
upward to BBB+ and on November 19, 1987, to A - . On July 10, 1995, S&P revised
its rating of City bonds downward to BBB+, as discussed above. Moody's ratings
of City bonds were revised in November 1981 from B (in effect since 1977) to
Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A and
again in February 1991 to Baa1. Since July 15, 1993, Fitch has rated City bonds
A - . On July 12, 1995, Fitch stated that the City's credit trend remains
'declining.'
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INVESTMENT LIMITATIONS
Unless otherwise indicated, the investment restrictions described below as
well as those described under 'Investment Limitations' in the Prospectus are
fundamental policies which may be changed only when permitted by law, if
applicable, and approved by the holders of a majority of the applicable Fund's
outstanding voting securities, which, as defined by the 1940 Act means the
lesser of (i) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares. Except for (i) the investment restrictions set forth below
which are indicated as fundamental policies, (ii) the investment restrictions
set forth in the Prospectus and (iii) each Fund's investment objective(s) as
described in the Prospectus, the other policies and percentage limitations
referred to in this Statement of Additional Information and the Prospectus are
not fundamental policies of the Funds and may be changed by the applicable
Fund's Board of Directors without shareholder approval. See 'Capital Stock.'
If a percentage restriction on investment or use of assets set forth below
is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.
Cash Management Fund. The Cash Management Fund may not:
(1) purchase any securities which would cause more than 25% of the
value of its total assets at the time of such purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to investment in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, with respect to bank
obligations or with respect to repurchase agreements collateralized by any
of such obligations (the fundamental policy of the Fund to invest at least
25% of its assets in bank obligations is described under 'Investment
Limitations' in the Prospectus);
(2) own more than 10% of the outstanding voting stock or other
securities, or both, of any one issuer (other than securities of the U.S.
government or any agency or instrumentality thereof);
(3) purchase shares of other investment companies (except as part of a
merger, consolidation or reorganization or purchase of assets approved by
the Fund's shareholders), provided that the Fund may purchase shares of any
registered open-end investment company that determines its net asset value
per share based on the amortized cost-or penny-rounding method, if
immediately after any such purchase the Fund does not (a) own more than 3%
of the outstanding voting stock of any one investment company, (b) invest
more than 5% of the value of its total assets in any one investment
company, or (c) invest more than 10% of the value of its total assets in
the aggregate in securities of investment companies;
(4) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for
the clearance of transactions);
(5) sell securities short;
(6) purchase or sell commodities or commodity contracts, including
futures contracts;
(7) invest for the purposes of exercising control over management of
any company;
(8) make loans, except that the Fund may (a) purchase and hold debt
instruments (including bonds, debentures or other obligations and
certificates of deposit, banker's acceptances and fixed time deposits) in
accordance with its investment objectives and policies; and (b) enter into
repurchase agreements with respect to portfolio securities;
(9) underwrite the securities of other issuers, except to the extent
that the purchase of investments directly from the issuer thereof and later
disposition of such securities in accordance with the Fund's investment
program may be deemed to be an underwriting;
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(10) purchase real estate or real estate limited partnership interests
(other than money market securities secured by real estate or interests
therein or securities issued by companies that invest in real estate or
interests therein);
(11) invest directly in interests in oil, gas or other mineral
exploration development programs or mineral leases; or
(12) purchase warrants.
With respect to the Cash Management Fund, for the purpose of applying the
above percentage restrictions and the percentage investment limitations set
forth in the Prospectus to receivables-backed obligations, the special purpose
entity issuing the receivables-backed obligations and/or one or more of the
issuers of the underlying receivables will be considered an issuer in accordance
with applicable regulations.
New York Municipal Money Market Fund. The New York Municipal Money Market
Fund may not:
(1) own more than 10% of the outstanding voting stock or other
securities, or both, of any one issuer (other than securities of the United
States government or any agency or instrumentality thereof);
(2) purchase shares of other investment companies (except as part of a
merger, consolidation or reorganization or purchase of assets approved by
the Fund's shareholders), provided that the Fund may purchase shares of any
registered open-end investment company that determines its net asset value
per share based on the amortized cost or penny-rounding method, if
immediately after any such purchase the Fund does not (a) own more than 3%
of the outstanding voting stock of any one investment company, (b) invest
more than 5% of the value of its total assets in any one investment
company, or (c) invest more than 10% of the value of its total assets in
the aggregate in securities of investment companies;
(3) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for
the clearance of transactions);
(4) sell securities short;
(5) purchase or sell commodities or commodity contracts, including
futures contracts;
(6) invest for the purpose of exercising control over management of
any company;
(7) make loans, except that the Fund may (a) purchase and hold debt
instruments (including bonds, debentures or other obligations and
certificates of deposit, banker's acceptances and fixed time deposits) in
accordance with its investment objectives and policies; and (b) enter into
repurchase agreements with respect to portfolio securities;
(8) underwrite the securities of other issuers, except to the extent
that the purchase of investments directly from the issuer thereof and later
disposition of such securities in accordance with the Fund's investment
program may be deemed to be an underwriting;
(9) purchase real estate or real estate limited partnership interests
(other than money market securities secured by real estate or interests
therein or securities issued by companies that invest in real estate or
interests therein);
(10) invest directly in interests in oil, gas or other mineral
exploration development programs or mineral leases; or
(11) purchase warrants.
New York Municipal Bond Fund. The New York Municipal Bond Fund may not:
(1) purchase any securities which would cause more than 25% of the
value of its total assets at the time of such purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to investment in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities or by any state, territory or
possession of the United States or any of their authorities, agencies,
instrumentalities or
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political subdivisions, or with respect to repurchase agreements
collateralized by any of such obligations;
(2) own more than 10% of the outstanding voting stock or other
securities, or both, of any one issuer (other than securities of the U.S.
government or any agency or instrumentality thereof), provided, however,
that up to 25% of the assets of the Fund may be invested without regard to
this limitation;
(3) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (except for purchasing or
selling futures contracts or from investing in securities or other
instruments backed by physical commodities);
(4) make loans, except that the Fund may (a) purchase and hold debt
instruments (including bonds, debentures or other obligations and
certificates of deposit, banker's acceptances and fixed time deposits) in
accordance with its investment objective and policies; and (b) enter into
repurchase agreements with respect to portfolio securities;
(5) underwrite the securities of other issuers, except to the extent
that the purchase of investments directly from the issuer thereof and later
disposition of such securities in accordance with the Fund's investment
program may be deemed to be an underwriting;
(6) purchase real estate or real estate limited partnership interests
(other than securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests
therein);
(7) purchase more than 3% of the stock of another investment company,
or purchase stock of other investment companies equal to more than 5% of
the Fund's net assets in the case of any one other investment company and
10% of such net assets in the case of all other investment companies in the
aggregate. This restriction shall not apply to investment company
securities received or acquired by the Fund pursuant to a merger or plan or
reorganization. (The return on such investments will be reduced by the
operating expenses, including investment advisory and administrative fees
of such investment funds and will be further reduced by the Fund's
expenses, including management fees);
(8) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for
the clearance of transactions, and except for initial and variation margin
payments in connection with purchases or sales of futures contracts);
(9) sell securities short (except for short positions in a futures
contract or forward contract);
(10) invest for the purposes of exercising control over management of
any company;
(11) invest directly in interests in oil, gas or other mineral
exploration development programs or mineral leases;
(12) purchase warrants;
(13) invest more than 15% of its net assets in securities which are
illiquid; or
(14) pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 20% of the value of its total assets, and then only to secure
borrowings permitted by the second investment restriction in the
Prospectus.
Investment restrictions (1) through (6) described above and in the
Prospectus are fundamental policies of the New York Municipal Bond Fund.
Restrictions (7) through (14) are non-fundamental policies of the Fund.
National Intermediate Municipal Fund, U.S. Government Income Fund, High
Yield Bond Fund, Strategic Bond Fund, Total Return Fund and Asia Growth Fund.
Each of the National Intermediate Municipal Fund, U.S. Government Income Fund,
High Yield Bond Fund, Strategic Bond Fund, Total Return Fund and Asia Growth
Fund may not:
(1) underwrite securities of other issuers, except to the extent that
the purchase of investments directly from the issuer thereof or from an
underwriter for an issuer and the
38
<PAGE>
<PAGE>
later disposition of such securities in accordance with a Fund's investment
program may be deemed to be an underwriting;
(2) purchase or sell real estate, although a Fund may purchase and
sell securities of companies which deal in real estate, may purchase and
sell marketable securities which are secured by interests in real estate
and may invest in mortgages and mortgage-backed securities;
(3) purchase or sell commodities or commodity contracts except that a
Fund may engage in hedging and derivative transactions to the extent
permitted by its investment policies as stated in the Prospectus and this
Statement of Additional Information;
(4) make loans, except that (a) a Fund may purchase and hold debt
securities in accordance with its investment objective(s) and policies, (b)
a Fund may enter into repurchase agreements with respect to portfolio
securities, subject to applicable limitations of its investment policies,
(c) a Fund may lend portfolio securities with a value not in excess of
one-third of the value of its total assets, provided that collateral
arrangements with respect to options, forward currency and futures
transactions will not be deemed to involve loans of securities, and (d)
delays in the settlement of securities transactions will not be considered
loans;
(5) purchase the securities of other investment companies except as
permitted under the 1940 Act or in connection with a merger, consolidation,
acquisition or reorganization;
(6) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for
the clearance of transactions, and except for initial and variation margin
payments in connection with purchases or sales of futures contracts);
(7) sell securities short (except for short positions in a futures
contract or forward contract);
(8) purchase or retain any securities of an issuer if one or more
persons affiliated with a Fund owns beneficially more than 1/2 of 1% of the
outstanding securities of such issuer and such affiliated persons so owning
1/2 of 1% together own beneficially more than 5% of such securities;
(9) invest in oil, gas and other mineral leases, provided, however,
that this shall not prohibit a Fund from purchasing publicly traded
securities of companies engaging in whole or in part in such activities;
(10) except with respect to the Asia Growth Fund, purchase the
securities of any issuer if by reason thereof the value of its investment
in all securities of that issuer will exceed 5% of the value of the
issuer's total assets;
(11) except with respect to the Asia Growth Fund purchase securities
of issuers which it is restricted from selling to the public without
registration under the 1933 Act if by reason thereof the value of its
aggregate investment in such classes of securities will exceed 10% of its
total assets, provided, however, that this limitation shall not apply to
Rule 144A securities;
(12) invest more than 5% of its total assets in securities of
unseasoned issuers (other than securities issued or guaranteed by U.S.
federal or state or foreign governments or agencies, instrumentalities or
political subdivisions thereof) which, including their predecessors, have
been in operation for less than three years;
(13) purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets;
(14) invest in warrants (other than warrants acquired by a Fund as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the Fund's net assets or if, as a result, more
than 2% of the Fund's net assets would be invested in warrants that are not
listed on AMEX or NYSE; or
39
<PAGE>
<PAGE>
(15) invest for the purpose of exercising control over the management
of any company.
Investment restrictions (1) through (5) described above are fundamental
policies of each of the National Intermediate Municipal Fund, U.S. Government
Income Fund, High Yield Bond Fund, Strategic Bond Fund, Total Return Fund and
Asia Growth Fund. Restrictions (6) through (15) are non-fundamental policies of
such Fund.
For the purposes of the investment limitations applicable to the New York
Municipal Bond Fund and the National Intermediate Municipal Fund, the
identification of the issuer of a municipal obligation depends on the terms and
conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality, or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, such subdivision would be
regarded as the sole issuer. Similarly, in the case of a private activity bond,
if the bond is backed only by the assets and revenues of the non-governmental
user, such non-governmental user would be regarded as the sole issuer. If in
either case the creating government or another entity guarantees an obligation,
the guarantee may be considered a separate security and treated as an issue of
such government or entity in accordance with applicable regulations.
Investors Fund. The Investors Fund may not:
(1) purchase any securities on margin (except that the Fund may make
deposits in connection with transactions in options on securities), make
any so-called 'short' sales of securities or participate in any joint or
joint and several trading accounts;
(2) act as underwriter of securities of other issuers;
(3) purchase the securities of another investment company or
investment trust except in the open market where no profit to a sponsor or
dealer, other than the customary broker's commission, results from such
purchase (but the aggregate of such investments shall not be in excess of
10% of the net assets of the Fund), or except when such purchase is part of
a plan of merger or consolidation;
(4) buy securities from, or sell securities to, any of its officers,
directors, employees, investment manager or distributor, as principals;
(5) purchase or retain any securities of an issuer if one or more
persons affiliated with the Fund owns beneficially more than 1/2 of 1% of
the outstanding securities of such issuer and such affiliated persons so
owning 1/2 of 1% together own beneficially more than 5% of such securities;
(6) purchase real estate (not including investments in securities
issued by real estate investment trusts) or commodities or commodity
contracts, provided that the Fund may enter into futures contracts,
including futures contracts on interest rates, stock indices and
currencies, and options thereon, and may engage in forward currency
transactions and buy, sell and write options on currencies;
(7) invest in warrants (other than warrants acquired by the Investors
Fund as part of a unit or attached to securities at the time of purchase)
if, as a result, the investments (valued at the lower of cost or market)
would exceed 5% of the value of the Investors Fund's net assets or if, as a
result, more than 2% of the Investors Fund's net assets would be invested
in warrants that are not listed on AMEX or NYSE;
(8) invest in oil, gas and other mineral leases, provided, however,
that this shall not prohibit the Investors Fund from purchasing publicly
traded securities of companies engaging in whole or in part in such
activities; or
(9) purchase or sell real property (including limited partnership
interests) except to the extent described in investment restriction number
6 above.
Investment restrictions (1) through (6) described above are fundamental
policies of the Investors Fund. Restrictions (7) through (9) are non-fundamental
policies of the Investors Fund.
40
<PAGE>
<PAGE>
Capital Fund. The Capital Fund may not:
(1) invest in companies for the purpose of exercising control or
management. (The Fund may on occasion be considered part of a control group
of a portfolio company by reason of the size or manner of its investment,
in which event the securities of such portfolio company held by the Fund
may not be publicly saleable unless registered under the Securities Act of
1933 or pursuant to an available exemption thereunder.);
(2) purchase securities on margin (except for such short-term credits
as are necessary for the clearance of transactions and except that the Fund
may make deposits in connection with transactions in options on securities)
or make short sales of securities (except for sales 'against the box',
i.e., when a security identical to one owned by the Fund, or which the Fund
has the right to acquire without payment of additional consideration, is
borrowed and sold short);
(3) purchase or sell real estate, interests in real estate, interests
in real estate investment trusts, or commodities or commodity contracts;
however, the Fund (a) may purchase interests in real estate investment
trusts or companies which invest in or own real estate if the securities of
such trusts or companies are registered under the Securities Act of 1933
and are readily marketable and (b) may enter into futures contracts,
including futures contracts on interest rates, stock indices and
currencies, and options thereon, and may engage in forward currency
contracts and buy, sell and write options on currencies;
(4) purchase more than 3% of the stock of another investment company,
or purchase stock of other investment companies equal to more than 5% of
the Fund's net assets in the case of any one other investment company and
10% of such net assets in the case of all other investment companies in the
aggregate. Any such purchase will be made only in the open market where no
profit to a sponsor or dealer results from the purchase, except for the
customary broker's commission. This restriction shall not apply to
investment company securities received or acquired by the Fund pursuant to
a merger or plan of reorganization. (The return on such investments will be
reduced by the operating expenses, including investment advisory and
administrative fees of such investment funds and will be further reduced by
the Fund's expenses, including management fees; that is, there will be a
layering of certain fees and expenses.);
(5) purchase or hold securities of an issuer if one or more persons
affiliated with the Fund or with SBAM owns beneficially more than 1/2 of 1%
of the securities of that issuer and such persons owning more than 1/2 of
1% of such securities together own beneficially more than 5% of the
securities of such issuer;
(6) buy portfolio securities from, or sell portfolio securities to,
any of the Fund's officers, directors or employees of its investment
manager or distributor, or any of their officers or directors, as
principals;
(7) purchase or sell warrants; however, the Fund may invest in debt or
other securities which have warrants attached (not to exceed 10% of the
value of the Fund's total assets). Covered options with respect to no more
than 10% in value of the Fund's total assets will be outstanding at any one
time; or
(8) invest in interest in oil, gas or other mineral exploration or
development programs.
41
<PAGE>
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The principal occupations of the directors and executive officers of the
Series Funds, the Investors Fund and the Capital Fund for the past five years
are listed below. The address of each, unless otherwise indicated, is Seven
World Trade Center, New York, New York 10048. Certain of the directors and
officers are also directors and officers of one or more other investment
companies for which SBAM, the Fund's investment manager, acts as investment
adviser.
SERIES FUNDS (OF WHICH THE CASH MANAGEMENT FUND, THE NEW YORK MUNICIPAL
MONEY MARKET FUND, THE NEW YORK MUNICIPAL BOND FUND, THE NATIONAL INTERMEDIATE
MUNICIPAL FUND, THE U.S. GOVERNMENT INCOME FUND, THE HIGH YIELD BOND FUND, THE
STRATEGIC BOND FUND, THE TOTAL RETURN FUND AND THE ASIA GROWTH FUND ARE SEPARATE
PORTFOLIOS.)
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
NAME, ADDRESS AND AGE POSITION WITH THE COMPANY YEARS AND OTHER AFFILIATIONS
- ------------------------------------ -------------------------- ---------------------------------------
<S> <C> <C>
Charles F. Barber(2) ............... Director Consultant. Formerly, Chairman of the
66 Glenwood Drive Board of ASARCO Incorporated.
Greenwich, CT 06830
Age: 79
Carol L. Colman(2) ................. Director President of Colman Consulting Co. and
Consulting Co., Inc. Colman Inc. Formerly, Managing
P.O. 212 Partner of Inferential Focus Inc.
North Salem, NY 10560
Age: 50
Daniel P. Cronin(2) ................ Director Vice President and General Counsel of
Pfizer, Inc Pfizer International Inc and Senior
235 East 42nd Street Assisting General Counsel of Pfizer,
New York, NY 10017 Inc.
Age: 50
Michael S. Hyland(1) ............... Director and President President of SBAM and Managing Director
Age: 51 of Salomon Brothers Inc ('SBI').
Giampaolo G. Guarnieri ............. Executive Vice President Vice President and Senior Portfolio
Salomon Brothers Asset Management Manager of SBAM AP since April 1995.
Asia Pacific Limited From April 1995 to January 1996, Vice
Three Exchange Square, President and Senior Vice President
Hong Kong of Salomon Brothers Hong Kong
Age: 33 Limited. From January 1992 to March
1995, Senior Portfolio Investment
Manager of Credit Agricole Asset
Management (South East Asia) Limited
and from June 1990 to January 1994,
head of direct investment activities
of UI Asia Limited.
Steven Guterman .................... Executive Vice President Managing Director of SBAM and SBI since
Age: 43 January 1996. Prior to January 1996,
Director of SBAM and SBI.
Peter J. Wilby ..................... Executive Vice President Managing Director of SBAM and SBI since
Age: 37 January 1996. Prior to January 1996,
Director of SBAM and SBI.
</TABLE>
42
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
NAME, ADDRESS AND AGE POSITION WITH THE COMPANY YEARS AND OTHER AFFILIATIONS
- ------------------------------------ -------------------------- ---------------------------------------
<S> <C> <C>
Marybeth Whyte ..................... Executive Vice President Director of SBAM and SBI since January
Age: 39 1995. Prior to January 1995, Vice
President of SBAM and SBI. Prior to
July 1994, Senior Vice President and
head of the Municipal Bond area at
Fiduciary Trust Company
International.
Richard E. Dahlberg ................ Executive Vice President Managing Director of SBAM and SBI since
Age: 57 January 1996. From July 1995 to
January 1996, Director of SBAM and
SBI. Prior to July 1995, Investment
Manager of Massachusetts Financial
Services Company.
Lawrence H. Kaplan ................. Executive Vice President Vice President and Chief Counsel of
Age: 39 and General Counsel SBAM and Vice President SBI since May
1995. Prior to May 1995, Senior Vice
President, Director, Assistant
Secretary and General Counsel, Kidder
Peabody Asset Management, Inc. and
Senior Vice President of Kidder,
Peabody & Co. Incorporated.
Nancy Noyes ........................ Vice President Director of SBAM and SBI since January
Age: 38 1996. Prior to January 1996, Vice
President of SBAM.
Eliza Lau .......................... Vice President Vice President of SBAM AP since July
Age: 33 1996. From July 1996 to October 1996,
research analyst with Salomon
Brothers Inc.
Alan M. Mandel ..................... Treasurer Vice President of SBAM and SBI since
Age: 38 January 1995. Prior to January 1995,
Chief Financial Officer and Vice
President of Hyperion Capital
Management Inc.
Tana E. Tselepis ................... Secretary Vice President of SBAM and SBI since
Age: 60 1991 and Senior Administrator of SBAM
since October 1989.
Reji Paul .......................... Assistant Treasurer Investment Accounting Manager of SBAM
Age: 34 since February 1995. Prior to
February 1995, Assistant Vice
President of Mitchell Hutchins Asset
Management, Inc. ('MHAM').
Janet Tolchin ...................... Assistant Treasurer Investment Accounting Manager of SBAM.
Age: 37
Jennifer G. Muzzey ................. Assistant Secretary Employee of SBAM since June 1994. Prior
Age: 36 to June 1994, Vice President of
SunAmerica Asset Management
Corporation.
</TABLE>
- ------------
(1) Interested person as defined in the 1940 Act.
(2) Audit Committee Member.
COMPENSATION TABLE
The following table provides information concerning the compensation paid
during the fiscal year ended December 31, 1995 to each director of the Series
Funds. The Series Funds
43
<PAGE>
<PAGE>
does not provide any pension or retirement benefits to directors. In addition,
no remuneration was paid during the fiscal year ended December 31, 1995 by the
Series Funds to officers of the Fund or to Mr. Hyland, who as an employee of
SBAM may be defined as an 'interested person' under the 1940 Act.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM OTHER FUNDS
COMPENSATION ADVISED BY TOTAL
NAME OF PERSON, POSITION FROM THE FUND SBAM(A) COMPENSATION(A)
- --------------------------------------------- ------------- ------------------ ---------------
<S> <C> <C> <C>
Charles F. Barber
Director................................... $ 4,326 $110,149(12) $ 114,475(13)
Carol Colman
Director................................... $ 4,416 $ 28,250(3) $ 32,666(4)
Daniel P. Cronin
Director................................... $ 3,544 $ 26,399(3) $ 29,943(4)
</TABLE>
- ------------
(A) The numbers in parenthesis indicate the applicable number of investment
company directorships held by that director.
INVESTORS FUND AND CAPITAL FUND
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
NAME, ADDRESS AND AGE POSITION WITH THE COMPANY YEARS AND OTHER AFFILIATIONS
- ------------------------------------ -------------------------- ---------------------------------------
<S> <C> <C>
Charles F. Barber(2) ............... Director Consultant. Formerly, Chairman of the
66 Glenwood Drive Board of ASARCO Incorporated.
Greenwich, CT 06830
Age: 79
Andrew L. Breech(5) ................ Director President of Dealer Operating Control
2120 Wilshire Boulevard Service, Inc.
Suite 400
Santa Monica, CA 90403
Age: 43
Thomas W. Brock(1) ................. Director Chairman and Chief Executive Officer
Age: 49 SBAM and Managing Director of SBI.
Carol L. Colman (2) ................ Director President of Colman Consulting Co. and
Consulting Co., Inc. Colman Inc. Formerly, Managing
P.O. 212 Partner of Inferential Focus Inc.
North Salem, NY 10560
Age: 50
William R. Dill(3)(4) .............. Director Consultant. Formerly, Director of
25 Birch Lane Office of Global Enterprise and
Cumberland Foreside Adjunct professor of the University
Maine 04110 of Southern Maine prior to which, he
Age: 65 was President of Babson College.
Michael S. Hyland(1) ............... Director and President President of SBAM and Managing Director
Age: 51 of SBI.
Clifford M. Kirtland, Jr. (3)(5) . Director Director of CSX Corp., Oxford
9 North Parkway Square Industries, Shaw Industries, Inc. and
4200 Northside Pkwy, N.W. Graphic Industries, Inc. Formerly
Atlanta, GA 30327 Chairman of the Board and President
Age: 72 of Cox Communications Inc.
Robert W. Lawless (5) .............. Director President and Chief Executive Officer
Box 4349 of Texas Tech University and Texas
Lubbock, TX 79409 Tech University Health Sciences
Age: 59 Center. Formerly, Executive Vice
President and Chief Operating Officer
of Southwest Airlines Corp. and
Director of Central & Southwest Corp.
</TABLE>
44
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
NAME, ADDRESS AND AGE POSITION WITH THE COMPANY YEARS AND OTHER AFFILIATIONS
- ------------------------------------ -------------------------- ---------------------------------------
<S> <C> <C>
Louis P. Mattis(4) ................. Director Chairman and President of Sterling
0024 Harlston Green, No. 31 Winthrop Inc., a pharmaceutical
SnowMass Village, CO 81615 company. Formerly, Executive Vice
Age: 54 President of Richardson-Vicks, Inc.
Thomas F. Schlafly (2)(3)(4) ....... Director Of counsel to Peper, Martin, Jensen,
720 Olive Street Maichel & Hetlage (law firm) and
St. Louis, Missouri 63101 President of The Saint Louis Brewery,
Age: 47 Inc.
Richard E. Dahlberg ................ Executive Vice President Managing Director of SBAM and SBI since
Age: 57 January 1996. From July 1995 to
January 1996, Director of SBAM and
SBI. Prior to July 1995, Investment
Manager of Massachusetts Financial
Services Company.
Allan R. White, III ................ Executive Vice President Managing Director of SBAM and SBI since
Age: 37 January 1996. Prior to January 1996,
Director of SBAM and SBI.
Ross S. Margolies .................. Executive Vice President Director of SBAM and SBI since June
Age: 38 1992. Prior to June 1992, Senior Vice
(Capital Fund Only) President of Lehman Brothers Inc.
Lawrence H. Kaplan ................. Executive Vice President Vice President and Chief Counsel of
Age: 39 and General Counsel SBAM and Vice President of SBI since
May 1995. Prior to May 1995, Senior
Vice President, Director, Assistant
Secretary and General Counsel of
Kidder Peabody Asset Management, Inc.
and Senior Vice President of Kidder,
Peabody & Co. Incorporated.
Pamela Milunovich .................. Vice President Vice President of SBAM and SBI since
Age: 34 June 1992. Prior to June 1992, an
(Investors Fund Only) associate with James Capel.
Alan M. Mandel ..................... Treasurer Vice President of SBAM and SBI since
Age: 39 January 1995. Prior to January 1995,
Chief Financial Officer and Vice
President of Hyperion Capital
Management Inc.
Tana E. Tselepis ................... Secretary Vice President of SBAM and
Age: 60 SBI since 1991 and Senior
Administrator of SBAM since October
1989.
Reji Paul .......................... Assistant Treasurer Investment Accounting Manager of SBAM
Age: 33 since February 1995. Prior to
February 1995, formerly Assistant
Vice President of MHAM.
Janet Tolchin ...................... Assistant Treasurer Investment Accounting Manager of SBAM.
Age: 37
Jennifer G. Muzzey ................. Assistant Secretary Employee of SBAM since June 1994. Prior
Age: 36 to June 1994, Vice President of
SunAmerica Asset Management
Corporation.
</TABLE>
- ------------
(1) Interested person as defined in the 1940 Act.
(2) Audit Committee Member of the Investors Fund and the Capital Fund.
(footnotes continued on next page)
45
<PAGE>
<PAGE>
(footnotes continued from previous page)
(3) Nominating Committee Member of the Investors Fund.
(4) Nominating Committee Member of the Capital Fund.
(5) Proxy Committee Member of the Capital Fund.
COMPENSATION TABLE
The following tables provide information concerning the compensation paid
during the fiscal year ended December 31, 1995 to each director of the Investors
Fund and the Capital Fund. Neither the Investors Fund nor the Capital Fund
provides any pension or retirement benefits to directors. In addition, no
remuneration was paid during the fiscal year ended December 31, 1995 by the
Investors Fund or the Capital Fund to officers of the Fund or to Messrs. Hyland
or Brock, who as employees of SBAM may be defined as 'interested persons' under
the 1940 Act.
INVESTORS FUND
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM OTHER FUNDS
COMPENSATION ADVISED BY TOTAL
NAME OF PERSON, POSITION FROM THE FUND SBAM(A) COMPENSATION(A)
- --------------------------------------------- ------------- ------------------ ---------------
<S> <C> <C> <C>
Charles F. Barber,
Director................................... $ 9,000 $105,475(12) $ 114,475(13)
Andrew L. Breech,
Director................................... 8,250 17,750(2) 26,000(3)
Carol L. Colman,
Director................................... 9,000 23,666(3) 32,666(4)
William R. Dill,
Director................................... 8,250 17,000(2) 25,250(3)
Clifford M. Kirtland, Jr.,
Director................................... 7,500 15,500(2) 23,000(3)
Robert W. Lawless,
Director................................... 9,000 18,500(2) 27,500(3)
Louis P. Mattis,
Director................................... 6,000 14,750(2) 20,750(3)
Thomas F. Schlafly
Director................................... 8,250 19,250(2) 27,500(3)
</TABLE>
- ------------
(A) The numbers in parenthesis indicate the applicable number of investment
company directorships held by that director.
CAPITAL FUND
<TABLE>
<CAPTION>
TOTAL COMPENSATION
PAID TO DIRECTORS
AGGREGATE FROM OTHER FUNDS
COMPENSATION ADVISED BY TOTAL
NAME OF PERSON, POSITION FROM THE FUND SBAM(A) COMPENSATION(A)
- --------------------------------------------- ------------- ------------------ ---------------
<S> <C> <C> <C>
Charles F. Barber
Director................................... $ 7,250 $107,225(12) $ 114,475(13)
Andrew L. Breech
Director................................... 6,500 19,500(2) 26,000(3)
Carol L. Colman
Director................................... 7,250 25,416(3) 32,666(4)
William R. Dill
Director................................... 6,500 18,750(2) 25,250(3)
Clifford M. Kirtland, Jr.
Director................................... 5,750 17,250(2) 23,000(3)
Robert W. Lawless
Director................................... 7,250 20,250(2) 27,500(3)
Louis P. Mattis
Director................................... 5,000 15,750(2) 20,750(3)
Thomas F. Schlafly
Director................................... 7,250 20,250(2) 27,500(3)
</TABLE>
- ------------
(A) The number in parentheses indicates the applicable number of investment
company directorships held by that director.
46
<PAGE>
<PAGE>
Directors of the Series Funds, the Investors Fund and the Capital Fund not
affiliated with SBAM receive from their respective Funds a fee for each Board of
Directors and Board committee meeting attended and are reimbursed for all
out-of-pocket expenses relating to attendance at meetings. In addition,
Directors of the Series Funds and the Investors Fund not affiliated with SBAM
receive an annual fee from their respective Funds. Directors who are affiliated
with SBAM do not receive compensation from their respective Funds but are
reimbursed for all out-of-pocket expenses relating to attendance at meetings.
Certain of the officers and directors of the Investors Fund, Capital Fund
and Series Funds are also officers and directors of one or more other investment
companies for which SBAM, the Fund's investment manager, acts as investment
adviser.
As of December 31, 1995 directors and officers of the Series Funds, the
Investors Fund and the Capital Fund each as a group beneficially owned less than
1% of the outstanding shares of their respective Funds.
PRINCIPAL HOLDERS OF SECURITIES
The following lists shareholders of record who held 5% or more of the
outstanding securities of the Funds as of October 2, 1996. Shareholders who own
greater than 25% of the shares of a class are deemed to be controlling persons
of such class.
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
Cash Management Fund........... O Salomon Brothers A/C XQSSHMF 15.4%
7 World Trade Center 40th Floor
Attn: Peter Krzystek
New York, NY 10048
State Street Bank & Trust Co. FBO 37.1
Salomon Brothers NY Municipal Dept
7 World Trade Center, 38th Floor
New York, NY 10048
Salomon Brothers Inc A/C V0300 17.8
7 World Trade Center, 40th Floor
New York, NY 10048
Salomon Brothers Hong Kong Ltd 7.6
Forfeited & Reimbursable
Employee Funds
Three Exchange Floor, 21st Floor
Hong Kong
Salomon Brothers Inc 7.1
7 World Trade Center 40th Floor
New York, NY 10048
Attn: Peter Hegel
A Northstar Advantage Funds 97.0
FBO Class A Shareholders
2 Pickwick Plaza
Greenwich, CT 06830
Charles Floyd Rechlin 5.1
c/o Sullivan & Cromwell
444 South Flower St
Los Angeles, CA 90071
B Northstar Advantage Funds 72.1
FBO Class T Shareholders
2 Pickwick Plaza
Greenwich, CT 06830
Northstar Advantage Funds 22.5
FBO Class B Shareholders
2 Pickwick Plaza
Greenwich, CT 06830
C Northstar Advantage Funds 85.5
FBO Class C Shareholders
2 Pickwick Plaza
Greenwich, CT 06830
</TABLE>
47
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
Salomon Brothers Asset Management 8.7%
7 World Trade Center
New York, NY 10048
BSDT Cust IRA R/O 7.5
FBO Donald Burke
12014 Palmcroft
Houston, TX 77034
Sterling Trust Co. Cust 5.3
FBO Lilie Garcia A02045
PO Box 2526
Waco, TX 76702-2526
New York Municipal Money Market
Fund......................... O Les J. Lieberman 8.2
360 East 88th Street, Apt 39A
New York, NY 10128
Sandra Atlas Bass 6.3
185 Great Neck Road
Great Neck, NY 11071
Morton M. Bass 5.0
185 Great Neck Rd.
Great Neck, NY 11021
A N/A N/A
B N/A N/A
C N/A N/A
New York Municipal Bond Fund... O Bertram M. Elgot 32.8
146 West 10th St. Apt. 1-C
New York, NY 10014
Smith Barney Inc. 9.4
Book Entry Account
388 Greenwich Street
New York, NY 10013
Salomon Brothers Inc A/C V0291 6.6
7 World Trade Center, 40th Floor
New York, NY 10048
S. Quintus Von Bonin 5.6
Hella Von Bonin
131 Mercer Street, Apt 3A
New York, NY 10012
A Smith Barney Inc. 49.6
00130920520
388 Greenwich Street
New York, NY 10013
Salomon Brothers Holding Co Inc 34.6
7 World Trade Center
New York, NY 10048
B Salomon Brothers Holding Co Inc 49.3
7 World Trade Center
New York, NY 10048
Alejandro Garcia & Patricia Garcia JTWROS 19.8
245 East 40th Street, Apt. 34C
New York, NY 10016-1720
Dr. Gloria Quirante 9.7
63 Wetherstone Drive
West Seneca, NY 14224-2538
Merle N. Tandoc 9.7
63 Wetherstone Drive
West Seneca, NY 14224-2538
Richard O. Cole 7.3%
5575 Ripple Drive
Hamburg, NY 14075-6941
</TABLE>
48
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
C Salomon Brothers Holding Co Inc 92.6
7 World Trade Center
New York, NY 10048
Jack Abrahams & Aleyn Abrahams JTWROS 7.4
3947 Greentree Drive
Oceanside, NY 11572
U.S. Government Income Fund.... O Salomon Brothers Holding Co Inc 99.3
7 World Trade Center
New York, NY 10048
A Jane S Falk TTEE 37.0
Falk Family Trust
UDT DTD 06/12/69
5591-B Avenida Soseiga West
Laguna Hills CA 92653
Everen Clearing Corp. 32.6
A/C 3335-1996
4 Quarters Inc
111 East Kilbourn Avenue
Milwaukee, WI 53202
BSD&T CUST 6.3
Jerome H Cook IRA-RO
903 Broadmoor
Champaign, IL 61821
B Salomon Brothers Holding Co Inc 25.8
7 World Trade Center
New York, NY 10048
Smith Barney Inc 8.3
00164765037
388 Greenwich Street
New York, New York 10013
Ethel H. Holt 7.8
3521 Starline Dr
Austin, TX 78759-8941
Smith Barney Inc. 7.7
00118337851
388 Greenwich Street
New York, New York 10013
Smith Barney Inc. 7.2
00152915017
388 Greenwich Street
New York, New York 10013
June R Schneider TTEE 5.7
U/A DTD 2/13/16
June R Schneider Trust
219 Pleasant Ridge Rd
Fairview Heights, IL 62208
Smith Barney Inc. 5.2
00164765242
388 Greenwich Street
New York, New York 10013
George Lawson & 5.1
Beverly Lawson JT TEN
1104 Box Canyon Rd
Fallbrook, CA 92028
C State Street Bank & Trust Co FBO 46.3
Salomon Brothers NY Municipal Dept
Attn: George Betzios
7 World Trade Center 38th Floor
New York, New York 10048
</TABLE>
49
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
The Center for Reproductive 8.2
Law and Policy Inc
120 Wall Street -- 18th Floor
New York, NY 10005
Vincent J Palermo & 7.1
Elizabeth A Palermo JTWROS
182 Christopher St
Montclair, NJ 07042
High Yield Bond Fund........... O Michael Hyland & 29.4
Mary Hyland TTEES
FBO Catherine E. Hyland Trust
U/A DTD 12/25/89
2 South Drive
Larchmont, NY 10538
Michael S. Hyland Jr. & 29.4
Mary Hyland TTEES
For Michael T. Hyland Trust
U/A DTD 12/25/89
2 South Drive
Larchmont, NY 10538
Charles Shumsky 25.1
Selma Shumsky JTWROS
980 Bluegrass Lane
Los Angeles, CA 90049
BSDT Cust IRA Rollover 14.3
FBO Carol L. Colman
278 Hawley Road
North Salem, NY 10560
A LaSalle National Trust as Custodian 9.4
FBO Doctors Hospital Foundation
03-7100609-7954RD707
P.O. Box 1443
Chicago, IL 60609
CITIBANK N A TTEE 5.5
FBO Salomon Brothers Inc Ret Plan
U/A DTD 9/1/90
111 Wall Street, 20th Floor, Zone 1
New York, NY 10043
B N/A N/A
C Alex Brown & Sons Inc. 5.1
P.O. Box 1346
Baltimore, MD 21203
Strategic Bond Fund............ O Salomon Brothers Holding Co Inc 99.7
Attn: Marc Peckman 38th Floor
7 World Trade Center
New York, NY 10048
A Everen Clearing Corp 12.5
A/C 3335-1996
4 Quarters Inc
111 East Kilbourn Avenue
Milwaukee, WI 53202
First Southwest Company 5.6
FBO Richard O Beltz
Acct #44409031
1700 Pacific Ave, Suite 500
Dallas, TX 75201
B Salomon Brothers Holding Co Inc 7.8
7 World Trade Center
New York, NY 10048
C Alex Brown & Sons Incorporated 18.2
PO Box 1346
Baltimore, MD 21203
</TABLE>
50
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
Bruce A Benway 5.6
16 Osborne Lane
Southport, CT 06490-1146
Raymond James & Assoc Inc 5.5
FOR Elite Acct# 50125031
FAO AME Zion Church Brthrhood
Pensions Department
PO Box 34454
Charlotte, NC 28234-4454545
AG Edwards & Sons Inc C/F 5.3
William E Allen
Rollover IRA Account
c/o Radiology Consultnts
40 Temple Street
New Haven, CT 06510-2715
National Intermediate Municipal
Fund......................... O Salomon Brothers Holding Co Inc 97.8
7 World Trade Center
New York, NY 10048
A Salomon Brothers Holding Co Inc 40.4
7 World Trade Center
New York, NY 10048
Southwest Securities Inc 15.3
1201 Elm Street, Suite 4300
Dallas, TX 75270
Raymond James & Assoc. Inc. 13.8%
For Elite Acct #50105047
FAD Alice C. Aldrich
2555 Hamline Ave. N Apt 213
Roseville, MN 55113-3150556
Wexford Clearing Services Corp. FBO 10.3
Harvey Weiss TTEE
The Weiss Fam Marital Trust
UA DTD 03/29/88
c/o Barbara Luboff
Northridge, CA 91325-1839
North Vermilion Street Corp 6.1
137 North Vermilion Street
Danville, IL 61832
Dorothy M. Unger TTEE 6.0
Louis A. Unger Trust
U/A DTD April 25, 1991
205 Magnolia Street
Satellite Bch, FL
32937-3010
B Salomon Brothers Holding Co Inc 36.6
7 World Trade Center
New York, NY 10048
Smith Barney Inc. 29.0
00146611583
388 Greenwich Street
New York, NY 10013
Jeanette S. Toll 17.1
c/o Mary Toll
1530 East LaSalle
South Bend, IN 46617
Rose Maki 7.7
7207 210th St, SW #203
Edmonds, WA 98026
C Salomon Brothers Holding Co Inc 70.4
7 World Trade Center
New York, NY 10048
</TABLE>
51
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
Alan Neil Dumesco 14.2
8513 Churchill Downs Rd.
Gaithersburg, MD 20882-1443134
James Omer Olson & 14.0
Connie K. Olson JTWROS
502 Sixth Avenue
Hazen, ND 58545-4627
Total Return Fund.............. O Salomon Brothers Holding Co Inc 97.0
7 World Trade Center
New York, NY 10048
A Salomon Brothers Inc A/C PWM1126 6.6
7 World Trade Center 40th Floor
New York, NY 10048
Attn Peter Hegel
Salomon Brothers Inc A/C PWM1125 6.6
7 World Trade Center 40th Floor
New York, NY 10048
Attn Peter Hegel
B N/A N/A
C A.G. Edwards & Sons Inc C/F 8.8
Marjorie H. Mahler
Rollover IRA Account
P.O. Box 560067
Dallas, TX 75356-0067
NFSC FEBO # A7T-067350 8.2
David H Weeks TTEE
Kelly Fradet Retirement Program
PO Box 1269
Enfield, CT 06083
Asia Growth Fund............... O Salomon Brothers Holding Co Inc 83.0%
7 World Trade Center
New York, NY 10048
BSDT Cust IRA Rollover 10.9
FBO Carol L. Colman
278 Hawley Road
North Salem, NY 10560
A Salomon Brothers Holding Co Inc 74.8
7 World Trade Center
New York, NY 10048
John F. Purcell & 8.0
Jan Purcell JTWROS
470 West End Avenue Apt 12E
New York, NY 10024
B Salomon Brothers Holding Co Inc 88.2
7 World Trade Center
New York, NY 10048
C Salomon Brothers Holding Co Inc 55.2
7 World Trade Center
New York, NY 10048
Alex Brown & Son 14.1
Incorporated
PO Box 1346
Baltimore, MD 21203
Edward J. Kaufman & 12.6
Bonnie B. Kaufman JTWROS
186 N Fifth Ave.
Monrovia, CA 91016
Henry Gautier & 5.9
Sara H. Gautier JTWROS
2512 Robert Hiram Drive
Gautier, MS 39553-7435
</TABLE>
52
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
Carroll C. Jones 5.7
3907 Peru Circle
Pasadena, TX 77504
Investors Fund................. O N/A N/A
A Salomon Brothers Holding Co Inc 6.0
7 World Trade Center
New York, NY 10048
B Salomon Brothers Holding Co Inc 8.1
7 World Trade Center
New York, NY 10048
David Duane Johnson 5.9
PO Box 515
Newcastle, CA 95658
C Salomon Brothers Holding Co Inc 28.4
7 World Trade Center
New York, NY 10048
Raymond James & Assoc. Inc. 27.1
For Elite Acct #50125031
FAO AME Zion Church Brthrhood
Pensions Department
PO Box 34454
Charlotte, NC 28234-4454545
Alex Brown & Sons Incorporated 14.4
PO Box 1346
Baltimore, MD 21203
Nina B. Ellis 5.2
1424 Crescent Drive
Sherman, TX 75092-5522
Capital Fund................... O Salomon Inc 51.5
Profit Sharing Plan
7 World Trade Center 34th Floor
New York, NY 10048
A N/A N/A
B N/A N/A
C N/A N/A
</TABLE>
53
<PAGE>
<PAGE>
INVESTMENT MANAGER
Each Fund retains SBAM to act as its investment manager. SBAM, a
wholly-owned subsidiary of Salomon Brothers Holding Company Inc, which in turn
is wholly-owned by Salomon Inc, serves as the investment manager to numerous
individuals and institutions and other investment companies. On May 1, 1990,
SBAM purchased substantially all of the assets of Lemco, the previous investment
adviser to the Investors Fund and the Capital Fund, and the Investors Fund and
the Capital Fund changed its name from Lehman Investors Fund, Inc. and Lehman
Capital Fund, Inc. to Salomon Brothers Investors Fund Inc and Salomon Brothers
Capital Fund Inc, respectively.
The management contract between SBAM and each respective Fund provides that
SBAM shall manage the operations of the Fund, subject to policy established by
the Board of Directors. Pursuant to the applicable management contract, SBAM
manages each Fund's investment portfolio, directs purchases and sales of
portfolio securities and reports thereon to the Fund's officers and directors
regularly. SBAM also provides the office space, facilities, equipment and
personnel necessary to perform the following services for each Fund: Commission
compliance, including record keeping, reporting requirements and registration
statements and proxies; supervision of Fund operations, including coordination
of functions of administrator, transfer agent, custodian, accountants, counsel
and other parties performing services or operational functions for each Fund;
certain administrative and clerical services, including certain accounting
services, facilitation of redemption requests, exchange privileges, and account
adjustments, development of new shareholder services and maintenance of certain
books and records; and certain services to each Fund's shareholders, including
assuring that investments and redemptions are completed efficiently, responding
to shareholder inquiries and maintaining a flow of information to shareholders.
In addition, SBAM pays the compensation of each Fund's officers, employees and
directors affiliated with SBAM. Each Fund bears all other costs of its
operations, including the compensation of its directors not affiliated with
SBAM.
In connection with SBAM's service as investment manager to the Strategic
Bond Fund, Salomon Brothers Asset Management Limited ('SBAM Limited'), whose
business address is Victoria Plaza, 111 Buckingham Palace Road, London SW1W OSB,
England, provides certain advisory services to SBAM relating to currency
transactions and investments in non-dollar-denominated debt securities for the
benefit of the Strategic Bond Fund pursuant to a subadvisory consulting
agreement. At no additional expense to the Strategic Bond Fund, SBAM pays SBAM
Limited, as full compensation for all services provided under the subadvisory
consulting agreement, a fee in an amount equal to the fee payable to SBAM under
its management contract with respect to the Strategic Bond Fund multiplied by
the current value of the net assets of the portion of the assets of the
Strategic Bond Fund as SBAM shall allocate and divided by the current value of
the net assets of the Strategic Bond Fund. Like SBAM, SBAM Limited is an
indirect, wholly-owned subsidiary of Salomon Inc. SBAM Limited is a member of
the Investment Management Regulatory Organization Limited in the United Kingdom
and is registered as an investment adviser in the United States pursuant to the
Investment Advisers Act of 1940, as amended (the 'Advisers Act').
Pursuant to a sub-advisory agreement, SBAM has retained SBAM AP as
sub-adviser to the Asia Growth Fund (the 'Subadvisory Agreement'). Subject to
the supervision of SBAM, SBAM AP will have responsibility for the day-to-day
management of the Fund's portfolio. SBAM AP is compensated at no additional cost
to the Asia Growth Fund. Like SBAM, SBAM AP is an indirect, wholly-owned
subsidiary of Salomon Inc. SBAM AP is a member of the Hong Kong Securities and
Futures Commission and is registered as an investment adviser in the United
States pursuant to the Advisers Act. Pursuant to a sub-administration agreement,
SBAM has retained SBAM Limited to provide certain administrative services to
SBAM relating to the Asia Growth Fund (the 'Subadministration Agreement').
Investment decisions for a particular Fund are made independently from
those of other funds or accounts managed by SBAM, SBAM AP or SBAM Limited. Such
other funds or accounts may also invest in the same securities as a Fund. If
those funds or accounts are prepared to invest in, or desire to dispose of, the
same security at the same time as a Fund, however, transactions in such
securities will be made, insofar as feasible, for the respective
54
<PAGE>
<PAGE>
funds and accounts in a manner deemed equitable to all. In some cases, this
procedure may adversely affect the size of the position obtained for or disposed
of by a Fund or the price paid or received by a Fund. In addition, because of
different investment objectives, a particular security may be purchased for one
or more funds or accounts when one or more funds or accounts are selling the
same security.
If in any fiscal year expenses borne by a Fund (excluding interest, taxes,
brokerage commissions and other portfolio transaction expenses and any
extraordinary expenses, but including the management fee) exceed expense
limitations imposed by applicable state securities regulations, SBAM, in its
capacity as investment manager, will reimburse the Fund for any such excess to
the extent required by such regulations up to the amount of its fee. California
is the only state which currently imposes such an expense limitation. The
limitation is, on an annual basis, 2.5% of the first $30 million of average
daily net assets, 2.0% of the next $70 million of average daily net assets and
1.5% of the remaining average net daily assets. Such reimbursement, if any, will
be estimated and paid on a monthly basis. There was no reimbursement to any Fund
for the years ended December 31, 1995, 1994 or 1993.
As compensation for its services, SBAM receives from the Cash Management
Fund a management fee payable monthly at an annual rate of .20% of the Cash
Management Fund's average daily net assets. For the fiscal years ended December
31, 1993, 1994 and 1995, SBAM waived all fees payable to it by the Cash
Management Fund, totaling $25,813, $29,088 and $25,505 respectively, and
absorbed expenses of the Cash Management Fund totalling $0, $0 and $75,716,
respectively. SBAM receives from the New York Municipal Money Market Fund a
management fee payable monthly at an annual rate of .20% of the Fund's average
daily net assets. For the fiscal years ended December 31, 1993, 1994 and 1995,
the New York Municipal Money Market Fund paid SBAM $442,512, $468,902 and
$449,809, respectively, for its services. For the fiscal year ended December 31,
1995, SBAM voluntarily waived $31,455 of its fee. SBAM receives from the New
York Municipal Bond Fund a management fee payable monthly at an annual rate of
.50% of the New York Municipal Bond Fund's average daily net assets. For the
fiscal period from February 1, 1993 (commencement of operations) through
December 31, 1993 and for the fiscal years ended December 31, 1994 and 1995,
SBAM waived all fees payable to it by the New York Municipal Bond Fund, totaling
$32,857, $36,428 and $19,069 respectively, and absorbed expenses of the New York
Municipal Bond Fund totaling $15,652, $12,085 and $63,088, respectively. The
National Intermediate Municipal Fund pays SBAM a monthly fee at an annual rate
of .50% of the Fund's average daily net assets. For the period from February 22,
1995 (commencement of investment operations) through December 31, 1995, SBAM
waived all fees payable to it by the National Intermediate Municipal Fund in the
amount of $44,953 and absorbed expenses of the National Intermediate Municipal
Fund in the amount of $35,803. The U.S. Government Income Fund pays SBAM a
monthly fee at an annual rate of .60% of the Fund's average daily net assets.
For the period from February 22, 1995 (commencement of investment operations)
through December 31, 1995, SBAM waived all fees payable to it by the U.S.
Government Income Fund in the amount of $53,073 and absorbed expenses of the
U.S. Government Income Fund in the amount of $39,324. The High Yield Bond Fund
pays SBAM a monthly fee at an annual rate of .75% of the Fund's average daily
net assets. For the period from February 22, 1995 (commencement of investment
operations) through December 31, 1995, the management fee payable to SBAM from
the High Yield Bond Fund was $108,535, $79,385 of which was waived by SBAM. The
Strategic Bond Fund pays SBAM a monthly fee at an annual rate of .75% of the
Fund's average daily net assets. For the period from February 22, 1995
(commencement of investment operations) through December 31, 1995, SBAM waived
all fees payable to it by the Strategic Bond Fund in the amount of $71,026 and
absorbed expenses of the Strategic Bond Fund in the amount of $11,822. The Total
Return Fund pays SBAM a monthly fee at an annual rate of .55% of the Fund's
average daily net assets. For the period from September 11, 1995 (commencement
of investment operations) through December 31, 1995, SBAM waived all fees
payable to it by the Total Return Fund in the amount of $15,069 and absorbed
expenses of the Total Return Fund in the amount of $4,346. The Asia Growth Fund
pays SBAM a monthly fee at an annual rate of .80% of the Fund's average daily
net assets. SBAM receives from the Capital
55
<PAGE>
<PAGE>
Fund a management fee payable monthly, at an annual rate of 1.00% of average
daily net assets up to $100 million, .75% on the next $100 million, .625% on the
next $200 million and .50% on average daily net assets in excess of $400
million. For the years ended December 31, 1993, 1994 and 1995 SBAM was paid
$1,072,845, $1,035,255 and $957,755, respectively, in management fees from the
Capital Fund. With respect to each Fund other than the Investors Fund and the
Capital Fund, for the 1996 fiscal year, SBAM has voluntarily agreed to impose a
cap on the total Fund operating expenses (exclusive of taxes, interest and
extraordinary expenses such as litigation and indemnification expenses) through
reimbursement of certain expenses and, to the extent necessary, waiver of
management fees. See 'Expense Information -- Annual Fund Operating Expenses' in
the Prospectus. For its services under the Subadvisory Agreement, SBAM AP is
compensated by SBAM at a rate agreed to between SBAM and SBAM AP from time to
time. The Investors Fund pays SBAM a quarterly fee (the 'Base Fee') at the end
of each calendar quarter based on the following rates:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------------------------------------ ---------------
<S> <C>
First $350 million.................................... .500%
Next $150 million..................................... .400%
Next $250 million..................................... .375%
Next $250 million..................................... .350%
Over $1 billion....................................... .300%
</TABLE>
This fee may be increased or decreased based on the performance of the
Investors Fund relative to the investment record of the S&P 500 Index. At the
end of each calendar quarter, for each percentage point by which the investment
performance of the Investors Fund exceeds or is exceeded by the investment
record of the S&P 500 Index over the one year period ending on the last day of
the calendar quarter for which the adjustment is being calculated, the Base Fee
will be adjusted upward or downward by the product of (i) 1/4 of .01% multiplied
by (ii) the average daily net assets of the Investors Fund for the one year
period preceding the end of the calendar quarter. If the amount by which the
Investors Fund outperforms or underperforms the S&P 500 Index is not a whole
percentage point, a pro rata adjustment shall be made. However, there will be no
performance adjustment unless the investment performance of the Investors Fund
exceeds or is exceeded by the investment record of the S&P 500 Index by at least
one percentage point. The maximum quarterly adjustment is 1/4 of .10%, which
would occur if the Investors Fund's performance exceeds or is exceeded by the
S&P 500 Index by ten or more percentage points. The performance adjustment will
be paid quarterly based on a rolling one year period.
For purposes of determining the performance adjustment, the investment
performance of the Investors Fund for any one year period shall mean the sum of
(i) the change in the Fund's net asset value per share during such period, (ii)
the value of cash distributions per share accumulated to the end of such period
and (iii) the value of capital gains taxes per share (if any) paid or payable on
undistributed realized long-term capital gains accumulated to the end of such
period; expressed as a percentage of its net asset value per share at the
beginning of such period. For this purpose, the value of distributions per share
of realized capital gains and of dividends per share paid from investment income
shall be treated as reinvested in shares of the Investors Fund at the net asset
value per share in effect at the close of business on the record date for the
payment of such distributions and dividends, after giving effect to such
distributions and dividends. In addition, while the Investors Fund does not
anticipate paying any taxes, the value of any capital gains taxes per share paid
or payable on undistributed realized long-term capital gains shall be treated as
reinvested in shares of the Fund at the net asset value per share in effect at
the close of business on the date on which provision is made for such taxes,
after giving effect to such taxes.
For purposes of calculating the performance adjustment, the investment
record of the S&P 500 Index for any one year period shall mean the sum of (i)
the change in the level of the index during such period and (ii) the value,
computed consistently with the index, of cash distributions made by companies
whose securities comprise the index accumulated to the end of such period;
expressed as a percentage of the index level at the beginning of such period.
For this purpose, cash distributions on the securities which comprise the index
shall be
56
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<PAGE>
treated as reinvested in the index at least as frequently as the end of each
calendar quarter following the payment of the dividend.
Prior to August 1, 1994, the Investors Fund paid SBAM a management fee each
quarter, based upon the average daily value of the Investors Fund's net assets,
at an annual rate computed as follows: none on the first $25 million; 1/8 of 1%
(.50% annually) on the next $325 million; 3/40 of 1% (.30% annually) on the next
$150 million; 1/16 of 1% (.25% annually) on the next $250 million; and 1/20 of
1% (.20% annually) on the amount in excess of $750 million. SBAM was paid
$1,614,897, $1,747,839 and $1,721,023 in management fees for the years ended
December 31, 1995, 1994 and 1993, respectively.
For its services under the Subadministration Agreement, SBAM Limited is
compensated by SBAM at no additional cost to the Asia Growth Fund at an annual
rate of .10% of the Asia Growth Fund's daily net assets.
The management contract for each of the Series Funds provides that it will
continue for an initial two year period and thereafter for successive annual
periods, and the management contract for each of the Investors Fund and the
Capital Fund provides that it will continue for successive annual periods;
provided that with respect to each such contract, such continuance is
specifically approved at least annually (a) by the vote of a majority of the
directors not parties to the management contract or interested persons of such
parties, which votes are cast in person at a meeting called for the purpose of
voting on such management contract and (b) either by the Board of Directors or a
majority of the outstanding voting securities. The management contract may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
With respect to each of the Funds, other than the Total Return Fund, the
Asia Growth Fund, the Investors Fund and the Capital Fund, the continuance of
the management contract was approved by the Board of Directors on September 6,
1995. With respect to the Total Return Fund, the management contract was
approved by the Board of Directors on September 6, 1995 and by the sole
shareholder, SBAM, on September 6, 1995. With respect to the Asia Growth Fund,
the management contract was approved by the Board of Directors on January 19,
1996 and by the sole shareholder, SBAM, on April 29, 1996. With respect to the
Investors Fund and the Capital Fund, the continuance of the management contract
was approved by each Fund's Board of Directors on January 23, 1996.
Under the terms of the management contract between each Fund and SBAM,
neither SBAM nor its affiliates shall be liable for losses or damages incurred
by the Fund (including, with respect to the Asia Growth Fund, the imposition of
certain Hong Kong tax liabilities on the Fund), unless such losses or damages
are attributable to the wilful misfeasance, bad faith or gross negligence on
either the part of SBAM or its affiliate or from reckless disregard by it of its
obligations and duties under the Management Contract ('disabling conduct'). In
addition, the Asia Growth Fund will indemnify SBAM and its affiliates and hold
each of them harmless against any losses or damages, including the imposition of
certain Hong Kong tax liabilities on the Fund, not resulting from disabling
conduct.
Rule 17j-1 under the 1940 Act requires all registered investment companies
and their investment advisers and principal underwriters to adopt written codes
of ethics and institute procedures designed to prevent 'access persons' (as
defined in Rule 17j-1) from engaging in any fraudulent, deceptive or
manipulative trading practices. The Board of Directors for the Series Fund, the
Investors Fund and the Capital Fund have each adopted a code of ethics (the
'Fund Code') that incorporates personal trading policies and procedures
applicable to access persons of each Fund, which includes officers, directors
and other specified persons who may make, participate in or otherwise obtain
information concerning the purchase or sale of securities by the Fund. In
addition, the Fund Code attaches and incorporates personal trading policies and
procedures applicable to access persons of the investment manager and if
applicable, any sub-adviser to each Fund, which policies serve as such adviser's
code of ethics (the 'Adviser Code'). The Fund and Adviser Codes have been
designed to address potential conflict of interests that can arise in connection
with the personal trading activities of investment company and investment
advisory personnel.
57
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<PAGE>
Pursuant to the Fund and Adviser Codes, access persons are generally
permitted to engage in personal securities transactions, provided that a
transaction does not involve securities that are being purchased or sold, are
being considered for purchase or sale, or are being recommended for purchase or
sale by or for a Fund. In addition, the Adviser Code contains specified
prohibitions and blackout periods for certain categories of securities and
transactions, including a prohibition on short-term trading and purchasing
securities during an initial public offering. The Adviser Code, with certain
exceptions, also requires that access persons obtain preclearance to engage in
personal securities transactions. Finally, the Fund and Adviser Codes require
access persons to report all personal securities transactions periodically.
ADMINISTRATOR
Investors Bank & Trust Company ('Investors Bank'), located at 89 South
Street, Boston, Massachusetts 02111, provides certain administrative services to
each Fund. The services provided by Investors Bank under the applicable
administration agreement include certain accounting, clerical and bookkeeping
services, Blue Sky compliance, corporate secretarial services and assistance in
the preparation and filing of tax returns and reports to shareholders and the
Commission.
For its services as administrator, each Fund (except the Investors Fund and
the Capital Fund) pays Investors Bank a fee, calculated daily and payable
monthly, at an annual rate of .08% of the applicable Fund's average daily net
assets. Pursuant to a sub-administration agreement between SBAM and Investors
Bank, for its services as administrator to each of the Investors Fund and the
Capital Fund and at no additional cost to the Investors Fund or the Capital
Fund, SBAM pays Investors Bank a fee each month at an annual rate of .08% of the
average daily net assets of the Investors Fund and .06% of the average daily net
assets of the Capital Fund, respectively. For its services as administrator to
the Cash Management Fund, the Series Funds paid The Boston Company Advisors,
Inc. ('Boston Company'), the Fund's previous administrator, a fee, calculated
daily and payable monthly, at an annual rate of .08% of the Cash Management
Fund's average daily net assets. For the fiscal years ended December 31, 1994
and 1993, Boston Company received fees totaling $10,499 and $10,324 and
Investors Bank received fees totaling $10,216 and $1,136 for the fiscal years
ended December 31, 1995 and 1994 from the Cash Management Fund. For its services
as administrator to the New York Municipal Money Market Fund, the Series Funds
paid Boston Company, the Fund's previous administrator, a fee, calculated daily
and payable monthly, at an annual rate of .08% of the New York Municipal Money
Market Fund's average daily net assets. For the fiscal years ended December 31,
1994 and 1993, Boston Company received fees totaling $174,144 and $177,004,
respectively and for the fiscal years ended December 31, 1995 and 1994,
respectively, Investors Bank received fees totaling $180,146 and $15,878. For
its services as administrator to the New York Municipal Bond Fund, the Series
Funds paid Boston Company, the Fund's previous administrator, a fee, calculated
daily and payable monthly, at an annual rate of .08% of the New York Municipal
Bond Fund's average daily net assets. For the fiscal year ended December 31,
1994 and for the fiscal period from February 1, 1993 (commencement of
operations) through December 31, 1993, Boston Company received fees totaling
$5,497 and $5,258, and Investors Bank received fees totaling $3,500 and $328 for
the fiscal years ended December 31, 1995 and 1994 from the New York Municipal
Bond Fund. For the period from February 22, 1993 (commencement of investment
operations) through December 31, 1995, Investors Bank received $6,901 from the
National Intermediate Municipal Fund, $6,898 from the U.S. Government Income
Fund, $11,137 from the High Yield Bond Fund and $7,297 from the Strategic Bond
Fund and for the period from September 11, 1995 (commencement of investment
operations) through December 31, 1995, Investors Bank received $1,841 from the
Total Return Fund. Pursuant to previous sub-administration agreements between
SBAM and Boston Company, SBAM paid Boston Company a fee each month at an annual
rate of .08% of the average daily net assets of each of the Investors Fund and
the Capital Fund, respectively. With respect to the Investors Fund, for the
fiscal years ended December 31, 1994 and 1993, respectively, SBAM paid Boston
Company $273,294 and $305,575, and for the fiscal years ended December 31, 1995
and 1994, respectively, Investors Bank received
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fees totaling $312,828 and $23,198, respectively. With respect to the Capital
Fund, for the fiscal years ended December 31, 1995, 1994 and 1993, respectively,
SBAM paid Boston Company $76,688, $84,140 and $87,784.
DISTRIBUTOR
SBI, located at 7 World Trade Center, New York, New York 10048, serves as
each Fund's distributor. SBI is a wholly owned subsidiary of Salomon Brothers
Holding Company Inc, which is in turn wholly owned by Salomon Inc.
Rule 12b-1 adopted by the Commission under the 1940 Act provides, among
other things, that an investment company may bear expenses of distributing its
shares only pursuant to a plan adopted in accordance with the Rule. The Board of
Directors of each Fund (other than the Cash Management Fund and the New York
Municipal Money Market Fund) has adopted a services and distribution plan with
respect to each class of shares (other than Class O) of each Fund pursuant to
the Rule (the 'Plan'). The Board of Directors of each Fund has determined that
there is a reasonable likelihood that the Plan will benefit such Fund and its
shareholders.
Under the Plans, each Fund (other than the Cash Management Fund and the New
York Municipal Money Market Fund) pays SBI a service fee, accrued daily and paid
monthly, calculated at the annual rate of .25% of the value of the applicable
Fund's average daily net assets attributable to Class A, Class B and Class C
shares. In addition, each Fund (other than the Cash Management Fund and New York
Municipal Money Market Fund) pays SBI a distribution fee with respect to Class B
and Class C shares primarily intended to compensate SBI for its initial expense
of paying investment representatives a commission upon sales of Class B shares
or Class C shares, as the case may be. The Class B and Class C distribution fees
are each calculated at the annual rate of .75% of the value of a Fund's average
daily net assets attributable to the Class B or Class C shares, and New York
Municipal Money Market Fund as the case may be. Such fees may be used as
described in the Prospectus. Class O shares and shares of all classes of the
Cash Management Fund and the New York Municipal Money Market Fund pay no
distribution or shareholder service fee. SBI is authorized, to the extent
indicated in the Prospectus, to retain all or a portion of the payments made to
it pursuant to the applicable Plan and make payments to third parties that
provide assistance in selling Fund shares, or to institutions that provide
certain shareholder support services to investors. Each Plan provides that SBI
may make payments to assist in the distribution of each class of a Fund's shares
out of the other fees received by it or its affiliates from a Fund, its past
profits or any other sources available to it.
A quarterly report of the amounts expended with respect to each Fund under
the applicable Plan, and the purposes for which such expenditures were incurred,
is presented to the Board of Directors for its review. In addition, each Plan
provides that it may not be amended with respect to any class of shares of the
applicable Fund to increase materially the costs which may be borne for
distribution pursuant to the Plan without the approval of shareholders of that
class, and that other material amendments of the Plan must be approved by the
Board of Directors, and by the Directors who are neither 'interested persons'
(as defined in the 1940 Act) nor have any direct or indirect financial interest
in the operation of the Plan or any related agreements, by vote cast in person
at a meeting called for the purpose of considering such amendments. Each Plan
and any related agreements are subject to annual approval by such vote cast in
person at a meeting called for the purpose of voting on the Plan. Each Plan may
be terminated with respect to a Fund or any class thereof at any time by vote of
a majority of the Directors who are not 'interested persons' and have no direct
or indirect financial interest in the operation of the Plan or in any related
agreement or by vote of a majority of the shares of a Fund or class, as the case
may be. For the year ended December 31, 1995, the aggregate amount spent by the
various classes of each Fund under the applicable Plan was as follows: for the
New York Municipal Bond Fund, $98,562 was spent on advertising, $10,076 was
spent on printing and mailing of prospectuses, $40,887 was spent on interest,
carrying or other financial charges and $12,501 was spent on miscellaneous
expenses, for a total of $162,026; for the National Intermediate Fund, $98,562
was spent on advertising, $10,076 was spent on printing and mailing of
prospectuses, $40,887
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was spent on interest, carrying or other financial charges and $12,501 was spent
on miscellaneous expenses, for a total of $162,026; for the U.S. Government
Income Fund, $98,562 was spent on advertising, $10,076 was spent on printing and
mailing of prospectuses, $40,887 was spent on interest, carrying or other
financial charges and $12,501 was spent on miscellaneous expenses, for a total
of $162,026; for the High Yield Bond Fund, $98,562 was spent on advertising,
$10,075 was spent on printing and mailing of prospectuses, $40,887 was spent on
interest, carrying or other financial charges and $12,501 was spent on
miscellaneous expenses, for a total of $162,025; for the Strategic Bond Fund,
$98,562 was spent on advertising, $10,075 was spent on printing and mailing of
prospectuses, $40,887 was spent on interest, carrying or other financial charges
and $12,501 was spent on miscellaneous expenses, for a total of $162,025; for
the Total Return Fund, $14,205 was spent on interest, carrying or other
financial charges; and for the Investors Fund, $98,562 was spent on advertising,
$24,355 was spent on printing and mailing of prospectuses, $40,716 was spent on
interest, carrying or other financial charges and $12,501 was spent on
miscellaneous expenses, for a total of $176,134.
EXPENSES
Each Fund's expenses include taxes, interest, fees and salaries of such
Fund directors and officers who are not directors, officers or employees of the
Fund's service contractors, Commission fees, state securities qualification
fees, costs of preparing and printing prospectuses for regulatory purposes and
for distribution to existing shareholders, advisory and administration fees,
charges of the custodian and of the transfer and dividend disbursing agent,
certain insurance premiums, outside auditing and legal expenses, costs of
shareholder reports and shareholder meetings and any extraordinary expenses.
Each Fund also pays for brokerage fees and commissions (if any) in connection
with the purchase and sale of portfolio securities. Fund expenses are allocated
to a particular class of Fund shares based on either expenses identifiable to
the class or the relative net assets of the class and other classes of Fund
shares.
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PORTFOLIO TRANSACTIONS
Subject to policy established by the Board of Directors, the investment
manager is primarily responsible for each Fund's portfolio decisions and the
placing of the Fund's portfolio transactions. References in this section to
investment manager include SBAM Limited with respect to the portion, if any, of
the portfolio of the Strategic Bond Fund managed by SBAM Limited.
Fixed-income, certain short-term securities and certain equities normally
will be purchased or sold from or to issuers directly or to dealers serving as
market makers for the securities at a net price, which may include dealer
spreads and underwriting commissions. Equity securities may also be purchased or
sold through brokers who will be paid a commission.
The general policy of each Fund in selecting brokers and dealers is to
obtain the best results taking into account factors such as the general
execution and operational facilities of the broker or dealer, the type and size
of the transaction involved, the creditworthiness of the broker or dealer, the
stability of the broker or dealer, execution and settlement capabilities, time
required to negotiate and execute the trade, research services and the
investment manager's arrangements related thereto (as described below), overall
performance, the dealer's risk in positioning the securities involved, and the
broker's commissions and dealer's spread or mark-up. While the investment
manager generally seeks the best price in placing its orders, a Fund may not
necessarily be paying the lowest price available.
Notwithstanding the above, in compliance with Section 28(e) of the
Securities Exchange Act of 1934, the investment manager may select brokers who
charge a commission in excess of that charged by other brokers, if the
investment manager determines in good faith that the commission to be charged is
reasonable in relation to the brokerage and research services provided to the
investment manager by such brokers. Research services generally consist of
research or statistical reports or oral advice from brokers and dealers
regarding particular companies, industries or general economic conditions. The
investment manager may also have arrangements with brokers pursuant to which
such brokers provide research services to the investment manager in exchange for
a certain volume of brokerage transactions to be executed by such broker. While
the payment of higher commissions increases a Fund's costs, the investment
manager does not believe that the receipt of such brokerage and research
services significantly reduces its expenses as a Fund's investment manager.
Arrangements for the receipt of research services from brokers may create
conflicts of interest.
Research services furnished to the investment manager by brokers who effect
securities transactions for a Fund may be used by the investment manager in
servicing other investment companies and accounts which it manages. Similarly,
research services furnished to the investment manager by brokers who effect
securities transactions for other investment companies and accounts which the
investment manager manages may be used by the investment manager in servicing a
Fund. Not all of these research services are used by the investment manager in
managing any particular account, including the Funds.
Under the 1940 Act, persons affiliated with a Fund are prohibited from
dealing with it as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the Commission.
However, a Fund may purchase securities from underwriting syndicates of which
the investment manager or any of its affiliates (including SBI) is a member
under certain conditions, in accordance with the provisions of a rule adopted
under the 1940 Act.
Affiliated persons of a Fund, or affiliated persons of such persons, may
from time to time be selected to execute portfolio transactions for such Fund.
Subject to the considerations discussed above and in accordance with procedures
adopted by the Board of Directors, in order for such an affiliated person to be
permitted to effect any portfolio transactions for a Fund, the commissions, fees
or other remuneration received by such affiliated person must be reasonable and
fair compared to the commissions, fees or other remuneration received by other
brokers in connection with comparable transactions. This standard would allow
such an affiliated person to receive no more than the remuneration
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which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction.
Total brokerage commissions paid by the Investors Fund amounted to $998,071
for 1995, $676,229 for 1994 and $854,171 for 1993. During the 1995, 1994 and
1993 fiscal years, the Investors Fund paid $95,179, $61,788 and $113,090,
respectively, in commissions to SBI. Commissions to SBI in 1995 represented 9.5%
of the total brokerage commissions paid by the Investors Fund, and SBI executed
9.9% of the aggregate dollar amount of transactions involving commissions during
the 1995 fiscal year. Total brokerage commissions paid by the Total Return Fund
amounted to $9,432 for 1995. Total brokerage commissions paid by the Capital
Fund amounted to $629,443 for 1995, $482,953 for 1994 and $342,768 for 1993.
During the 1995, 1994 and 1993 fiscal years, the Capital Fund paid $57,993,
$45,612 and $31,040, respectively, in commissions to SBI. Commissions to SBI in
1995 represented 9% of the total brokerage commissions paid by the Capital Fund,
and SBI executed 7% of the aggregate dollar amount of transactions involving
commissions during the 1995 fiscal year. During 1995, the Total Return Fund paid
$210 in commissions to SBI. Commissions to SBI in 1995 represented 2.2% of the
total brokerage commissions paid by the Total Return Fund, and SBI executed
1.60% of the aggregate dollar amount of transactions involving commissions
during 1995.
NET ASSET VALUE
The Prospectus discusses the time at which the net asset value of shares of
each class of a Fund is determined for purposes of sales and redemptions.
Because of the differences in service and distribution fees and class-specific
expenses, the per share net asset value of each class may differ. The following
is a description of the procedures used by a Fund in valuing its assets.
In calculating net asset value, portfolio securities listed or traded on
national securities exchanges, or reported by the NASDAQ National Market
reporting system, are valued at the last sale price, or, if there have been no
sales on that day, at the mean of the current bid and ask price which represents
the current value of the security. Over-the-counter securities are valued at the
mean of the current bid and ask price.
Securities that are primarily traded on foreign exchanges generally are
valued at the preceding closing values of such securities on their respective
exchanges, except that when an occurrence subsequent to the time a value was so
established is likely to have changed such value, then the fair value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Directors or its delegates. In valuing assets, prices
denominated in foreign currencies are converted to U.S. dollar equivalents at
the current exchange rate. Securities may be valued by independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Short-term obligations with maturities of 60 days or
less are valued at amortized cost, which constitutes fair value as determined by
the Board of Directors. Amortized cost involves valuing an instrument at its
original cost to a Fund and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. All other securities and
other assets of a Fund will be valued at fair value as determined in good faith
pursuant to procedures adopted by the Board of Directors of each Fund.
As stated in the Prospectus, each of the Cash Management Fund and the New
York Municipal Money Market Fund seeks to maintain a net asset value of $1.00
per share and, in this connection, values the Fund's instruments on the basis of
amortized cost pursuant to Rule 2a-7 under the 1940 Act. While this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. During such periods the yield to investors in
the Fund may differ somewhat from that obtained in a similar company which uses
market values for all its portfolio securities. For example, if the use of
amortized cost resulted in a lower (higher) aggregate portfolio value on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher (lower) yield than would
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result from investment in such a similar company, and existing investors would
receive less (more) investment income. The purpose of using the amortized cost
method of calculation is to attempt to maintain a stable net asset value per
share of $1.00.
The Board of Directors has established procedures reasonably designed,
taking into account current market conditions and the investment objective of
the Cash Management Fund and the New York Municipal Money Market Fund, to
stabilize the net asset value per share as computed for the purposes of sales
and redemptions at $1.00. These procedures include periodic review, as the Board
of Directors deem appropriate and at such intervals as are reasonable in light
of current market conditions, of the relationship between the amortized cost
value per share and net asset value per share based upon available indications
of market value.
In the event of a deviation of 1/2 of 1% between the net asset value of the
Cash Management Fund or the New York Municipal Money Market Fund, as applicable,
based upon available market quotations or market equivalents and $1.00 per share
based on amortized cost, the Board of Directors will promptly consider what
action, if any, should be taken. The Board of Directors will also take such
action as they deem appropriate to eliminate or to reduce to the extent
reasonably practicable any material dilution or other unfair result which might
arise from differences between the two. Such action may include redemption in
kind, selling instruments prior to maturity to realize capital gains or losses
or to shorten the average maturity, withholding dividends, or utilizing a net
asset value per share as determined by using available market quotations.
ADDITIONAL PURCHASE INFORMATION
Information on how to purchase and redeem a Fund's shares is included in
the Prospectus. The issuance of shares is recorded on a Fund's books.
DETERMINATION OF PUBLIC OFFERING PRICE
Each Fund offers its shares to the public on a continuous basis. The public
offering price per Class A share of each Fund is equal to the net asset value
per share at the time of purchase plus a sales charge (except with respect to
the Cash Management Fund and the New York Municipal Money Market Fund) based on
the aggregate amount of the investment. The public offering price per Class B
share, Class C share and Class O share (and Class A share purchases, including
applicable rights of accumulation, equaling or exceeding $1 million) is equal to
the net asset value per share at the time of purchase and no sales charge is
imposed at the time of purchase. A contingent deferred sales charge ('CDSC'),
however, is imposed on certain redemptions of Class A shares, Class B shares and
Class C shares.
CLASS A SHARES
Volume Discounts. The schedule of sales charges on Class A shares described
in the Prospectus relating to Class A shares applies to purchases made by any
'purchaser,' which is defined to include the following: (a) an individual; (b)
an individual, his or her spouse and their children under the age of 21
purchasing shares for his or her own account; (c) a trustee or other fiduciary
purchasing shares for a single trust estate or single fiduciary account; (d) a
pension, profit-sharing or other employee benefit plan qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the 'Code'), and
qualified employee benefit plans of employers who are 'affiliated persons' of
each other within the meaning of the 1940 Act; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Code; (f) any other organized
group of persons, provided that the organization has been in existence for at
least six months and was organized for a purpose other than the purchase of
investment company securities at a discount; or (g) a trustee or other
professional fiduciary (including a bank, or an investment adviser registered
with the Commission under the Advisers Act) purchasing shares of a Fund for one
or more trust estates or fiduciary accounts. Purchasers who wish to combine
purchase orders to take advantage of volume discounts on Class A shares should
call (800) SALOMON or (800) 725-6666.
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Right of Accumulation. Reduced sales charges, in accordance with the
schedule in the Prospectus relating to Class A shares, apply to any purchase of
Class A shares if the aggregate investment in Class A shares of all Funds in the
Salomon Brothers Investment Series, excluding holdings in Class B and Class C
shares and shares purchased or held in the Cash Management Fund and/or the New
York Municipal Money Market Fund, and including the purchase being made, of any
purchaser is $100,000 or more. The reduced sales charge is subject to
confirmation of the shareholder's holdings through a check of appropriate
records. A Fund reserves the right to terminate or amend the combined right of
accumulation at any time after written notice to shareholders. For further
information regarding the combined right of accumulation, shareholders should
call (800) SALOMON or (800) 725-6666.
ADDITIONAL REDEMPTION INFORMATION
If the Board of Directors shall determine that it is in the best interests
of the remaining shareholders of a Fund, such Fund may pay the redemption price
in whole, or in part, by a distribution in kind from the portfolio of the Fund,
in lieu of cash, taking such securities at their value employed for determining
such redemption price, and selecting the securities in such manner as the Board
of Directors may deem fair and equitable. However, each Fund has made an
election pursuant to Rule 18f-1 under the 1940 Act requiring that all
redemptions be effected in cash to each redeeming shareholder, during periods of
90 days, up to the lesser of $250,000 or 1% of the net assets of such Fund. A
shareholder who receives a distribution in kind may incur a brokerage commission
upon a later disposition of such securities and may receive less than the
redemption value of such securities or property upon sale, particularly where
such securities are sold prior to maturity. Redemption in kind is not as liquid
as a cash redemption.
Under the 1940 Act, a Fund may suspend the right of redemption or postpone
the date of payment upon redemption for any period during which the NYSE is
closed, other than customary weekend and holiday closings, or during which
trading on said Exchange is restricted, or during which (as determined by the
Commission by rule or regulation) an emergency exists as a result of which
disposal or valuation of portfolio securities is not reasonably practicable, or
for such other periods as the Commission may permit. (A Fund may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.)
ADDITIONAL INFORMATION CONCERNING TAXES
TAXATION OF A FUND
The following discussion is a brief summary of certain additional tax
considerations affecting a Fund and its shareholders. No attempt is made to
present a detailed explanation of all federal, state, local and foreign tax
concerns, and the discussions set forth here and in the Prospectus do not
constitute tax advice. Investors are urged to consult their own tax advisers
with specific questions relating to federal, state, local or foreign taxes.
Each Fund intends to qualify and elect to be treated as a regulated
investment company (a 'RIC') under Subchapter M of the Code. Qualification as a
RIC requires, among other things, that a Fund: (a) derive at least 90% of its
gross income in each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stock or securities, foreign currencies or other income (including gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; (b) derive less than 30% of
its gross income in each taxable year from the sale or other disposition of any
of the following held for less than three months: stock, securities, options,
futures, certain forward contracts, or foreign currencies (or any options,
futures or forward contracts on foreign currencies) but only if such currencies
are not directly related to a Fund's principal business of investing in stock or
securities; and (c) diversify its holdings so that, at the end of each quarter
of each taxable year, (i) at least 50% of the market value of a Fund's assets is
represented by cash, cash items, U.S. government securities, securities of other
regulated investment companies and other securities with such other securities
limited, in respect of any one issuer, to an amount not
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greater than 5% of the value of a Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
government securities or the securities of other RICs).
As a RIC, a Fund will not be subject to federal income tax on its net
investment income (i.e., its investment company taxable income, as that term is
defined in the Code, determined without regard to the deduction for dividends
paid) and 'net capital gains' (the excess of the Fund's net long-term capital
gains over net short-term capital losses), if any, that it distributes in each
taxable year to its shareholders, provided that it distributes 90% of its net
investment income for such taxable year, and with respect to the New York
Municipal Money Market Fund, the New York Municipal Bond Fund and the National
Intermediate Municipal Fund, at least 90% of its net tax-exempt income for such
taxable year. However, a Fund would be subject to corporate income tax
(currently at a maximum rate of 35%) on any undistributed net investment income
and net capital gains. Each Fund expects to designate amounts retained as
undistributed net capital gains in a notice to its shareholders who (i) will be
required to include in income for United States federal income tax purposes, as
long-term capital gains, their proportionate shares of the undistributed amount,
(ii) will be entitled to credit their proportionate shares of the 35% tax paid
by a Fund on the undistributed amount against their federal income tax
liabilities and to claim refunds to the extent such credits exceed their
liabilities and (iii) will be entitled to increase their tax basis, for federal
income tax purposes, in their shares by an amount equal to 65% of the amount of
undistributed net capital gains included in the shareholder's income.
A Fund will be subject to a non-deductible 4% excise tax to the extent that
a Fund does not distribute by the end of each calendar year: (a) at least 98% of
its ordinary income for such calendar year; (b) at least 98% of the excess of
its capital gains over its capital losses for the one-year period ending, as a
general rule, on October 31 of each year; and (c) 100% of the undistributed
income and gains from the preceding calendar year (if any) pursuant to the
calculations in (a) and (b). For this purpose, any income or gain retained by a
Fund that is subject to corporate tax will be considered to have been
distributed by year-end.
A Fund's investment in options, swaps and related transactions, futures
contracts and forward contracts, options on futures contracts and stock indices
and certain other securities, including transactions involving actual or deemed
short sales or foreign exchange gains or losses are subject to many complex and
special tax rules. For example, over-the-counter options on debt securities and
equity options, including options on stock and on narrow-based stock indexes,
will be subject to tax under Section 1234 of the Code, generally producing a
long-term or short-term capital gain or loss upon exercise, lapse or closing out
of the option or sale of the underlying stock or security. By contrast, a Fund's
treatment of certain other options, futures and forward contracts entered into
by a Fund is generally governed by Section 1256 of the Code. These 'Section
1256' positions generally include listed options on debt securities, options on
broad-based stock indexes, options on securities indexes, options on futures
contracts, regulated futures contracts and certain foreign currency contracts
and options thereon.
Absent a tax election to the contrary, each such Section 1256 position held
by a Fund will be marked-to-market (i.e., treated as if it were sold for fair
market value) on the last business day of a Fund's fiscal year, and all gain or
loss associated with fiscal year transactions and mark-to-market positions at
fiscal year end (except certain currency gain or loss covered by Section 988 of
the Code) will generally be treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. The effect of Section 1256 mark-to market
rules may be to accelerate income or to convert what otherwise would have been
long-term capital gains into short-term capital gains or short-term capital
losses into long-term capital losses within a Fund. The acceleration of income
on Section 1256 positions may require a Fund to accrue taxable income without
the corresponding receipt of cash. In order to generate cash to satisfy the
distribution requirements of the Code, a Fund may be required to dispose of
portfolio securities that they otherwise would have continued to hold or to use
cash flows from other sources such as the sale of Fund shares. In these ways,
any or
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all of these rules may affect the amount, character and timing of income earned
and in turn distributed to shareholders by a Fund.
When a Fund holds options or contracts which substantially diminish their
risk of loss with respect to other positions (as might occur in some hedging
transactions), this combination of positions could be treated as a 'straddle'
for tax purposes, resulting in possible deferral of losses, adjustments in the
holding periods of Fund securities and conversion of short-term capital losses
into long-term capital losses. Certain tax elections exist for mixed straddles
i.e., straddles comprised of at least one Section 1256 position and at least one
non-Section 1256 position which may reduce or eliminate the operation of these
straddle rules.
As a RIC, a Fund is also subject to the requirement that less than 30% of
its annual gross income be derived from the sale or other disposition of
securities and certain other investment held for less than three months (the
'short-short test'). This requirement may limit a Fund's ability to engage in
options, spreads, straddles, hedging transactions, forward or futures contracts
or options on any of these positions because these transactions are often
consummated in less than three months, may require the sale of portfolio
securities held less than three months and may, as in the case of short sales of
portfolio securities reduce the holding periods of certain securities within a
Fund, resulting in additional short-short income for such Fund.
A Fund will monitor its transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of the Fund as a RIC under Subchapter M of
the Code.
A Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in pay-in-kind
bonds or in obligations such as certain Brady Bonds or zero-coupon securities
having original issue discount (i.e., an amount equal to the excess of the
stated redemption price of the security at maturity over its issue price), or
market discount (i.e., an amount equal to the excess of the stated redemption
price of the security over the basis of such bond immediately after it was
acquired) if the Fund elects to accrue market discount on a current basis. In
addition, income may continue to accrue for federal income tax purposes with
respect to a non-performing investment. Any such income would be treated as
income earned by a Fund and therefore would be subject to the distribution
requirements of the Code. Because such income may not be matched by a
corresponding cash distribution to a Fund, such Fund may be required to borrow
money or dispose of other securities to be able to make distributions to its
investors. The extent to which a Fund may liquidate securities at a gain may be
limited by the 'short-short test' discussed above. In addition, if an election
is not made to currently accrue market discount with respect to a market
discount bond, all or a portion of any deduction for any interest expense
incurred to purchase or hold such bond may be deferred until such bond is sold
or otherwise disposed.
If a Fund purchases shares in certain foreign investment entities, called
'passive foreign investment companies' ('PFICs'), the Fund may be subject to
U.S. federal income tax on a portion of any 'excess distribution' or gain from
the disposition of shares even if the income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature of
interest may be imposed on either a Fund or its shareholders with respect to
deferred taxes arising from the distributions or gains. If a fund were to invest
in a PFIC and (if the Fund received the necessary information available from the
PFIC, which may be difficult to obtain) elected to treat the PFIC as a
'qualified electing fund' under the Code (a 'QEF'), in lieu of the foregoing
requirements, the Fund might be required to include in income each year a
portion of the ordinary earnings and net capital gains of the PFIC, even if not
distributed to the Fund, and the amounts would be subject to the 90% and excise
tax distribution requirements described above. Because of the expansive
definition of a PFIC, it is possible that a Fund may invest a portion of its
assets in PFICs.
In the case of PFIC stock owned by a RIC, H.R. 2491, as passed by Congress
and vetoed by President Clinton, contained a provision that would have permitted
a RIC to elect to annually mark-to-market stock in the PFIC and thereby avoid
the need for a RIC to make a QEF election. It is unclear whether similar
legislation will ultimately be adopted. Moreover,
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on April 1, 1992 the Internal Revenue Service ('IRS') proposed regulations
providing a mark-to-market election for RICs that would have effects similar to
the proposed legislation. These regulations would be effective for taxable years
ending after promulgation of the regulations as final regulations.
TAXATION OF U.S. SHAREHOLDERS
The Prospectus describes each Fund's policy with respect to distribution of
net investment income and any net capital gains. Shareholders should consider
the tax implications of buying shares just prior to a distribution. Although the
price of shares purchased at that time may reflect the amount of the forthcoming
distribution, those purchasing just prior to a distribution will receive a
distribution which will nevertheless be taxable to them.
Shareholders receiving a distribution in the form of additional shares will
be treated for federal income tax purposes as receiving a distribution in an
amount equal to the fair market value, determined as of the distribution date,
of the shares received and will have a cost basis in each share received equal
to the fair market value of a share of a Fund on the distribution date.
Shareholders will be notified annually as to the federal tax status of
distributions, and shareholders receiving distributions in the form of shares
will receive a report as to the fair market value of the shares received.
Gain or loss on the sale or other disposition of Fund shares will result in
capital gain or loss to shareholders. Generally, a shareholder's capital gain or
loss will be long-term gain or loss if the shares have been held for more than
one year. In general, the maximum federal income tax rate imposed on individuals
with respect to net realized long-term capital gains will be limited to 28%,
whereas the maximum federal income tax rate imposed on individuals with respect
to net realized short-term capital gains (which are taxed at ordinary income
rates) will be 39.6%. With respect to corporate taxpayers, long-term capital
gains are taxed at the same federal income tax rates as short-term capital
gains, the maximum rate being 35%. If a shareholder redeems or exchanges shares
of a Fund before he or she has held them for more than six months, any
short-term capital loss on such redemption or exchange will be treated as a
long-term capital loss to the extent of any capital gain dividends received by
the shareholder (or credited to the shareholder as an undistributed capital
gain) with respect to such shares. Under H.R. 2491, as passed by Congress and
vetoed by President Clinton, individual taxpayers would have been permitted a
50% deduction for any capital gains that they recognized, and corporations would
have been taxed at a 28% rate on capital gains, in lieu of the regular corporate
rate. It is unclear whether similar legislation will ultimately be adopted.
It is expected that a portion of the dividends of net investment income
received by corporate shareholders from a Fund (other than the Cash Management
Fund and the New York Municipal Money Market Fund) will qualify for the federal
dividends received deduction generally available to corporations. The dividends
received deduction for corporate shareholders may be reduced if the securities
with respect to which dividends are received by a Fund are (1) considered to be
'debt-financed' (generally, acquired with borrowed funds), (2) held by a Fund
for less than 46 days (91 days in the case of certain preferred stock) or (3)
subject to certain forms of hedges or short sales. The amount of any dividend
distribution eligible for the corporate dividends received deduction will be
designated by a Fund in a written notice within 60 days of the close of the
taxable year.
A Fund may be subject to certain taxes, including without limitation, taxes
imposed by foreign countries with respect to its income and capital gains. If a
Fund qualifies as a RIC, certain distribution requirements are satisfied and
more than 50% of the value of the Fund's total assets at the close of any
taxable year consists of stock or securities of foreign corporations, which for
this purpose may include obligations of foreign governmental issuers, the Fund
may elect, for United States federal income tax purposes, to treat any foreign
country's income or withholding taxes paid by the Fund that can be treated as
income taxes under the United States income tax principles, as paid by its
shareholders.
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The Asia Growth Fund expects to qualify for and make this election. For any
year that the Asia Growth Fund makes such an election, each shareholder will be
required to include in its income an amount equal to his or her allocable share
of such income taxes paid by the Asia Growth Fund to a foreign country's
government and shareholders will be entitled, subject to certain limitations, to
credit their portions of these amounts against their United States federal
income tax due, if any, or to deduct their portions from their United States
taxable income, if any. No deductions for foreign taxes paid by the Asia Growth
Fund may be claimed, however, by non-corporate shareholders (including certain
foreign shareholders described below) who do not itemize deductions.
Shareholders that are exempt from tax under Section 501(a) of the Code, such as
pension plans, generally will derive no benefit from this election. However,
such shareholders should not be disadvantaged either because the amount of
additional income they are deemed to receive equal to their allocable share of
such foreign countries' income taxes paid by the Asia Growth Fund generally will
not be subject to United States federal income tax.
THE NEW YORK MUNICIPAL MONEY MARKET FUND, THE NEW YORK MUNICIPAL BOND FUND AND
THE NATIONAL INTERMEDIATE MUNICIPAL FUND
The New York Municipal Money Market Fund, the New York Municipal Bond Fund
and the National Intermediate Municipal Fund each intends to qualify to pay
'exempt-interest dividends,' as that term is defined in the Code, by holding at
the end of each quarter of its taxable year at least 50% of the value of its
total assets in the form of obligations described in section 103(a) of the Code.
Each Fund's policy is to pay in each taxable year exempt-interest dividends
equal to at least 90% of such Fund's interest from tax-exempt obligations net of
certain deductions. Except as discussed below, exempt-interest dividends will be
exempt from regular federal income tax. In addition, dividends from the New York
Municipal Money Market Fund and the New York Municipal Bond Fund will not be
subject to New York State and New York City personal income taxes to the extent
that such distributions qualify as exempt-interest dividends and represent
interest income attributable to federally tax-exempt obligations of the State of
New York and its political subdivisions (as well as certain other federally
tax-exempt obligations the interest on which is exempt from New York State and
New York City personal income taxes). Dividends from the New York Municipal
Money Market Fund and the New York Municipal Bond Fund, however, are not
excluded in determining New York State or New York City franchise taxes on
corporations and financial institutions. Further, gain from a sale or redemption
of shares of the New York Municipal Money Market Fund, the New York Municipal
Bond Fund and the National Intermediate Municipal Fund will be taxable to the
shareholders as capital gain even though the increase in value of such shares is
attributable to tax-exempt income.
Because the New York Municipal Money Market Fund, the New York Municipal
Bond Fund and the National Intermediate Municipal Fund will primarily invest in
municipal obligations, dividends from these Funds will generally be exempt from
regular federal income tax in the hands of shareholders. A portion may be
subject to the alternative minimum tax, however. Federal tax law imposes an
alternative minimum tax with respect to both corporations and individuals based
on certain items of tax preference. Interest on certain municipal obligations,
such as bonds issued to make loans for housing purposes or to private entities
(but not to certain tax-exempt organizations such as universities and non-profit
hospitals) is included as an item of tax preference in determining the amount of
a taxpayer's alternative minimum taxable income. To the extent the New York
Municipal Money Market Fund, the New York Municipal Bond Fund or the National
Intermediate Municipal Fund makes such an investment, a portion of the
exempt-interest dividends paid, although otherwise exempt from federal income
tax, will be taxable to shareholders to the extent that their tax liability will
be determined under the alternative minimum tax. The New York Municipal Money
Market Fund, the New York Municipal Bond Fund and the National Intermediate
Municipal Fund will annually supply shareholders with a report indicating the
percentage of Fund income attributable to municipal obligations which may be
subject to the alternative minimum tax. Additionally, taxpayers must disclose to
the Internal Revenue Service on their tax returns the entire amount of
tax-exempt interest (including exempt-interest dividends on shares of the Fund)
received or accrued during the year.
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<PAGE>
In addition, for corporations, the alternative minimum taxable income is
increased by a percentage of the amount by which an alternative measure of
income ('adjusted current earnings,' referred to as 'ACE') exceeds the amount
otherwise determined to be the alternative minimum taxable income. Interest on
all municipal obligations, and therefore all exempt-interest dividends paid by
the New York Municipal Money Market Fund, the New York Municipal Bond Fund or
the National Intermediate Municipal Fund, is included in calculating ACE.
The Superfund Act of 1986 imposes a separate tax on corporations at a rate
of 0.12% of the excess of such corporation's 'modified alternative minimum
taxable income' over $2,000,000. A portion of a corporate shareholder's
tax-exempt interest, including exempt-interest dividends from the New York
Municipal Money Market Fund, the New York Municipal Bond Fund or the National
Intermediate Municipal Fund, may be includible in calculating such shareholder's
modified alternative minimum taxable income.
Taxpayers that may be subject to the alternative minimum tax should consult
their tax advisers before investing in the New York Municipal Money Market Fund,
the New York Municipal Bond Fund or the National Intermediate Municipal Fund.
Shares of the New York Municipal Money Market Fund, the New York Municipal
Bond Fund and the National Intermediate Municipal Fund would not be a suitable
investment for tax-exempt institutions and may not be a suitable investment for
retirement plans qualified under Section 401 of the Code, H.R. 10 plans and
individual retirement accounts ('IRAs'), because such plans and accounts are
generally tax-exempt or tax deferred and, therefore, would not gain any
additional benefit from the receipt of exempt-interest dividends from the Fund.
Moreover, subsequent distributions of such dividends to the beneficiaries will
be taxable.
In addition, the New York Municipal Money Market Fund, the New York
Municipal Bond Fund and the National Intermediate Municipal Fund may not be an
appropriate investment for entities that are 'substantial users' of facilities
financed by private activity bonds or 'related persons' thereof. A 'substantial
user' is defined under U.S. Treasury Regulations to include a non-exempt person
who regularly uses a part of such facilities in his trade or business and,
unless such facility, or part thereof, is constructed, reconstructed or acquired
specifically for the non-exempt person, whose gross revenue derived with respect
to the facilities financed by the issuance of bonds is more than 5% of the total
revenue derived by all users of such facilities. 'Related persons' include
certain related natural persons, affiliated corporations, partnerships and their
partners and S Corporations and their shareholders. The foregoing is not a
complete statement of all of the provisions of the Code covering the definitions
of 'substantial user' and 'related person'. For additional information,
investors should consult their tax advisers before investing in the New York
Municipal Money Market Fund, the New York Municipal Bond Fund or the National
Intermediate Municipal Fund.
All or a portion of the exempt-interest dividends received by certain
foreign corporations may be subject to the federal branch profits tax. Likewise,
all or a portion of the exempt-interest dividends may be taxable to certain
Subchapter S Corporations that have Subchapter C earnings and profits and
substantial passive investment income. In addition, the exempt-interest
dividends may reduce the deduction for loss reserves for certain insurance
companies. Such corporations and insurance companies should consult their tax
advisers before investing in the New York Municipal Money Market Fund, the New
York Municipal Bond Fund or the National Intermediate Municipal Fund. The Code
may also require shareholders that receive exempt-interest dividends to treat as
taxable income a portion of certain otherwise nontaxable social security and
railroad retirement benefit payments.
PERFORMANCE DATA
As indicated in the Prospectus, from time to time, a Fund may quote its
'yield,' 'tax-equivalent yield,' 'effective yield,' 'average annual total
return' and/or 'aggregate total return' for all classes of shares in
advertisements or in reports and other communications to
69
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shareholders and compare its performance figures to those of other funds or
accounts with similar objectives and to relevant indices. Such performance
information may include time periods prior to the implementation of the Multiple
Pricing System described in the Prospectus, and will be calculated as described
below.
AVERAGE ANNUAL TOTAL RETURN
A Fund's 'average annual total return' figures, as described and shown in
the Prospectus, are computed according to a formula prescribed by the
Commission. The formula can be expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000 payment made at the
beginning of a 1-5 or 10-year period at the end of such period (or
fractional portion thereof), assuming reinvestment of all dividends and
distributions.
In calculating the ending redeemable value, for Class A shares, the current
maximum front end sales charge of 4.75% (as a percentage of the offering price)
is deducted from the initial $1,000 payment, and for Class B and Class C shares,
the applicable CDSC imposed on redemption is deducted. The schedule of CDSCs due
upon redemption is described under 'Redemption of Shares' in the Prospectus.
The Cash Management Fund, the New York Municipal Money Market Fund, the New
York Municipal Bond Fund, the Investors Fund and the Capital Fund implemented
the Multiple Pricing System by reclassifying the then existing shares of each
such Fund as Class O shares of each such Fund. This reclassification was
effected in such a manner so that the shares of each of the Cash Management
Fund, the New York Municipal Bond Fund and the Investors Fund outstanding at
December 31, 1994, and shares of the New York Municipal Money Market Fund and
the Capital Fund outstanding at October 31, 1996, would be subject to identical
distribution and service fees both before and after the reclassification.
Except for the Capital Fund, the percentages shown in the tables below
reflect front end sales charges and CDSCs, if any, currently payable by each
class of shares under the Multiple Pricing System, and are based on the fees and
expenses actually paid by each such Fund for the periods presented. The
distribution and service fees currently payable by each class of shares under
the Multiple Pricing System are described in 'Purchase of Shares -- Distributor'
in the Prospectus.
The following tables set forth the average annual total returns for each
class of shares of each of the New York Municipal Bond Fund, National
Intermediate Fund, U.S. Government Income Fund, High Yield Bond Fund, Strategic
Bond Fund, Total Return Fund (in each case, after management fee waiver and
reimbursement of certain expenses) and the Investors Fund for certain periods of
time ending June 30, 1996 and reflect the effects of the maximum applicable
front end sales charges and any applicable CDSCs payable by an investor under
the Multiple Pricing System. The following tables also set forth the average
annual total returns for the Capital Fund for certain periods of time ending
June 30, 1996. As the Capital Fund had not yet implemented the Multiple Pricing
System as of such date, such returns do not reflect the effects of front end
sales charges or CDSCs.
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<PAGE>
NEW YORK MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
FROM COMMENCEMENT OF
APPLICABLE CLASS'
INVESTMENT
TWELVE MONTHS OPERATIONS
ENDED THROUGH
JUNE 30, 1996 JUNE 30, 1996**
------------- --------------------
<S> <C> <C>
Class A..................................................... 0.84% 6.64%
Class B..................................................... 0.10% 6.25%
Class C..................................................... 4.11% 9.48%
Class O..................................................... 6.13% 4.59%
</TABLE>
- ------------
** Commencement of investment operations was January 3, 1995 for Class A, B and
C shares and February 1, 1993 for Class O shares.
NATIONAL INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
FROM FEBRUARY 22, 1995
(COMMENCEMENT OF
TWELVE MONTHS INVESTMENT OPERATIONS
ENDED THROUGH
JUNE 30, 1996 JUNE 30, 1996)
------------- ----------------------
<S> <C> <C>
Class A...................................................... 0.30% 2.46%
Class B...................................................... (0.48%) 1.75%
Class C...................................................... 3.52% 5.38%
Class O...................................................... 5.59% 6.45%
</TABLE>
U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
FROM FEBRUARY 22, 1995
(COMMENCEMENT OF
TWELVE MONTHS INVESTMENT OPERATIONS
ENDED THROUGH
JUNE 30, 1996 JUNE 30, 1996)
------------- ----------------------
<S> <C> <C>
Class A...................................................... (0.89%) 2.64%
Class B...................................................... (1.70%) 1.91%
Class C...................................................... 2.19% 5.52%
Class O...................................................... 4.19% 6.57%
</TABLE>
HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
FROM FEBRUARY 22, 1995
(COMMENCEMENT OF
TWELVE MONTHS INVESTMENT OPERATIONS
ENDED THROUGH
JUNE 30, 1996 JUNE 30, 1996)
------------- ----------------------
<S> <C> <C>
Class A...................................................... 12.24% 15.39%
Class B...................................................... 11.93% 15.23%
Class C...................................................... 15.82% 18.64%
Class O...................................................... 17.70% 19.60%
</TABLE>
STRATEGIC BOND FUND
<TABLE>
<CAPTION>
FROM FEBRUARY 22, 1995
(COMMENCEMENT OF
TWELVE MONTHS INVESTMENT OPERATIONS
ENDED THROUGH
JUNE 30, 1996 JUNE 30, 1996)
------------- ----------------------
<S> <C> <C>
Class A...................................................... 8.85% 12.55%
Class B...................................................... 8.24% 12.17%
Class C...................................................... 12.28% 15.71%
Class O...................................................... 14.40% 16.85%
</TABLE>
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<PAGE>
TOTAL RETURN FUND
<TABLE>
<CAPTION>
FROM SEPTEMBER 11, 1995
(COMMENCEMENT OF INVESTMENT OPERATIONS
THROUGH
JUNE 30, 1996)
--------------------------------------
<S> <C>
Class A..................................................... 8.17%
Class B..................................................... 7.81%
Class C..................................................... 12.00%
Class O..................................................... 13.95%
</TABLE>
INVESTORS FUND
<TABLE>
<CAPTION>
FROM COMMENCEMENT OF
INVESTMENT OPERATIONS OF
CLASS A, B AND C
(JANUARY 3, 1995)
THROUGH
JUNE 30, 1996 1 YEAR 5 YEARS 10 YEARS
--------------------------- ------- ------- --------
<S> <C> <C> <C> <C>
Class A.................................. 28.31% 24.02% N/A N/A
Class B.................................. 28.68% 24.22% N/A N/A
Class C.................................. 31.64% 28.23% N/A N/A
Class O.................................. N/A 30.47% 16.70% 11.93%
</TABLE>
CAPITAL FUND
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
- ------ ------- --------
<S> <C> <C>
32.37% 14.73% 9.32%
</TABLE>
As described in the Prospectus under the caption 'Expense Information,'
each of the Funds, except the Investors Fund and the Capital Fund, has been and
still is subject to certain fee waivers and expense reimbursements. Absent such
waiver and reimbursement, the returns shown above for such Funds would be lower.
The performance data quoted represents past performance; investment returns
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
AGGREGATE TOTAL RETURN
The 'aggregate total return' figures for each class of a Fund, as described
in the Prospectus, represent the cumulative change in the value of an investment
in Fund shares of such class for the specified period and are computed by the
following formula:
AGGREGATE TOTAL RETURN = ERV_-_P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000 investment made
at the beginning of a 1-, 5-, or 10-year period at the end of such
period (or fractional portion thereof), assuming reinvestment of
all dividends and distributions.
YIELD
With respect to the Cash Management Fund and the New York Municipal Money
Market Fund, yield quotations are expressed in annualized terms and may be
quoted on a compounded basis.
The current yield for each of the Cash Management Fund and the New York
Municipal Money Market Fund is computed by (a) determining the net change in the
value of a hypothetical pre-existing account in the Fund having a balance of one
share at the beginning of a seven calendar day period for which yield is to be
quoted; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and
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<PAGE>
(c) annualizing the results (i.e. multiplying the base period return by 365/7).
The net change in the value of the account reflects the value of additional
shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. In addition, the Cash Management Fund may
calculate a compound effective annualized yield by adding 1 to the base period
return (calculated as described above), raising the sum to a power equal to
365/7 and subtracting 1.
For the seven-day period ended June 30, 1996 the annualized yield and
effective yield for each class of shares of the Cash Management Fund were 4.92%
and 5.04%, respectively. For the seven day period ended June 30, 1996 (before
implementation of the Multiple Pricing System) the annualized yield and
effective yield for the New York Municipal Money Market Fund were 3.25% and
3.30%, respectively. Because Class A, B and C shares of the Cash Management Fund
and the New York Municipal Money Market Fund, like Class O shares, are not
subject to any sales charges or service or distribution fees, the yield and
effective yield figures for Class A, B and C shares of the Cash Management Fund
and the New York Municipal Money Market Fund would be the same as those for
Class O shares.
In periods of declining interest rates the yield of the Cash Management
Fund and the New York Municipal Money Market Fund will tend to be somewhat
higher than prevailing market rates on short-term obligations, and in periods of
rising interest rates the yield will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to the Cash Management
Fund and the New York Municipal Money Market Fund from the continuous sale of
shares will likely be invested in portfolio instruments producing lower yields
than the balance of these Funds' portfolios, thereby reducing these Funds'
current yields. In periods of rising interest rates, the opposite can be
expected to occur.
THIRTY DAY YIELD
Certain Funds may advertise the yields for each class of such Funds based
on a 30-day (or one month) period according to the following formula:
a-b
Yield = 2 [( cd + 1)6 - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Under this formula, interest earned on debt obligations for purposes of 'a'
above, is calculated by (1) computing the yield to maturity of each obligation
held by the New York Municipal Bond Fund or the National Intermediate Municipal
Fund based on the market value of the obligation (including actual accrued
interest) at the close of business on the last day of each month, or, with
respect to obligations purchased during the month, the purchase price (plus
actual accrued interest), (2) dividing that figure by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation in the Fund's portfolio (assuming a month of 30 days) and (3)
computing the total of the interest earned on all debt obligations during the
30-day or one month period. Any amounts representing sales charges will not be
included among these expenses; however, the New York Municipal Bond Fund and the
National Intermediate Municipal Fund will disclose the maximum sales charge as
well as any amount or specific rate of any nonrecurring account charges.
Undeclared dividends, computed in accordance with Commission guidelines, may be
subtracted from the maximum offering price calculation required pursuant to 'd'
above.
The thirty day yield of the New York Municipal Bond Fund at June 30, 1996
was 4.80% for Class A, 4.31% for Class B, 4.31% for Class C and 5.29% for Class
O. The thirty day yield of the National Intermediate Municipal Fund at June 30,
1996 was 4.52% for Class A, 4.01% for Class B, 4.01% for Class C and 5.0% for
Class O.
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<PAGE>
<PAGE>
The tax equivalent yield of each of the New York Municipal Money Market
Fund, the New York Municipal Bond Fund and the National Intermediate Municipal
Fund is computed by dividing that portion of the respective Fund's yield
(computed as described above for each Fund) that is tax-exempt by one minus the
stated combined regular federal income and, in the case of the New York
Municipal Money Market Fund and the New York Municipal Bond Fund, the New York
State personal and, if applicable, New York City personal income tax rate and
adding the result to that portion, if any, of the yield of the Fund that is not
tax-exempt.
The tax equivalent yield for the New York Municipal Money Market Fund for
the seven-day period ended June 30, 1996 (before implementation of the Multiple
Pricing System) was 6.09%. Because Class A, B and C shares of the New York
Municipal Money Market Fund, like Class O Shares, are not subject to any sales
charges or service or distribution fees, the tax equivalent yield figures for
Class A, B and C shares of the Fund would be the same as those for Class O
shares. The tax equivalent yield of the New York Municipal Bond Fund at June 30,
1996 was 9.01% for Class A, 8.09% for Class B, 8.07% for Class C and 9.91% for
Class O. The tax equivalent yield of the National Intermediate Municipal Fund at
June 30, 1996 was 7.48% for Class A, 6.64% for Class B, 6.64% for Class C and
8.28% for Class O.
Any quotation of performance stated in terms of yield (whether or not based
on a 30-day period) will be given no greater prominence than the information
prescribed under Commission rules. In addition, all advertisements containing
performance data of any kind will include a legend disclosing that such
performance data represents past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
Yield and total return figures are calculated separately for Class A, Class
B, Class C and Class O shares of a Fund. In the examples above, these
calculations adjust for the different front end sales charges and CDSCs
currently payable with respect to each class and are based on expenses actually
paid by each Fund for the periods presented.
Advertisements and communications may compare a Fund's performance with
that of other mutual funds, as reported by Lipper Analytical Services, Inc. or
similar independent services or financial publications. From time to time,
advertisements and other Fund materials and communications may cite statistics
to reflect a Fund's performance over time utilizing, for example, with respect
to the New York Municipal Bond Fund and the National Intermediate Municipal
Fund, comparisons to indices such as the Bond Buyer 40-Bond Index and, with
respect to the New York Municipal Bond Fund, the Lipper Composite New York
Municipal Bond Fund Returns.
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and operating expenses.
Consequently, any given performance quotation should not be considered
representative of the performance of Fund shares for any specified period in the
future. Because performance will vary, it may not provide a basis for comparing
an investment in Fund shares with certain bank deposits or other investments
that pay a fixed return for a stated period of time. Investors comparing a
Fund's performance with that of other mutual funds should give consideration to
the nature, quality and maturity of the respective investment companies'
portfolio securities and market conditions. An investor's principal is not
guaranteed by any Fund.
SHAREHOLDER SERVICES
Exchange Privilege. Shareholders may exchange all or part of their Fund
shares for shares of the same class of other Funds in the Salomon Brothers
Investment Series, as indicated in the Prospectus, to the extent such shares are
offered for sale in the shareholder's state of residence.
The exchange privilege enables shareholders of a Fund to acquire shares in
a Fund with different investment objectives when they believe that a shift
between Funds is an appropriate investment decision. This privilege is available
to shareholders residing in any state in which the Fund shares being acquired
may legally be sold.
74
<PAGE>
<PAGE>
Exercise of the exchange privilege is treated as a sale and purchase for
federal income tax purposes and, depending on the circumstances, a short- or
long-term capital gain or loss may be realized. The price of the shares of the
fund into which shares are exchanged will be the new cost basis for tax
purposes.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and the proceeds immediately invested in shares of the Fund being acquired at a
price equal to the then current net asset value of such shares plus any
applicable sales charge.
All accounts involved in a telephone or telegram exchange must have the
same registration. If a new account is to be established, the dollar amount to
be exchanged must be at least as much as the minimum initial investment of the
Fund whose shares are being purchased. Any new account established by exchange
will automatically be registered in the same way as the account from which
shares are exchanged and will carry the same dividend option.
The exchange privilege is not designed for investors trying to catch
short-term savings in market prices by making frequent exchanges. A Fund
reserves the right to impose a limit on the number of exchanges a shareholder
may make. Call or write the applicable Fund for further details.
Automatic Withdrawal Plan. With respect to any Fund, an Automatic
Withdrawal Plan may be opened with an account having a minimum account value as
described in the Prospectus. All dividends and distributions on the shares held
under the Withdrawal Plan are automatically reinvested at net asset value in
full and fractional shares of the same class of a Fund. Withdrawal payments are
made by First Data Investor Services Group, Inc. ('FDISG'), formerly The
Shareholders Services Group, Inc., as agent, from the proceeds of the redemption
of such number of shares as may be necessary to make each periodic payment. As
such redemptions involve the use of capital, over a period of time they may
exhaust the share balance of an account held under a Withdrawal Plan. Use of a
Withdrawal Plan cannot assure realization of investment objectives, including
capital growth or protection against loss in declining markets. A Withdrawal
Plan can be terminated at any time by the investor, a Fund or FDISG upon notice
in writing.
The Withdrawal Plan will not be carried over on exchanges between Funds or
classes. A new Withdrawal Plan application is required to establish the
Withdrawal Plan in the new Fund or class. For additional information,
shareholders should call (800) SALOMON or (800) 725-6666.
Self Employed Retirement Plans. The Funds offer a prototype retirement plan
for self-employed individuals. Under such plan, self-employed individuals may
contribute out of earned income to purchase shares of a Fund and/or certain
other mutual funds managed by SBAM.
Boston Safe Deposit and Trust Company ('Boston Safe') has agreed to serve
as custodian and furnish the services provided for in the plan and the related
custody agreement. Boston Safe will charge individuals adopting a self employed
retirement plan an application fee as well as certain additional fees for its
services under the custody agreement.
For information required for adopting a self employed retirement plan,
including information on fees, obtain the form of the plan and custody agreement
available from a Fund. Because application of particular tax provisions will
vary depending on each individual's situation, consultation with a financial
adviser regarding a self employed retirement plan is recommended.
IRAs. A prototype IRA is available, which has been approved as to form by
the IRS. Contributions to an IRA made available by a Fund may be invested in
shares of such Fund and/or certain other mutual funds managed by SBAM.
Boston Safe has agreed to serve as custodian of the IRA and furnish the
services provided for in the custody agreement. Boston Safe will charge each IRA
an application fee as well as certain additional fees for its services under the
custody agreement. In accordance
75
<PAGE>
<PAGE>
with IRS regulations, an individual may revoke an IRA within seven calendar days
after it is established.
Contributions in excess of allowable limits, premature distributions to an
individual who is not disabled before age 59 1/2 or insufficient distributions
after age 70 1/2 will generally result in substantial adverse tax consequences.
For information required for adopting an IRA, including information fees,
obtain the form of custody agreement and related materials, including disclosure
materials, available from a Fund. Consultation with a financial adviser
regarding an IRA is recommended.
CAPITAL STOCK
As used in this Statement of Additional Information and the Prospectus, the
term 'majority', when referring to the approvals to be obtained from
shareholders in connection with matters affecting a particular Fund or any other
single portfolio (e.g., approval of investment management contracts) or any
particular class (e.g., approval of plans of distribution) and requiring a vote
under the 1940 Act means the vote of the lesser of (i) 67% of the shares of that
particular portfolio or class, as appropriate, represented at a meeting if the
holders of more than 50% of the outstanding shares of such portfolio or class,
as appropriate, are present in person or by proxy or (ii) more than 50% of the
outstanding shares of such portfolio or class, as appropriate. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
Shares of each class of each Fund are entitled to such dividends and
distributions out of the assets belonging to that class as are declared in the
discretion of the applicable Board of Directors. In determining the net asset
value of a class of a Fund, assets belonging to a particular class are credited
with a proportionate share of any general assets of the Fund not belonging to a
particular class and are charged with the direct liabilities in respect of that
class of the Fund and with a share of the general liabilities of the investment
company which are normally allocated in proportion to the relative net asset
values of the respective classes of the Funds at the time of allocation.
In the event of the liquidation or dissolution of the investment company,
shares of each class of a Fund are entitled to receive the assets attributable
to it that are available for distribution, and a proportionate distribution,
based upon the relative net assets of the classes of each Fund, of any general
assets not attributable to a portfolio that are available for distribution.
Shareholders are not entitled to any preemptive rights. All shares, when issued,
will be fully paid, non-assessable, fully transferable and redeemable at the
option of the holder.
Subject to the provisions of the applicable investment company's charter,
determinations by the Board of Directors as to the direct and allocable
liabilities and the allocable portion of any general assets of the investment
company, with respect to a particular Fund or class are conclusive.
The shares of the Investors Fund and Capital Fund have non-cumulative
voting rights. This means that the holders of more than 50% of the shares voting
for the election of directors can elect 100% of the directors, if they choose to
do so. In such event, the holders of the remaining less than 50% of the shares
voting for such election will not be able to elect any person or persons to the
Board of Directors.
CUSTODIAN AND TRANSFER AGENT
Investors Bank, located at 89 South Street, Boston, Massachusetts 02111,
serves as custodian for each Fund. As a Fund's custodian, Investors Bank, among
other things, maintains a custody account or accounts in the name of the Fund;
receives and delivers all assets for the Fund upon purchase and upon sale or
maturity; collects and receives all income and other payments and distributions
on account of the assets of the Fund; and makes disbursements on behalf of the
Fund. The custodian does not determine the investment policies of a Fund, nor
decide which securities a Fund will buy or sell. For its services, the custodian
receives a monthly fee based upon the daily average market value of securities
76
<PAGE>
<PAGE>
held in custody and also receives securities transaction charges, including
out-of-pocket expenses. The assets of each Fund are held under bank
custodianship in compliance with the 1940 Act. A Fund may also periodically
enter into arrangements with other qualified custodians with respect to certain
types of securities or other transactions such as repurchase agreements or
derivatives transactions.
FDISG, a subsidiary of First Data Corporation, located at P.O. Box 5127,
Westborough, Massachusetts 01581-5127, serves as transfer agent for each Fund.
As a Fund's transfer agent, FDISG registers and processes transfers of the
Fund's stock, processes purchase and redemption orders, acts as dividend
disbursing agent for the Fund and maintains records and handles correspondence
with respect to shareholder accounts, pursuant to a transfer agency agreement.
For these services, FDISG receives a monthly fee computed separately for each
class of a Fund's shares and is reimbursed separately by each class for
out-of-pocket expenses.
VALIDITY OF SHARES
The validity of the shares of each Fund will be passed upon by Piper &
Marbury L.L.P., Baltimore, Maryland.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP ('Price Waterhouse') provides audit services, tax
return preparation and assistance and consultation in connection with review of
Commission filings. The financial statements and financial highlights included
or incorporated by reference in the Prospectus and included in this Statement of
Additional Information have been included in reliance on the report of Price
Waterhouse, independent accountants, given on the authority of that firm as
experts in auditing and accounting. Price Waterhouse's address is 1177 Avenue of
the Americas, New York, New York 10036.
COUNSEL
Simpson Thacher & Bartlett (a partnership which includes professional
corporations) serves as counsel to each Fund, and is located at 425 Lexington
Avenue, New York, New York 10017-3954.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information included in the Registration Statement filed with the
Commission under the 1933 Act with respect to the securities offered by the
Prospectus. Certain portions of the Registration Statement have been omitted
from the Prospectus and this Statement of Additional Information pursuant to the
rules and regulations of the Commission. The Registration Statement including
the exhibits filed therewith may be examined at the office of the Commission in
Washington, D.C.
Statements contained in the Prospectus or in this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
77
<PAGE>
<PAGE>
FINANCIAL STATEMENTS
78
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
MATURITY ON
PRINCIPAL DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1a)
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 41.5%
AUTO -- CARS -- 2.0%
$ 400,000 Ford Motor Credit................................ 5.280% 08/05/96 $ 397,947
------------
BANKS -- 4.1%
400,000 Deutsche Bank Financial.......................... 5.270 07/17/96 399,063
400,000 J. P. Morgan..................................... 4.970 09/06/96 396,300
------------
795,363
------------
BEVERAGES -- BREWED & DISTILLED -- 3.8%
750,000 Seagram (Joseph) & Sons.......................... 5.370 07/30/96 746,756
------------
COMPUTER SYSTEMS -- 4.1%
400,000 Hewlett-Packard.................................. 5.260 07/23/96 398,714
400,000 Pitney Bowes Credit.............................. 5.280 08/05/96 397,947
------------
796,661
------------
CONSUMER CYCLICAL -- MISCELLANEOUS -- 2.0%
400,000 PHH.............................................. 5.330 07/22/96 398,756
------------
FINANCE COMPANIES -- 6.6%
400,000 Commercial Credit................................ 5.290 07/26/96 398,531
400,000 General Electric Capital......................... 5.260 07/08/96 399,591
500,000 Transamerica Finance............................. 5.340 07/17/96 498,813
------------
1,296,935
------------
FINANCIAL -- BROKERAGE -- 2.0%
400,000 Goldman Sachs Group.............................. 5.330 08/12/96 397,513
------------
FOODS -- 2.1%
400,000 Heinz (H.J.)..................................... 5.290 07/02/96 399,941
------------
HOUSEHOLD PRODUCTS -- 2.0%
400,000 Procter & Gamble................................. 5.260 07/25/96 398,597
------------
MERCHANDISING -- 2.6%
500,000 Penney (J.C.) Funding............................ 5.340 07/31/96 497,775
------------
MUNICIPAL -- 6.1%
400,000 De Kalb County, Georgia.......................... 5.580 07/08/96 400,000
400,000 Methodist Hospital (Houston, Texas).............. 5.400 07/30/96 400,000
400,000 New York City, New York GO....................... 5.300 08/20/96 400,000
------------
1,200,000
------------
OIL -- INTEGRATED INTERNATIONAL -- 2.1%
400,000 Shell Oil........................................ 5.320 07/15/96 399,172
------------
UTILITIES -- COMMUNICATIONS -- 2.0%
400,000 AT&T............................................. 5.260 07/29/96 398,363
------------
TOTAL COMMERCIAL PAPER
(cost $8,123,779).............................. 8,123,779
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 19
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS CASH MANAGEMENT FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
MATURITY ON
PRINCIPAL DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1a)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLOATING RATE NOTES -- 26.4%
CALIFORNIA -- 2.0%
$ 400,000 Pasadena, California Certificates of
Participation VR............................... 5.750% 07/02/96 $ 400,000
------------
FLORIDA -- 2.0%
400,000 Florida Housing Finance Agency VR................ 5.520 07/03/96 400,000
------------
ILLINOIS -- 2.0%
400,000 Illinois Student Assistance Commission VR........ 5.770 07/03/96 400,000
------------
MICHIGAN -- 1.1%
200,000 Genesis Health Systems VR........................ 5.590 07/03/96 200,000
------------
NEW JERSEY -- 2.7%
285,000 New Jersey Economic Development Authority VR..... 5.810 07/01/96 285,000
230,000 New Jersey Economic Development Authority VR..... 5.680 07/01/96 230,000
------------
515,000
------------
NEW YORK -- 8.7%
390,000 Fulton County, New York Industrial Development
Agency VR...................................... 5.700 07/05/96 390,000
400,000 Health Insurance Plan, Greater New York VR....... 5.550 07/03/96 400,000
350,000 New York City, New York Industrial Development
Agency VR...................................... 5.650 07/03/96 350,000
150,000 New York City, New York Industrial Development
Agency VR...................................... 5.650 07/03/96 150,000
400,000 Syracuse, New York GO VR......................... 6.400 07/03/96 400,000
------------
1,690,000
------------
NORTH CAROLINA -- 2.0%
390,000 Greensboro, North Carolina GO VR................. 5.550 07/03/96 390,000
------------
TENNESSEE -- 2.0%
400,000 Community Health Systems VR...................... 5.700 07/03/96 400,000
------------
TEXAS -- 1.9%
375,000 Texas State GO VR................................ 5.520 07/03/96 375,000
------------
VIRGINIA -- 2.0%
400,000 Virginia State Housing Development Authority
VR............................................. 5.550 07/03/96 400,000
------------
TOTAL FLOATING RATE NOTES
(cost $5,170,000).............................. 5,170,000
------------
U.S. GOVERNMENT AGENCY -- 9.2%
1,805,000 Federal Farm Credit Bank (cost $1,798,935)....... 5.260 07/24/96 1,798,935
------------
TOTAL INVESTMENTS -- 77.1%
(cost $15,092,714)............................. 15,092,714
</TABLE>
See accompanying notes to financial statements.
PAGE 20
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS CASH MANAGEMENT FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
MATURITY ON
PRINCIPAL DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1a)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT -- 21.6%
$ 4,231,221 Repurchase Agreement dated 06/28/96 with
J.P. Morgan Securities, collateralized by
$4,227,000 U.S. Treasury Bonds, 7.250%, due
05/15/16 valued at $4,316,824; proceeds:
$4,233,132 (cost $4,231,221)................... 5.420% 07/01/96 $ 4,231,221
Other assets in excess of liabilities -- 1.3%.... 254,487
------------
NET ASSETS -- 100.0%............................. $ 19,578,422
------------
------------
</TABLE>
* Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR), whose yields are determined on date of last interest rate
change. For Variable Rate Demand Notes, maturity date shown is the date of
next interest rate change.
Abbreviation used in this statement:
GO -- General Obligation
See accompanying notes to financial statements.
PAGE 21
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS NEW YORK MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 97.1%
NEW YORK -- 93.6%
$ 150,000 Grand Central District Management Association....... 5.250% 01/01/22 $ 132,555
150,000 Metropolitan Transportation Authority New York
FSA............................................... 5.700 07/01/24 146,717
200,000 Mount Pleasant, New York
Industrial Development Agency VR.................. 3.600 07/02/96 200,000
200,000 Nassau County, New York GO FGIC..................... 5.200 08/01/12 190,762
300,000 New York City, New York GO.......................... 7.375 08/15/13 329,889
300,000 New York City, New York GO.......................... 6.750 10/01/17 306,231
100,000 New York City, New York
Industrial Development Agency VR.................. 3.200 07/03/96 100,000
300,000 New York City, New York
Municipal Water Finance Authority................. 6.000 06/15/17 298,575
150,000 New York State Dormitory Authority.................. 6.250 07/01/13 147,080
150,000 New York State Dormitory Authority.................. 5.500 07/01/25 134,468
150,000 New York State Dormitory Authority.................. 5.500 05/15/23 134,178
100,000 New York State Dormitory Authority
(City University System of New York).............. 5.750 07/01/18 95,210
140,000 New York State Dormitory Authority
(State University Educational Facilities)......... 6.000 05/15/17 135,463
200,000 New York State GO................................... 6.000 03/15/20 202,820
250,000 New York State
Local Government Assistance Corporation........... 6.000 04/01/18 250,280
100,000 New York State
Medical Care Facilities Finance Agency MBIA....... 5.900 02/15/21 99,863
200,000 New York State Mortgage Agency...................... 6.500 04/01/13 204,790
150,000 New York State Thruway Authority.................... 6.000 04/01/10 146,421
150,000 New York State
Urban Development Corporation..................... 5.500 01/01/14 139,940
150,000 New York State
Urban Development Corporation..................... 5.500 01/01/19 138,201
200,000 Port Authority of New York & New Jersey............. 5.500 09/01/13 192,670
150,000 Triborough Bridge & Tunnel Authority New York....... 5.500 01/01/17 146,045
200,000 Western Nassau County, New York
Water Authority AMBAC............................. 5.500 05/01/16 192,054
-----------
4,064,212
-----------
PUERTO RICO -- 3.5%
150,000 Commonwealth of Puerto Rico GO...................... 6.000 07/01/14 151,136
-----------
TOTAL INVESTMENTS -- 97.1%
(cost $4,217,086)................................. 4,215,348
Other assets in excess of liabilities -- 2.9%....... 127,655
-----------
NET ASSETS -- 100.0%................................ $ 4,343,003
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
Abbreviations used in this statement:
-- Insured as to principal and interest by the American Municipal Bond Assurance Corporation.
AMBAC
-- Insured as to principal and interest by the Financial Guaranty Insurance Corporation.
FGIC
-- Insured as to principal and interest by the Financial Security Assurance Corporation.
FSA
-- General Obligation
GO
-- Insured as to principal and interest by the MBIA Insurance Corporation.
MBIA
-- Variable Rate Demand Note. Maturity date shown is the date of next interest rate change.
VR
</TABLE>
See accompanying notes to financial statements.
PAGE 22
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS NATIONAL INTERMEDIATE MUNICIPAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 96.6%
CALIFORNIA -- 3.7%
$ 100,000 Los Angeles County, California Industrial
Development Authority VR......................... 4.200% 07/01/96 $ 100,000
285,000 Los Angeles, California AMBAC...................... 6.000 08/01/03 301,826
------------
401,826
------------
FLORIDA -- 1.6%
180,000 Florida Housing Finance Agency..................... 6.150 07/01/06 182,535
------------
HAWAII -- 2.2%
250,000 Hawaii State Department of Budget & Finance........ 5.600 07/01/06 247,735
------------
ILLINOIS -- 6.5%
300,000 Chicago, Illinois Metropolitan Water GO............ 5.900 12/01/06 315,243
400,000 Illinois Student Assistance Commission............. 6.400 03/01/04 413,156
------------
728,399
------------
INDIANA -- 8.7%
300,000 Indiana Secondary Market for Education AMBAC....... 5.550 12/01/05 294,171
650,000 Indiana Transportation Finance Authority........... 6.250 11/01/03 687,908
------------
982,079
------------
LOUISIANA -- 4.2%
450,000 Louisiana Public Facilities Authority.............. 6.750 09/01/06 476,271
------------
MASSACHUSETTS -- 3.8%
400,000 Commonwealth of Massachusetts Health & Educational
Facilities Authority............................. 6.500 12/01/05 429,092
------------
MICHIGAN -- 4.2%
475,000 Michigan State Housing Development Authority
FGIC............................................. 6.300 04/01/03 475,580
------------
MISSISSIPPI -- 4.3%
480,000 Mississippi Higher Education....................... 6.050 09/01/07 488,928
------------
NEW JERSEY -- 4.1%
450,000 Passaic Valley, New Jersey Sewer Commission
AMBAC............................................ 5.750 12/01/07 464,216
------------
NEW YORK -- 30.7%
450,000 New York City, New York GO......................... 6.500 02/01/02 466,349
380,000 New York City, New York Municipal Assistance
Corporation...................................... 6.000 07/01/04 404,309
500,000 New York State Dormitory Authority................. 6.000 07/02/06 503,360
700,000 New York State Dormitory Authority MBIA............ 5.600 07/01/06 708,554
400,000 New York State Dormitory Authority (State
University of New York).......................... 6.625 07/01/04 440,244
500,000 New York State Mortgage Agency..................... 5.900 10/01/06 498,045
400,000 New York State Thruway Authority MBIA.............. 6.000 01/01/04 423,756
------------
3,444,617
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 23
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS NATIONAL INTERMEDIATE MUNICIPAL FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA -- 8.1%
$ 400,000 Geisinger Authority, Pennsylvania Health System.... 6.000% 07/01/01 $ 417,528
500,000 Monroeville, Pennsylvania Hospital Authority....... 5.750 10/01/05 489,430
------------
906,958
------------
PUERTO RICO -- 2.4%
250,000 Commonwealth of Puerto Rico Highway and
Transportation Authority MBIA.................... 6.250 07/01/06 271,295
------------
SOUTH CAROLINA -- 7.3%
750,000 South Carolina State Public Service Authority
FGIC............................................. 6.500 01/01/05 818,505
------------
TEXAS -- 4.8%
500,000 Austin, Texas Airport Systems MBIA................. 6.500 11/15/05 542,325
------------
TOTAL INVESTMENTS -- 96.6%
(cost $10,728,020)............................... 10,860,361
Other assets in excess of liabilities -- 3.4%...... 384,981
------------
NET ASSETS -- 100.0%............................... $ 11,245,342
------------
------------
</TABLE>
<TABLE>
<S> <C>
Abbreviations used in this statement:
-- Insured as to principal and interest by the American Municipal Bond Assurance Corporation.
AMBAC
-- Insured as to principal and interest by the Financial Guaranty Insurance Corporation.
FGIC
-- General Obligation.
GO
-- Insured as to principal and interest by the MBIA Insurance Corporation.
MBIA
-- Variable Rate Demand Note. Maturity date shown is the date of next interest rate change.
VR
</TABLE>
See accompanying notes to financial statements.
PAGE 24
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES -- 52.7%
$ 4,350,000 U.S. Treasury Note............................... 6.125% 05/31/97 $ 4,363,572
700,000 U.S. Treasury Note............................... 6.625 06/30/01 704,592
500,000 U.S. Treasury Note............................... 6.500 08/15/05 492,810
150,000 U.S. Treasury Note............................... 5.875 11/15/05 141,305
------------
TOTAL U.S. TREASURY NOTES
(cost $5,731,180).............................. 5,702,279
------------
U.S. GOVERNMENT AGENCY -- 39.3%
100,000 Federal Home Loan Bank........................... 5.940 06/13/00 97,781
73,590 Federal Home Loan Mortgage Corporation........... 6.000 07/01/10 69,976
697,674 Federal Home Loan Mortgage Corporation........... 6.000 08/01/10 663,411
374,793 Federal Home Loan Mortgage Corporation........... 6.000 09/01/10 356,387
38,680 Federal Home Loan Mortgage Corporation........... 6.000 10/01/10 36,757
549,149 Federal Home Loan Mortgage Corporation........... 6.000 10/01/10 521,851
39,196 Federal Home Loan Mortgage Corporation........... 11.750 01/01/11 43,280
935 Federal Home Loan Mortgage Corporation........... 11.750 06/01/14 1,007
25,320 Federal Home Loan Mortgage Corporation........... 11.750 12/01/14 28,313
36,108 Federal Home Loan Mortgage Corporation........... 11.750 07/01/15 40,378
40,690 Federal Home Loan Mortgage Corporation........... 11.750 01/01/16 45,503
58,536 Federal National Mortgage Association............ 14.500 11/01/14 71,487
27,341 Federal National Mortgage Association............ 12.500 08/01/15 31,665
125,623 Federal National Mortgage Association............ 12.500 09/01/15 146,116
44,655 Federal National Mortgage Association............ 12.000 01/01/16 51,367
38,013 Federal National Mortgage Association............ 11.500 04/01/19 42,765
227,539 Federal National Mortgage Association............ 11.500 02/01/20 256,478
126,752 Federal National Mortgage Association............ 13.000 02/26/26 148,695
66,634 Federal National Mortgage Association............ 6.500 04/01/26 62,406
1,430,043 Federal National Mortgage Association............ 6.500 04/01/26 1,339,312
200,000 Government National Mortgage Association(a)...... 7.000 01/22/26 191,781
------------
TOTAL U.S. GOVERNMENT AGENCY
(cost $4,312,382).............................. 4,246,716
------------
TOTAL INVESTMENTS -- 92.0%
(cost $10,043,562)............................. 9,948,995
REPURCHASE AGREEMENT -- 16.2%
1,749,000 Repurchase Agreement dated 06/28/96, with
J.P.Morgan Securities, collateralized
by $1,564,000 U.S. Treasury Bonds,
9.125%, due 05/15/09 valued at $1,784,915;
proceeds: $1,749,790........................... 5.420 07/01/96 1,749,000
Liabilities in excess of other
assets -- (8.2%)............................... (885,489)
------------
NET ASSETS -- 100.0%............................. $ 10,812,506
------------
------------
</TABLE>
(a) Mortgage Dollar Roll. See Note 1.
See accompanying notes to financial statements.
PAGE 25
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT(a) DESCRIPTION RATE DATE (NOTE 1a)
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 73.4%
BASIC INDUSTRIES -- 18.4%
500,000 Algoma Steel......................................... 12.375% 07/15/05 $ 485,000
500,000 Alvey Systems........................................ 11.375 01/31/03 517,500
500,000 Asia Pulp & Paper International Finance.............. 11.750 10/01/05 512,500
500,000 Clark-Schwebel....................................... 10.500 04/15/06 512,500
250,000 Foamex............................................... 11.875 10/01/04 235,000
500,000 Forest Oil........................................... 11.250 09/01/03 517,500
500,000 Harris Chemical...................................... 10.250 07/15/01 501,250
1,000,000 International Semi-Technology (Zero Coupon until
08/15/00, 11.50% thereafter)(b).................... 13.420 08/15/03 572,500
750,000 NL Industries (Zero Coupon until 10/15/98, 13.00%
thereafter)(b)..................................... 11.641 10/15/05 582,188
500,000 Norcal Waste Systems*................................ 12.750 11/15/05 520,000
500,000 Oregon Steel Mills................................... 11.000 06/15/03 515,000
250,000 Renco Metals......................................... 12.000 07/15/00 282,500
1,000,000 Renco Metals......................................... 11.500 07/01/03 1,015,000
500,000 Repap Wisconsin...................................... 9.875 05/01/06 445,000
500,000 Southdown............................................ 10.000 03/01/06 485,000
500,000 Specialty Equipment.................................. 11.375 12/01/03 516,250
500,000 Stone Container...................................... 9.875 02/01/01 488,125
500,000 Terex................................................ 13.750 05/15/02 521,875
500,000 Texas Petrochemicals................................. 11.125 07/01/06 512,500
500,000 Valcor............................................... 9.625 11/01/03 450,000
------------
10,187,188
------------
CONSUMER CYCLICALS -- 9.1%
500,000 American Skiing...................................... 12.000 07/15/06 490,000
500,000 Collins & Aikman..................................... 11.500 04/15/06 506,250
1,000,000 Hayes Wheels International........................... 11.000 07/15/06 1,012,500
500,000 Herff Jones.......................................... 11.000 08/15/05 522,500
500,000 Hills Stores......................................... 12.500 07/01/03 490,000
500,000 Hines Horticulture................................... 11.750 10/15/05 520,000
500,000 Simmons.............................................. 10.750 04/15/06 497,500
500,000 Specialty Retailer................................... 11.000 08/15/03 520,000
500,000 Wyndham Hotel........................................ 10.500 05/15/06 500,000
------------
5,058,750
------------
CONSUMER NON-CYCLICALS -- 18.3%
500,000 Americold............................................ 12.875 05/01/08 510,000
500,000 Argosy Gaming........................................ 13.250 06/01/04 506,250
500,000 Bally's Grand........................................ 10.375 12/15/03 548,750
500,000 Berry Plastics....................................... 12.250 04/15/04 540,000
500,000 Big V Supermarkets................................... 11.000 12/15/04 465,000
500,000 Borg-Warner.......................................... 9.125 05/01/03 470,000
500,000 Carr-Gottstein Foods................................. 12.000 11/15/05 512,500
500,000 Cobb Theatres........................................ 10.625 03/01/03 507,500
500,000 Dade International................................... 11.125 05/01/06 517,500
500,000 Empress River Casino................................. 10.750 04/01/02 522,500
250,000 Hollywood Casino..................................... 12.750 11/01/03 250,000
450,000 Jordan Industries (Zero Coupon until 08/01/98, 11.75%
thereafter)(b)..................................... 14.013 08/01/05 324,000
400,000 Majestic Star Casino................................. 12.750 05/15/03 434,000
500,000 Remington Product.................................... 11.000 05/15/06 497,500
500,000 Samsonite............................................ 11.125 07/15/05 507,500
</TABLE>
See accompanying notes to financial statements.
PAGE 26
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS HIGH YIELD BOND FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT(a) DESCRIPTION RATE DATE (NOTE 1a)
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
500,000 Selmer............................................... 11.000% 05/15/05 $ 527,500
500,000 Showboat Marina Casino............................... 13.500 03/15/03 542,500
250,000 Specialty Foods...................................... 11.125 10/01/02 237,500
600,000 Trump Atlantic City.................................. 11.250 05/01/06 606,000
500,000 Twin Laboratories.................................... 10.250 05/15/06 507,500
500,000 Williamhouse Regency................................. 13.000 11/15/05 566,250
------------
10,100,250
------------
ENERGY -- 2.7%
500,000 Benton Oil & Gas..................................... 11.625 05/01/03 515,000
500,000 Chesapeake Energy.................................... 9.125 04/15/06 487,500
500,000 Cliffs Drilling...................................... 10.250 05/15/03 495,000
------------
1,497,500
------------
FINANCIAL SERVICES -- 0.9%
500,000 Polysindo International Finance...................... 11.375 06/15/06 508,750
------------
HEALTH CARE -- 0.9%
500,000 Paracelsus Healthcare................................ 9.875 10/15/03 500,000
------------
MEDIA -- 7.8%
500,000 Adelphia Communications.............................. 12.500 05/15/02 507,500
500,000 American Media Operation............................. 11.625 11/15/04 510,000
500,000 Chancellor Broadcasting.............................. 9.375 10/01/04 472,500
1,000,000 Diamond Cable (Zero Coupon until 12/15/00, 11.75%
thereafter)(b)..................................... 11.750 12/15/05 587,500
1,000,000 Marcus Cable (Zero Coupon until 12/15/00, 14.125%
thereafter)(b)..................................... 12.867 12/15/05 615,000
500,000 People's Choice TV (Zero Coupon until 06/01/00,
13.125% thereafter)(b)............................. 13.125 06/01/04 290,000
500,000 SFX Broadcasting..................................... 10.750 05/15/06 496,250
750,000 United International Holdings(b)..................... 13.371 11/15/99 495,000
250,000 Wireless One, including 750 attached warrants........ 13.000 10/15/03 258,750
------------
4,232,500
------------
TECHNOLOGY -- 3.6%
500,000 Exide Electronics Group, including 500 attached
warrants........................................... 11.500 03/15/06 530,000
500,000 Talley Manufacturing & Technology.................... 10.750 10/15/03 512,500
500,000 Telex Communications................................. 12.000 07/15/04 534,375
400,000 UNC.................................................. 11.000 06/01/06 407,000
------------
1,983,875
------------
TELECOMMUNICATIONS & UTILITIES -- 8.6%
1,000,000 AES.................................................. 10.250 07/15/06 1,015,625
900,000 Arch Communications Group (Zero Coupon until
03/15/01, 10.875% thereafter)(b)................... 10.875 03/15/08 463,500
500,000 A+ Network........................................... 11.875 11/01/05 513,750
1,000,000 CS Wireless Systems (Zero Coupon until 03/01/01,
11.375% thereafter)(b)............................. 11.375 03/01/06 520,000
500,000 El Paso Electric..................................... 9.400 05/01/11 495,000
475,000 In Flight Phone, including 900 attached warrants
(Zero Coupon until 05/15/98, 14.00%
thereafter)(b)..................................... 19.691 05/15/02 171,000
500,000 Intelcom Group (Zero Coupon until 09/15/00, 13.500%
thereafter)(b)..................................... 12.725 09/15/05 300,000
</TABLE>
See accompanying notes to financial statements.
PAGE 27
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS HIGH YIELD BOND FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT(a) DESCRIPTION RATE DATE (NOTE 1a)
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
1,000,000 International CableTel (Zero Coupon until
02/01/01, 11.500% thereafter)(b)................ 11.229% 02/01/06 $ 556,250
400,000 Western Wireless.................................. 10.500 06/01/06 396,000
600,000 Winstar Communications (Zero Coupon until
10/15/00, 14.00% thereafter)(b)................. 14.000 10/15/05 333,000
------------
4,764,125
------------
TRANSPORTATION -- 3.1%
500,000 Airplanes Pass Through Trust...................... 10.875 03/15/19 521,250
500,000 Alamo Rent-a-Car.................................. 11.750 01/31/06 517,500
250,000 Petro PSC Properties.............................. 12.500 06/01/02 241,250
500,000 Venture Holdings Trust............................ 9.750 04/01/04 425,000
------------
1,705,000
------------
TOTAL CORPORATE BONDS
(cost $40,075,060).............................. 40,537,938
------------
CONVERTIBLE CORPORATE BONDS -- 1.2%
TECHNOLOGY -- 0.8%
500,000 VLSI Technology................................... 8.250 10/01/05 443,750
------------
TELECOMMUNICATIONS & UTILITIES -- 0.4%
300,000 Winstar Communications
(Zero Coupon until 10/15/00, 14.00%
thereafter)(b).................................. 14.00 10/15/05 204,000
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(cost $624,647)................................. 647,750
------------
SOVEREIGN BONDS -- 13.8%
ARGENTINA -- 3.7%
1,732,500 Republic of Argentina, FRB, Series L*............. 6.313 03/31/05 1,351,350
ARP 671,798 Republic of Argentina, BOCON, Pre 1*(c)........... 3.359 04/01/01 532,259
250,000 Republic of Argentina, Par Bond, Series L*........ 5.250 03/31/23 137,656
------------
2,021,265
------------
BRAZIL -- 2.4%
378,850 Federal Republic of Brazil, Capitalization
Bond(c)......................................... 8.000 04/15/14 236,308
500,000 Federal Republic of Brazil, Investment (Exit)
Bond............................................ 6.000 09/15/13 316,250
1,000,000 Federal Republic of Brazil, EI Bond, Series L*.... 6.500 04/15/06 803,440
------------
1,355,998
------------
BULGARIA -- 0.7%
750,000 Republic of Bulgaria, Discount Bond,
Tranche A*...................................... 6.250 07/28/24 389,063
------------
ECUADOR -- 2.0%
1,041,283 Republic of Ecuador, Registered PDI Bond*(c)...... 6.063 02/27/15 472,482
1,405,729 Republic of Ecuador, PDI Bond*(c)................. 6.063 02/27/15 637,849
------------
1,110,331
------------
MEXICO -- 1.4%
860,400 United Mexico States, Global Bond................. 11.500 05/15/26 788,879
------------
POLAND -- 0.4%
350,000 Republic of Poland, RSTA Bond*.................... 2.750 10/27/24 196,875
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 28
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS HIGH YIELD BOND FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT(a) DESCRIPTION RATE DATE (NOTE 1a)
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
VENEZUELA -- 3.2%
2,500,000 Republic of Venezuela DCB, Series DL................. 6.625% 12/18/07 $ 1,775,000
------------
TOTAL SOVEREIGN BONDS
(cost $6,992,392).................................. 7,637,411
------------
LOAN PARTICIPATION -- 2.0%
1,500,000 Kingdom of Morocco, Tranche A*(d)
(Chase Manhattan Bank, N.A and
Morgan Guaranty Trust Company)
(cost $1,037,005).................................. 6.438 01/01/09 1,083,749
------------
TOTAL INVESTMENTS -- 90.4%
(cost $48,729,104)................................. 49,906,848
------------
REPURCHASE AGREEMENTS -- 12.1%
3,356,000 Repurchase Agreement dated 06/28/96, with J.P Morgan
Securities, collateralized by $3,000,000 U.S.
Treasury Bonds, 9.125%, due 05/15/09, valued at
$3,423,750; proceeds: $3,357,516................... 5.420 07/01/96 3,356,000
3,356,000 Repurchase Agreement dated 06/28/96, with Merrill
Lynch, Pierce, Fenner & Smith, collateralized by
$3,340,000 U.S. Treasury Bonds, 7.250%, due
05/15/16, valued at $3,423,500; proceeds:
$3,357,482......................................... 5.300 07/01/96 3,356,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $6,712,000).................................. 6,712,000
------------
Liabilities in excess of other assets -- (2.5%)...... (1,382,053)
------------
NET ASSETS -- 100.0%................................. $ 55,236,795
------------
------------
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate or
step coupon rate.
(a) Principal denominated in U.S. dollars unless otherwise indicated.
(b) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(c) Payment-in-kind security for which all or part of the interest earned is
paid by the issuance of additional bonds.
(d) Participation interest was acquired through the financial institutions
indicated parenthetically.
Abbreviations used in this statement:
<TABLE>
<S> <C>
ARP -- Argentinean Peso
-- Debt Conversion Bond
DCB
-- Eligible Interest
EI
-- Floating Rate Bond
FRB
-- Past Due Interest
PDI
-- Revolving Short Term Agreement
RSTA
</TABLE>
See accompanying notes to financial statements.
PAGE 29
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS STRATEGIC BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT(a) DESCRIPTION RATE DATE (NOTE 1a)
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 51.1%
BASIC INDUSTRIES -- 13.1%
250,000 Algoma Steel......................................... 12.375% 07/15/05 $ 242,500
250,000 Clark-Schwebel....................................... 10.500 04/15/06 256,250
250,000 Foamex............................................... 11.875 10/01/04 235,000
250,000 NL Industries (Zero Coupon until 10/15/98, 13.00%
thereafter)(b)..................................... 12.619 10/15/05 194,063
600,000 Norcal Waste Systems*................................ 12.750 11/15/05 624,000
250,000 Renco Metals......................................... 12.000 07/15/00 282,500
250,000 Stone Container...................................... 10.750 10/01/02 253,125
250,000 Terex................................................ 13.750 05/15/02 260,938
250,000 Valcor............................................... 9.625 11/01/03 225,000
------------
2,573,376
------------
CONSUMER CYCLICALS -- 6.0%
250,000 American Skiing...................................... 12.000 07/15/06 245,000
250,000 Cole National........................................ 11.250 10/01/01 264,375
250,000 Hines Horticulture................................... 11.750 10/15/05 260,000
200,000 U.S. Leasing International........................... 8.450 01/25/05 212,632
200,000 Wyndham Hotel........................................ 10.500 05/15/06 200,000
------------
1,182,007
------------
CONSUMER NON-CYCLICALS -- 14.4%
250,000 Americold............................................ 12.875 05/01/08 255,000
250,000 Bally's Grand........................................ 10.375 12/15/03 274,375
250,000 Berry Plastics....................................... 12.250 04/15/04 270,000
250,000 Cobb Theatres........................................ 10.625 03/01/03 253,750
125,000 Hollywood Casino..................................... 12.750 11/01/03 125,000
450,000 Jordan Industries (Zero Coupon until 08/01/98, 11.75%
thereafter)(b)..................................... 14.013 08/01/05 324,000
250,000 Remington Product.................................... 11.000 05/15/06 248,750
100,000 Samsonite............................................ 11.125 07/15/05 101,500
250,000 Selmer............................................... 11.000 05/15/05 263,750
250,000 Smiths Food & Drug................................... 11.250 05/15/07 251,875
250,000 Trump Atlantic City.................................. 11.250 05/01/06 252,500
200,000 Twin Laboratories.................................... 10.250 05/15/06 203,000
------------
2,823,500
------------
ENERGY -- 2.6%
250,000 Benton Oil & Gas..................................... 11.625 05/01/03 257,500
250,000 Cliffs Drilling...................................... 10.250 05/15/03 247,500
------------
505,000
------------
FINANCIAL SERVICES -- 0.3%
60,000 Mellon Financial..................................... 9.750 06/15/01 66,581
------------
MEDIA -- 6.5%
250,000 Adelphia Communications.............................. 12.500 05/15/02 253,750
250,000 American Media Operation............................. 11.625 11/15/04 255,000
500,000 Marcus Cable (Zero Coupon until 12/15/00, 14.125%
thereafter)(b)..................................... 12.813 12/15/05 307,500
500,000 People's Choice TV (Zero Coupon until 06/01/00,
13.125% thereafter)(b)............................. 13.125 06/01/04 290,000
250,000 United International Holdings(b)..................... 13.893 11/15/99 165,000
------------
1,271,250
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 30
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT(a) DESCRIPTION RATE DATE (NOTE 1a)
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 3.5%
250,000 Exide Electronics Group, including 250 attached
warrants..................................... 11.500% 03/15/06 $ 265,000
400,000 Talley Manufacturing & Technology.............. 10.750 10/15/03 410,000
------------
675,000
------------
TELECOMMUNICATIONS & UTILITIES -- 3.4%
300,000 Arch Communications Group (Zero Coupon until
03/15/01, 10.875% thereafter)(b)............. 10.875 03/15/08 154,500
250,000 A+ Network..................................... 11.875 11/01/05 256,875
250,000 In Flight Phone, including 400 attached
warrants (Zero Coupon until 05/15/98, 14.00%
thereafter)(b)............................... 14.000 05/15/02 90,000
300,000 Winstar Communications
(Zero Coupon until 10/15/00, 14.00%
thereafter)(b)............................... 14.000 10/15/05 166,500
------------
667,875
------------
TRANSPORTATION -- 1.3%
250,000 Airplanes Pass Through Trust................... 10.875 03/15/19 260,625
------------
TOTAL CORPORATE BONDS
(cost $9,927,021)............................ 10,025,214
------------
CONVERTIBLE CORPORATE BONDS -- 0.5%
TELECOMMUNICATIONS & UTILITIES -- 0.5%
150,000 Winstar Communications
(Zero Coupon until 10/15/00, 14.00%
thereafter)(b) (cost $83,969)................ 14.000 10/15/05 102,000
------------
SOVEREIGN BONDS -- 23.4%
ARGENTINA -- 5.1%
955,327 Republic of Argentina, BOCON, Pre 2*(c)........ 5.422 04/01/01 859,125
250,000 Republic of Argentina, Par Bond, Series L...... 5.250 03/31/23 137,656
------------
996,781
------------
BRAZIL -- 2.1%
649,459 Federal Republic of Brazil, Capitalization
Bond(c)...................................... 8.000 04/15/14 405,100
------------
BULGARIA -- 1.3%
500,000 Republic of Bulgaria, Discount Bond, Tranche
A............................................ 6.250 07/28/24 259,375
------------
DENMARK -- 0.1%
DKK 50,000 Kingdom of Denmark............................. 7.000 12/15/04 8,380
DKK 90,000 Kingdom of Denmark............................. 9.000 11/15/98 15,572
------------
23,952
------------
ECUADOR -- 1.6%
850,000 Republic of Ecuador, Par Bond*................. 3.250 02/28/25 304,938
------------
GERMANY -- 3.9%
DEM 160,000 Government of Germany, Series 106.............. 6.000 02/20/98 108,392
DEM 760,000 Government of Germany, Series 86............... 6.000 04/20/98 515,163
DEM 230,000 Government of Germany, Series 96............... 6.000 02/16/06 148,418
------------
771,973
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 31
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT(a) DESCRIPTION RATE DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
KOREA -- 2.2%
400,000 Korea Development Bank......................... 9.600% 12/01/00 $ 439,020
------------
MEXICO -- 1.7%
360,400 United Mexico States, Global Bond.............. 11.500 05/15/26 330,442
------------
NETHERLANDS -- 0.2%
NLG 60,000 Netherlands Government......................... 6.250 07/15/98 37,826
------------
POLAND -- 3.4%
500,000 Republic of Poland, PDI Bond*.................. 3.750 10/27/14 385,000
500,000 Republic of Poland, RSTA Bond*................. 2.750 10/27/24 281,250
------------
666,250
------------
VENEZUELA -- 1.8%
250,000 Republic of Venezuela DCB, Series DL*.......... 6.625 12/18/07 177,500
250,000 Republic of Venezuela FLIRB, Series B*......... 6.500 03/31/07 180,781
------------
358,281
------------
TOTAL SOVEREIGN BONDS
(cost $4,044,919)............................ 4,593,938
------------
LOAN PARTICIPATION -- 1.9%
500,000 Kingdom of Morocco, Tranche A*(d) (Chase
Manhattan Bank, N.A. and
Morgan Guaranty Trust Company)
(cost $323,254).............................. 6.438 01/01/09 361,250
------------
U.S. GOVERNMENT & AGENCY -- 17.7%
624,501 Federal Home Loan Mortgage Corporation......... 6.000 09/01/10 593,831
56,008 Federal Home Loan Mortgage Corporation......... 6.000 10/01/10 53,030
31,688 Federal National Mortgage Association.......... 13.000 11/15/15 37,174
99,801 Federal National Mortgage Association.......... 6.500 02/01/26 93,380
997,912 Federal National Mortgage Association.......... 6.500 03/01/26 933,706
60,000 U.S. Treasury Note............................. 6.125 05/31/97 60,187
340,000 U.S. Treasury Note............................. 5.625 02/28/01 328,578
600,000 U.S. Treasury Note............................. 6.250 04/30/01 594,282
250,000 U.S. Treasury Note............................. 5.875 11/15/05 235,508
530,000 U.S. Treasury Note............................. 6.875 05/15/06 535,878
------------
TOTAL U.S. GOVERNMENT & AGENCY
(cost $3,495,786)............................ 3,465,554
------------
TOTAL INVESTMENTS -- 94.6%
(cost $17,874,949)........................... 18,547,956
------------
REPURCHASE AGREEMENTS -- 9.4%
921,000 Repurchase Agreement dated
06/28/96, with J.P. Morgan
Securities, collateralized by $824,000 U.S.
Treasury Bonds, 9.125%, due 05/15/09 valued
at $940,390; proceeds: $921,416.............. 5.420 07/01/96 921,000
</TABLE>
See accompanying notes to financial statements.
PAGE 32
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS STRATEGIC BOND FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT(a) DESCRIPTION RATE DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
921,000 Repurchase Agreement dated 06/28/96, with
Merrill Lynch, Pierce, Fenner & Smith,
collateralized by $920,000 U.S. Treasury
Bonds, 7.250%, due 05/15/16, valued at
$943,000; proceeds: $921,407................. 5.300% 07/01/96 $ 921,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $1,842,000)............................ 1,842,000
------------
Liabilities in excess of other
assets -- (4.0%)............................. (785,732)
------------
NET ASSETS -- 100.0%........................... $ 19,604,224
------------
------------
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
MATURITY CONTRACTS TO CONTRACTS APPRECIATION
DATES DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
PURCHASES
07/22/96 $ 28,254 AUD 35,765 28,058 $ (196)
07/22/96 103,480 CAD 141,457 103,667 187
07/22/96 545,255 DEM 829,846 546,620 1,365
07/22/96 72,540 DKK 422,907 72,267 (273)
07/22/96 109,215 GBP 70,598 109,676 461
07/22/96 153,452 NLG 259,487 152,448 (1,004)
SALES
07/22/96 AUD 36,764 $ 28,603 28,843 (240)
07/22/96 BEF 115,822 3,780 3,699 81
07/22/96 CAD 143,141 105,019 104,901 118
07/22/96 DEM 473,349 316,559 311,795 4,764
07/22/96 DKK 604,289 104,838 103,262 1,576
07/22/96 GBP 135,193 203,514 210,027 (6,513)
07/22/96 NLG 324,331 193,337 190,543 2,794
--------------
$ 3,120
--------------
--------------
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate or
step coupon rate.
(a) Principal denominated in U.S. dollars unless otherwise indicated.
(b) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(c) Payment-in-kind security for which all or part of the interest earned is
paid by the issuance of additional bonds.
(d) Participation interest was acquired through the financial institutions
indicated parenthetically.
Abbreviations used in this statement:
<TABLE>
<S> <C>
DCB -- Debt Conversion Bond
FLIRB -- Front-Loaded Interest Reduction Bonds
PDI -- Past Due Interest
RSTA -- Revolving Short Term Agreement
AUD -- Australian Dollar
BEF -- Belgian Franc
CAD -- Canadian Dollar
DEM -- German Deutschemark
DKK -- Danish Krone
GBP -- British Pound Sterling
NLG -- Netherlands Guilder
</TABLE>
See accompanying notes to financial statements.
PAGE 33
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS TOTAL RETURN FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1a)
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 41.6%
BASIC INDUSTRIES -- 3.3%
4,600 Dow Chemical.................................................................... $ 349,600
6,000 Dupont (E.I.) de Nemours........................................................ 474,750
10,000 Nalco Chemical.................................................................. 315,000
------------
1,139,350
------------
CAPITAL GOODS -- 2.6%
4,800 Boeing.......................................................................... 418,200
8,000 Deere........................................................................... 320,000
2,200 Textron......................................................................... 175,725
------------
913,925
------------
CONSUMER CYCLICALS -- 7.2%
10,000 Ball............................................................................ 287,500
9,500 Eastman Kodak................................................................... 738,619
14,000 Ford Motor...................................................................... 453,250
5,000 General Motors.................................................................. 261,875
9,100 May Department Stores........................................................... 398,125
7,000 Sears, Roebuck.................................................................. 340,375
------------
2,479,744
------------
CONSUMER NON-CYCLICALS -- 2.8%
50,000 Food Lion....................................................................... 387,500
4,000 Philip Morris Companies......................................................... 416,000
5,000 RJR Nabisco Holdings............................................................ 155,000
------------
958,500
------------
ENERGY -- 8.6%
6,500 Amoco........................................................................... 470,438
13,000 Dresser Industries.............................................................. 383,500
3,000 Exxon........................................................................... 260,625
2,000 Mobil........................................................................... 224,250
2,000 Royal Dutch Petroleum, 5 Guilder................................................ 307,500
10,000 Suncor.......................................................................... 316,250
3,000 Texaco.......................................................................... 251,625
17,000 USX -- Marathon Group........................................................... 342,125
8,000 Williams Companies.............................................................. 396,000
------------
2,952,313
------------
FINANCIAL SERVICES -- 4.4%
8,000 Allstate........................................................................ 365,000
4,700 Associates First Capital........................................................ 176,838
2,500 Cigna........................................................................... 294,688
5,300 Citicorp........................................................................ 437,913
4,200 UNUM............................................................................ 261,450
------------
1,535,889
------------
HEALTH CARE -- 2.9%
6,500 American Home Products.......................................................... 390,813
11,200 SmithKline Beecham -- ADR....................................................... 609,000
------------
999,813
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 34
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS TOTAL RETURN FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1a)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS -- 4.5%
16,000 Beacon Properties............................................................... $ 410,000
12,000 Duke Realty Investments......................................................... 363,000
17,000 Highwoods Properties............................................................ 469,625
10,000 Patriot American Hospitality.................................................... 296,250
------------
1,538,875
------------
TELECOMMUNICATIONS & UTILITIES -- 3.9%
6,000 American Electric Power......................................................... 255,750
5,000 Ameritech....................................................................... 296,875
9,000 BellSouth....................................................................... 381,375
9,000 GTE............................................................................. 402,750
------------
1,336,750
------------
TRANSPORTATION -- 1.4%
26,000 Canadian National Railway....................................................... 477,750
------------
TOTAL COMMON STOCKS
(cost $13,363,309)............................................................ 14,332,909
------------
CONVERTIBLE PREFERRED STOCKS -- 6.8%
BASIC INDUSTRIES -- 0.1%
2,500 Coeur D'Alene Mines 7.00%....................................................... 49,375
------------
CAPITAL GOODS -- 0.5%
10,000 Coopers Industries 6.00%........................................................ 167,500
------------
CONSUMER CYCLICALS -- 0.5%
3,000 K-Mart Financing 7.75%.......................................................... 162,750
------------
CONSUMER NON-CYCLICALS -- 1.3%
5,000 James River 9.00%............................................................... 126,250
50,000 RJR Nabisco Holdings 9.25%...................................................... 325,000
------------
451,250
------------
ENERGY -- 2.4%
2,500 Ashland $3.125.................................................................. 159,688
2,500 Devon Energy $3.25.............................................................. 128,125
5,000 Enron 6.25%..................................................................... 129,375
5,000 Sun Company $1.80............................................................... 147,500
2,500 Tejas Gas 5.25%................................................................. 125,000
2,500 Unocal 7.00%.................................................................... 141,563
------------
831,251
------------
FINANCIAL SERVICES -- 0.4%
2,500 Merrill Lynch 6.50%............................................................. 135,000
------------
HEALTH CARE -- 0.4%
6,000 FHP International 5.00%......................................................... 153,000
------------
MEDIA -- 0.4%
2,500 SFX Broadcasting 6.50%.......................................................... 131,875
------------
TECHNOLOGY -- 0.8%
2,200 Elsag Bailey 5.50%.............................................................. 108,900
3,000 Greenfield Capital Trust 6.00%.................................................. 156,000
------------
264,900
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $2,254,029)............................................................. 2,346,901
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 35
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS TOTAL RETURN FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
CORPORATE BONDS -- 22.9%
BASIC INDUSTRIES -- 4.4%
$ 100,000 Acetex......................................... 9.750% 10/01/03 $ 99,000
100,000 Algoma Steel................................... 12.375 07/15/05 97,000
200,000 Alvey Systems.................................. 11.375 01/31/03 207,000
200,000 Clark-Schwebel................................. 10.500 04/15/06 205,000
100,000 Crown Paper.................................... 11.000 09/01/05 95,250
200,000 Four M......................................... 12.000 06/01/06 204,000
200,000 International Semi-Technology (Zero Coupon
until 08/15/00, 11.50% thereafter) (a)....... 13.420 08/15/03 114,500
100,000 Norcal Waste Systems*.......................... 12.750 11/15/05 104,000
200,000 Southdown...................................... 10.000 03/01/06 194,000
200,000 Specialty Equipment............................ 11.375 12/01/03 206,500
------------
1,526,250
------------
CONSUMER CYCLICALS -- 4.4%
200,000 Cole National.................................. 11.250 10/01/01 211,500
150,000 Finlay Fine Jewelry............................ 10.625 05/01/03 150,000
200,000 Flagstar....................................... 10.750 09/15/01 174,000
350,000 Hayes Wheels International..................... 11.000 07/15/06 354,375
100,000 Herff Jones.................................... 11.000 08/15/05 104,500
200,000 Hines Horticulture............................. 11.750 10/15/05 208,000
100,000 Jitney-Jungle Stores........................... 12.000 03/01/06 101,750
200,000 Wyndham Hotel.................................. 10.500 05/15/06 200,000
------------
1,504,125
------------
CONSUMER NON-CYCLICALS -- 4.2%
100,000 American Safety Razor.......................... 9.875 08/01/05 101,000
100,000 Americold...................................... 12.875 05/01/08 102,000
100,000 Bally's Grand.................................. 10.375 12/15/03 109,750
100,000 Berry Plastics................................. 12.250 04/15/04 108,000
100,000 Borg-Warner.................................... 9.125 05/01/03 94,000
100,000 Carr-Gottstein Foods........................... 12.000 11/15/05 102,500
100,000 Cobb Theatres.................................. 10.625 03/01/03 101,500
200,000 Empress River Casino........................... 10.750 04/01/02 209,000
100,000 Jordan Industries.............................. 10.375 08/01/03 95,000
200,000 Remington Product.............................. 11.000 05/15/06 199,000
100,000 Samsonite...................................... 11.125 07/15/05 101,500
100,000 Selmer......................................... 11.000 05/15/05 105,500
------------
1,428,750
------------
ENERGY -- 0.6%
200,000 Cliffs Drilling................................ 10.250 05/15/03 198,000
------------
FINANCIAL SERVICES -- 5.4%
250,000 Associates N.A................................. 5.600 01/15/01 237,590
225,000 Commercial Credit.............................. 6.875 05/01/02 223,702
175,000 Ford Motor Credit.............................. 6.250 12/08/05 161,522
200,000 Mellon Financial............................... 9.750 06/15/01 221,938
325,000 Merrill Lynch.................................. 7.375 05/15/06 324,665
350,000 Nationsbank Credit Card Master Trust........... 6.450 04/15/03 346,500
250,000 Standard Credit Card Master Trust.............. 6.750 06/07/00 251,563
100,000 USL Capital.................................... 8.125 02/15/00 103,962
------------
1,871,442
------------
HEALTH CARE -- 0.6%
200,000 Paracelsus Healthcare.......................... 9.875 10/15/03 200,000
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 36
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS TOTAL RETURN FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MEDIA -- 1.6%
$ 200,000 American Media Operation....................... 11.625% 11/15/04 $ 204,000
200,000 Diamond Cable (Zero Coupon until 12/15/00,
11.75% thereafter) (a)....................... 11.750 12/15/05 117,500
200,000 Marcus Cable (Zero Coupon until 12/15/00,
14.125% thereafter) (a)...................... 12.921 12/15/05 123,000
150,000 United International Holdings (a).............. 13.187 11/15/99 99,000
------------
543,500
------------
TECHNOLOGY -- 1.2%
200,000 Exide Electronics Group, including 200 attached
warrants..................................... 11.500 03/15/06 212,000
200,000 Talley Manufacturing & Technology.............. 10.750 10/15/03 205,000
------------
417,000
------------
TELECOMMUNICATIONS & UTILITIES -- 0.5%
200,000 Arch Communications Group (Zero Coupon until
03/15/01, 10.875% thereafter) (a)............ 10.875 03/15/08 103,000
125,000 Intelcom Group (Zero Coupon until 09/15/00,
13.500% thereafter) (a)...................... 12.725 09/15/05 75,000
------------
178,000
------------
TOTAL CORPORATE BONDS
(cost $7,891,432)............................ 7,867,067
------------
CONVERTIBLE CORPORATE BONDS -- 7.3%
BASIC INDUSTRIES -- 0.7%
100,000 Coeur D'Alene Mines............................ 6.375 01/31/04 99,000
350,000 Roche Holdings (a)............................. 6.089 04/20/10 147,875
------------
246,875
------------
CONSUMER CYCLICALS -- 2.1%
150,000 Federated Department Stores.................... 5.000 10/01/03 171,000
750,000 Hollinger (a).................................. 6.607 10/05/13 246,563
150,000 Magna International............................ 5.000 10/15/02 157,125
150,000 Price.......................................... 5.500 02/28/12 156,000
------------
730,688
------------
CONSUMER NON-CYCLICALS -- 0.9%
350,000 Texas Instruments.............................. 6.125 02/01/06 322,263
------------
ENERGY -- 1.0%
250,000 Baker Hughes (a)............................... 3.413 05/05/08 171,250
150,000 Noble Affiliates............................... 4.250 11/01/03 163,500
------------
334,750
------------
FINANCIAL SERVICES -- 0.8%
150,000 Sandoz Capital................................. 2.000 10/06/02 159,469
100,000 Trenwick Group................................. 6.000 12/15/99 107,500
------------
266,969
------------
TECHNOLOGY -- 1.2%
200,000 Data General................................... 7.750 06/01/01 196,000
125,000 EMC............................................ 4.250 01/01/01 133,750
50,000 Seagate Technology............................. 5.000 11/01/03 86,750
------------
416,500
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 37
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS TOTAL RETURN FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS & UTILITIES -- 0.6%
$ 600,000 U.S. Cellular (a).............................. 5.486% 06/15/15 $ 204,000
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(cost $2,494,338)............................ 2,522,045
------------
U.S. GOVERNMENT & AGENCY -- 11.0%
304,615 Federal Home Loan Mortgage Corporation......... 6.500 03/01/26 285,764
250,000 Federal Home Loan Mortgage Corporation (b)..... 7.000 04/01/26 240,742
46,353 Federal National Mortgage Association.......... 6.500 10/01/10 45,033
89,666 Federal National Mortgage Association.......... 9.500 08/01/22 95,977
103,583 Federal National Mortgage Association.......... 7.500 08/01/23 102,555
500,000 Federal National Mortgage Association.......... 8.000 05/11/25 503,906
97,233 Federal National Mortgage Association.......... 7.000 09/01/25 93,571
97,468 Federal National Mortgage Association.......... 6.500 12/01/25 91,197
303,435 Federal National Mortgage Association.......... 7.000 03/01/26 292,338
102,851 Government National Mortgage Association....... 7.500 01/15/23 102,082
203,460 Government National Mortgage Association....... 7.500 03/15/26 200,724
240,000 U.S. Treasury Bond............................. 7.625 02/15/25 258,600
250,000 U.S. Treasury Bond............................. 6.000 02/15/26 221,797
200,000 U.S. Treasury Note............................. 5.125 02/28/98 197,062
330,000 U.S. Treasury Note............................. 7.500 10/31/99 340,778
735,000 U.S. Treasury Note............................. 5.750 08/15/03 699,970
------------
TOTAL U.S. GOVERNMENT & AGENCY
(cost $3,833,705)............................ 3,772,096
------------
TOTAL INVESTMENTS -- 89.6%
(cost $29,836,813)........................... 30,841,018
------------
REPURCHASE AGREEMENTS -- 15.2%
2,608,000 Repurchase Agreement dated 06/28/96, with J.P.
Morgan Securities, collateralized by
$2,093,000 U.S. Treasury Bonds, 10.375%, due
11/15/12 valued at $2,660,726; proceeds:
$2,609,178................................... 5.300 07/01/96 2,608,000
2,608,000 Repurchase Agreement dated 06/28/96, with
Merrill Lynch, Pierce, Fenner & Smith,
collateralized by $2,600,000 U.S. Treasury
Bonds, 7.250%, due 05/15/16, valued at
$2,665,000; proceeds: $2,609,152............. 5.420 07/01/96 2,608,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $5,216,000)............................ 5,216,000
------------
Liabilities in excess of other
assets -- (4.8%)............................. (1,650,305)
------------
NET ASSETS -- 100.0%........................... $ 34,406,713
------------
------------
</TABLE>
(a) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(b) Mortgage Dollar Roll. See Note 1.
Abbreviation used in this statement:
ADR -- American Depository Receipt
See accompanying notes to financial statements.
PAGE 38
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS ASIA GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1a)
<C> <S> <C>
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 79.6%
HONG KONG -- 22.6%
30,100 Asia Satellite Telecommunications Holdings*................................... $ 89,241
160,000 Cafe de Coral Holdings........................................................ 44,440
115,000 Chen Hsong Holdings........................................................... 61,654
21,000 Cheung Kong................................................................... 151,245
13,000 Citic Pacific................................................................. 52,566
51,500 Giordano International........................................................ 49,898
57,800 HKR International............................................................. 67,203
50,000 Hong Kong Telecommunications.................................................. 89,785
5,600 HSBC Holdings................................................................. 84,643
71,000 Innovative International Holdings............................................. 25,224
11,250 New World Development......................................................... 52,175
232,000 Qingling Motors Company....................................................... 77,925
40,000 Shanghai Industrial Investments*.............................................. 49,091
410,000 Shanghai Petrochemical........................................................ 116,526
130,000 Sino Hotels Holdings.......................................................... 39,886
10,000 Swire Pacific................................................................. 85,586
26,000 Varitronix International...................................................... 54,245
-----------
1,191,333
-----------
INDIA -- 5.9%
22,300 Arvind Mills -- GDR........................................................... 111,500
7,200 Ashok Leyland -- GDR*......................................................... 100,080
7,100 Reliance Industries -- GDR.................................................... 98,690
-----------
310,270
-----------
INDONESIA -- 4.6%
35,000 Lippo Karawachi............................................................... 52,632
38,000 Lippo Life Insurance(a)....................................................... 50,000
4,500 PT Hm Sampoerna*.............................................................. 51,235
50,000 PT Inti Indorayon Utama(a).................................................... 48,335
26,000 PT Telekomunikasion*(a)....................................................... 39,377
-----------
241,579
-----------
MALAYSIA -- 12.7%
20,000 Arab Malaysia................................................................. 78,573
90,000 Bolton Properties............................................................. 150,812
8,000 Malayan Banking Berhad........................................................ 76,969
20,000 Malaysia Assurance Alliance................................................... 105,833
31,000 Malaysian Airline System Berhad............................................... 98,797
112,000 Tan Chong Motor Holdings Berhad............................................... 163,432
-----------
674,416
-----------
PAKISTAN -- 1.5%
6,800 Pakistan State Oil*........................................................... 80,229
-----------
PHILIPPINES -- 2.8%
277,000 Universal Robina.............................................................. 148,015
-----------
</TABLE>
See accompanying notes to financial statements.
PAGE 39
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS ASIA GROWTH FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
SINGAPORE -- 13.7%
6,400 Cerebos Pacific............................................................... $ 57,605
48,000 Hong Kong Land Holdings....................................................... 108,000
28,000 Hong Leong Finance............................................................ 98,030
35,000 Hotel Properties.............................................................. 62,013
7,600 Jardine Matheson Holdings..................................................... 55,860
11,000 Marco Polo Developments....................................................... 21,828
20,000 Sembawang..................................................................... 99,220
2,500 Singapore Press Holdings(a)................................................... 49,079
4,000 United Overseas Bank(a)....................................................... 38,271
64,000 Wing Tai Holdings............................................................. 136,073
-----------
725,979
-----------
SRI LANKA -- 0.6%
148,000 Asia Capital*................................................................. 21,331
26,000 United Motors Lanka........................................................... 12,413
-----------
33,744
-----------
THAILAND -- 15.2%
23,300 Bangkok Bank.................................................................. 220,201
3,000 BEC World*.................................................................... 16,775
22,800 Dhana Siam Finance............................................................ 117,614
15,000 Property Perfect(a)........................................................... 64,383
95,000 Siam City Bank................................................................ 87,911
27,500 Thai Farmers Bank............................................................. 203,583
41,000 Thai Telephone & Telecommunications*(a)....................................... 92,833
-----------
803,300
-----------
TOTAL COMMON STOCKS (cost $4,332,752)......................................... 4,208,865
-----------
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
CONVERTIBLE CORPORATE BONDS -- 2.3%
HONG KONG -- 2.3%
$ 84,000 China Resources Enterprises, 3.00%, due 11/24/05 (cost $106,169).............. 119,616
-----------
<CAPTION>
SHARES
- ---------
<C> <S> <C>
WARRANTS -- 1.1%
190,000 Swire Pacific Call Warrants (expiring 05/27/97)............................... 35,591
9,000 Thai Basket Warrants (expiring 11/19/96)...................................... 20,043
-----------
TOTAL WARRANTS (cost $82,934)................................................. 55,634
-----------
<CAPTION>
CONTRACTS
- ---------
<C> <S> <C>
PURCHASED OPTIONS -- 0.4%
352 Hang Seng Index Call (expiring 12/30/96, exercise price HKD 11,541)
(cost $23,247).............................................................. 23,241
-----------
TOTAL INVESTMENTS -- 83.4%
(cost $4,545,102)........................................................... 4,407,356
-----------
</TABLE>
See accompanying notes to financial statements.
PAGE 40
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS ASIA GROWTH FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT DESCRIPTION (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENTS -- 14.6%
$ 386,098 Repurchase Agreement, 5.420% due 07/01/96, dated 06/28/96, with J.P. Morgan
Securities, collateralized by $346,000 U.S. Treasury Bonds, 9.125%, due
05/15/09 valued at $394,873; proceeds: $386,272............................. $ 386,098
386,098 Repurchase Agreement, 5.300% due 07/01/96, dated 06/28/96, with Merrill Lynch,
Pierce, Fenner & Smith, collateralized by $620,000 U.S. Treasury Strips,
Zero-Coupon, due 05/15/03, valued at $394,475; proceeds: $386,268........... 386,098
-----------
TOTAL REPURCHASE AGREEMENTS (cost $772,196)................................... 772,196
-----------
Other assets in excess of liabilities -- 2.0%................................. 106,929
-----------
NET ASSETS -- 100.0%.......................................................... $ 5,286,481
-----------
-----------
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY CONTRACTS TO CONTRACTS UNREALIZED
DATES DELIVER IN EXCHANGE FOR AT VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
SALES
07/01/96 HKD 313,201 $40,454 $40,461 $ (7)
07/03/96 MYR 108,581 43,507 43,523 (16)
07/02/96 & 07/03/96 SGD 39,162 27,741 27,762 (21)
-----
$(44)
-----
-----
</TABLE>
* Non-income producing security.
(a) Foreign Shares
Abbreviations used in this statement:
<TABLE>
<S> <C>
GDR -- Global Depository Receipt
HKD -- Hong Kong Dollar
MYR -- Malaysian Ringgit
SGD -- Singapore Dollar
</TABLE>
See accompanying notes to financial statements.
PAGE 41
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS INVESTORS FUND INC
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1A)
<C> <S> <C>
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 94.5%
BASIC INDUSTRIES -- 8.1%
86,500 Aluminum Company of America............................................... $ 4,962,938
115,000 Dupont (E.I.) de Nemours.................................................. 9,099,375
50,650 Hanna (M.A.).............................................................. 1,057,319
134,900 Nalco Chemical............................................................ 4,249,350
141,500 OM Group.................................................................. 5,553,875
310,000 Praxair................................................................... 13,097,500
-------------
38,020,357
-------------
CAPITAL GOODS -- 9.2%
130,000 AlliedSignal.............................................................. 7,426,250
115,500 Deere..................................................................... 4,620,000
77,500 General Electric.......................................................... 6,703,750
172,000 Raytheon.................................................................. 8,879,500
255,000 Tyco International........................................................ 10,391,250
100,000 York International........................................................ 5,175,000
-------------
43,195,750
-------------
CONSUMER CYCLICALS -- 12.5%
100,000 Eastman Kodak............................................................. 7,775,000
70,000 Estee Lauder Companies, Class A........................................... 2,957,500
140,000 Federated Department Stores*.............................................. 4,777,500
110,000 Ford Motor................................................................ 3,561,250
80,000 General Motors............................................................ 4,190,000
366,500 Host Marriott*............................................................ 4,810,313
155,000 Lear*..................................................................... 5,463,750
70,000 Magna International, Class A.............................................. 3,220,000
75,000 MascoTech................................................................. 1,106,250
100,000 Melville.................................................................. 4,050,000
187,500 Sears, Roebuck............................................................ 9,117,188
105,000 Sherwin-Williams.......................................................... 4,882,500
132,200 U.S. Industries*.......................................................... 3,189,325
-------------
59,100,576
-------------
CONSUMER NON-CYCLICALS -- 11.0%
146,800 Black & Decker............................................................ 5,670,150
150,700 Coca-Cola Enterprises..................................................... 5,217,988
222,500 ConAgra................................................................... 10,095,938
186,300 Hormel Foods.............................................................. 4,983,525
209,200 Kroger*................................................................... 8,263,400
50,000 Loews..................................................................... 3,943,750
99,000 Penn Traffic*............................................................. 841,500
122,500 Philip Morris Companies................................................... 12,740,000
-------------
51,756,251
-------------
ENERGY -- 13.7%
113,500 Amoco..................................................................... 8,214,563
85,000 Chevron................................................................... 5,015,000
75,000 Dresser Industries........................................................ 2,212,500
97,700 Mobil..................................................................... 10,954,613
74,000 Royal Dutch Petroleum, 5 Guilder.......................................... 11,377,500
150,000 Suncor.................................................................... 4,743,750
55,000 Texaco.................................................................... 4,613,125
130,117 TOTAL -- ADR.............................................................. 4,830,594
51,600 Union Pacific Resources Group............................................. 1,380,300
230,000 Williams Companies........................................................ 11,385,000
-------------
64,726,945
-------------
</TABLE>
See accompanying notes to financial statements.
PAGE 42
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS INVESTORS FUND INC (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1A)
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES -- 13.4%
41,200 ADVANTA, Class B.......................................................... $ 1,864,300
97,500 American Express.......................................................... 4,350,931
78,300 Associates First Capital*................................................. 2,946,038
75,000 Bank of Boston............................................................ 3,712,500
207,200 Bank of New York.......................................................... 10,619,000
37,500 BayBanks.................................................................. 4,040,625
70,200 Everest Reinsurance Holdings.............................................. 1,816,425
73,500 Federal Home Loan Mortgage Corporation.................................... 6,284,250
57,500 Federal National Mortgage Association..................................... 1,926,250
160,000 Long Island Bancorp....................................................... 4,890,000
82,500 MGIC Investment........................................................... 4,630,313
120,000 SunAmerica................................................................ 6,780,000
208,265 Travelers Group........................................................... 9,502,068
-------------
63,362,700
-------------
HEALTH CARE -- 13.4%
45,000 Aetna..................................................................... 3,217,500
120,000 American Home Products.................................................... 7,215,000
210,000 Astra AB, Class A......................................................... 9,300,181
240,000 Columbia/HCA Healthcare................................................... 12,810,000
180,000 FHP International*........................................................ 4,927,500
95,800 Rhone-Poulenc Rorer....................................................... 6,430,575
225,000 SmithKline Beecham -- ADR................................................. 12,234,375
125,000 U.S. HealthCare........................................................... 6,875,000
-------------
63,010,131
-------------
REAL ESTATE INVESTMENT TRUSTS -- 3.1%
112,000 Beacon Properties......................................................... 2,870,000
150,000 Highwoods Properties...................................................... 4,143,750
96,500 Patriot American Hospitality.............................................. 2,858,813
178,100 Sun Communities........................................................... 4,786,438
-------------
14,659,001
-------------
TECHNOLOGY -- 5.5%
25,000 Ceridian*................................................................. 1,262,500
35,500 DST Systems*.............................................................. 1,136,000
180,000 EMC*...................................................................... 3,352,500
189,500 First Data................................................................ 15,088,938
16,000 First USA Paymentech*..................................................... 640,000
30,000 National Data............................................................. 1,027,500
56,600 Plantronics*.............................................................. 2,080,050
12,000 Sapient*.................................................................. 507,000
18,800 Seagate Technology*....................................................... 846,000
-------------
25,940,488
-------------
TRANSPORTATION -- 4.6%
375,000 Canadian National Railway................................................. 6,890,625
52,000 Norfolk Southern.......................................................... 4,407,000
250,000 Pittston Brink's Group.................................................... 7,281,250
45,000 Union Pacific............................................................. 3,144,375
-------------
21,723,250
-------------
</TABLE>
See accompanying notes to financial statements.
PAGE 43
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
June 30, 1996 (unaudited)
SALOMON BROTHERS INVESTORS FUND INC (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1A)
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
TOTAL COMMON STOCKS (cost $326,520,524)................................... $ 445,495,449
-------------
CONVERTIBLE PREFERRED STOCKS -- 2.6%
CONSUMER CYCLICALS -- 0.9%
75,000 K-Mart Financing 7.75%.................................................... 4,068,750
-------------
FINANCIAL SERVICES -- 0.2%
20,000 Merrill Lynch 6.50%....................................................... 1,080,000
-------------
TECHNOLOGY -- 1.5%
62,500 Ceridian 5.50%............................................................ 6,937,500
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $8,051,433)...................... 12,086,250
-------------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<C> <S> <C>
CONVERTIBLE CORPORATE BONDS -- 0.5%
CONSUMER CYCLICALS -- 0.5%
$ 2,000,000 Federated Department Stores, 5.00%, due 10/01/03 (cost $2,000,000)........ 2,280,000
-------------
TOTAL INVESTMENTS -- 97.6% (cost $336,571,957)............................ 459,861,699
-------------
REPURCHASE AGREEMENTS -- 2.3%
5,417,000 Repurchase Agreement, 5.42% due 07/01/96, dated 06/28/96, with J.P. Morgan
Securities, collateralized by $3,666,000 U.S. Treasury Bonds, 12.50%,
due 08/15/14 valued at $5,526,495; proceeds: $5,419,447................. 5,417,000
5,417,000 Repurchase Agreement, 5.30% due 07/01/96, dated 06/28/96, with Merrill
Lynch, Pierce, Fenner & Smith, collateralized by $8,685,000 U.S.
Treasury Strips, Zero-Coupon, due 05/15/03, valued at $5,525,831;
proceeds: $5,419,393.................................................... 5,417,000
-------------
TOTAL REPURCHASE AGREEMENTS (cost $10,834,000)............................ 10,834,000
-------------
Other assets in excess of liabilities -- (0.1%)........................... 630,370
-------------
NET ASSETS -- 100.0%...................................................... $ 471,326,069
-------------
-------------
</TABLE>
* Non-income producing security.
See accompanying notes to financial statements.
PAGE 44
<PAGE>
<PAGE>
[This page intentionally left blank]
PAGE 45
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
NATIONAL
CASH NEW YORK INTERMEDIATE
MANAGEMENT MUNICIPAL MUNICIPAL
FUND BOND FUND FUND
<S> <C> <C> <C>
ASSETS:
Investments, at value (Note A)............................... $15,092,714 $4,215,348 $10,860,361
Repurchase agreements, at value and cost..................... 4,231,221 -- --
Cash......................................................... -- 13,047 46,181
Receivable for securities sold............................... -- -- --
Receivable for fund shares sold.............................. 334,698 24,371 63,871
Interest and dividends receivable............................ 41,375 76,759 203,145
Receivable from investment advisor........................... 724 10,369 35,468
Deferred organization expense................................ -- 20,913 85,336
Net unrealized appreciation of forward foreign currency
contracts.................................................. -- -- --
Other assets................................................. 15,588 2,239 15,033
----------- ---------- ------------
Total assets................................................. 19,716,320 4,363,046 11,309,395
----------- ---------- ------------
LIABILITIES:
Due to custodian............................................. -- -- --
Payable for:
Securities purchased....................................... -- -- --
Fund shares redeemed....................................... 98,089 -- --
Dividends and distributions declared....................... 28,246 7,050 42,960
Affiliate transactions:
Management fees.......................................... -- -- --
Service and distribution fees............................ -- 2,365 2,828
Net unrealized depreciation of forward foreign currency
contracts.................................................. -- -- --
Accrued expenses and other liabilities....................... 11,563 10,628 18,265
----------- ---------- ------------
Total Liabilities............................................ 137,898 20,043 64,053
----------- ---------- ------------
Net assets................................................... $19,578,422 $4,343,003 $11,245,342
----------- ---------- ------------
----------- ---------- ------------
NET ASSETS CONSIST OF:
Paid-in capital.............................................. $19,580,536 $4,957,682 $11,080,059
Undistributed net investment income or (distributions in
excess of net investment income)........................... -- 4,188 4,783
Accumulated net realized gain (loss) on investments, options
and foreign currency transactions.......................... (2,114 ) (617,129 ) 28,159
Net unrealized appreciation (depreciation) on investments,
foreign currency transactions and other assets............. -- (1,738 ) 132,341
----------- ---------- ------------
NET ASSETS................................................... $19,578,422 $4,343,003 $11,245,342
----------- ---------- ------------
----------- ---------- ------------
Class A...................................................... $5,293,022 $ 657,861 $ 613,404
----------- ---------- ------------
----------- ---------- ------------
Class B...................................................... $2,518,866 $ 514,647 $ 650,282
----------- ---------- ------------
----------- ---------- ------------
Class C...................................................... $ 267,232 $ 274,893 $ 359,802
----------- ---------- ------------
----------- ---------- ------------
Class O...................................................... $11,499,302 $2,895,602 $ 9,621,854
----------- ---------- ------------
----------- ---------- ------------
SHARES OUTSTANDING:
Class A...................................................... 5,293,022 67,858 60,301
----------- ---------- ------------
----------- ---------- ------------
Class B...................................................... 2,518,866 53,093 63,997
----------- ---------- ------------
----------- ---------- ------------
Class C...................................................... 267,232 28,356 35,405
----------- ---------- ------------
----------- ---------- ------------
Class O...................................................... 11,501,416 298,629 946,228
----------- ---------- ------------
----------- ---------- ------------
NET ASSET VALUE:
CLASS A SHARES
Net asset value and redemption price per share............... $ 1.00 $ 9.69 $ 10.17
----------- ---------- ------------
----------- ---------- ------------
Maximum offering price per share (based on maximum sales
charge of 4.75%, except Cash Management Fund).............. $ 1.00 $ 10.17 $ 10.68
----------- ---------- ------------
----------- ---------- ------------
CLASS B SHARES
Net asset value and offering price per share *............... $ 1.00 $ 9.69 $ 10.16
----------- ---------- ------------
----------- ---------- ------------
CLASS C SHARES
Net asset value and offering price per share *............... $ 1.00 $ 9.69 $ 10.16
----------- ---------- ------------
----------- ---------- ------------
CLASS O SHARES
Net asset value, offering price and redemption price per
share...................................................... $ 1.00 $ 9.70 $ 10.17
----------- ---------- ------------
----------- ---------- ------------
Note A: Cost of investments.................................. $15,092,714 $4,217,086 $10,728,020
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See accompanying notes to financial statements.
PAGE 46
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
U.S.
GOVERNMENT HIGH YIELD STRATEGIC TOTAL ASIA INVESTORS
INCOME FUND BOND FUND BOND FUND RETURN FUND GROWTH FUND FUND
<S> <C> <C> <C> <C> <C>
$9,948,995 $49,906,848 $18,547,956 $30,841,018 $4,407,356 $459,861,699
1,749,000 6,712,000 1,842,000 5,216,000 772,196 10,834,000
123 773 439 913 -- 133
-- 541,719 108,175 20,115 163,244 2,512,499
-- 1,681,306 223,789 326,896 57,050 161,599
63,822 886,576 278,030 261,309 13,727 673,791
35,312 -- 7,293 39,795 4,890 --
88,209 107,460 107,840 80,319 96,870 --
-- -- 3,120 -- -- --
15,436 23,416 16,536 29,380 -- 11,325
----------- ----------- ----------- ----------- ----------- ------------
11,900,897 59,860,098 21,135,178 36,815,745 5,515,333 474,055,046
----------- ----------- ----------- ----------- ----------- ------------
-- -- -- -- 17,640 --
894,165 4,213,750 1,370,718 2,299,075 104,165 1,767,750
119,639 4,646 9,570 5,113 -- 141,230
53,145 219,747 111,194 37,217 -- --
-- 65,867 -- -- -- 582,875
2,697 75,984 15,902 41,415 4,648 5,662
-- -- -- -- 44 --
18,745 43,309 23,570 26,212 102,355 231,460
----------- ----------- ----------- ----------- ----------- ------------
1,088,391 4,623,303 1,530,954 2,409,032 228,852 2,728,977
----------- ----------- ----------- ----------- ----------- ------------
$10,812,506 $55,236,795 $19,604,224 $34,406,713 $5,286,481 $471,326,069
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
$10,874,801 $53,413,232 $18,985,800 $33,123,472 $5,415,838 $318,348,116
(33,578 ) 18,430 (87,514 ) 99,837 16,073 1,934,778
65,850 642,287 31,924 179,201 (7,608 ) 27,753,244
(94,567 ) 1,162,846 674,014 1,004,203 (137,822 ) 123,289,931
----------- ----------- ----------- ----------- ----------- ------------
$10,812,506 $55,236,795 $19,604,224 $34,406,713 $5,286,481 $471,326,069
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
$ 706,493 $21,866,216 $2,572,516 $13,800,023 $2,568,268 $ 3,292,506
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
$ 583,057 $30,383,122 $5,991,853 $13,801,036 $2,511,271 $ 1,733,180
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
$ 248,974 $2,968,256 $1,211,527 $2,115,758 $ 106,222 $ 706,481
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
$9,273,982 $ 19,201 $9,828,328 $4,689,896 $ 100,720 $465,593,902
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
70,954 1,996,013 242,459 1,253,478 263,504 182,768
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
58,586 2,775,956 565,188 1,255,320 257,907 96,435
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
25,018 271,206 114,271 192,013 10,910 39,308
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
931,907 1,757 927,128 425,222 10,330 25,834,504
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
$ 9.96 $ 10.95 $ 10.61 $ 11.01 $ 9.75 $ 18.01
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
$ 10.46 $ 11.50 $ 11.14 $ 11.56 $ 10.24 $ 18.91
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
$ 9.95 $ 10.95 $ 10.60 $ 10.99 $ 9.74 $ 17.97
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
$ 9.95 $ 10.94 $ 10.60 $ 11.02 $ 9.74 $ 17.97
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
$ 9.95 $ 10.93 $ 10.60 $ 11.03 $ 9.75 $ 18.02
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
$10,043,562 $48,729,104 $17,874,949 $29,836,813 $4,545,102 $336,571,957
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
</TABLE>
See accompanying notes to financial statements.
PAGE 47
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- --------------------------------------------------------------
Statements of Operations
For the Six Months Ended June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
NATIONAL
CASH NEW YORK INTERMEDIATE
MANAGEMENT MUNICIPAL MUNICIPAL
FUND BOND FUND FUND
<S> <C> <C> <C>
INCOME (Note A):
Interest.............................................. $386,944 $106,811 $ 299,209
Dividends............................................. -- -- --
---------- --------- ------------
386,944 106,811 299,209
EXPENSES:
Management fee........................................ 14,070 9,407 27,483
Registration and filing fees.......................... 13,075 3,482 12,676
Custody and administration fees....................... 12,315 5,857 10,210
Audit and tax return preparation fees................. 4,277 795 3,132
Shareholder services.................................. 3,580 1,094 21,880
Legal................................................. 1,791 -- --
Printing and postage.................................. 1,492 -- 1,243
Directors' fees and expenses.......................... 1,398 1,208 959
Amortization of organization expenses................. -- 7,056 12,009
Other................................................. 1,492 1,519 1,989
---------- --------- ------------
53,490 30,418 91,581
Management fee waived and expenses absorbed by
investment advisor.................................. (14,794) (19,776 ) (62,951)
Credits earned from custodian on cash balances........ (5) (1,134 ) (1,148)
---------- --------- ------------
38,691 9,508 27,482
Distribution and service fees:
Class A Shares........................................ -- 738 713
Class B Shares........................................ -- 2,566 2,757
Class C Shares........................................ -- 1,317 1,508
---------- --------- ------------
Net expenses.......................................... 38,691 14,129 32,460
---------- --------- ------------
Net investment income................................. 348,253 92,682 266,749
---------- --------- ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments and options............................. -- 6,816 18,835
Foreign currency transactions....................... -- -- --
---------- --------- ------------
Net realized gain (loss).......................... -- 6,816 18,835
---------- --------- ------------
Net change in unrealized appreciation (depreciation)
on:
Investments and options............................. -- (152,298 ) (291,539)
Foreign currency transactions and other assets...... -- -- --
---------- --------- ------------
Net unrealized appreciation (depreciation) during
the period...................................... -- (152,298 ) (291,539)
---------- --------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)............... -- (145,482 ) (272,704)
---------- --------- ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS.......................................... $348,253 $(52,800 ) $ (5,955)
---------- --------- ------------
---------- --------- ------------
Note A: Net of foreign withholding tax of:............ -- -- --
</TABLE>
* Fund's commencement of investment operations was May 6, 1996.
See accompanying notes to financial statements.
PAGE 48
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
U.S.
GOVERNMENT HIGH YIELD STRATEGIC TOTAL ASIA INVESTORS
INCOME FUND BOND FUND BOND FUND RETURN FUND GROWTH FUND* FUND
<S> <C> <C> <C> <C> <C> <C>
$ 321,588 $2,205,905 $757,578 $ 483,483 $ 11,029 $ 887,917
-- -- -- 192,620 17,134 4,233,202
----------- ---------- --------- ----------- ----------------- -----------
321,588 2,205,905 757,578 676,103 28,163 5,121,119
31,879 144,736 57,889 66,106 6,014 1,130,525
12,633 18,999 13,543 15,688 572 14,919
12,797 37,922 20,887 32,136 5,309 34,338
2,885 15,166 4,823 12,134 1,050 34,809
21,880 24,366 22,377 12,929 704 173,049
-- 3,928 1,392 8,603 397 44,754
1,642 6,714 2,139 5,023 466 121,334
959 946 959 865 455 38,786
12,419 15,049 15,101 9,535 3,130 --
1,989 2,486 2,486 2,983 467 52,874
----------- ---------- --------- ----------- ----------------- -----------
99,083 270,312 141,596 166,002 18,564 1,645,388
(67,192) (78,869 ) (65,182 ) (105,900 ) (10,904) --
(12) (391 ) -- (6 ) (218) (202)
----------- ---------- --------- ----------- ----------------- -----------
31,879 191,052 76,414 60,096 7,442 1,645,186
505 19,713 1,507 10,654 907 1,450
3,203 91,216 18,796 48,595 3,589 5,448
1,321 9,199 3,375 5,964 152 1,799
----------- ---------- --------- ----------- ----------------- -----------
36,908 311,180 100,092 125,309 12,090 1,653,883
----------- ---------- --------- ----------- ----------------- -----------
284,680 1,894,725 657,486 550,794 16,073 3,467,236
----------- ---------- --------- ----------- ----------------- -----------
70,832 579,513 (8,120 ) 170,077 (5,158) 27,723,479
-- -- 27,972 -- (2,450) (57)
----------- ---------- --------- ----------- ----------------- -----------
70,832 579,513 19,852 170,077 (7,608) 27,723,422
----------- ---------- --------- ----------- ----------------- -----------
(419,971) 716,776 106,524 554,058 (137,746) 22,071,582
-- (2,058 ) 17,202 (2 ) (76) 189
----------- ---------- --------- ----------- ----------------- -----------
(419,971) 714,718 123,726 554,056 (137,822) 22,071,771
----------- ---------- --------- ----------- ----------------- -----------
(349,139) 1,294,231 143,578 724,133 (145,430) 49,795,193
----------- ---------- --------- ----------- ----------------- -----------
$ (64,459) $3,188,956 $801,064 $1,274,927 $(129,357) $53,262,429
----------- ---------- --------- ----------- ----------------- -----------
----------- ---------- --------- ----------- ----------------- -----------
-- -- $ 74 $ 2,226 $ 1,080 $ 90,920
--------- ----------- ----------------- -----------
--------- ----------- ----------------- -----------
</TABLE>
See accompanying notes to financial statements.
PAGE 49
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Six Months Ended June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
CASH NEW YORK NATIONAL
MANAGEMENT MUNICIPAL INTERMEDIATE
FUND BOND FUND MUNICIPAL FUND
<S> <C> <C> <C>
OPERATIONS:
Net investment income............................... $ 348,253 $ 92,682 $ 266,749
Net realized gain (loss) on investments, options,
and foreign currency transactions................. -- 6,816 18,835
Net change in unrealized appreciation (depreciation)
on investments, options, foreign currency
transactions and other assets..................... -- (152,298 ) (291,539)
----------- ---------- --------------
Net increase (decrease) in net assets from
operations........................................ 348,253 (52,800 ) (5,955)
----------- ---------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income:
Class A........................................... (80,722 ) (14,437 ) (13,153)
Class B........................................... (59,501 ) (10,748 ) (10,928)
Class C........................................... (6,944 ) (5,521 ) (6,006)
Class O........................................... (201,086 ) (61,147 ) (235,808)
----------- ---------- --------------
(348,253 ) (91,853 ) (265,895)
----------- ---------- --------------
Distributions from net realized gains:
Class A........................................... -- -- --
Class B........................................... -- -- --
Class C........................................... -- -- --
Class O........................................... -- -- --
----------- ---------- --------------
-- -- --
----------- ---------- --------------
NET FUND CAPITAL SHARE TRANSACTIONS:
Class A........................................... 3,537,475 135,941 58,615
Class B........................................... 280,380 8,500 230,755
Class C........................................... 84,691 20,162 95,905
Class O........................................... 4,815,072 489,102 184,877
----------- ---------- --------------
Net increase in net assets derived from share
transactions................................. 8,717,618 653,705 570,152
----------- ---------- --------------
NET INCREASE IN NET ASSETS............................ 8,717,618 509,052 298,302
NET ASSETS:
Beginning of period................................. 10,860,804 3,833,951 10,947,040
----------- ---------- --------------
End of period (a)................................... $19,578,422 $4,343,003 $ 11,245,342
----------- ---------- --------------
----------- ---------- --------------
(a) Including undistributed net investment income or
distributions in excess of net investment income
of: -- $ 4,188 $ 4,783
---------- --------------
---------- --------------
</TABLE>
* Fund's commencement of investment operations was May 6, 1996.
See accompanying notes to financial statements.
PAGE 50
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
U.S.
GOVERNMENT HIGH YIELD STRATEGIC TOTAL ASIA INVESTORS
INCOME FUND BOND FUND BOND FUND RETURN FUND GROWTH FUND* FUND
<S> <C> <C> <C> <C> <C> <C>
$ 284,680 $ 1,894,725 $ 657,486 $ 550,794 $ 16,073 $ 3,467,236
70,832 579,513 19,852 170,077 (7,608) 27,723,422
(419,971) 714,718 123,726 554,056 (137,822) 22,071,771
----------- ----------- ----------- ------------ ------------- ------------
(64,459) 3,188,956 801,064 1,274,927 (129,357) 53,262,429
----------- ----------- ----------- ------------ ------------- ------------
(11,350) (807,825) (55,175) (172,678) -- (2,834)
(16,111) (866,865) (159,141) (159,260) -- (939)
(6,718) (87,705) (28,508) (19,475) -- (369)
(284,079) (142,364) (472,800) (99,544) -- (1,528,316)
----------- ----------- ----------- ------------ ------------- ------------
(318,258) (1,904,759) (715,624) (450,957) -- (1,532,458)
----------- ----------- ----------- ------------ ------------- ------------
-- -- -- -- -- (27,395)
-- -- -- -- -- (27,238)
-- -- -- -- -- (10,707)
-- -- -- -- -- (14,769,851)
----------- ----------- ----------- ------------ ------------- ------------
-- -- -- -- -- (14,835,191)
----------- ----------- ----------- ------------ ------------- ------------
440,847 10,643,111 2,058,584 9,888,115 2,628,051 2,785,248
33,078 19,771,540 4,100,320 8,085,022 2,573,150 934,549
(14,587) 1,637,395 792,408 1,634,312 107,637 371,070
60,946 (8,125,182) 1,059 1,055 102,000 (73,184)
----------- ----------- ----------- ------------ ------------- ------------
520,284 23,926,864 6,952,371 19,608,504 5,410,838 4,017,683
----------- ----------- ----------- ------------ ------------- ------------
137,567 25,211,061 7,037,811 20,432,474 5,281,481 40,912,463
10,674,939 30,025,734 12,566,413 13,974,239 5,000 430,413,606
----------- ----------- ----------- ------------ ------------- ------------
$10,812,506 $55,236,795 $19,604,224 $34,406,713 $ 5,286,481 $471,326,069
----------- ----------- ----------- ------------ ------------- ------------
----------- ----------- ----------- ------------ ------------- ------------
$ (33,578) $ 18,430 $ (87,514) $ 99,837 $ 16,073 $ 1,934,778
----------- ----------- ----------- ------------ ------------- ------------
----------- ----------- ----------- ------------ ------------- ------------
</TABLE>
See accompanying notes to financial statements.
PAGE 51
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ----------------------------------------------------------------------
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Salomon Brothers Investment Series (the 'Investment Series') consists of
certain portfolios of the Salomon Brothers Series Funds Inc (the 'Series
Funds'), as indicated below, and the Salomon Brothers Investors Fund Inc (the
'Investors Fund'). The Series Funds were incorporated in Maryland on April 17,
1990 as an open-end management investment company, and currently operate as a
series company comprised of ten portfolios: Salomon Brothers Cash Management
Fund (the 'Cash Management Fund'), Salomon Brothers New York Municipal Money
Market Fund (the 'New York Municipal Money Fund'), Salomon Brothers
Institutional Money Market Fund (the 'Institutional Money Market Fund'), Salomon
Brothers New York Municipal Bond Fund (the 'New York Municipal Bond Fund'),
Salomon Brothers National Intermediate Municipal Fund (the 'National
Intermediate Municipal Fund'), Salomon Brothers U.S. Government Income Fund (the
'U.S. Government Income Fund'), Salomon Brothers High Yield Bond Fund (the 'High
Yield Bond Fund'), Salomon Brothers Strategic Bond Fund (the 'Strategic Bond
Fund'), Salomon Brothers Total Return Fund (the 'Total Return Fund'), and
Salomon Brothers Asia Growth Fund (the 'Asia Growth Fund'). Separate financial
statements are prepared for the New York Municipal Money Fund and the
Institutional Money Market Fund which are not part of the Investment Series. All
of the other portfolios of the Series Funds are included in the Investment
Series, which also includes the Investors Fund, a diversified open-end
management investment company incorporated in Maryland on April 2, 1958. The
Investment Series operates under a multiple class pricing structure, with each
portfolio of the Investment Series (individually, a 'Fund') offering Class A,
Class B, Class C, and Class O shares, each with their own expense structure.
Each Fund has a specific investment objective: the Cash Management Fund's
objective is to seek as high a level of current income as is consistent with
liquidity and the stability of principal; the New York Municipal Bond Fund's
objective is to achieve a high level of current income which is exempt from
regular federal income taxes and New York State and New York City personal
income taxes, consistent with the preservation of capital; the National
Intermediate Municipal Fund's objective is to seek a high level of current
income which is exempt from regular federal income taxes; the U.S. Government
Income Fund's objective is to seek a high level of current income; the High
Yield Bond Fund's primary objective is to maximize current income; the Strategic
Bond Fund's primary objective is to seek a high level of current income; the
Total Return Fund's primary objective is to obtain above-average income
(compared to a portfolio entirely invested in equity securities); the Asia
Growth Fund's and Investors Fund's objective is to seek long-term growth of
capital.
Certain costs incurred in connection with each Fund's organization, which were
payable to Salomon Brothers Asset Management Inc ('SBAM') have been deferred and
are being amortized by the Funds over a 60 month period from the date each Fund
PAGE 54
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
commenced investment operations. A summary of those expenditures that remain as
of June 30, 1996 for each Fund is as follows:
<TABLE>
<CAPTION>
FUND EXPIRATION OF AMORTIZATION AMOUNT
<S> <C> <C>
New York Municipal Bond Fund............................. February 1998 $20,913
National Intermediate Municipal Fund..................... February 2000 $85,336
U.S. Government Income Fund.............................. February 2000 $88,209
High Yield Bond Fund..................................... February 2000 $107,460
Strategic Bond Fund...................................... February 2000 $107,840
Total Return Fund........................................ September 2000 $80,319
Asia Growth Fund......................................... May 2001 $96,870
</TABLE>
The following is a summary of significant accounting policies followed by the
Investment Series in the preparation of its financial statements. The policies
are in conformity with
generally accepted accounting principles ('GAAP'). The preparation of financial
statements in accordance with GAAP requires management to make estimates of
certain reported amounts in the financial statements. Actual amounts could
differ from those estimates.
(a) INVESTMENT VALUATION. Portfolio securities listed or traded on
national securities exchanges, or reported on the NASDAQ national market
system, are valued at the last sale price, or if there have been no sales
on that day, at the mean of the current bid and asked price which
represents the current value of the security. Over-the-counter securities
are valued at the mean of the current bid and asked price. Debt securities
are valued by using either market quotations or independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Publicly traded sovereign bonds are typically
traded internationally on the over-the-counter market and are valued at the
mean of the last current bid and asked price as of the close of business of
that market. Short-term securities with less than 60 days remaining to
maturity when acquired by a Fund will be valued at amortized cost which
approximates market value. If a Fund, other than the Cash Management Fund,
acquires such securities with more than 60 days remaining to maturity, they
will be valued at current market value (using the bid price), until the
60th day prior to maturity, and will then be valued on an amortized cost
basis.
Portfolio securities for the Cash Management Fund are valued using the
amortized cost method, which involves initially valuing an investment at
its cost and thereafter assuming a constant amortization to maturity of any
premium or discount. This method results in a value approximating market
value.
PAGE 55
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ----------------------------------------------------------------------
Notes to Financial Statements (unaudited)
Foreign securities quoted in a foreign currency are translated into
U.S. dollars using exchange rates at 2:30 p.m. Eastern time or at such
other rates as SBAM may determine to be appropriate in computing net asset
value.
Securities for which reliable quotations or prices from pricing
services are not readily available (as may be the case for securities of
limited marketability) and all other assets are valued at their respective
fair value as determined in good faith by, or under procedures established
by, the Board of Directors.
(b) FUTURES CONTRACTS. The New York Municipal Bond Fund, National
Intermediate Municipal Fund, High Yield Bond Fund, Strategic Bond Fund,
Total Return Fund, Asia Growth Fund and Investors Fund may enter into
futures contracts, which involves paying or receiving variation margin,
which will be recorded as unrealized gain or loss until the contract is
closed. When the contract is closed, a realized gain or loss will be
recognized. Outstanding contracts involve elements of market risk in excess
of amounts reported in the financial statements.
(c) OPTION CONTRACTS. When a Fund writes or purchases a call or a put
option, an amount equal to the premium received or paid by the Fund is
recorded as a liability or asset, the value of which is marked-to-market
daily to reflect the current market value of the option. When the option
expires, the Fund realizes a gain or loss equal to the amount of the
premium received or paid. When the Fund exercises an option or enters into
a closing transaction by purchasing or selling an offsetting option, it
realizes a gain or loss without regard to any unrealized gain or loss on
the underlying security. When a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received.
When a written put option is exercised, the amount of the premium received
reduces the cost of the security that the Fund purchased upon exercise of
the option.
(d) MORTGAGE ROLLS. The U.S. Government Income Fund, Strategic Bond
Fund and Total Return Fund may enter into mortgage 'dollar rolls' in which
a Fund sells mortgage-backed securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. The Fund
is compensated by a fee paid by the counterparty. Dollar rolls are
accounted for as financing arrangements; the fee is accrued into interest
income ratably over the term of the dollar roll and any gain or loss on the
roll is deferred until disposition of the rolled security. The average
daily balance of dollar rolls outstanding during the six months ended June
30, 1996 was approximately $1,023,000, $618,000, $109,000 for the U.S.
Government Income Fund, Strategic Bond Fund and Total Return Fund,
respectively.
(e) REPURCHASE AGREEMENTS. When entering into repurchase agreements,
it is each Fund's policy that the Fund take possession, through its
custodian, of the underlying collateral and monitor the collateral's value
at the time the agreement is entered into and on a daily basis during the
term of the repurchase agreement to
PAGE 56
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
ensure that it always equals or exceeds the repurchase price. In the event
of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral may be subject to legal proceedings.
(f) FOREIGN CURRENCY TRANSLATION. The accounting records of each Fund
are maintained in U.S. dollars. Investment securities and other assets and
liabilities of the High Yield Bond Fund, Strategic Bond Fund, Total Return
Fund, Asia Growth Fund and Investors Fund denominated in a foreign currency
are translated into U.S. dollars at the prevailing rates of exchange each
day. Purchases and sales of securities, income receipts and expense
payments are translated into U.S. dollars at the prevailing exchange rate
on the respective dates of the transactions. Net realized gains and losses
on foreign currency transactions represent net gains and losses from sales
and maturities of forward currency contracts, disposition of foreign
currencies, currency gains and losses realized between the trade and
settlement dates on securities transactions and the difference between the
amount of net investment income accrued and the U.S. dollar amount actually
received. The effect of changes in foreign currency exchange rates on
investments in securities are not segregated in the Statements of
Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or
loss on investments.
(g) FORWARD FOREIGN CURRENCY CONTRACTS. The High Yield Bond Fund,
Strategic Bond Fund, Total Return Fund, Asia Growth Fund and Investors Fund
may enter into forward foreign currency contracts in connection with
planned purchases or sales of securities or to hedge the value of portfolio
securities. A forward foreign currency contract is an agreement between two
parties to buy and sell a currency at a set price on a future date. The
contract is marked-to-market daily and the change in value is recorded by
the Fund as an unrealized gain or loss. When a forward foreign currency
contract is extinguished, through either delivery or offset by entering
into another forward foreign currency contract, the Fund records a realized
gain or loss equal to the difference between the value of the contract at
the time it was opened and the value of the contract at the time it was
extinguished or offset.
(h) LOAN PARTICIPATIONS. The High Yield Bond Fund, Strategic Bond Fund
and Total Return Fund may invest in fixed and floating rate loans arranged
through private negotiations between a foreign sovereign entity and one or
more financial institutions ('lender'). The market values of the High Yield
Bond Fund and the Strategic Bond Fund's loan participations at June 30,
1996 were $1,083,749 and $361,250, respectively.
In connection with purchasing participations, the Fund generally will
have no right to enforce compliance by the borrower, and the Fund may not
benefit directly from any collateral supporting the loan in which it has
purchased the participation. As a result, the Fund will assume the credit
risk of both the borrower and the
PAGE 57
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ----------------------------------------------------------------------
Notes to Financial Statements (unaudited)
lender that is selling the participation. In the event of the insolvency of
the lender selling the participation, the Fund may be treated as a general
creditor of the lender and may not benefit from any set-off between the
lender and the borrower.
(i) FEDERAL INCOME TAXES. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, including the distribution requirements of the Tax
Reform Act of 1986, and to distribute all of its income, including any net
realized gains, to shareholders. Therefore, no Federal income tax or excise
tax provision is required.
(j) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net
investment income on the shares of each of the Funds (except the Asia
Growth Fund and Investors Fund) are declared each business day to
shareholders of record that day, and are paid on the last business day of
the month. Dividends from net investment income for the Asia Growth Fund
will be declared on an annual basis. Dividends from net investment income
for the Investors Fund are declared on a quarterly basis. Distributions of
net realized gains to shareholders of each Fund, if any, are declared at
least annually. Dividends and distributions to shareholders of each Fund
are recorded on the ex-dividend date and are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles due primarily to differences in the treatment of foreign
currency gains/losses, deferral of wash sales, and post-October losses
incurred by each Fund. Permanent book/tax differences are reclassified
within the capital accounts based on their federal income tax basis
treatment; temporary differences do not require reclassifications.
Dividends and distributions which exceed net investment income and net
realized gains for financial reporting purposes but not for tax purposes
are reported as distributions in excess of net investment income and
distributions in excess of net realized capital gains.
(k) CLASS ACCOUNTING. Investment income, common expenses and gain
(loss) on investments are allocated to the various classes of a Fund on the
basis of daily net assets of each class. Distribution and shareholder
servicing fees relating to a specific class are charged directly to that
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
(l) EXPENSES. Direct expenses are charged to the Fund that incurred
them, and general expenses of the Investment Series are allocated to the
Funds based on each Fund's relative net assets.
(m) OTHER. Investment transactions are recorded as of the trade date.
Dividend income is recorded on the ex-dividend date. Interest income,
including the accretion of discounts or amortization of premiums, is
recognized when earned. Gains or losses on sales of securities are
calculated for financial accounting and Federal income tax purposes on the
identified cost basis. Net investment income (other than distribution fees)
and unrealized and realized gains or losses are allocated daily to
PAGE 58
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
each class of shares based upon the relative proportion of each class's net
assets to the Fund's total net assets.
2. MANAGEMENT FEE AND OTHER AGREEMENTS
Each Fund retains SBAM, an indirect wholly owned subsidiary of Salomon Inc, to
act as investment manager of each Fund, subject to the supervision by the Board
of Directors of each Fund. SBAM furnishes the Investment Series with office
space and certain services and facilities required for conducting the business
of the Investment Series and pays the compensation of its officers. The
management fee for these services for each Fund (except the Investors Fund) is
payable monthly and is based on the following annual percentages of each Funds'
average daily net assets: .20% for the Cash Management Fund, .50% for the New
York Municipal Bond Fund and the National Intermediate Municipal Fund, .60% for
the U.S. Government Income Fund, .75% for the High Yield Bond Fund and Strategic
Bond Fund, .55% for the Total Return Fund and .80% for the Asia Growth Fund.
SBAM Limited provides certain advisory services to SBAM for the benefit of the
Strategic Bond Fund. SBAM Limited is compensated by SBAM at no additional
expense to the Strategic Bond Fund. SBAM has retained SBAM AP to act as
sub-advisor to the Asia Growth Fund. SBAM AP is compensated by SBAM at no
additional expense to the Asia Growth Fund. SBAM Limited provides certain
administrative services to the Asia Growth Fund. For such administrative
services, SBAM Limited is compensated by SBAM at no additional expense to the
Asia Growth Fund.
The Investors Fund pays SBAM a base fee subject to an increase or decrease
depending on the extent, if any, to which the investment performance of the
Investors Fund exceeds or is exceeded by the investment record of the Standard &
Poor's 500 Index of Composite Stocks ('S&P 500 Index'). The base fee is paid
quarterly based on the following annual rates:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
<S> <C>
First $350 million.................................................................. .500%
Next $150 million................................................................... .400%
Next $250 million................................................................... .375%
Next $250 million................................................................... .350%
Over $1 billion..................................................................... .300%
</TABLE>
The performance adjustment is paid quarterly based on a rolling one year period.
A performance adjustment will only be made after the investment performance of
the Investors Fund exceeds or is exceeded by the investment record of the S&P
500 Index by at least one percentage point. For each percentage point by which
the investment performance of the Investors Fund exceeds or is exceeded by the
investment record of the S&P 500 Index, the base fee will be adjusted upward or
downward by .01% (annualized). The maximum annual adjustment is .10% which would
occur if the Investors Fund's performance exceeds or is exceeded by the S&P 500
Index by ten or
PAGE 59
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ----------------------------------------------------------------------
Notes to Financial Statements (unaudited)
more percentage points. For the rolling years ended March 31, 1996 and June 30,
1996, the Investors Fund's performance exceeded the investment record of the S&P
Index by approximately two and three percent, respectively. As a result, base
management fees were increased by $19,564 at March 31, 1996, and $34,793 at June
30, 1996.
For the period ended June 30, 1996, SBAM waived management fees of $14,070,
$9,407, $27,483, $31,879, $78,869, $57,889, $66,106 and $6,014 for the Cash
Management Fund, New York Municipal Bond Fund, National Intermediate Municipal
Fund, U.S. Government Income Fund, High Yield Bond Fund, Strategic Bond Fund,
Total Return Fund and Asia Growth Fund, respectively, and voluntarily absorbed
expenses of $724, $10,369, $35,468, $35,313, $7,293, $39,794 and $4,890 for the
Cash Management Fund, New York Municipal Bond Fund, National Intermediate
Municipal Fund, U.S. Government Income Fund, Strategic Bond Fund, Total Return
Fund and Asia Growth Fund, respectively.
If in any fiscal year total expenses of any Fund, excluding taxes, interest,
brokerage and extraordinary expenses, but including the management fee, exceed
the most stringent expense limitations imposed by state securities regulations
applicable to the Fund, SBAM will pay or reimburse the Fund for the excess.
Currently, the most restrictive of these limitations on an annual basis is 2.5%
of the first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of average daily net assets in
excess of $100 million. No such expense reimbursement was required for the
period ending June 30, 1996.
Investors Bank & Trust Company serves as custodian and administrator for each
Fund, which includes performing certain administrative services in connection
with the operation of each Fund. During the period ended June 30, 1996, credits
earned on outstanding cash balances were used to reduce custodian fees by $5,
$1,134, $1,148, $12, $391, $6, $218 and $202 for the Cash Management Fund, New
York Municipal Bond Fund, National Intermediate Municipal Fund, U.S. Government
Income Fund, High Yield Bond Fund, Total Return Fund, Asia Growth Fund and
Investors Fund, respectively.
Each Fund has an agreement with Salomon Brothers Inc ('Salomon Brothers'), an
affiliate of the Investment Adviser, to distribute its shares pursuant to a
multiple pricing system. Each class (except for Class O) of each Fund (except
for the Cash Management Fund) is authorized pursuant to a services and
distribution plan applicable to that class of shares (the 'Class A Plan,' the
'Class B Plan,' and the 'Class C Plan,' collectively, the 'Plans') adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
'1940 Act'), to pay Salomon Brothers an annual service fee with respect to Class
A, Class B, and Class C shares of the applicable Funds at the rate of .25% of
the value of the average daily net assets of the respective class. Salomon
Brothers is also paid an annual distribution fee with respect to Class B and
Class C shares of each Fund (except for the Cash Management Fund) at the rate of
.75% of the
PAGE 60
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
value of the average daily net assets of the respective class. Class O shares
are not subject to a services and distribution plan fee.
Brokerage commissions of $600 and $29,364 were paid by the Total Return Fund and
Investors Fund, respectively, to Salomon Brothers, the Funds' distributor and an
indirect wholly-owned subsidiary of Salomon Inc, for transactions executed on
behalf of the Funds for the period ended June 30, 1996.
Salomon Brothers received $7,088 as its portion of the front-end sales charge on
sales of Class A shares of the Funds during the period ended June 30, 1996. In
addition, contingent deferred sales charges of $59,533 were paid to Salomon
Brothers in connection with redemptions of certain Class B and Class C shares of
the Funds during the period ended June 30, 1996.
PAGE 61
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ----------------------------------------------------------------------
Notes to Financial Statements (unaudited)
3. CAPITAL STOCK
At June 30, 1996, the Series Funds had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share, of which the Cash Management Fund, New
York Municipal Bond Fund, National Intermediate Municipal Fund, U.S. Government
Income Fund, High Yield Bond Fund, and Strategic Bond Fund, each had
1,000,000,000 shares authorized. The Total Return Fund and Asia Growth Fund had
999,999,992 and 1,000,000,008 shares authorized, respectively. The Investors
Fund had 50,000,000 shares of authorized capital stock, par value $1.00 per
share. Transactions in Fund shares for the periods indicated were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
PERIOD
ENDED
PERIOD ENDED PERIOD ENDED PERIOD ENDED DECEMBER
JUNE 30, 1996 DECEMBER 31, 1995 JUNE 30, 1996 31, 1995
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
CASH MANAGEMENT FUND
Sold................. 14,605,929 $ 14,605,929 8,291,614 $ 8,291,614 1,655,915 $ 1,655,915 3,213,151
Issued as
reinvestment........ 16,602 16,602 4,672 4,672 54,017 54,017 24,262
Redeemed............. (11,085,056) (11,085,056) (6,540,739) (6,540,739) (1,429,552) (1,429,552) (998,927)
----------- ------------ ---------- ----------- ---------- ----------- ---------
Net increase
(decrease).......... 3,537,475 $ 3,537,475 1,755,547 $ 1,755,547 280,380 $ 280,380 2,238,486
----------- ------------ ---------- ----------- ---------- ----------- ---------
----------- ------------ ---------- ----------- ---------- ----------- ---------
NEW YORK MUNICIPAL
BOND FUND
Sold................. 24,815 $ 243,482 53,966 $ 528,846 603 $ 6,000 52,010
Issued as
reinvestment........ 251 2,459 16 157 256 2,500 226
Redeemed............. (11,188) (110,000) (2) (21) -- -- (2)
----------- ------------ ---------- ----------- ---------- ----------- ---------
Net increase
(decrease).......... 13,878 $ 135,941 53,980 $ 528,982 859 $ 8,500 52,234
----------- ------------ ---------- ----------- ---------- ----------- ---------
----------- ------------ ---------- ----------- ---------- ----------- ---------
NATIONAL INTERMEDIATE
MUNICIPAL FUND
Sold................. 10,194 $ 104,387 54,100 $ 546,146 22,218 $ 227,112 41,260
Issued as
reinvestment........ 609 6,258 710 7,331 356 3,643 163
Redeemed............. (5,093) (52,030) (221) (2,286) -- -- (2)
----------- ------------ ---------- ----------- ---------- ----------- ---------
Net increase......... 5,710 $ 58,615 54,589 $ 551,191 22,574 $ 230,755 41,421
----------- ------------ ---------- ----------- ---------- ----------- ---------
----------- ------------ ---------- ----------- ---------- ----------- ---------
U.S. GOVERNMENT
INCOME FUND
Sold................. 44,329 $ 444,019 26,869 $ 269,137 45,209 $ 454,189 54,833
Issued as
reinvestment........ 209 2,094 76 721 366 3,692 637
Redeemed............. (529) (5,266) (2) (20) (42,459) (424,803) (2)
----------- ------------ ---------- ----------- ---------- ----------- ---------
Net increase
(decrease).......... 44,009 $ 440,847 26,943 $ 269,838 3,116 $ 33,078 55,468
----------- ------------ ---------- ----------- ---------- ----------- ---------
----------- ------------ ---------- ----------- ---------- ----------- ---------
HIGH YIELD BOND FUND
Sold................. 1,468,353 $ 16,040,830 1,019,841 $10,701,496 1,876,222 $20,422,126 946,768
Issued as
reinvestment........ 44,637 487,360 40,936 430,949 28,874 314,901 15,920
Redeemed............. (541,174) (5,885,079) (36,582) (386,153) (89,256) (965,487) (2,574)
----------- ------------ ---------- ----------- ---------- ----------- ---------
Net increase
(decrease).......... 971,816 $ 10,643,111 1,024,195 $10,746,292 1,815,840 $19,771,540 960,114
----------- ------------ ---------- ----------- ---------- ----------- ---------
----------- ------------ ---------- ----------- ---------- ----------- ---------
STRATEGIC BOND FUND
Sold................. 192,181 $ 2,041,900 53,771 $ 551,616 418,455 $ 4,433,788 174,744
Issued as
reinvestment........ 2,817 29,856 1,158 12,171 6,828 72,448 3,737
Redeemed............. (1,244) (13,172) (6,226) (65,416) (38,521) (405,916) (57)
----------- ------------ ---------- ----------- ---------- ----------- ---------
Net increase......... 193,754 $ 2,058,584 48,703 $ 498,371 386,762 $ 4,100,320 178,424
----------- ------------ ---------- ----------- ---------- ----------- ---------
----------- ------------ ---------- ----------- ---------- ----------- ---------
TOTAL RETURN FUND
Sold................. 923,434 $ 10,069,072 343,940 $ 3,552,510 782,796 $ 8,497,375 518,625
Issued as
reinvestment........ 12,064 131,692 2,713 28,624 11,403 124,427 3,801
Redeemed............. (28,705) (312,649) (93) (958) (49,278) (536,780) (12,152)
----------- ------------ ---------- ----------- ---------- ----------- ---------
Net increase......... 906,793 $ 9,888,115 346,560 $ 3,580,176 744,921 $ 8,085,022 510,274
----------- ------------ ---------- ----------- ---------- ----------- ---------
----------- ------------ ---------- ----------- ---------- ----------- ---------
ASIA GROWTH FUND
Sold................. 263,479 $ 2,629,041 -- -- 257,782 $ 2,573,150 --
Issued as
reinvestment........ -- -- -- -- -- -- --
Redeemed............. (100) (990) -- -- -- -- --
----------- ------------ ---------- ----------- ---------- ----------- ---------
Net increase......... 263,379 $ 2,628,051 -- -- 257,782 $ 2,573,150 --
----------- ------------ ---------- ----------- ---------- ----------- ---------
----------- ------------ ---------- ----------- ---------- ----------- ---------
INVESTORS FUND
Sold................. 158,489 $ 2,827,279 27,922 $ 420,791 71,052 $ 1,245,800 41,769
Issued as
reinvestment........ 905 15,456 760 12,451 844 14,319 1,335
Redeemed............. (3,189) (57,487) (2,119) (37,067) (18,550) (325,570) (15)
----------- ------------ ---------- ----------- ---------- ----------- ---------
Net increase
(decrease).......... 156,205 $ 2,785,248 26,563 $ 396,175 53,346 $ 934,549 43,089
----------- ------------ ---------- ----------- ---------- ----------- ---------
----------- ------------ ---------- ----------- ---------- ----------- ---------
<PAGE>
<CAPTION>
AMOUNT
<S> <C>
CASH MANAGEMENT FUND
Sold................. $ 3,213,151
Issued as
reinvestment........ 24,262
Redeemed............. (998,927)
-----------
Net increase
(decrease).......... $ 2,238,486
-----------
-----------
NEW YORK MUNICIPAL
BOND FUND
Sold................. $ 502,220
Issued as
reinvestment........ 2,229
Redeemed............. (22)
-----------
Net increase
(decrease).......... $ 504,427
-----------
-----------
NATIONAL INTERMEDIATE
MUNICIPAL FUND
Sold................. $ 416,180
Issued as
reinvestment........ 1,682
Redeemed............. (20)
-----------
Net increase......... $ 417,842
-----------
-----------
U.S. GOVERNMENT
INCOME FUND
Sold................. $ 554,953
Issued as
reinvestment........ 6,542
Redeemed............. (20)
-----------
Net increase
(decrease).......... $ 561,475
-----------
-----------
HIGH YIELD BOND FUND
Sold................. $ 9,961,848
Issued as
reinvestment........ 168,888
Redeemed............. (26,932)
-----------
Net increase
(decrease).......... $10,103,804
-----------
-----------
STRATEGIC BOND FUND
Sold................. $ 1,827,448
Issued as
reinvestment........ 39,371
Redeemed............. (590)
-----------
Net increase......... $ 1,866,229
-----------
-----------
TOTAL RETURN FUND
Sold................. $ 5,342,405
Issued as
reinvestment........ 40,062
Redeemed............. (126,759)
-----------
Net increase......... $ 5,255,708
-----------
-----------
ASIA GROWTH FUND
Sold................. --
Issued as
reinvestment........ --
Redeemed............. --
-----------
Net increase......... --
-----------
-----------
INVESTORS FUND
Sold................. $ 654,082
Issued as
reinvestment........ 21,837
Redeemed............. (260)
-----------
Net increase
(decrease).......... $ 675,659
-----------
-----------
</TABLE>
PAGE 62
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
CLASS C CLASS O
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30, 1996 DECEMBER 31, 1995 JUNE 30, 1996 DECEMBER 31, 1995
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
615,246 $ 615,246 180,044 $ 180,044 24,713,872 $ 24,713,872 47,254,877 $ 47,254,877
2,345 2,345 2,497 2,497 132,142 132,142 431,706 431,706
(532,900) (532,900) -- -- (20,030,942) (20,030,942) (60,129,169) (60,129,169)
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
84,691 $ 84,691 182,541 $ 182,541 4,815,072 $ 4,815,072 (12,442,586) ($12,442,586)
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
2,072 $ 20,000 26,263 $ 250,020 82,225 $ 791,000 14,323 $ 137,924
17 162 6 60 5,297 51,934 17,711 169,082
-- -- (2) (21) (35,546) (353,832) (156,388) (1,509,557)
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
2,089 $ 20,162 26,267 $ 250,059 51,976 $ 489,102 (124,354) ($ 1,202,551)
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
9,344 $ 95,000 25,963 $ 260,000 18,216 $ 184,870 927,748 $ 9,278,117
89 905 9 87 1 7 263 2,630
-- -- (2) (20) -- -- (2) (20)
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
9,433 $ 95,905 25,970 $ 260,067 18,217 $ 184,877 928,009 $ 9,280,727
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
-- -- 27,164 $ 272,000 6,016 $ 60,165 925,200 $ 9,252,000
-- -- 20 206 79 781 816 8,164
(1,470) ($ 14,587) (698) (7,152) -- -- (206) (2,094)
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
(1,470) ($ 14,587) 26,486 $ 265,054 6,095 $ 60,946 925,810 $ 9,258,070
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
170,558 $1,856,734 124,291 $1,298,229 555 $ 6,051 926,518 $ 9,265,788
4,862 52,995 1,229 12,925 4 42 791 7,911
(25,283) (272,334) (4,453) (46,441) (744,322) (8,131,275) (181,791) (1,902,220)
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
150,137 $1,637,395 121,067 $1,264,713 (743,763) ($ 8,125,182) 745,518 $ 7,371,479
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
77,789 $ 820,339 38,420 $ 391,367 99 $ 1,050 926,274 $ 9,263,323
1,366 14,488 625 6,573 1 9 754 7,526
(3,929) (42,419) (2) (20) -- -- (2) (20)
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
75,226 $ 792,408 39,043 $ 397,920 100 $ 1,059 927,026 $ 9,270,829
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
151,159 $1,648,104 41,886 $ 423,053 96 $ 1,050 425,000 $ 4,250,000
1,081 11,855 99 1,041 1 5 -- --
(2,336) (25,647) (1) (10) -- -- -- --
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
149,904 $1,634,312 41,984 $ 424,084 97 $ 1,055 425,000 $ 4,250,000
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
10,785 $ 107,637 -- -- 10,205 $ 102,000 -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
10,785 $ 107,637 -- -- 10,205 $ 102,000 -- --
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
20,821 $ 370,527 18,595 $ 267,020 82,353 $ 1,427,645 245,958 $ 3,783,857
32 543 60 980 735,072 12,585,521 2,017,845 32,672,713
-- -- (200) (3,142) (811,385) (14,086,350) (1,987,122) (31,073,072)
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
20,853 $ 371,070 18,455 $ 264,858 6,040 ($ 73,184) 276,681 $ 5,383,498
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
- -------- ---------- ------- ---------- ----------- ------------ ----------- ------------
PAGE 63
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ----------------------------------------------------------------------
Notes to Financial Statements (unaudited)
At June 30, 1996, Salomon Brothers owned approximately the following percentages
of total shares outstanding of the following Funds:
</TABLE>
<TABLE>
<S> <C>
New York Municipal Bond Fund........................................................... 18%
National Intermediate Municipal Fund................................................... 90%
U.S. Government Income Fund............................................................ 92%
Strategic Bond Fund.................................................................... 54%
Total Return Fund...................................................................... 16%
Asia Growth Fund....................................................................... 92%
</TABLE>
4. PORTFOLIO ACTIVITY
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, for the period ended June 30, 1996, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
New York Municipal Bond Fund............................... $ 1,454,428 $ 730,598
------------ ------------
------------ ------------
National Intermediate Municipal Fund....................... $ 1,455,790 $ 911,160
------------ ------------
------------ ------------
U.S. Government Income Fund
U.S. Government Securities............................... $ 12,541,481 $ 12,268,671
------------ ------------
------------ ------------
High Yield Bond Fund....................................... $ 40,238,316 $ 19,774,543
------------ ------------
------------ ------------
Strategic Bond Fund
U.S. Government Securities............................... $ 3,528,455 $ 1,707,386
Other Investments........................................ 10,484,525 5,591,235
------------ ------------
$ 14,012,980 $ 7,298,621
------------ ------------
------------ ------------
Total Return Fund
U.S. Government Securities............................... $ 4,677,985 $ 2,839,430
Other Investments........................................ 21,905,927 6,367,906
------------ ------------
$ 26,583,912 $ 9,207,336
------------ ------------
------------ ------------
Asia Growth Fund........................................... $ 5,185,290 $ 634,727
------------ ------------
------------ ------------
Investors Fund............................................. $155,556,486 $138,211,264
------------ ------------
------------ ------------
</TABLE>
PAGE 64
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
During the period ended June 30, 1996, net realized gain from forward foreign
currency contracts for the Strategic Bond Fund amounted to $27,577, and net
realized losses from forward currency contracts amounted to $4,262 for the Asia
Growth Fund. Net realized losses on mortgage dollar rolls amounted to $29,766
and $21,828 for the U.S. Government Income Fund and Strategic Bond Fund,
respectively.
5. PORTFOLIO INVESTMENT RISKS
CREDIT AND MARKET RISK. Funds that invest in high yield and emerging market
instruments are subject to certain credit and market risks. The yields of high
yield and emerging market debt obligations reflect, among other things,
perceived credit risk. The Funds' investment in securities rated below
investment grade typically involve risks not associated with higher rated
securities including, among others, greater risk of timely and ultimate payment
of interest and principal, greater market price volatility and less liquid
secondary market trading. The consequences of political, social, economic or
diplomatic changes may have disruptive effects on the market prices of
investments held by the Funds. The Funds' investment in non-dollar denominated
securities may also result in foreign currency losses caused by devaluations and
exchange rate fluctuations.
The Cash Management Fund invests in money market instruments maturing in
thirteen months or less whose short-term credit ratings are within the two
highest ratings categories of two nationally recognized statistical rating
organizations ('NRSROs') or if rated by only one NRSRO, that NRSRO, or, if not
rated, are believed by the investment manager to be of comparable quality. The
New York Municipal Bond Fund pursues its investment objectives by investing at
least 80% of its net assets in obligations that are exempt from regular federal
income taxes and at least 65% of its net assets in obligations that are exempt
from personal income taxes of the State and City of New York. Because the New
York Municipal Bond Fund invests primarily in obligations of the State and City
of New York, it is more susceptible to factors adversely affecting issuers of
such obligations than a fund that is more diversified.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK. Certain Funds enter into
forward foreign currency contracts ('forward contracts') to facilitate
settlement of foreign currency denominated portfolio transactions or to manage
foreign currency exposure associated with foreign currency denominated
securities. Forward contracts involve elements of market risk in excess of the
amounts reflected in the Statement of Assets and Liabilities. The Funds bear the
risk of an unfavorable change in the foreign exchange rate underlying the
forward contract. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
Funds that enter into mortgage dollar rolls are subject to the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a mortgage dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the dollar
PAGE 65
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ----------------------------------------------------------------------
Notes to Financial Statements (unaudited)
roll may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligation to repurchase the
securities.
Consistent with their objective to seek high current income, the High Yield Bond
Fund and the Strategic Bond Fund may invest in instruments whose values and
interest rates may be linked to foreign currencies, interest rates, indices or
some other financial indicator. The value at maturity or interest rates for
these instruments will increase or decrease according to the change in the
indicator to which it is indexed. These securities are generally more volatile
in nature and the risk of loss of principal is greater.
A risk in writing a call option is that the Fund may forego the opportunity of
profit if the market price of the underlying security increases and the option
is exercised. A risk in writing a put option is that the Fund may incur a loss
if the market price of the underlying security decreases and the option is
exercised. In addition, there is the risk that the Fund may not be able to enter
into a closing transaction because of an illiquid secondary market.
6. TAX INFORMATION
At December 31, 1995, the Cash Management Fund and New York Municipal Bond Fund
had net capital loss carry-forwards available to offset future capital gains as
follows:
<TABLE>
<CAPTION>
NEW YORK
CASH MUNICIPAL
YEAR OF MANAGEMENT BOND
EXPIRATION FUND FUND
<S> <C> <C>
1999............................................................... $ 894 --
2000............................................................... 396 --
2001............................................................... 409 --
2002............................................................... 415 $305,822
2003............................................................... -- 318,123
---------- ---------
$2,114 $623,945
---------- ---------
---------- ---------
</TABLE>
PAGE 66
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
At June 30, 1996, the cost for Federal income tax purposes and gross unrealized
appreciation and depreciation in value of investments held in each Fund were as
follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
AGGREGATE UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
<S> <C> <C> <C> <C>
New York Municipal Bond........ $ 4,217,086 $ 68,726 $ (70,464) $ (1,738)
National Intermediate
Municipal.................... 10,728,020 172,994 (40,653) 132,341
U.S. Government Income......... 11,792,562 108 (94,675) (94,567)
High Yield Bond................ 55,441,104 1,768,808 (591,064) 1,177,744
Strategic Bond................. 19,716,949 908,498 (235,491) 673,007
Total Return................... 35,052,813 1,323,593 (319,388) 1,004,205
Asia Growth Growth............. 5,317,298 87,547 (225,293) (137,746)
Investors...................... 347,405,957 127,747,762 (4,458,020) 123,289,742
</TABLE>
PAGE 67
<PAGE>
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ---------------------------------------------------
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C> <C> <C>
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995 1996 (UNAUDITED) 1995
Net asset value, beginning of period.... $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------
Net investment income................... 0.025 0.044 0.025 0.043
Dividends from net investment income.... (0.025) (0.044) (0.025) (0.043)
------ ------ ------ ------
Net asset value, end of period.......... $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------
------ ------ ------ ------
Net assets, end of period (thousands)... $5,293 $1,756 $2,519 $2,238
Total return*........................... +2.5 % +4.5 % +2.5 % +4.4 %
Ratios to average net assets:
Expenses................................ 0.55 %** 0.55 % 0.55 %** 0.55 %
Net investment income................... 4.93 %** 5.42 % 4.96 %** 5.38 %
Before waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment income per share and expense
ratios would have been:
Net investment income per share......... $ 0.024 $ 0.037 $ 0.024 $ 0.037
Expense ratio........................... 0.76 %** 1.35 % 0.76 %** 1.34 %
<CAPTION>
CLASS C
<S> <C> <C>
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995
Net asset value, beginning of period.... $1.000 $1.000
------ ------
Net investment income................... 0.025 0.043
Dividends from net investment income.... (0.025) (0.043)
------ ------
Net asset value, end of period.......... $1.000 $1.000
------ ------
------ ------
Net assets, end of period (thousands)... $ 267 $ 183
Total return*........................... +2.5% +4.4%
Ratios to average net assets:
Expenses................................ 0.55%** 0.55%
Net investment income................... 4.94%** 5.40%
Before waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment income per share and expense
ratios would have been:
Net investment income per share......... $0.024 $0.036
Expense ratio........................... 0.76%** 1.34%
</TABLE>
NEW YORK MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C> <C> <C>
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995 1996 (UNAUDITED) 1995
Net asset value, beginning of period.... $10.11 $ 8.96 $10.11 $ 8.96
----- ----- ----- -----
Net investment income................... 0.24 0.42 0.21 0.36
Net gain (loss) on securities and
futures (both realized and
unrealized)............................ (0.42) 1.14 (0.43) 1.14
----- ----- ----- -----
Total from investment operations........ (0.18) 1.56 (0.22) 1.50
----- ----- ----- -----
Dividends from net investment income.... (0.24) (0.41) (0.20) (0.35)
Distributions from net realized gain on
securities and futures................. -- -- -- --
----- ----- ----- -----
Total dividends and distributions....... (0.24) (0.41) (0.20) (0.35)
----- ----- ----- -----
Net asset value, end of period.......... $ 9.69 $10.11 $ 9.69 $10.11
----- ----- ----- -----
----- ----- ----- -----
Net assets, end of period (thousands)... $658 $546 $515 $528
Total return*........................... - 1.8 % +17.7 % - 2.1 % +17.0 %
Ratios to average net assets:
Expenses................................ 0.74%** 0.75% 1.50%** 1.50%
Net investment income................... 4.94%** 5.12% 4.22%** 4.30%
Portfolio turnover rate................. 21 % 22 % 21 % 22 %
Before waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment income per share and expense
ratios would have been:
Net investment income per share......... $ 0.19 $ 0.24 $ 0.15 $ 0.17
Expense ratio........................... 1.86%** 2.96% 2.61%** 3.70%
<CAPTION>
CLASS C
<S> <C> <C>
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995
Net asset value, beginning of period.... $10.11 $ 8.96
----- -----
Net investment income................... 0.21 0.36
Net gain (loss) on securities and
futures (both realized and
unrealized)............................ (0.43) 1.14
----- -----
Total from investment operations........ (0.22) 1.50
----- -----
Dividends from net investment income.... (0.20) (0.35)
Distributions from net realized gain on
securities and futures................. -- --
----- -----
Total dividends and distributions....... (0.20) (0.35)
----- -----
Net asset value, end of period.......... $9.69 $10.11
----- -----
----- -----
Net assets, end of period (thousands)... $ 275 $ 266
Total return*........................... - 2.1% +17.0%
Ratios to average net assets:
Expenses................................ 1.50%** 1.50%
Net investment income................... 4.23%** 4.38%
Portfolio turnover rate................. 21% 22%
Before waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment income per share and expense
ratios would have been:
Net investment income per share......... $0.15 $ 0.18
Expense ratio........................... 2.61%** 3.71%
</TABLE>
(a) February 1, 1993 commencement of investment operations, through December 31,
1993.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value on
the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated for
a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements.
PAGE 68
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
CLASS O
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1996 (UNAUDITED) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------ ------- ------- ------- ------- -------
0.025 0.055 0.038 0.027 0.033 0.055
(0.025) (0.055) (0.038) (0.027) (0.033) (0.055)
------ ------- ------- ------- ------- -------
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------ ------- ------- ------- ------- -------
------ ------- ------- ------- ------- -------
$11,499 $6,684 $19,127 $15,049 $11,613 $22,982
+2.5 % +5.6 % +3.9 % +2.7 % +3.4 % +5.7 %
0.55 %** 0.55 % 0.61 % 0.65 % 0.65 % 0.65 %
4.96 %** 5.46 % 3.79 % 2.68 % 3.41 % 5.43 %
$ 0.024 $0.047 $ 0.036 $ 0.025 $ 0.030 $ 0.053
0.76 %** 1.34 % 0.81 % 0.85 % 0.85 % 0.85 %
</TABLE>
<TABLE>
<CAPTION>
CLASS O
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 (UNAUDITED) 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C> <C>
$10.11 $ 8.98 $ 10.44 $ 10.00
----- ------ ------- -----
0.25 0.53 0.55 0.46
(0.41) 1.12 (1.46) 0.46
----- ------ ------- -----
(0.16) 1.65 (0.91) 0.92
----- ------ ------- -----
(0.25) (0.52) (0.55) (0.46)
-- -- -- (0.02)
----- ------ ------- -----
(0.25) (0.52) (0.55) (0.48)
----- ------ ------- -----
$ 9.70 $10.11 $ 8.98 $ 10.44
----- ------ ------- -----
----- ------ ------- -----
$2,896 $2,494 $3,333 $8,364
- 1.6 % +18.8 % - 8.8 % +9.4 %
0.51%** 0.50% 0.50% 0.50%**
5.24%** 5.50% 5.72% 4.99%**
21 % 22 % 63 % 24 %
$ 0.20 $ 0.32 $ 0.49 $ 0.40
1.62%** 2.71% 1.17% 1.24%**
</TABLE>
See accompanying notes to financial statements.
PAGE 69
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ---------------------------------------------------
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
NATIONAL INTERMEDIATE MUNICIPAL FUND
- --------------------------------------------------------------------------------
<TABLE>
CLASS A CLASS B
<CAPTION>
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(a) 1996 (UNAUDITED) 1995(a)
<S> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $10.43 $10.00 $10.42 $10.00
------ ------ ------ ------
Net investment income................ 0.24 0.40 0.20 0.34
Net gain on investments (both
realized and unrealized)............ (0.26) 0.46 (0.26) 0.45
------ ------ ------ ------
Total from investment operations..... (0.02) 0.86 (0.06) 0.79
------ ------ ------ ------
Dividends from net investment
income.............................. (0.24) (0.40) (0.20) (0.34)
Distributions from net realized gain
on investments...................... -- (0.03) -- (0.03)
------ ------ ------ ------
Total dividends and distributions.... (0.24) (0.43) (0.20) (0.37)
------ ------ ------ ------
Net asset value, end of period....... $10.17 $10.43 $10.16 $10.42
------ ------ ------ ------
------ ------ ------ ------
Net assets, end of period
(thousands)......................... $613 $569 $650 $432
Total return*........................ -0.2 % +8.7 % -0.5 % +8.0 %
Ratios to average net assets:
Expenses............................. 0.75%** 0.75%** 1.50%** 1.50%**
Net investment income................ 4.69%** 4.63%** 3.92%** 3.85%**
Portfolio turnover rate.............. 9 % 29 % 9 % 29 %
Before waiver of management fee,
expenses absorbed by SBAM and
credits earned on custodian cash
balances, net investment income per
share and expense ratios would have
been:
Net investment income per share...... $ 0.18 $ 0.32 $ 0.14 $ 0.25
Expense ratio........................ 1.92%** 1.71%** 2.66%** 2.45%**
</TABLE>
U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(a) 1996 (UNAUDITED) 1995(a)
<S> <C> <C> <C> <C>
Net asset value, beginning of period... $10.32 $10.00 $10.32 $10.00
------ ------ ------ ------
Net investment income.................. 0.28 0.49 0.22 0.43
Net gain on investments (both realized
and unrealized)....................... (0.35) 0.43 (0.33) 0.43
Total from investment operations....... (0.07) 0.92 (0.11) 0.86
------ ------ ------ ------
Dividends from net investment income... (0.29) (0.49) (0.26) (0.43)
------ ------ ------ ------
Distributions from net realized gain on
investments........................... -- (0.10) -- (0.10)
Distributions in excess of net realized
gain on investments................... -- (0.01) -- (0.01)
------ ------ ------ ------
Total dividends and distributions...... (0.29) (0.60) (0.26) (0.54)
------ ------ ------ ------
Net asset value, end of period......... $ 9.96 $10.32 $ 9.95 $10.32
------ ------ ------ ------
------ ------ ------ ------
Net assets, end of period
(thousands)........................... $706 $278 $583 $572
Total return*.......................... -0.6 % +9.5 % -1.1 % +8.8 %
Ratios to average net assets:
Expenses............................... 0.84%** 0.85%** 1.59%** 1.60%**
Net investment income.................. 5.06%** 5.67%** 4.39%** 4.85%**
Portfolio turnover rate................ 134 % 230 % 134 % 230 %
Before waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment income per share and
expense ratios would have been:
Net investment income per share........ $ 0.21 $ 0.40 $ 0.16 $ 0.34
Expense ratio.......................... 2.11%** 1.90%** 2.86%** 2.64%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value on
the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated for
a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements.
PAGE 70
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
CLASS C CLASS O
<CAPTION>
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(A) 1996 (UNAUDITED) 1995(A)
<S> <C> <C> <C> <C>
$10.42 $10.00 $10.43 $10.00
------ ------ ------ ------
0.20 0.34 0.25 0.42
(0.26) 0.45 (0.26) 0.46
------ ------ ------ ------
(0.06) 0.79 (0.01) 0.88
------ ------ ------ ------
(0.20) (0.34) (0.25) (0.42)
-- (0.03) -- (0.03)
------ ------ ------ ------
(0.20) (0.37) (0.25) (0.45)
------ ------ ------ ------
$10.16 $10.42 $10.17 $10.43
------ ------ ------ ------
------ ------ ------ ------
$360 $271 $9,622 $9,675
-0.5 % +8.0 % -0.1 % +9.0 %
1.50%** 1.50%** 0.50%** 0.50%**
3.94%** 3.85%** 4.94%** 4.86%**
9 % 29 % 9 % 29 %
$ 0.14 $ 0.25 $ 0.19 $ 0.34
2.67%** 2.46%** 1.67%** 1.46%**
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C CLASS O
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(A) 1996 (UNAUDITED) 1995(A)
<S> <C> <C> <C> <C>
$10.32 $10.00 $10.32 $10.00
------ ------ ------ ------
0.22 0.43 0.27 0.52
(0.33) 0.43 (0.33) 0.42
------ ------ ------ ------
(0.11) 0.86 (0.06) 0.94
(0.26) (0.43) (0.31) (0.52)
------ ------ ------ ------
-- (0.10) -- (0.10)
-- (0.01) -- --
------ ------ ------ ------
(0.26) (0.54) (0.31) (0.62)
------ ------ ------ ------
$ 9.95 $10.32 $ 9.95 $10.32
------ ------ ------ ------
------ ------ ------ ------
$249 $273 $9,274 $9,552
-1.1 % +8.8 % -0.6 % +9.7 %
1.60%** 1.60%** 0.60%** 0.60%**
4.47%** 4.92%** 5.46%** 5.92%**
134 % 230 % 134 % 230 %
$ 0.16 $ 0.34 $ 0.21 $ 0.42
2.87%** 2.64%** 1.87%** 1.64%**
</TABLE>
See accompanying notes to financial statements.
PAGE 71
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ---------------------------------------------------
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS ENDED PERIOD ENDED SIX MONTHS ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(a) 1996 (UNAUDITED) 1995(a)
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.53 $ 10.00 $ 10.53 $ 10.00
-------- ------- -------- -------
Net investment income................................ 0.56 0.92 0.52 0.85
Net gain on investments (both realized and
unrealized)........................................ 0.42 0.67 0.43 0.68
-------- ------- -------- -------
Total from investment operations..................... 0.98 1.59 0.95 1.53
-------- ------- -------- -------
Dividends from net investment income................. (0.56) (0.91) (0.53) (0.85)
Distributions from net realized gain on
investments........................................ -- (0.15) -- (0.15)
-------- ------- -------- -------
Total dividends and distributions.................... (0.56) (1.06) (0.53) (1.00)
-------- ------- -------- -------
Net asset value, end of period....................... $ 10.95 $ 10.53 $ 10.95 $ 10.53
-------- ------- -------- -------
-------- ------- -------- -------
Net assets, end of period (thousands)................ $21,866 $10,789 $30,383 1$0,108
Total return*........................................ +9.5 % +16.6 % +9.1 % +15.7 %
Ratios to average net assets:
Expenses............................................. 1.24%** 1.24%** 1.99%** 1.96%**
Net investment income................................ 10.24%** 10.58%** 9.36%** 9.53%**
Portfolio turnover rate.............................. 54 % 109 % 54 % 109 %
Before waiver of management fee by SBAM and credits
earned on custodian cash balances, net investment
income per share and expense ratios would have
been:
Net investment income per share...................... $ 0.53 $ 0.87 $ 0.49 $ 0.80
Expense ratio........................................ 1.66%** 1.80%** 2.40%** 2.51%**
</TABLE>
STRATEGIC BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS ENDED PERIOD ENDED SIX MONTHS ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(a) 1996 (UNAUDITED) 1995(a)
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.53 $ 10.00 $ 10.53 $ 10.00
-------- ------- -------- -------
Net investment income................................ 0.50 0.84 0.45 0.76
Net gain on investments (both realized and
unrealized)........................................ 0.08 0.78 0.08 0.79
-------- ------- -------- -------
Total from investment operations..................... 0.58 1.62 0.53 1.55
-------- ------- -------- -------
Dividends from net investment income................. (0.50) (0.85) (0.46) (0.78)
Distributions from net realized gain on
investments........................................ -- (0.24) -- (0.24)
-------- ------- -------- -------
Total dividends and distributions.................... (0.50) (1.09) (0.46) (1.02)
-------- ------- -------- -------
Net asset value, end of period....................... $ 10.61 $ 10.53 $ 10.60 $ 10.53
-------- ------- -------- -------
-------- ------- -------- -------
Net assets, end of period (thousands)................ $2,573 $ 513 $5,992 $1,879
Total return*........................................ +5.6 % +16.8 % +5.0 % +16.1 %
Ratios to average net assets:
Expenses............................................. 1.23%** 1.23%** 1.98%** 1.97%**
Net investment income................................ 8.39%** 9.51%** 7.67%** 8.75%**
Portfolio turnover rate.............................. 53 % 161 % 53 % 161 %
Before waiver of management fee, expenses absorbed by
SBAM and credits earned on custodian cash balances,
net investment income per share and expense ratios
would have been:
Net investment income per share...................... $ 0.45 $ 0.76 $ 0.40 $ 0.69
Expense ratio........................................ 2.07%** 2.11%** 2.82%** 2.85%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
'SS' Per share information calculated using the average shares outstanding
method, which more accurately represent amounts.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value on
the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated for
a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements.
PAGE 72
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C CLASS O
SIX MONTHS ENDED
SIX MONTHS ENDED PERIOD ENDED JUNE 30, PERIOD ENDED
JUNE 30, DECEMBER 31, 1996 DECEMBER 31,
1996 (UNAUDITED) 1995(A) (UNAUDITED)SS 1995(A)
<S> <C> <C> <C> <C>
$ 10.53 $ 10.00 $ 10.54 $ 10.00
-------- -------- -------- --------
0.52 0.85 0.58 0.95
0.42 0.68 0.38 0.67
-------- -------- -------- --------
0.94 1.53 0.96 1.62
-------- -------- -------- --------
(0.53) (0.85) (0.57) (0.93)
-- (0.15) -- (0.15)
-------- -------- -------- --------
(0.53) (1.00) (0.57) (1.08)
$ 10.94 $ 10.53 $ 10.93 $ 10.54
-------- -------- -------- --------
-------- -------- -------- --------
$ 2,968 $ 1,274 $ 19 $ 7,854
+9.0 % +15.8 % +9.2 % +16.8 %
1.99%** 1.98%** 0.99%** 1.00%**
9.42%** 9.61%** 10.70%** 10.59%**
54 % 109 % 54 % 109 %
$ 0.50 $ 0.80 $ 0.56 $ 0.90
2.40%** 2.54%** 1.40%** 1.55%**
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C CLASS O
SIX MONTHS ENDED PERIOD ENDED SIX MONTHS ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995(a) 1996 (UNAUDITED) 1995(a)
<S> <C> <C> <C> <C>
$ 10.53 $ 10.00 $ 10.53 $ 10.00
-------- -------- -------- --------
0.45 0.77 0.47 0.87
0.08 0.78 0.11 0.77
-------- -------- -------- --------
0.53 1.55 0.58 1.64
(0.46) (0.78) (0.51) (0.87)
-- (0.24) -- (0.24)
(0.46) (1.02) (0.51) (1.11)
-------- -------- -------- --------
$ 10.60 $ 10.53 $ 10.60 $ 10.53
-------- -------- -------- --------
-------- -------- -------- --------
$1,212 $ 411 $9,828 $9,763
+5.1 % +16.1 % +5.6 % +17.0 %
1.98%** 1.99%** 1.00%** 0.99%**
7.66%** 8.77%** 8.92%** 9.74%**
53 % 161 % 53 % 161 %
$ 0.40 $ 0.70 $ 0.43 $ 0.79
2.82%** 2.87%** 1.84%** 1.87%**
</TABLE>
See accompanying notes to financial statements.
PAGE 73
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ---------------------------------------------------
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
JUNE 30, ENDED JUNE 30, ENDED
1996 DECEMBER 31, 1996 DECEMBER 31,
(UNAUDITED) 1995(A)SS (UNAUDITED) 1995(A)SS
<S> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 10.55 $10.00 $ 10.54 $10.00
----------- ------ ----------- ------
Net investment income........................... 0.27 0.15 0.23 0.13
Net gain on investments (both realized and
unrealized)................................... 0.41 0.52 0.40 0.51
----------- ------ ----------- ------
Total from investment operations................ 0.68 0.67 0.63 0.64
----------- ------ ----------- ------
Dividends from net investment income............ (0.22) (0.11) (0.18) (0.09)
Distributions from net realized gain on
investments................................... -- (0.01) -- (0.01)
----------- ------ ----------- ------
Total dividends and distributions............... (0.22) (0.12) (0.18) (0.10)
----------- ------ ----------- ------
Net asset value, end of period.................. $ 11.01 $10.55 $ 10.99 $10.54
----------- ------ ----------- ------
----------- ------ ----------- ------
Net assets, end of period (thousands)........... $13,800 $3,658 $13,801 $5,378
Total return*................................... +6.5 % +6.7 % +6.0 % +6.4 %
Ratios to average net assets:
Expenses........................................ 0.75%** 0.74%** 1.50%** 1.49%**
Net investment income........................... 4.87%** 4.82%** 4.12%** 4.06%**
Portfolio turnover rate......................... 44 % 16 % 44 % 16 %
Average Broker Commission Rate.................. $0.0539 N/A $0.0539 N/A
Before waiver of management fee, expenses
absorbed by SBAM and credits earned on
custodian cash balances, net investment income
per share and expense ratios would have been:
Net investment income per share................. $ 0.22 $ 0.13 $ 0.18 $ 0.11
Expense ratio................................... 1.63%** 1.45%** 2.38%** 2.19%**
</TABLE>
ASIA GROWTH FUND
- --------------------------------------------------------------------------------
[CAPTION]
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS O
<S> <C> <C> <C> <C>
PERIOD ENDED JUNE 30, 1996 (UNAUDITED) (B)
<S> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 10.00 $10.00 $ 10.00 $10.00
----------- ------ ----------- ------
Net investment income........................... 0.03 0.02 0.02 0.04
Net gain on investments (both realized and
unrealized)................................... (0.28) (0.28) (0.28) (0.29)
----------- ------ ----------- ------
Total from investment operations................ (0.25) (0.26) (0.26) (0.25)
----------- ------ ----------- ------
Net asset value, end of period.................. $ 9.75 $ 9.74 $ 9.74 $ 9.75
----------- ------ ----------- ------
----------- ------ ----------- ------
Net assets, end of period (thousands)........... $2,568 $2,511 $106 $101
Total return *.................................. -2.5 % -2.6 % -2.6 % -2.5 %
Ratios to average net assets:
Expenses........................................ 1.24%** 1.99%** 1.99%** 0.99%**
Net investment income........................... 2.49%** 1.77%** 1.76%** 2.79%**
Portfolio turnover rate......................... 14 % 14 % 14 % 14 %
Average Broker Commission Rate.................. $0.0080 $0.0080 $0.0080 $0.0080
Before waiver of management fee, expenses
absorbed by SBAM and credits earned on
custodian cash balances, net investment income
per share and expense ratios would have been:
Net investment income per share................. $ 0.01 $ 0.00 $ 0.00 $ 0.02
Expense ratio................................... 2.72%** 3.47%** 3.47%** 2.47%**
</TABLE>
(a) September 11, 1995, commencement of investment operations, through December
31, 1995.
(b) May 6, 1996, commencement of investment operations, through June 30, 1996.
'SS' Per share information calculated using the average shares outstanding
method, which more accurately represent amounts.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value on
the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated for
a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements.
PAGE 74
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ---------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C CLASS O
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
JUNE 30, ENDED JUNE 30, ENDED
1996 DECEMBER 31, 1996 DECEMBER 31,
(UNAUDITED) 1995(a)'SS' (UNAUDITED) 1995(a)'SS'
<S> <C> <C> <C> <C>
$ 10.56 $10.00 $ 10.57 $10.00
----------- ------ ----------- ------
0.18 0.14 0.28 0.17
0.46 0.51 0.41 0.52
----------- ------ ----------- ------
0.64 0.65 0.69 0.69
----------- ------ ----------- ------
(0.18) (0.08) (0.23) (0.11)
-- (0.01) -- (0.01)
----------- ------ ----------- ------
(0.18) (0.09) (0.23) (0.12)
----------- ------ ----------- ------
$ 11.02 $10.56 $ 11.03 $10.57
----------- ------ ----------- ------
----------- ------ ----------- ------
$2,116 $445 $4,690 $4,494
+6.1 % +6.5 % +6.6 % +6.9 %
1.49%** 1.51%** 0.51%** 0.51%**
4.07%** 4.26%** 5.16%** 5.30%**
44 % 16 % 44 % 16 %
$0.0539 N/A $0.0539 N/A
$ 0.14 $ 0.11 $ 0.23 $ 0.15
2.38%** 2.22%** 1.39%** 1.22%**
</TABLE>
See accompanying notes to financial statements.
PAGE 75
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ---------------------------------------------------
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
INVESTORS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995 1996 (UNAUDITED) 1995
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $16.62 $13.61 $16.61 $13.61
----- ----- ----- -----
Net investment income................... 0.08 0.19 0.04 0.10
Net gain (loss) on investments (both
realized and unrealized)............... 1.95 4.55 1.92 4.54
----- ----- ----- -----
Total from investment operations........ 2.03 4.74 1.96 4.64
----- ----- ----- -----
Dividends from net investment income.... (0.06) (0.23) (0.02) (0.14)
Distributions from net realized gain on
investments............................ (0.58) (1.50) (0.58) (1.50)
----- ----- ----- -----
Total dividends and distributions....... (0.64) (1.73) (0.60) (1.64)
----- ----- ----- -----
Net asset value, end of period.......... $18.01 $16.62 $17.97 $16.61
----- ----- ----- -----
----- ----- ----- -----
Net assets, end of period (thousands)... $3,293 $441 $1,733 $716
Total return*........................... +12.5 % +35.3 % +12.0 % +34.5 %
Ratios to average net assets:
Expenses................................ 1.02%** 0.94% 1.74%** 1.71%
Net investment income................... 1.22%** 1.41% 0.58%** 0.63%
Portfolio turnover rate................. 33 % 86 % 33 % 86 %
Average Broker Commission Rate.......... $0.0591 N/A $0.0591 N/A
<CAPTION>
CLASS C
<S> <C> <C>
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1996 (UNAUDITED) 1995
Net asset value, beginning of period.... $ 16.61 $13.61
----- -----
Net investment income................... 0.03 0.09
Net gain (loss) on investments (both
realized and unrealized)............... 1.93 4.55
----- -----
Total from investment operations........ 1.96 4.64
----- -----
Dividends from net investment income.... (0.02) (0.14)
Distributions from net realized gain on
investments............................ (0.58) (1.50)
----- -----
Total dividends and distributions....... (0.60) (1.64)
----- -----
Net asset value, end of period.......... $17.97 $16.61
----- -----
----- -----
Net assets, end of period (thousands)... $ 706 $306
Total return*........................... +12.0% +34.5 %
Ratios to average net assets:
Expenses................................ 1.75%** 1.68%
Net investment income................... 0.52%** 0.66%
Portfolio turnover rate................. 33 % 86 %
Average Broker Commission Rate.......... $0.0591 N/A
</TABLE>
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value on
the ex-dividend date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated for
a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements.
PAGE 76
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
CLASS O
SIX MONTHS
ENDED
JUNE 30,1996 YEAR ENDED DECEMBER 31,
(UNAUDITED) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
$16.61 $13.63 $15.60 $ 16.10 $17.10 $14.54
----- ----- ----- ----- ----- -----
0.13 0.27 0.27 0.32 0.41 0.44
1.92 4.48 (0.48) 2.03 0.79 3.68
----- ----- ----- ----- ----- -----
2.05 4.75 (0.21) 2.35 1.20 4.12
----- ----- ----- ----- ----- -----
(0.06) (0.27) (0.27) (0.33) (0.41) (0.46)
(0.58) (1.50) (1.49) (2.52) (1.79) (1.10)
----- ----- ----- ----- ----- -----
(0.64) (1.77) (1.76) (2.85) (2.20) (1.56)
----- ----- ----- ----- ----- -----
$18.02 $16.61 $13.63 $ 15.60 $16.10 $17.10
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
$465,594 $428,950 $348,214 $386,147 $370,350 $378,615
+12.5 % +35.4 % - 1.3 % +15.1 % +7.4 % +29.3 %
:
0.73%** 0.69% 0.69% 0.68% 0.68% 0.70%
1.54%** 1.67% 1.75% 1.90% 2.47% 2.67%
33 % 86 % 66 % 79 % 48 % 44 %
0.0$591 N/A N/A N/A N/A N/A
</TABLE>
See accompanying notes to financial statements.
PAGE 77
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
Portfolio of Investments
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Securities --97.3%
New York -- 90.6%
$1,050,000 Albany County, New York
Industrial Development Agency PUT . . . . 4.150% 12/01/96 $1,050,000
100,000 Albany County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 100,000
2,410,000 Albany, New York
Industrial Development Agency PUT . . . . 4.250 07/01/96 2,410,000
2,185,000 Amherst, New York
Industrial Development Agency VR . . . . 3.700 07/05/96 2,185,000
950,000 Auburn, New York
Industrial Development Agency VR . . . . 3.550 07/03/96 950,000
875,000 Babylon, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 875,000
2,025,000 Broome County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 2,025,000
2,200,000 Chautauqua County, New York
Industrial Development Agency VR . . . . 3.550 07/03/96 2,200,000
1,990,000 Chemung County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 1,990,000
710,000 Colonie, New York
Housing Development Corporation VR . . . 3.700 07/03/96 710,000
3,525,000 Colonie, New York
Industrial Development Agency PUT . . . . 4.150 12/01/96 3,525,000
585,000 Colonie, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 585,000
1,275,000 Dutchess County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 1,275,000
1,210,000 Erie County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 1,210,000
500,000 Erie County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 500,000
400,000 Erie County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 400,000
388,400 Erie County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 388,400
1,140,000 Fulton County, New York
Industrial Development Agency PUT . . . . 4.150 12/01/96 1,140,000
</TABLE>
See accompanying notes to financial statements.
Page 3
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
Portfolio of Investments (continued)
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,805,000 Fulton County, New York
Industrial Development Agency VR . . . . 3.350% 07/05/96 $1,805,000
1,820,000 Monroe County, New York
Industrial Development Agency PUT . . . . 3.750 12/01/96 1,820,000
700,000 Monroe County, New York
Industrial Development Agency PUT . . . . 4.050 06/15/97 700,000
6,500,000 Monroe County, New York
Industrial Development Agency VR . . . . 3.600 07/03/96 6,500,000
3,925,000 Monroe County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 3,925,000
3,325,000 Monroe County, New York
Industrial Development Agency VR . . . . 3.550 07/05/96 3,325,000
3,000,000 Monroe County, New York
Industrial Development Agency VR . . . . 3.550 07/05/96 3,000,000
2,700,000 Monroe County, New York
Industrial Development Agency VR . . . . 3.450 07/05/96 2,700,000
2,190,000 Monroe County, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 2,190,000
1,700,000 Monroe County, New York
Industrial Development Agency VR . . . . 3.600 07/03/96 1,700,000
1,535,000 Monroe County, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 1,535,000
1,420,000 Monroe County, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 1,420,000
945,000 Monroe County, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 945,000
225,000 Monroe County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 225,000
560,000 Mount Pleasant, New York
Industrial Development Agency VR . . . . 3.600 07/02/96 560,000
1,090,000 Nassau County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 1,090,000
6,000,000 New York City, New York GO VR . . . . . . 3.650 07/01/96 6,000,000
4,000,000 New York City, New York GO VR . . . . . . 3.450 07/03/96 4,000,000
2,100,000 New York City, New York GO VR . . . . . . 3.750 07/01/96 2,100,000
2,000,000 New York City, New York GO VR . . . . . . 3.550 07/01/96 2,000,000
2,000,000 New York City, New York GO VR . . . . . . 3.750 07/01/96 2,000,000
1,700,000 New York City, New York GO VR . . . . . . 3.250 07/03/96 1,700,000
1,000,000 New York City, New York GO VR . . . . . . 3.600 07/01/96 1,000,000
</TABLE>
See accompanying notes to financial statements.
Page 4
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
Portfolio of Investments (continued)
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,000,000 New York City, New York GO VR . . . . . . 3.750% 07/01/96 $1,000,000
1,000,000 New York City, New York GO VR . . . . . . 3.850 07/01/96 1,000,000
500,000 New York City, New York GO VR . . . . . . 3.400 07/03/96 500,000
15,200,000 New York City, New York
Housing Development Corporation VR . . . 3.900 07/05/96 15,200,000
2,000,000 New York City, New York
Housing Development Corporation VR . . . 3.950 07/05/96 2,000,000
800,000 New York City, New York
Housing Development Corporation VR . . . 3.400 07/03/96 800,000
12,000,000 New York City, New York
Industrial Development Agency VR . . . . 4.300 07/01/96 12,000,000
1,535,000 New York City, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 1,535,000
1,300,000 New York City, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 1,300,000
995,000 New York City, New York
Industrial Development Agency VR . . . . 3.100 07/03/96 995,000
780,000 New York City, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 780,000
600,000 New York City, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 600,000
505,000 New York City, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 505,000
400,000 New York City, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 400,000
200,000 New York City, New York
Industrial Development Agency VR . . . . 3.200 07/03/96 200,000
115,000 New York City, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 115,000
4,000,000 New York City, New York
Municipal Water Finance Authority P/R . . 3.65 - 3.72 06/15/97 4,275,023
3,200,000 New York City, New York
Municipal Water Finance Authority VR FGIC 3.600 07/01/96 3,200,000
3,175,000 New York City, New York
Trust for Cultural Resources VR . . . . . 3.450 07/03/96 3,175,000
1,200,000 New York City, New York
Trust for Cultural Resources VR . . . . . 3.400 07/03/96 1,200,000
</TABLE>
See accompanying notes to financial statements.
Page 5
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
Portfolio of Investments (continued)
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,200,000 New York City, New York
Trust for Cultural Resources VR . . . . . 3.450% 07/03/96 $1,200,000
10,458,000 New York State,
Dormitory Authority TECP . . . . . . . . 4.000 10/01/96 10,458,000
4,900,000 New York State,
Energy Research & Development VR . . . . 3.500 07/01/96 4,900,000
500,000 New York State,
Energy Research & Development VR . . . . 3.450 07/01/96 500,000
1,600,000 New York State,
Job Development Authority VR . . . . . . 3.650 07/01/96 1,600,000
1,390,000 New York State,
Job Development Authority VR . . . . . . 3.860 07/01/96 1,390,000
1,160,000 New York State,
Job Development Authority VR . . . . . . 3.860 07/01/96 1,160,000
1,020,000 New York State,
Job Development Authority VR . . . . . . 3.670 07/01/96 1,020,000
820,000 New York State,
Job Development Authority VR . . . . . . 3.670 07/01/96 820,000
700,000 New York State,
Job Development Authority VR . . . . . . 3.650 07/01/96 700,000
675,000 New York State,
Job Development Authority VR . . . . . . 3.670 07/01/96 675,000
245,000 New York State,
Job Development Authority VR . . . . . . 3.670 07/01/96 245,000
85,000 New York State,
Job Development Authority VR . . . . . . 3.670 07/01/96 85,000
1,045,000 Niagara County, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 1,045,000
1,760,000 Oneida County, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 1,760,000
530,000 Oneida County, New York
Industrial Development Agency VR . . . . 3.550 07/05/96 530,000
3,800,000 Onondaga County, New York
Industrial Development Agency VR . . . . 3.500 07/03/96 3,800,000
1,400,000 Onondaga County, New York
Industrial Development Agency VR . . . . 3.500 07/03/96 1,400,000
3,500,000 Ontario County, New York
Industrial Development Agency VR . . . . 5.400 07/01/96 3,500,000
400,000 Rockland County, New York GO MBIA . . . . 3.650 10/15/96 401,739
</TABLE>
See accompanying notes to financial statements.
Page 6
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
Yield to
Maturity
Principal on Date of Maturity Value
Amount Description Purchase* Date (Note 1a)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,650,000 Rockland County, New York
Industrial Development Agency VR . . . . 3.750% 07/05/96 $1,650,000
345,000 Schoharie County, New York
Industrial Development Agency VR . . . . 3.550 07/05/96 345,000
2,555,000 St. Lawrence County, New York
Industrial Development Agency VR . . . . 3.550 07/05/96 2,555,000
1,450,000 Syracuse, New York
Industrial Development Agency PUT . . . . 4.050 06/15/97 1,450,000
3,550,000 Syracuse, New York
Industrial Development Agency VR . . . . 3.600 07/03/96 3,550,000
6,660,000 Wyoming County, New York
Industrial Development Agency VR . . . . 3.750 07/05/96 6,660,000
640,000 Wyoming County, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 640,000
1,315,000 Yates County, New York
Industrial Development Agency VR . . . . 3.350 07/05/96 1,315,000
1,080,000 Yonkers, New York
Industrial Development Agency VR . . . . 3.650 07/05/96 1,080,000
------------
182,973,162
Puerto Rico -- 6.7%
13,600,000 Puerto Rico Industrial, Tourist,
Educational, Medical & Environmental
Control Facilities VR . . . . . . . . . . 3.650 07/03/96 13,600,000
------------
Total Investments -- 97.3% (cost
$196,573,162) . . . . . . . . . . . . . . 196,573,162
Other assets in excess of liabilities --
2.7% . . . . . . . . . . . . . . . . . . 5,382,001
------------
Net Assets -- 100.0% . . . . . . . . . . $201,955,163
------------
------------
</TABLE>
* Yield to maturity on date of purchase, except in the case of
Variable Rate Demand Notes (VR) and Put Bonds, whose yields are
determined on date of the last interest rate change. For Variable
Rate Demand Notes and Put Bonds, maturity date shown is the date of
next interest rate change.
Abbreviations used in this statement:
GO -- General Obligation
FGIC -- Insured as to principal and interest by the Financial Guaranty
Insurance Corporation.
MBIA -- Insured as to principal and interest by the MBIA Insurance
Corporation.
P/R -- Pre-refunded in U.S. Treasury Securities.
PUT -- Optional or mandatory put. Maturity date shown is the put date as
well as the date of the next interest rate change.
TECP -- Tax Exempt Commercial Paper
See accompanying notes to financial statements.
Page 7
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
Statement of Assets and Liabilities
June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost $196,573,162) . . . . . . . . . . $196,573,162
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,903
Receivable for Fund shares sold . . . . . . . . . . . . . . . 4,967,185
Interest receivable . . . . . . . . . . . . . . . . . . . . . 600,754
------------
Total assets . . . . . . . . . . . . . . . . . . . . 202,274,004
------------
Liabilities
Payable for Fund shares redeemed . . . . . . . . . . . . . . 136,474
Dividend payable . . . . . . . . . . . . . . . . . . . . . . 19,421
Management fee payable . . . . . . . . . . . . . . . . . . . 29,326
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . 133,620
------------
Total liabilities . . . . . . . . . . . . . . . . . . 318,841
------------
Net Assets (equivalent to $1.00 per share on 202,184,309
shares of $.001 par value capital stock outstanding). . .$201,955,163
------------
------------
Statement of Operations
For the Six Months Ended June 30, 1996 (unaudited)
Income
Interest . . . . . . . . . . . . . . . . . . . . . . . $3,744,546
Expenses
Management fee . . . . . . . . . . . . . . $195,853
Custody and administration fees . . . . . . 122,207
Audit and tax return preparation fees . . . 89,708
Shareholder services . . . . . . . . . . . 54,700
Legal . . . . . . . . . . . . . . . . . . . 24,217
Printing . . . . . . . . . . . . . . . . . 10,045
Directors' fees and expenses . . . . . . . 1,398
Registration and filing fees . . . . . . . 1,243
Other . . . . . . . . . . . . . . . . . . . 68,413
--------
567,784
Credits earned from custodian on cash balances (2,134) 565,650
-------- ----------
Net investment income . . . . . . . . . . . . . . . . . 3,178,896
Net realized loss on securities sold . . . . . . . . . . . (950)
----------
Net increase in net assets from operations . . . . . . . . $3,177,946
----------
----------
</TABLE>
See accompanying notes to financial statements.
Page 8
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31,
(unaudited) 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income . . . . . . . . . . . . . . . . $3,178,896 $8,261,332
Net realized gain (loss) on securities sold . . . . . (950) 27,905
------------ ------------
Net increase in net assets from operations . . . . . 3,177,946 8,289,237
------------ ------------
Dividends from net investment income . . . . . . . . . (3,178,896) (8,261,332)
------------ ------------
Capital Share Transactions
Proceeds from sales of shares . . . . . . . . . . . . 123,703,311 298,776,320
Net asset value of shares issued in reinvestment of
dividends . . . . . . . . . . . . . . . . . . . . . 3,062,639 7,924,931
Payment for redemption of shares . . . . . . . . . . (151,358,432) (349,968,556)
------------ ------------
Net decrease in net assets derived from share
transactions . . . . . . . . . . . . . . . . . . . (24,592,482) (43,267,305)
------------ ------------
Net decrease in net assets . . . . . . . . . . . . . (24,593,432) (43,239,400)
Net Assets
Beginning of period . . . . . . . . . . . . . . . . . 226,548,595 269,787,995
------------ ------------
End of period . . . . . . . . . . . . . . . . . . . . $201,955,163 $226,548,595
------------ ------------
------------ ------------
</TABLE>
Financial Highlights
Selected data per share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1996 ---------------------------------------------------
(unaudited) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . . $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
-------- -------- -------- -------- -------- --------
Net investment income . . 0.016 0.037ss. 0.027 0.023 0.031 0.047
Dividends from net
investment income . . . (0.016) (0.037) (0.027) (0.023) (0.031) (0.047)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period . . . . . . . . $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Net assets, end of period
(thousands) . . . . . . $201,955 $226,549 $269,788 $262,413 $263,685 $154,782
Total investment return . +1.6% +3.7% +2.7% +2.3% +3.1% +4.8%
Ratios to average net
assets:
Expenses . . . . . . 0.58%* 0.43% 0.41% 0.41% 0.42% 0.60%
Net investment income 3.25%* 3.67% 2.63% 2.31% 3.07% 4.63%
</TABLE>
* Annualized.
ss. Net investment income per share would have been $.037 and the expense
ratio to average net assets would have been .45% for the year ended
December 31, 1995, before waiver of management fee and credits
earned on custodian cash balances.
See accompanying notes to financial statements.
Page 9
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
Notes to Financial Statements
(unaudited)
1. Organization and Significant Accounting Policies
Salomon Brothers Series Funds Inc (the "Company") was incorporated in
Maryland on April 17, 1990 as an open-end management investment company,
and currently operates as a series company comprised of ten portfolios:
Salomon Brothers Cash Management Fund (the "Cash Management Fund"), Salomon
Brothers New York Municipal Money Market Fund, (the "Fund"), Salomon
Brothers Institutional Money Market Fund (the "Institutional Money Market
Fund"), Salomon Brothers New York Municipal Bond Fund (the "New York
Municipal Bond Fund"), Salomon Brothers National Intermediate Municipal
Fund (the "National Intermediate Municipal Fund"), Salomon Brothers U.S.
Government Income Fund (the "U.S. Government Income Fund"), Salomon
Brothers High Yield Bond Fund (the "High Yield Bond Fund"), Salomon
Brothers Strategic Bond Fund (the "Strategic Bond Fund"), Salomon Brothers
Total Return Fund (the "Total Return Fund"), and Salomon Brothers Asia
Growth Fund (the "Asia Growth Fund"). The Fund is included in this report.
The Fund's objective is to seek as high a level of current income exempt
from federal, New York State and New York City personal income taxes as is
consistent with liquidity and the stability of principal. The Cash
Management Fund, Institutional Money Market Fund, New York Municipal Bond
Fund, National Intermediate Municipal Fund, U.S. Government Income Fund,
High Yield Bond Fund, Strategic Bond Fund, Total Return Fund, and Asia
Growth Fund are reported in separate reports and are not included herein.
Following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles ("GAAP"). The
preparation of financial statements in accordance with GAAP requires
management to make estimates of certain reported amounts in the financial
statements. Actual amounts could differ from those estimates.
(a) Securities Valuation. Portfolio securities are valued using
the amortized cost method, which involves initially valuing an investment
at its cost and thereafter assuming a constant amortization to maturity of
any premium or discount. This method results in a value approximating
market value and does not include unrealized gains or losses.
(b) Federal Income Taxes. The Fund has complied and intends to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies, including the distribution
requirements of the Tax Reform Act of 1986, and to distribute all of its
income, including any net realized gains, to shareholders. Therefore, no
Federal income tax or excise tax provision is required.
Page 10
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
(c) Dividends and Distributions to Shareholders. Dividends on the
shares of the Fund are declared each business day to shareholders of record
at twelve noon (New York time) on that day, and paid on the last business
day of the month. Distributions of net realized gains to shareholders, if
any, are declared annually and recorded on the ex-dividend date. Dividends
and distributions are determined in accordance with income tax regulations,
which may differ from GAAP.
(d) Expenses. Direct expenses are charged to the Fund, and
general expenses of the Company are allocated to the Fund based on relative
average net assets for the period the expense was incurred.
(e) Other. Investment transactions are recorded as of the trade
date. Interest income, including the accretion of discounts or the
amortization of premiums, is recognized when earned. Gains or losses on
sales of securities are calculated on the identified cost basis.
2. Management Fee and Other Agreements
The Company retains Salomon Brothers Asset Management Inc ("SBAM"), an
indirect wholly owned subsidiary of Salomon Inc, to act as investment
manager of the Fund, subject to the supervision by the Board of Directors
of the Company. SBAM furnishes the Company with office space and certain
services and facilities required for conducting the business of the Company
and pays the compensation of its officers. The management fee for these
services is payable monthly and is based on an annual rate of .20% of the
Fund's average daily net assets.
If in any fiscal year total expenses of the Fund, excluding taxes,
interest, brokerage and extraordinary expenses, but including the
management fee, exceed the most stringent expense limitations imposed by
state securities regulations applicable to the Fund, SBAM will pay or
reimburse the Fund for the excess. Currently, the most restrictive of these
limitations on an annual basis is 2.5% of the first $30 million of average
daily net assets, 2.0% of the next $70 million of average daily net assets
and 1.5% of average daily net assets in excess of $100 million. No such
expense reimbursement was required for the six months ended June 30, 1996.
Investors Bank & Trust Company serves as custodian and administrator for
the Fund, which includes performing custodial and certain administrative
services in connection with the operation of the Fund. During the six
months ended June 30, 1996, custodian fees were reduced by $2,134 for the
Fund, relating to credits earned on cash balances held by the custodian.
The Fund has an agreement with Salomon Brothers Inc to distribute its
shares.
Page 11
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
Notes to Financial Statements
(unaudited)
3. Capital Stock
At June 30, 1996, the Company had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share, of which the Fund had
1,000,000,000 shares authorized.
Net assets consist of:
<TABLE>
<S> <C>
Par value. . . . . . . . . . . . . . . . . . . . . . . . . . $ 202,184
Paid-in capital in excess of par . . . . . . . . . . . . . . 201,981,268
Accumulated net realized loss on investments . . . . . . . (228,289)
-------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . $201,955,163
-------------
-------------
</TABLE>
4. Portfolio Activity
The Fund invests in money market instruments maturing in thirteen months or
less whose short-term credit ratings are within the two highest ratings
categories of two nationally recognized statistical rating organizations
("NRSROs") or if rated by only one NRSRO, that NRSRO, or, if not rated, are
believed by the investment manager to be of comparable quality. The Fund
pursues its investment objective by investing, under normal market
conditions, at least 65% of its total assets in obligations that are exempt
from Federal income tax and from personal income taxes of the State of New
York and its cities. Because the Fund invests primarily in obligations of
the State of New York and its cities, it is more susceptible to factors
adversely affecting issuers of such obligations than a fund that is more
diversified.
At December 31, 1995, the Fund had net capital loss carry-forwards
available to offset future capital gains as follows:
<TABLE>
<CAPTION>
Year of Expiration
---------------------------------------------------------------------------
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,240
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,778
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,321
--------
$227,339
--------
--------
</TABLE>
5. Subsequent Event
On July 17, 1996, the Board of Directors of the Fund approved the
implementation of a multiple class pricing system. In connection with such
implementation, the Fund will designate all outstanding shares of capital
stock as Class O and will create three new classes designated Class A,
Class B and Class C shares.
Page 12
<PAGE>
<PAGE>
SALOMON BROTHERS CAPITAL FUND INC
- --------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1996 (unaudited)
COMMON STOCKS -- 91.7% OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1A)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
BASIC INDUSTRIES -- 3.9%
20,000 Hercules.................................................................... $ 1,105,000
75,000 Nalco Chemical.............................................................. 2,362,500
30,000 OM Group.................................................................... 1,177,500
-------------
4,645,000
-------------
CAPITAL GOODS -- 5.5%
40,000 Fluor....................................................................... 2,615,000
30,000 Raytheon.................................................................... 1,548,750
60,000 Tyco International.......................................................... 2,445,000
-------------
6,608,750
-------------
CONSUMER CYCLICALS -- 18.8%
86,300 Big Flower Press Holdings*.................................................. 1,218,988
20,000 Eastman Kodak............................................................... 1,555,000
35,000 Federated Department Stores*................................................ 1,194,375
75,000 Fine Host*.................................................................. 900,000
35,000 General Motors.............................................................. 1,833,125
225,000 Hollinger................................................................... 1,800,000
50,000 Magna International......................................................... 2,300,000
30,000 Melville.................................................................... 1,215,000
100,000 Norton McNaughton*.......................................................... 725,000
40,000 Omnicom Group............................................................... 1,860,000
100,000 Price/Costo*................................................................ 2,162,500
50,000 Proffitts*.................................................................. 1,775,000
80,000 Sears, Roebuck.............................................................. 3,890,000
-------------
22,428,988
-------------
CONSUMER NON-CYCLICALS -- 19.3%
100,000 Coca-Cola Enterprises....................................................... 3,462,500
50,000 ConAgra..................................................................... 2,268,750
300,000 Food Lion................................................................... 2,325,000
85,000 Hormel Foods................................................................ 2,273,750
100,000 IBP......................................................................... 2,762,500
90,000 Kroger*..................................................................... 3,555,000
15,000 Loews....................................................................... 1,183,125
30,000 Penn Traffic*............................................................... 255,000
15,000 Philip Morris Companies..................................................... 1,560,000
45,00 RJR Nabisco Holdings........................................................ 1,395,000
80,000 Whitman..................................................................... 1,930,000
-------------
22,970,625
-------------
ENERGY -- 16.1%
20,000 Amoco....................................................................... 1,447,500
40,000 Ashland..................................................................... 1,585,000
70,000 Diamond Shamrock............................................................ 2,021,250
50,000 Holly....................................................................... 1,250,000
40,000 Noble Affiliates............................................................ 1,510,000
60,000 Tejas Gas*.................................................................. 2,085,000
40,000 Ultramar.................................................................... 1,160,000
125,000 Union Pacific Resources Group............................................... 3,343,750
40,000 Unocal...................................................................... 1,350,000
70,000 Williams Companies.......................................................... 3,465,000
-------------
19,217,500
-------------
</TABLE>
See accompanying notes to financial statements.
PAGE 3
<PAGE>
<PAGE>
SALOMON BROTHERS CAPITAL FUND INC
- --------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1996 (unaudited)
COMMON STOCKS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1A)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES -- 9.8%
15,000 Aetna Life & Casualty....................................................... $ 1,072,500
25,000 Bank of Boston.............................................................. 1,237,500
60,000 Bank of New York............................................................ 3,075,000
75,000 Long Island Bancorp......................................................... 2,292,184
25,000 MGIC Investment............................................................. 1,403,125
30,000 Travelers Group............................................................. 1,368,750
25,000 Trenwick Group.............................................................. 1,250,000
-------------
11,699,059
-------------
HEALTH CARE -- 8.2%
15,000 Astra AB, Class A........................................................... 664,299
70,000 Columbia/HCA Healthcare..................................................... 3,736,250
65,000 FHP International*.......................................................... 1,779,375
65,000 SmithKline Beecham -- ADR................................................... 3,534,375
-------------
9,714,299
-------------
TECHNOLOGY -- 6.7%
50,000 Electric Fuel*.............................................................. 343,750
75,000 EMC*........................................................................ 1,396,875
35,000 Greenfield Industries....................................................... 1,155,000
90,000 Plantronics*................................................................ 3,307,500
20,000 Seagate Technology*......................................................... 90,000
30,000 Spectrian*.................................................................. 427,500
45,000 Stormedia*.................................................................. 489,375
-------------
8,020,000
-------------
TRANSPORTATION -- 3.4%
125,000 Canadian National Railway................................................... 2,296,875
60,000 Pittston Brink's Group...................................................... 1,747,500
-------------
4,044,375
-------------
TOTAL COMMON STOCKS (cost $97,015,261)...................................... 109,348,596
-------------
CONVERTIBLE PREFERRED STOCKS -- 1.9%
- --------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS -- 1.9%
350,000 RJR Nabisco Holdings, 9.25% (cost $2,138,625)............................... 2,275,00
-------------
CONVERTIBLE CORPORATE BONDS -- 1.3%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
- -------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 1.3%
$ 1,500,000 Connor Peripherals, 6.50%, due 03/01/02 (cost $1,678,087)................. 1,548,750
-------------
PURCHASED OPTIONS -- 0.1%
- -------------------------------------------------------------------------------------------------------
CONTRACTS
- -------------------------------------------------------------------------------------------------------
50 Nasdaq Index Puts (expiring July 1996, exercise price $625)............... 11,250
100 S&P 400 MIDCAP Index Puts (expiring August 1996, exercise price $200)..... 5,000
100 S&P 400 MIDCAP Index Puts (expiring December 1996, exercise price $200)... 22,500
175 S&P 500 Index Puts (expiring July 1996, exercise price $635).............. 15,314
75 S&P 500 Index Puts (expiring August 1996, exercise price $630)............ 18,282
-------------
TOTAL PURCHASED OPTIONS (cost $157,339)................................... 72,346
-------------
TOTAL INVESTMENTS -- 95.0% (cost $100,989,312)............................ 113,244,692
-------------
</TABLE>
See accompanying notes to financial statements.
PAGE 4
<PAGE>
<PAGE>
SALOMON BROTHERS CAPITAL FUND INC
- --------------------------------------------------------------------------------
COMMON STOCKS (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT DESCRIPTION (NOTE 1A)
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENTS -- 5.8%
$ 3,444,000 Repurchase Agreement, 5.42% due 07/01/96, dated 06/28/96, with J.P. Morgan
Securities, collateralized by $2,331,000 U.S. Treasury Bonds, 12.50%,
due 08/15/14 valued at $3,513,983; proceeds: $3,445,556................. $ 3,444,000
3,443,000 Repurchase Agreement, 5.30% due 07/01/96, dated 06/28/96, with Merrill
Lynch, Pierce, Fenner & Smith, collateralized by $5,520,000 U.S.
Treasury Strips, Zero-Coupon, due 05/15/03, valued at $3,512,100;
proceeds: $3,444,521.................................................... 3,443,000
-------------
TOTAL REPURCHASE AGREEMENTS (cost $6,887,000)............................. 6,887,000
-------------
CASH AND RECEIVABLES -- 1.3%................................. $ 1,543,008
LIABILITIES -- (2.1)%........................................ (2,495,279) (952,271)
----------- ------------
NET ASSETS -- equivalent to $20.45, offering and redemption price per share
on 5,827,321 shares of $1.00 par value capital stock outstanding;
25,000,000 shares authorized............................................. $119,179,421
------------
------------
NET ASSETS CONSIST OF:
Capital stock.............................................................. $ 5,827,321
Additional paid-in capital................................................. 86,598,860
Undistributed net investment income........................................ 413,392
Undistributed net realized gain............................................ 14,084,495
Net unrealized appreciation................................................ 12,255,353
------------
NET ASSETS................................................................. $119,179,421
------------
------------
</TABLE>
- ------------
* Non-income producing security.
See accompanying notes to financial statements.
PAGE 5
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Statement of Operations for the six months ended June 30, 1996 (unaudited)
<TABLE>
Investment Income
<S> <C> <C>
Income
Dividends (net of foreign withholding taxes of $14,244).............................. $ 898,492
Interest............................................................................. 237,493
-----------
1,135,985
Expenses
Management fee......................................................... $ 548,783
Directors' fees and expenses........................................... 32,765
Legal.................................................................. 29,415
Audit and tax return preparation fees.................................. 26,995
Shareholder services................................................... 24,570
Custodian.............................................................. 22,135
Printing............................................................... 17,285
Registration and filing fees........................................... 9,405
Other.................................................................. 15,710 727,063
---------- -----------
Net investment income................................................................ 408,922
-----------
Net Realized Gain on Investments, Options and Foreign Currencies
Net realized gain on investments, options and foreign currencies..................... 14,096,425
Net Unrealized Appreciation of Investments
Beginning of period.................................................... 11,140,591
End of period.......................................................... 12,255,353
----------
Increase in net unrealized appreciation.............................................. 1,114,762
-----------
Net realized gain and increase in net unrealized appreciation........................ 15,211,187
-----------
Net increase in net assets from operations........................................... $15,620,109
===========
</TABLE>
See accompanying notes to financial statements.
Page 6
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Six Months
Ended Year Ended
June 30, 1996 December 31,
(unaudited) 1995
- -----------------------------------------------------------------------------------------------------
Operations
<S> <C> <C>
Net investment income...................................... $ 408,922 $ 702,996
Net realized gain on investments, options and
foreign currencies....................................... 14,096,425 20,581,764
Increase in net unrealized appreciation.................... 1,114,762 7,415,877
------------ ------------
Net increase in net assets from operations................. 15,620,109 28,700,637
------------ ------------
Distributions to Shareholders from
Net investment income...................................... -- (698,526)
Net realized gain on investments, options and
foreign currencies....................................... (5,326,277) (11,082,177)
------------ ------------
(5,326,277) (11,780,703)
------------ ------------
Capital Share Transactions
Proceeds from sales of 937,773 and 1,609,281 shares,
respectively............................................. 18,287,351 29,031,088
Net asset value of 264,298 and 600,042 shares, respectively,
issued in reinvestment of net investment income and net
realized gain distributions.............................. 5,041,709 11,026,944
Payment for redemption of 859,573 and 2,277,011 shares,
respectively............................................. (16,872,098) (41,253,697)
------------ ------------
Change in net assets resulting from capital share
transactions, representing net increase of 342,498 and
net decrease of 67,688 shares, respectively.............. 6,456,962 (1,195,665)
------------ ------------
Total increase in net assets............................... 16,750,794 15,724,269
Net Assets
Beginning of period........................................ 102,428,627 86,704,358
------------ ------------
End of period (includes undistributed net investment income
of $413,392 and $4,470, respectively).................... $119,179,421 $102,428,627
============ ============
See accompanying notes to financial statements.
Page 7
</TABLE>
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Notes to Financial Statements
(unaudited)
1. Significant Accounting Policies
The Fund is registered as a non-diversified, open-end, management investment
company under the Investment Company Act of 1940, as amended. The Fund's
investment objective is capital appreciation through investments primarily in
common stocks or securities convertible into common stocks which are believed to
have above-average price appreciation potential and which may also involve
above-average risk. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principals ("GAAP"). The preparation of financial statements in accordance with
GAAP requires management to make estimates of certain reported amounts in the
financial statements. Actual amounts could differ from those estimates.
(a) Securities Valuation. Portfolio securities listed or traded on
national securities exchanges, or reported by the NASDAQ national market
system, are valued at the last sale price, or, if there have been no sales
on that day, at the mean of the current bid and ask price which represents
the current value of the security. Over-the-counter securities are valued at
the mean of the current bid and ask price. If no quotations are readily
available (as may be the case for securities of limited marketability), such
portfolio securities are valued at a fair value determined pursuant to
procedures established by the Board of Directors.
(b) Option Contracts. When the Fund writes or purchases a call option or
a put option, an amount equal to the premium received or paid is recorded as
a liability or asset, the value of which is marked-to-market daily to
reflect the current market value of the option. When the option expires, the
Fund realizes a gain or loss equal to the amount of the premium received or
paid. When the Fund enters into a closing transaction by purchasing or
selling an offsetting option, it realizes a gain or loss without regard to
any unrealized gain or loss on the underlying security. When a written call
option is exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the
premium originally received. When a written put option is exercised, the
amount of the premium received reduces the cost of the security that the
Fund purchased upon exercise.
(c) Federal Income Taxes. The Fund has complied and intends to continue
to comply with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies, and to distribute all
of its taxable income to its shareholders. Therefore, no Federal income tax
or excise tax provision is required.
(d) Repurchase Agreements. When entering into repurchase agreements, it
is the Fund's policy to take possession, through its custodian, of the
underlying collateral and to monitor its value at the time the arrangement
is entered into and at all times during the term of the repurchase agreement
to ensure that it always equals or exceeds the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or retention
of the collateral may be subject to legal proceedings.
Page 8
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Notes to Financial Statements
(unaudited)
(e) Dividends and Distributions. Dividends and distributions to
shareholders are recorded on the ex-dividend date, and determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles due primarily to deferral of wash sales.
(f) Other. Securities transactions are recorded as of the trade date.
Dividend income is recorded on the ex-dividend date. Gains or losses on
sales of securities are calculated for financial accounting and Federal tax
purposes on the identified cost basis. Interest is recognized as interest
income when earned.
2. Capital Stock
Payable for Fund shares redeemed at June 30, 1996 amounted to $488,353.
3. Management Fee and Other Transactions
The Fund retains Salomon Brothers Asset Management Inc ("SBAM"), an
indirect, wholly-owned subsidiary of Salomon Inc, to act as investment manager
of the Fund subject to supervision by the Board of Directors of the Fund. SBAM
furnishes the Fund with office space and pays the compensation of its officers.
The management fee for these services is payable monthly and is based on the
following annual percentages of the Fund's average daily net assets: first $100
million -- 1%; next $100 million -- .75%; next $200 million -- .625%; excess
over $400 million -- .50%. The management fee payable at June 30, 1996 was
$94,003.
Brokerage commissions of $8,490 were paid to Salomon Brothers Inc, the
Fund's distributor and an indirect wholly-owned subsidiary of Salomon Inc, for
transactions executed on behalf of the Fund during the six months ended June 30,
1996.
If in any fiscal year the total expenses of the Fund, excluding taxes,
interest, brokerage and extraordinary expenses, but including the management
fee, exceed the most stringent expense limitation imposed by state securities
regulations applicable to the Fund, SBAM will pay or reimburse the Fund for the
excess. Currently, this limitation on an annual basis is 2.5% of the first $30
million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of average daily net assets in excess of $100 million.
For the six months ended June 30, 1996, there was no such reimbursement.
Page 9
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Notes to Financial Statements
(unaudited)
4. Portfolio Activity
The cost of securities purchased and proceeds from securities sold (other
than short-term investments) during the six months ended June 30, 1996
aggregated $111,781,352 and $107,576,225, respectively. Amounts payable for
securities purchased at June 30, 1996 aggregated $1,858,925.
Cost of securities held (excluding short-term investments and written
options) on June 30, 1996 for Federal income tax purposes was substantially the
same as for book purposes. As of June 30, 1996, total unrealized appreciation
and depreciation, based on the cost for Federal income tax purposes, was
approximately $13,830,000 and $1,575,000, respectively, resulting in net
unrealized appreciation of approximately $12,255,000.
Transactions in options written during the six months ended June 30, 1996
were as follows:
Number of Premiums
Contracts Received
--------- --------
Options outstanding at December 31, 1995................ -- --
Options written......................................... (100) $(10,950)
Options terminated in closing purchase transactions..... 100 10,950
Options expired......................................... -- --
Options exercised....................................... -- --
-------- --------
Options outstanding at June 30, 1996.................... -- --
======== ========
During the six months ended June 30, 1996 net realized gain from written
option transactions amounted to $650. During the six months ended June 30, 1996
net realized loss from purchased option transactions amounted to $74,223, for a
net realized loss on all option transactions of $73,573.
The risk in writing a covered call option is that the Fund may forego the
opportunity of profit if the market price of the underlying security increases
and the option is exercised. The risk in writing a put option is that the Fund
may incur a loss if the market price of the underlying security decreases and
the option is exercised. In addition, there is the risk that the Fund may not be
able to enter a closing transaction because of an illiquid secondary market.
5. Subsequent Event
On July 16, 1996, the Board of Directors of the Fund approved the
implementation of a multiple class pricing system which is currently pending
shareholder approval. In connection with such implementation, the Fund will
designate all outstanding shares of capital stock as Class O shares and will
create three new classes of shares designated Class A, Class B and Class C
shares. Each of the new classes of shares has its own distribution plan and
sales charge structure.
Page 10
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, 1996 ----------------------------------------------------------
(unaudited) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period............. $18.67 $15.62 $20.80 $19.64 $19.06 $14.86
------ ------ ------ ------ ------ ------
Net investment income............... .07 .14 .03 .028 .10 .33
Net gains (losses) on securities
(both realized and unrealized).. 2.67 5.27 (2.87) 3.242 .80 4.56
------ ------ ------ ------- ------ ------
Total from investment
operations.............. 2.74 5.41 (2.84) 3.27 .90 4.89
------ ------ ------ ------ ------ ------
Less dividends and distributions:
Dividends from net investment
income.......................... -- (.14) (.03) (.035) (.105) (.325)
Distributions from net realized
gain on investments............. (.96) (2.22) (1.51) (2.075) (.215) (.365)
Distribution in excess of
net realized gains.............. -- -- (.80) -- -- --
------ ------ ------ ------ ------ ------
Total dividends and
distributions........... (.96) (2.36) (2.34) (2.11) (.32) (.69)
------ ------ ------ ------ ------ ------
Net asset value
end of period................... $20.45 $18.67 $15.62 $20.80 $19.64 $19.06
------ ------ ------ ------ ------ ------
Total investment return based on
net asset value per share....... +15.1% +34.9% -14.2% +17.2% +4.7% +33.4%
Ratios/Supplemental Data:
Net assets end of period
(thousands)..................... $119,179 $102,429 $86,704 $113,905 $103,356 $89,829
Ratio of expenses to average
net assets...................... 1.29%* 1.36% 1.30% 1.31% 1.34% 1.48%
Ratio of net investment income
to average net assets........... 0.73%* 0.74% 0.12% 0.13% 0.58% 1.87%
Portfolio turnover rate............. 102% 217% 152% 104% 41% 94%
Average broker commission rate...... $0.0559 N/A N/A N/A N/A N/A
<FN>
- -------------
* Annualized.
</FN>
Page 11
</TABLE>
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Yield to
Maturity
Principal on Date of Maturity Value (Note
Amount Description Purchase* Date 1a)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds and Notes -- 98.8%
New York -- 92.8%
$ 1,050,000 Albany County, New York
Industrial Development Agency PUT....................... 4.150% 12/01/96 $ 1,050,000
800,000 Albany County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 800,000
1,139,000 Albany, New York
Housing Authority VR.................................... 3.900 01/03/96 1,139,000
2,410,000 Albany, New York
Industrial Development Agency PUT....................... 4.250 07/01/96 2,410,000
2,600,000 Amherst, New York
Industrial Development Agency VR........................ 5.300 01/04/96 2,600,000
400,000 Amherst, New York
Industrial Development Agency VR........................ 5.250 01/04/96 400,000
950,000 Auburn, New York
Industrial Development Agency VR........................ 5.450 01/03/96 950,000
875,000 Babylon, New York
Industrial Development Agency VR........................ 5.350 01/04/96 875,000
2,025,000 Broome County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 2,025,000
650,000 Broome County, New York
Industrial Development Agency VR........................ 4.800 01/03/96 650,000
2,250,000 Chautaqua County, New York
Industrial Development Agency VR........................ 5.450 01/03/96 2,250,000
3,000,000 Chemung County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 3,000,000
730,000 Colonie, New York
Housing Development Corporation VR...................... 3.900 01/03/96 730,000
3,525,000 Colonie, New York
Industrial Development Agency PUT....................... 4.150 12/01/96 3,525,000
585,000 Colonie, New York
Industrial Development Agency VR........................ 5.250 01/04/96 585,000
5,000,000 Connetquot Central School District, New York GO TAN....... 3.900 06/27/96 5,011,220
1,275,000 Dutchess County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 1,275,000
1,210,000 Erie County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 1,210,000
500,000 Erie County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 500,000
400,000 Erie County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 400,000
</TABLE>
See accompanying notes to financial statements.
Page 3
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Yield to
Maturity
Principal on Date of Maturity Value (Note
Amount Description Purchase* Date 1a)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 388,400 Erie County, New York
Industrial Development Agency VR........................ 5.250% 01/04/96 $ 388,400
1,140,000 Fulton County, New York
Industrial Development Agency PUT....................... 4.150 12/01/96 1,140,000
1,860,000 Fulton County, New York
Industrial Development Agency VR........................ 5.150 01/04/96 1,860,000
3,000,000 Islip, New York
Industrial Development Agency VR........................ 5.225 01/04/96 3,000,000
500,000 Lewis County, New York
Development Agency VR .................................. 4.900 01/03/96 500,000
1,820,000 Monroe County, New York
Industrial Development Agency PUT....................... 4.000 06/01/96 1,820,000
700,000 Monroe County, New York
Industrial Development Agency PUT....................... 4.400 06/15/96 700,000
6,500,000 Monroe County, New York
Industrial Development Agency VR........................ 5.450 01/03/96 6,500,000
4,375,000 Monroe County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 4,375,000
4,300,000 Monroe County, New York
Industrial Development Agency VR........................ 5.000 01/04/96 4,300,000
3,325,000 Monroe County, New York
Industrial Development Agency VR........................ 5.300 01/04/96 3,325,000
2,370,000 Monroe County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 2,370,000
2,200,000 Monroe County, New York
Industrial Development Agency VR........................ 4.150 01/02/96 2,200,000
1,740,000 Monroe County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 1,740,000
1,700,000 Monroe County, New York
Industrial Development Agency VR........................ 5.500 01/03/96 1,700,000
1,580,000 Monroe County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 1,580,000
945,000 Monroe County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 945,000
225,000 Monroe County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 225,000
</TABLE>
See accompanying notes to financial statements.
Page 4
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Yield to
Maturity
Principal on Date of Maturity Value (Note
Amount Description Purchase* Date 1a)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 4,475,000 Mount Pleasant, New York
Industrial Development Agency VR........................ 5.200% 01/02/96 $ 4,475,000
3,000,000 Nassau County, New York GO BAN............................ 3.450 08/15/96 3,014,478
2,000,000 Nassau County, New York GO TAN............................ 3.700 04/15/96 2,004,309
1,090,000 Nassau County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 1,090,000
800,000 New York City, New York
Housing Development Corporation VR...................... 5.250 01/03/96 800,000
16,330,000 New York City, New York
Housing Development Corporation VR...................... 5.750 01/04/96 16,330,000
2,000,000 New York City, New York
Housing Development Corporation VR...................... 5.800 01/04/96 2,000,000
1,000,000 New York City, New York
Housing Development Corporation VR...................... 5.750 01/04/96 1,000,000
9,500,000 New York City, New York
Industrial Development Agency VR........................ 6.250 01/02/96 9,500,000
6,000,000 New York City, New York
Industrial Development Agency VR........................ 5.500 01/04/96 6,000,000
2,100,000 New York City, New York
Industrial Development Agency VR........................ 6.100 01/02/96 2,100,000
1,650,000 New York City, New York
Industrial Development Agency VR........................ 5.350 01/04/96 1,650,000
1,300,000 New York City, New York
Industrial Development Agency VR........................ 5.250 01/04/96 1,300,000
780,000 New York City, New York
Industrial Development Agency VR........................ 5.350 01/04/96 780,000
600,000 New York City, New York
Industrial Development Agency VR........................ 5.350 01/04/96 600,000
505,000 New York City, New York
Industrial Development Agency VR........................ 5.250 01/04/96 505,000
400,000 New York City, New York
Industrial Development Agency VR........................ 5.800 01/04/96 400,000
115,000 New York City, New York
Industrial Development Agency VR........................ 5.250 01/04/96 115,000
1,200,000 New York City, New York
Trust for Cultural Resources VR......................... 5.550 01/03/96 1,200,000
</TABLE>
See accompanying notes to financial statements.
Page 5
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Yield to
Maturity
Principal on Date of Maturity Value (Note
Amount Description Purchase* Date 1a)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,000,000 New York City, New York GO VR............................. 6.100% 01/02/96 $ 5,000,000
8,000,000 New York City, New York GO VR............................. 6.250 01/02/96 8,000,000
6,900,000 New York City, New York GO VR............................. 5.500 01/03/96 6,900,000
3,800,000 New York City, New York GO VR............................. 6.250 01/02/96 3,800,000
1,100,000 New York City, New York GO VR............................. 5.350 01/03/96 1,100,000
1,050,000 New York State, Dormitory Authority FGIC.................. 3.800 07/01/96 1,063,100
13,674,000 New York State, Dormitory Authority TECP.................. 4.900 01/03/96 13,674,000
500,000 New York State,
Energy Research & Development VR........................ 3.550 01/02/96 500,000
3,390,000 New York State,
Job Development Authority VR............................ 4.400 01/02/96 3,390,000
1,620,000 New York State,
Job Development Authority VR............................ 4.400 01/02/96 1,620,000
925,000 New York State,
Job Development Authority VR............................ 4.300 01/02/96 925,000
420,000 New York State,
Job Development Authority VR............................ 4.300 01/02/96 420,000
125,000 New York State,
Job Development Authority VR............................ 4.300 01/02/96 125,000
100,000 New York State,
Job Development Authority VR............................ 4.300 01/02/96 100,000
1,000,000 New York State,
Urban Development Corporation BIG P/R................... 3.500 01/01/96 1,020,000
1,350,000 New York State,
Urban Development Corporation P/R....................... 3.500 01/01/96 1,377,000
1,000,000 New York State,
Urban Development Corporation P/R....................... 5.750 01/01/96 1,020,000
600,000 New York State,
Urban Development Corporation P/R....................... 5.750 01/01/96 612,000
1,600,000 Newburgh, New York
Industrial Development Agency VR........................ 4.800 01/03/96 1,600,000
1,180,000 Niagara County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 1,180,000
2,050,000 Oneida County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 2,050,000
</TABLE>
See accompanying notes to financial statements.
Page 6
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Yield to
Maturity
Principal on Date of Maturity Value (Note
Amount Description Purchase* Date 1a)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 379,000 Oneida County, New York
Industrial Development Agency VR........................ 5.100% 01/04/96 $ 379,000
3,900,000 Onondaga County, New York
Industrial Development Agency VR........................ 5.400 01/03/96 3,900,000
1,300,000 Onondaga County, New York
Industrial Development Agency VR........................ 5.400 01/03/96 1,300,000
3,500,000 Ontario County, New York
Industrial Development Agency VR........................ 6.650 01/02/96 3,500,000
1,650,000 Rockland County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 1,650,000
345,000 Schoharie County, New York
Industrial Development Agency VR........................ 5.100 01/04/96 345,000
75,000 St. Lawrence County, New York
Industrial Development Agency VR........................ 5.450 01/04/96 75,000
1,675,000 Suffolk County, New York GO AMBAC......................... 3.750 10/15/96 1,684,606
1,500,000 Syracuse, New York
Industrial Development Agency PUT....................... 4.400 06/15/96 1,500,000
3,550,000 Syracuse, New York
Industrial Development Agency VR........................ 5.500 01/03/96 3,550,000
2,000,000 Triborough Bridge & Tunnel Authority
New York P/R............................................ 4.000 01/01/96 2,040,000
6,660,000 Wyoming County, New York
Industrial Development Agency VR........................ 5.350 01/04/96 6,660,000
640,000 Wyoming County, New York
Industrial Development Agency VR........................ 5.250 01/04/96 640,000
1,440,000 Yates County, New York
Industrial Development Agency VR........................ 5.150 01/04/96 1,440,000
1,080,000 Yonkers, New York
Industrial Development Agency VR........................ 5.250 01/04/96 1,080,000
------------
210,137,113
</TABLE>
See accompanying notes to financial statements.
Page 7
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (concluded)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Yield to
Maturity
Principal on Date of Maturity Value (Note
Amount Description Purchase* Date 1a)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Puerto Rico -- 6.0%
$13,600,000 Puerto Rico Industrial, Tourist, Educational,
Medical & Environmental Control Facilities VR........... 5.400% 01/03/96 $ 13,600,000
------------
Total Investments -- 98.8% (cost $223,737,113)............ 223,737,113
Other assets in excess of liabilities -- 1.2%............. 2,811,482
------------
Net Assets -- 100.0%...................................... $226,548,595
===========
</TABLE>
*Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR) and Put Bonds, whose yields are determined on date of the
last interest rate change. For Variable Rate Demand Notes and Put Bonds,
maturity date shown is the date of next interest rate change.
Abbreviations used in this statement:
<TABLE>
<S> <C>
AMBAC -- Insured as to principal and interest by the American Municipal Bond Assurance Corporation.
BAN -- Bond Anticipation Note
BIG -- Insured as to principal and interest by the Bond Investors Guaranty Insurance Company.
FGIC -- Insured as to principal and interest by the Financial Guaranty Insurance Company.
GO -- General Obligation
P/R -- Pre-refunded in U.S. Treasury Securities.
PUT -- Optional or mandatory put. Maturity date shown is the put date as well as the date of the
next interest rate change.
TAN -- Tax Anticipation Note
TECP -- Tax Exempt Commercial Paper
</TABLE>
See accompanying notes to financial statements.
Page 8
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- -------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at value (cost $223,737,113).................................................... $223,737,113
Cash......................................................................................... 22,069
Receivable for Fund shares sold.............................................................. 1,934,480
Interest receivable.......................................................................... 1,210,552
------------
Total assets......................................................................... 226,904,214
------------
Liabilities
Payable for Fund shares redeemed............................................................. 266,863
Dividend payable............................................................................. 15,997
Management fee payable....................................................................... 35,265
Accrued expenses............................................................................. 37,494
------------
Total liabilities.................................................................... 355,619
------------
Net Assets (equivalent to $1.00 per share on 226,776,791 shares of $.001 par value
capital stock outstanding)................................................................. $226,548,595
===========
</TABLE>
- ------------------------------------------
Statement of Operations
Year Ended December 31, 1995
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Income
Interest.................................................................................... $9,231,307
Expenses
Management fee................................................................. $ 449,809
Custody and administration fees................................................ 258,054
Shareholder services........................................................... 113,900
Audit and tax return preparation fees.......................................... 77,282
Legal.......................................................................... 40,000
Printing....................................................................... 27,718
Amortization of organization expenses.......................................... 9,071
Directors' fees and expenses................................................... 1,617
Other.......................................................................... 30,000
----------
1,007,451
Management fee waived by investment advisor.................................... (31,455)
Credits earned from custodian on cash balances................................. (6,021) 969,975
---------- ----------
Net investment income....................................................................... 8,261,332
Net realized gain on securities sold............................................................ 27,905
----------
Net increase in net assets from operations...................................................... $8,289,237
=========
</TABLE>
See accompanying notes to financial statements.
Page 9
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Statement of Changes in Net Assets
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1995 1994
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income.............................................. $ 8,261,332 $ 6,160,954
Net realized gain (loss) on securities sold........................ 27,905 (65,622)
------------- -------------
Net increase in net assets from operations......................... 8,289,237 6,095,332
------------- -------------
Dividends from net investment income................................... (8,261,332) (6,160,954)
------------- -------------
Capital Share Transactions
Proceeds from sales of shares...................................... 298,776,320 424,692,601
Net asset value of shares issued in reinvestment of dividends...... 7,924,931 5,955,238
Payment for redemption of shares................................... (349,968,556) (423,206,832)
------------- -------------
Net increase (decrease) in net assets derived from share
transactions..................................................... (43,267,305) 7,441,007
------------- -------------
Net increase (decrease) in net assets.............................. (43,239,400) 7,375,385
Net Assets
Beginning of year.................................................. 269,787,995 262,412,610
------------- -------------
End of year........................................................ $ 226,548,595 $ 269,787,995
============ ============
</TABLE>
- -----------------------------------------------------------------------------
Financial Highlights
Selected data per share of capital stock outstanding throughout each year:
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income................................. 0.037sec. 0.027 0.023 0.031 0.047
Dividends from net investment income.................. (0.037) (0.027) (0.023) (0.031) (0.047)
-------- -------- -------- -------- --------
Net asset value, end of year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Net assets end of year (thousands).................... $226,549 $269,788 $262,413 $263,685 $154,782
Total investment return............................... +3.7% +2.7% +2.3% +3.1% +4.8%
Ratios to average net assets:
Expenses.......................................... 0.43%sec. 0.41% 0.41% 0.42% 0.60%
Net investment income............................. 3.67% 2.63% 2.31% 3.07% 4.63%
</TABLE>
sec.Net investment income per share would have been $.037 and the expense ratio
to average net assets would have been .45% before waiver of management fee
and credits earned on custodian cash balances.
See accompanying notes to financial statements.
Page 10
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Yield to
Maturity on
Principal Date of Maturity Value (Note
Amount Description Purchase Date 1a)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bills -- 99.9%
$ 898,000 U.S. Treasury Bill......................................... 5.350% 01/11/96 $ 896,665
870,000 U.S. Treasury Bill......................................... 5.270 01/18/96 867,835
190,000 U.S. Treasury Bill......................................... 4.800 02/08/96 189,037
9,190,000 U.S. Treasury Bill......................................... 4.880 02/08/96 9,142,662
315,000 U.S. Treasury Bill......................................... 5.270 02/08/96 313,248
-----------
Total Investments -- 99.9% (cost $11,409,447)........................................ 11,409,447
Other assets in excess of liabilities -- 0.1%........................................ 16,021
-----------
Net Assets -- 100.0%................................................................. $11,425,468
==========
</TABLE>
See accompanying notes to financial statements.
Page 11
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1995
SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost $11,409,447)...................................................... $11,409,447
Cash.......................................................................................... 7,304
Receivable from investment advisor............................................................ 5,394
Receivable for Fund shares sold............................................................... 28,974
-----------
Total assets.......................................................................... 11,451,119
-----------
Liabilities
Payable for Fund shares redeemed.............................................................. 8,000
Dividend payable.............................................................................. 10,635
Accrued expenses.............................................................................. 7,016
-----------
Total liabilities..................................................................... 25,651
-----------
Net Assets (equivalent to $1.00 per share on 11,425,379 shares of $.001 par value
capital stock outstanding).................................................................. $11,425,468
==========
</TABLE>
- ------------------------------------------------------------------------------
Statement of Operations
Year Ended December 31, 1995
SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Income
Interest..................................................................................... $843,023
Expenses
Management fee.................................................................... $ 15,217
Custody and administration fees................................................... 26,631
Registration and filing fees...................................................... 13,359
Amortization of organization expenses............................................. 11,241
Shareholder services.............................................................. 11,079
Audit and tax return preparation fees............................................. 9,200
Legal............................................................................. 7,144
Printing.......................................................................... 6,000
Directors' fees and expenses...................................................... 1,618
Other............................................................................. 4,551
--------
106,040
Management fee waived by investment advisor....................................... (7,096)
Credits earned from custodian on cash balances.................................... (31) 98,913
-------- --------
Net investment income........................................................................ 744,110
Net realized gain on securities sold............................................................. 6,443
--------
Net increase in net assets from operations....................................................... $750,553
========
</TABLE>
See accompanying notes to financial statements.
Page 12
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- -------------------------------------------------------------
Statement of Changes in Net Assets
SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1995 1994
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income............................................... $ 744,110 $ 1,045,249
Net realized gain (loss) on securities sold......................... 6,443 (2,037)
------------ -------------
Net increase in net assets from operations.......................... 750,553 1,043,212
------------ -------------
Dividends and distributions to shareholders
Dividends from net investment income................................ (744,110) (1,045,249)
Distributions from net realized gains............................... (959) --
------------ -------------
(745,069) (1,045,249)
Capital Share Transactions
Proceeds from sales of shares....................................... 79,773,668 127,781,043
Net asset value of shares issued in reinvestment of dividends....... 555,617 881,270
Payment for redemption of shares.................................... (96,624,438) (135,113,944)
------------ -------------
Net decrease in net assets derived from share transactions.......... (16,295,153) (6,451,631)
------------ -------------
Contribution from investment advisor (Note 2)....................... 48,447 --
------------ -------------
Net decrease in net assets.......................................... (16,241,222) (6,453,668)
Net Assets
Beginning of year................................................... 27,666,690 34,120,358
------------ -------------
End of year (including undistributed net investment income of $265
for 1995)......................................................... $ 11,425,468 $ 27,666,690
=========== ============
</TABLE>
- --------------------------------------
Financial Highlights
Selected data per share of capital stock outstanding throughout each year:
SALOMON BROTHERS U.S. TREASURY SECURITIES MONEY MARKET FUND
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Net investment income..................................... 0.049sec. 0.036 0.028 0.034 0.054sec.
Dividends from net investment income...................... (0.049) (0.036) (0.028) (0.034) (0.054)
------- ------- ------- ------- -------
Net asset value, end of year.............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Net assets end of year (thousands)........................ $11,425 $27,667 $34,120 $50,554 $35,414
Total investment return................................... +5.0% +3.6% +2.9% +3.4% +5.5%
Ratios to average net assets:
Expenses.............................................. 0.65%sec. 0.45% 0.35% 0.44% 0.54%sec.
Net investment income................................. 4.89% 3.53% 2.83% 3.42% 5.23%
</TABLE>
sec. Net investment income per share would have been $.049 and $.052 and the
expense ratios to average net assets would have been .70% and .64%,
respectively, for the years ended December 31, 1995 and 1991 before
applicable waiver of management fee, expenses absorbed by SBAM and credits
earned on custodian cash balances.
See accompanying notes to financial statements.
Page 13
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Salomon Brothers Series Funds Inc (the "Company") was incorporated in Maryland
on April 17, 1990 as an open-end management investment company, and currently
operates as a series company comprised of nine portfolios: Salomon Brothers Cash
Management Fund (the "Cash Management Fund"), Salomon Brothers New York
Municipal Money Market Fund, (the "New York Municipal Money Fund"), Salomon
Brothers U.S. Treasury Securities Money Market Fund (the "U.S. Treasury Fund"),
Salomon Brothers New York Municipal Bond Fund (the "New York Municipal Bond
Fund"), Salomon Brothers National Intermediate Municipal Fund (the "National
Intermediate Municipal Fund"), Salomon Brothers U.S. Government Income Fund (the
"U.S. Government Income Fund"), Salomon Brothers High Yield Bond Fund (the "High
Yield Bond Fund"), Salomon Brothers Strategic Bond Fund (the "Strategic Bond
Fund"), and Salomon Brothers Total Return Fund (the "Total Return Fund"). The
New York Municipal Money Fund and the U.S. Treasury Fund (individually, a
"Fund", collectively, the "Funds") are included in this report. The New York
Municipal Money Fund's objective is to seek as high a level of current income
exempt from federal, New York State and New York City personal income taxes as
is consistent with liquidity and the stability of principal. The U.S. Treasury
Fund's objective is to seek a high level of current income by investing only in
short-term United States government and government agency securities. The Cash
Management Fund, New York Municipal Bond Fund, National Intermediate Municipal
Fund, U.S. Government Income Fund, High Yield Bond Fund, Strategic Bond Fund,
and Total Return Fund are reported in a separate report and are not included
herein.
Following is a summary of significant accounting policies followed by each Fund
in the preparation of its financial statements. The policies are in conformity
with generally accepted accounting principles ("GAAP"). The preparation of
financial statements in accordance with GAAP requires management to make
estimates of certain reported amounts in the financial statements. Actual
amounts could differ from those estimates.
(a) Securities Valuation. Portfolio securities are valued using the
amortized cost method, which involves initially valuing an investment at
its cost and thereafter assuming a constant amortization to maturity of any
premium or discount. This method results in a value approximating market
value and does not include unrealized gains or losses.
(b) Federal Income Taxes. Each Fund has complied and intends to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies, including the distribution
requirements of the Tax Reform Act of 1986, and to distribute all of its
income, including any net realized gains, to shareholders. Therefore, no
Federal income tax or excise tax provision is required.
Page 14
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Notes to Financial Statements
(c) Dividends and Distributions to Shareholders. Dividends on the
shares of each Fund are declared each business day to shareholders of
record that day, and paid on the last business day of the month.
Distributions of net realized gains to shareholders, if any, are declared
annually and recorded on the ex-dividend date. Dividends and distributions
are determined in accordance with income tax regulations, which may differ
from GAAP.
(d) Expenses. Direct expenses are charged to the Fund that incurred
them, and general expenses of the Company are allocated to the Funds based
on relative average net assets for the period the expense was incurred.
(e) Other. Investment transactions are recorded as of the trade date.
Interest income, including the accretion of discounts or the amortization
of premiums, is recognized when earned. Gains or losses on sales of
securities are calculated on the identified cost basis.
2. Management Fee and Other Agreements
The Company retains Salomon Brothers Asset Management Inc ("SBAM"), an indirect
wholly owned subsidiary of Salomon Inc, to act as investment manager of each
Fund, subject to the supervision by the Board of Directors of the Company. SBAM
furnishes the Company with office space and certain services and facilities
required for conducting the business of the Company and pays the compensation of
its officers. The management fee for these services is payable monthly and is
based on the following annual percentages of the Funds' average daily net
assets: .20% for the New York Municipal Money Fund and .10% for the U.S.
Treasury Fund. For the year ended December 31, 1995, SBAM voluntarily waived
management fees of $31,455 and $7,096 for the New York Municipal Money Fund and
U.S. Treasury Fund, respectively.
If in any fiscal year total expenses of any Fund, excluding taxes, interest,
brokerage and extraordinary expenses, but including the management fee, exceed
the most stringent expense limitations imposed by state securities regulations
applicable to the Fund, SBAM will pay or reimburse the Fund for the excess.
Currently, the most restrictive of these limitations on an annual basis is 2.5%
of the first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of average daily net assets in
excess of $100 million. No such expense reimbursement was required for the year
ended December 31, 1995.
Page 15
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Notes to Financial Statements
The U.S. Treasury Fund incurred realized losses on the sale of certain
securities in current and previous years. In order to maintain a $1 net asset
value per share, SBAM contributed $48,447 to offset cumulative net realized
losses. For tax purposes, this contribution was applied against the realized
losses for the year ended December 31, 1995. Accordingly, such amount has been
reclassified from paid-in-capital to accumulated net realized loss on
investments in the composition of net assets detailed in Note 3.
Investors Bank & Trust Company serves as custodian and administrator for each
Fund, which includes performing custodial and certain administrative services in
connection with the operation of each Fund. During the year ended December 31,
1995, custodian fees were reduced by $6,021 and $31 for the New York Municipal
Money Fund and U.S. Treasury Fund, respectively, relating to credits earned on
cash balances held by the custodian.
Each Fund has an agreement with Salomon Brothers Inc to distribute its shares.
3. Capital Stock
At December 31, 1995, the Company had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share, of which the New York Municipal Money
Fund and the U.S. Treasury Fund each had 1,111,111,112 shares authorized.
Net assets, after re-classification of book/tax differences, consist of:
<TABLE>
<CAPTION>
New York U.S.
Municipal Treasury
Money Fund Fund
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Par value....................................................................... $ 226,777 $ 11,425
Paid-in capital in excess of par................................................ 226,549,157 11,413,954
Undistributed net investment income............................................. -- 265
Accumulated net realized loss on investments.................................... (227,339 ) (176)
------------ -----------
Net assets...................................................................... $226,548,595 $11,425,468
============ ==========
</TABLE>
Page 16
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Notes to Financial Statements
4. Portfolio Activity
The New York Municipal Money Fund invests in money market instruments maturing
in thirteen months or less whose credit ratings are within the highest ratings
category of two nationally recognized statistical rating organizations
("NRSROs") or if rated by only one NRSRO, the highest rating of that NRSRO, or,
if not rated, are believed by the investment manager to be of comparable
quality. The U.S. Treasury Fund invests in U.S. Treasury Securities maturing in
thirteen months or less. The New York Municipal Money Fund pursues its
investment objectives by investing at least 65% of its net assets in obligations
that are exempt from regular Federal income tax and from personal income taxes
of the State and City of New York. Because the New York Municipal Money Fund
invests primarily in obligations of the State and City of New York, it is more
susceptible to factors adversely affecting issuers of such obligations than a
fund that is more diversified.
During the year ended December 31, 1995, the New York Municipal Money Fund and
U.S. Treasury Fund utilized $27,604 and $6,411, respectively, of capital loss
carry-forwards to offset net realized capital gains. At December 31, 1995, the
Funds had net capital loss carry-forwards available to offset future capital
gains as follows:
<TABLE>
<CAPTION>
New York U.S.
Municipal Treasury
Year of Expiration Money Fund Fund
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1999.............................................................................. $ 67,240 --
2000.............................................................................. 94,778 --
2002.............................................................................. 65,321 $ 176
----------- ---------
$ 227,339 $ 176
============ =========
</TABLE>
Page 17
<PAGE>
<PAGE>
SALOMON BROTHERS MONEY MARKET FUNDS
- ------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Directors and Shareholders of
Salomon Brothers New York Municipal Money Market Fund and
Salomon Brothers U.S. Treasury Securities Money Market Fund
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Salomon Brothers New York Municipal
Money Market Fund and Salomon Brothers U.S. Treasury Securities Money Market
Fund (two of the portfolios constituting Salomon Brothers Series Funds Inc,
hereafter referred to as the "Funds") at December 31, 1995, the results of each
of their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 16, 1996
Page 18
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -----------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
MATURITY ON
PRINCIPAL DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1A)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER -- 29.4%
CONSUMER NON-CYCLICALS -- 3.6%
$ 400,000 Heinz (HJ)....................................... 5.600% 02/06/96 $ 397,760
------------
FINANCIAL SERVICES -- 7.3%
400,000 BIL North America................................ 5.750 01/16/96 399,042
400,000 Ford Motor Credit................................ 5.550 02/13/96 397,348
------------
796,390
------------
MEDIA -- 3.7%
400,000 Gannett.......................................... 5.630 01/26/96 398,436
------------
MUNICIPAL -- 7.4%
400,000 De Kalb County, Georgia Development
Authority...................................... 5.950 01/25/96 400,000
400,000 Methodist Hospital (Houston, Texas).............. 5.950 01/02/96 400,000
------------
800,000
------------
TELECOMMUNICATIONS & UTILITIES -- 3.7%
400,000 U.S. West Communications......................... 5.700 01/25/96 398,480
------------
TRANSPORTATION -- 3.7%
400,000 Daimler-Benz NA.................................. 5.670 01/26/96 398,425
------------
TOTAL COMMERCIAL PAPER
(cost $3,189,491).............................. 3,189,491
------------
FLOATING RATE NOTES -- 60.0%
ALABAMA -- 3.7%
400,000 Selma, Alabama Industrial Development
Board VR....................................... 6.280 01/09/96 400,000
------------
CALIFORNIA -- 3.7%
400,000 Pasadena, California Certificates of
Participation VR............................... 6.000 01/02/96 400,000
------------
FLORIDA -- 3.7%
400,000 Florida Housing Finance Agency VR................ 5.860 01/03/96 400,000
------------
ILLINOIS -- 3.7%
400,000 Illinois Student Assistance Commission VR........ 6.160 01/03/96 400,000
------------
MICHIGAN -- 1.8%
200,000 Genesis Health Systems VR........................ 5.930 01/03/96 200,000
------------
NEW JERSEY -- 5.1%
260,000 New Jersey Economic Development
Authority VR................................... 6.070 01/02/96 260,000
300,000 New Jersey Economic Development
Authority VR................................... 6.190 01/02/96 300,000
------------
560,000
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 11
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -----------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS CASH MANAGEMENT FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
MATURITY ON
PRINCIPAL DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1A)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK -- 19.8%
$ 400,000 Fulton County, New York Industrial
Development Agency VR.......................... 6.000% 01/04/96 $ 400,000
400,000 Health Insurance Plan,
Greater New York VR............................ 5.950 01/03/96 400,000
400,000 New York, New York
Industrial Development Agency VR............... 6.000 01/03/96 400,000
150,000 New York, New York
Industrial Development Agency VR............... 6.000 01/03/96 150,000
400,000 New York, New York GO VR......................... 6.000 01/03/96 400,000
400,000 Syracuse, New York GO VR......................... 7.000 01/03/96 400,000
------------
2,150,000
------------
NORTH CAROLINA -- 3.7%
400,000 Greensboro, North Carolina GO VR................. 6.050 01/03/96 400,000
------------
TENNESSEE -- 3.7%
400,000 Community Health Systems VR...................... 6.100 01/03/96 400,000
------------
TEXAS -- 7.4%
400,000 Texas State GO VR................................ 5.860 01/03/96 400,000
400,000 Tyler, Texas Health Facilities
Development VR................................. 6.100 01/03/96 400,000
------------
800,000
------------
VIRGINIA -- 3.7%
400,000 Virginia State, Housing Development
Authority VR................................... 5.950 01/03/96 400,000
------------
TOTAL FLOATING RATE NOTES
(cost $6,510,000).............................. 6,510,000
------------
TOTAL INVESTMENTS -- 89.4%
(cost $9,699,491).............................. 9,699,491
REPURCHASE AGREEMENT -- 9.5%
1,036,551 Repurchase Agreement dated 12/29/95, with
J.P. Morgan, collateralized by $795,000
U.S. Treasury Bonds, 8.500%, due 02/15/20,
valued at $1,058,344; proceeds: $1,037,213
(cost $1,036,551).............................. 5.750 01/02/96 1,036,551
Other assets in excess of liabilities -- 1.1%.... 124,762
------------
NET ASSETS -- 100.0%............................. $ 10,860,804
------------
------------
</TABLE>
* Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR), whose yields are determined on date of last interest rate
change. For Variable Rate Demand Notes, maturity date shown is the date of
next interest rate change.
Abbreviation used in this statement:
GO -- General Obligation
See accompanying notes to financial statements.
PAGE 12
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
SALOMON BROTHERS NEW YORK MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL SECURITIES -- 92.2%
NEW YORK -- 78.9%
$ 150,000 Metropolitan Transportation Authority
New York FSA...................................... 5.700% 07/01/24 $ 152,012
300,000 New York City, New York
Municipal Water Finance Authority................. 6.000 06/15/17 307,992
300,000 New York City, New York GO.......................... 7.375 08/15/13 340,968
300,000 New York City, New York GO.......................... 6.750 10/01/17 318,246
200,000 New York State GO................................... 6.000 03/15/20 208,436
250,000 New York State,
Local Government Assistance
Corporation....................................... 6.000 04/01/18 261,725
100,000 New York State,
Medical Care Facilities Finance Agency............ 6.000 02/15/11 100,955
100,000 New York State,
Medical Care Facilities Finance Agency MBIA....... 5.900 02/15/21 104,357
150,000 New York State,
Urban Development Corporation..................... 5.500 01/01/19 148,263
100,000 New York State, Dormitory Authority
(City University System of New York).............. 5.750 07/01/18 102,034
315,000 New York State, Dormitory Authority
(State University Educational Facilities)......... 6.000 05/15/17 316,777
200,000 New York State, Mortgage Agency..................... 6.500 04/01/13 208,236
250,000 New York State, Thruway Authority................... 6.000 04/01/10 254,083
200,000 Suffolk County, New York
Industrial Development Agency VR.................. 5.850 01/02/96 200,000
-----------
3,024,084
-----------
PUERTO RICO -- 13.3%
250,000 Puerto Rico Commonwealth, GO........................ 6.000 07/01/14 258,058
250,000 Puerto Rico Commonwealth, Highway Authority......... 6.000 07/01/20 254,033
-----------
512,091
-----------
TOTAL INVESTMENTS -- 92.2%
(cost $3,385,615)................................. 3,536,175
Other assets in excess of liabilities -- 7.8%....... 297,776
-----------
NET ASSETS -- 100.0%................................ $ 3,833,951
-----------
-----------
</TABLE>
Abbreviations used in this statement:
<TABLE>
<S> <C>
FSA -- Insured as to principal and interest by the Financial Security Assurance Corporation.
GO -- General Obligation
MBIA -- Insured as to principal and interest by the Municipal Bond Insurance Association.
VR -- Variable Rate Demand Note. Maturity date shown is the date of next interest rate change.
</TABLE>
See accompanying notes to financial statements.
PAGE 13
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -----------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS NATIONAL INTERMEDIATE MUNICIPAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL SECURITIES -- 95.9%
CALIFORNIA -- 2.8%
$ 285,000 Los Angeles, California AMBAC...................... 6.000% 08/01/03 $ 309,162
------------
CONNECTICUT -- 4.7%
500,000 Connecticut State GO............................... 5.250 03/15/06 518,365
------------
FLORIDA -- 1.7%
180,000 Florida Housing Finance Agency..................... 6.150 07/01/06 187,245
------------
ILLINOIS -- 6.8%
300,000 Chicago, Illinois Metropolitan Water GO............ 5.900 12/01/06 326,454
400,000 Illinois Student Assistance Commission............. 6.400 03/01/04 418,316
------------
744,770
------------
INDIANA -- 9.3%
300,000 Indiana Secondary Market for Education............. 5.550 12/01/05 305,715
650,000 Indiana Transportation Finance Authority........... 6.250 11/01/03 709,592
------------
1,015,307
------------
LOUISIANA -- 4.5%
450,000 Louisiana Public Facilities Authority.............. 6.750 09/01/06 487,548
------------
MASSACHUSETTS -- 4.1%
400,000 Commonwealth of Massachusetts,
Health & Educational Facilities Authority........ 6.500 12/01/05 445,140
------------
MICHIGAN -- 4.3%
475,000 Michigan State,
Housing Development Authority FGIC............... 6.300 04/01/03 476,036
------------
MISSISSIPPI -- 4.6%
480,000 Mississippi Higher Education....................... 6.050 09/01/07 500,323
------------
NEW JERSEY -- 4.4%
450,000 Passaic Valley, New Jersey
Sewer Commission AMBAC........................... 5.750 12/01/07 478,026
------------
NEW YORK -- 23.8%
700,000 New York State, Dormitory Authority
MBIA............................................. 5.600 07/01/06 732,249
400,000 New York State, Dormitory Authority
(State University of New York)................... 6.625 07/01/04 454,676
500,000 New York State, Mortgage Agency.................... 5.900 10/01/06 508,310
400,000 New York State, Thruway Authority MBIA............. 6.000 01/01/04 435,752
450,000 New York, New York GO.............................. 6.500 02/01/02 476,564
------------
2,607,551
------------
PENNSYLVANIA -- 8.4%
400,000 Geisinger Authority, Pennsylvania Health
System........................................... 6.000 07/01/01 428,168
500,000 Monroeville, Pennsylvania Hospital
Authority........................................ 5.750 10/01/05 490,815
------------
918,983
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 14
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
SALOMON BROTHERS NATIONAL INTERMEDIATE MUNICIPAL FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SOUTH CAROLINA -- 7.7%
$ 750,000 South Carolina State,
Public Service Authority FGIC.................... 6.500% 01/01/05 $ 845,257
------------
TEXAS -- 8.8%
500,000 Austin, Texas Airport Systems MBIA................. 6.500 11/15/05 560,770
400,000 Central Texas Higher Education Authority........... 5.200 12/01/04 405,112
------------
965,882
------------
TOTAL INVESTMENTS -- 95.9%
(cost $10,075,715)............................... 10,499,595
Other assets in excess of liabilities -- 4.1%...... 447,445
------------
NET ASSETS -- 100.0%............................... $ 10,947,040
------------
------------
</TABLE>
Abbreviations used in this statement:
<TABLE>
<S> <C>
AMBAC -- Insured as to principal and interest by the American Municipal Bond Assurance Corporation.
FGIC -- Insured as to principal and interest by the Financial Guaranty Insurance Company.
GO -- General Obligation
MBIA -- Insured as to principal and interest by the Municipal Bond Insurance Association.
</TABLE>
See accompanying notes to financial statements.
PAGE 15
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -----------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. TREASURY NOTES -- 59.2%
$ 300,000 U.S. Treasury Note............................... 7.750% 01/31/00 $ 325,875
150,000 U.S. Treasury Note............................... 6.750 04/30/00 157,851
1,000,000 U.S. Treasury Note............................... 6.500 08/15/05 1,065,310
1,350,000 U.S. Treasury Note............................... 6.125 05/31/97 1,366,457
3,200,000 U.S. Treasury Note............................... 7.125 02/29/00 3,406,496
------------
TOTAL U.S. TREASURY NOTES
(cost $6,077,872).............................. 6,321,989
------------
U.S. GOVERNMENT AGENCY -- 36.1%
100,000 Federal Home Loan Bank........................... 5.940 06/13/00 101,547
78,138 Federal Home Loan Mortgage Corporation........... 6.000 07/01/10 77,306
715,249 Federal Home Loan Mortgage Corporation........... 6.000 08/01/10 707,632
386,959 Federal Home Loan Mortgage Corporation........... 6.000 09/01/10 382,838
565,229 Federal Home Loan Mortgage Corporation........... 6.000 10/01/10 560,096
41,051 Federal Home Loan Mortgage Corporation........... 6.000 10/01/10 40,678
264,190 Federal National Mortgage Association............ 11.500 02/01/20 301,200
1,500,000 Federal National Mortgage Association(a)......... 6.500 ** 1,480,781
200,000 Government National Mortgage Association......... 7.000 01/22/26 202,094
------------
TOTAL U.S. GOVERNMENT AGENCY
(cost $3,772,885).............................. 3,854,172
------------
TOTAL INVESTMENTS -- 95.3%
(cost $9,850,757).............................. 10,176,161
------------
REPURCHASE AGREEMENTS -- 19.4%
1,032,000 Repurchase Agreement dated 12/29/95, with
J.P. Morgan, collateralized by $791,000
U.S. Treasury Bonds, 8.500%, due
02/15/20, valued at $1,053,019; proceeds:
$1,032,659..................................... 5.750 01/02/96 1,032,000
1,032,000 Repurchase Agreement dated 12/29/95, with
Merrill Lynch, collateralized by $1,040,000
U.S. Treasury Notes, 5.625%, due 10/31/97,
valued at $1,056,900; proceeds: $1,032,642..... 5.600 01/02/96 1,032,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $2,064,000).............................. 2,064,000
------------
Liabilities in excess of other
assets -- (14.7%).............................. (1,565,222)
------------
NET ASSETS -- 100.0%............................. $ 10,674,939
------------
------------
</TABLE>
(a) Mortgage Dollar Roll. See Note 1.
** TBA -- To be announced.
See accompanying notes to financial statements.
PAGE 16
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
SALOMON BROTHERS HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS -- 76.9%
BASIC INDUSTRIES -- 19.9%
$ 500,000 Asia Pulp & Paper International Finance.......... 11.750% 10/01/05 $ 490,000
400,000 Crown Paper...................................... 11.000 09/01/05 350,000
250,000 Foamex........................................... 11.875 10/01/04 245,000
500,000 Harris Chemical (Zero Coupon until
01/15/96, 10.25% thereafter)(a)................ 11.109 07/15/01 475,000
250,000 Indah Kiat International Finance................. 12.500 06/15/06 250,000
1,000,000 International Semi-Technology (Zero
Coupon until 08/15/00, 11.50%
thereafter)(a)................................. 13.420 08/15/03 536,250
500,000 Norcal Waste Systems*............................ 12.500 11/15/05 505,000
500,000 Outdoor Systems.................................. 10.750 08/15/03 475,000
500,000 RBX.............................................. 11.250 10/15/05 495,000
250,000 Renco Metals..................................... 12.000 07/15/00 271,250
500,000 Repap Wisconsin.................................. 9.875 05/01/06 472,500
500,000 Specialty Equipment.............................. 11.375 12/01/03 507,500
500,000 Terex............................................ 13.750 05/15/02 433,750
500,000 Valcor........................................... 9.625 11/01/03 460,000
------------
5,966,250
------------
CONSUMER CYCLICALS -- 9.4%
500,000 Cole National.................................... 11.250 10/01/01 501,250
500,000 Flagstar......................................... 10.750 09/15/01 455,000
500,000 Herff Jones...................................... 11.000 08/15/05 533,750
500,000 Hines Horticulture............................... 11.750 10/15/05 518,750
500,000 Revlon Worldwide(a).............................. 13.247 03/15/98 371,250
500,000 Specialty Retailer............................... 11.000 08/15/03 455,000
------------
2,835,000
------------
CONSUMER NON-CYCLICALS -- 25.5%
500,000 American Safety Razor............................ 9.875 08/01/05 508,750
500,000 Bally's Grand.................................... 10.375 12/15/03 510,000
500,000 Berry Plastics................................... 12.250 04/15/04 537,500
500,000 Borg-Warner...................................... 9.125 05/01/03 450,000
500,000 Carr-Gottstein Foods............................. 12.000 11/15/05 505,000
250,000 Dade International............................... 13.000 02/01/05 280,000
500,000 Empress River Casino............................. 10.750 04/01/02 516,250
500,000 Grand Casinos.................................... 10.125 12/01/03 524,375
500,000 Hollywood Casino................................. 12.750 11/01/03 457,500
450,000 Jordan Industries (Zero Coupon until
08/01/98, 11.75% thereafter)(a)................ 14.013 08/01/05 261,000
500,000 Pathmark Stores.................................. 9.625 05/01/03 486,250
500,000 Penn Traffic..................................... 9.625 04/15/05 390,000
500,000 Samsonite........................................ 11.125 07/15/05 480,000
500,000 Selmer........................................... 11.000 05/15/05 492,500
250,000 Specialty Foods.................................. 11.125 10/01/02 242,500
250,000 Telex Communications............................. 12.000 07/15/04 256,875
256,912 Trump Taj Mahal(b)............................... 11.350 11/15/99 247,278
500,000 Williamhouse Regency............................. 13.000 11/15/05 518,750
------------
7,664,528
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 17
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -----------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS HIGH YIELD BOND FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MEDIA -- 15.6%
$ 500,000 Adelphia Communications.......................... 12.500% 05/15/02 $ 490,000
1,000,000 Comcast UK Cable (Zero Coupon until
11/15/00, 11.20% thereafter)(a)................ 11.200 11/15/07 585,000
1,000,000 Diamond Cable (Zero Coupon until
12/15/00, 11.75% thereafter)(a)................ 11.750 12/15/05 587,500
250,000 Katz............................................. 12.750 11/15/02 267,500
1,000,000 Marcus Cable (Zero Coupon until 12/15/00,
14.25% thereafter)(a).......................... 12.867 12/15/05 680,000
500,000 People's Choice TV (Zero Coupon until
06/01/00, 13.125% thereafter)(a)............... 13.125 06/01/04 290,000
500,000 Rogers Cablesystems.............................. 10.000 12/01/07 538,750
500,000 Sinclair Broadcast Group......................... 10.000 09/30/05 510,000
750,000 United International Holdings(a)................. 13.371 11/15/99 465,000
250,000 Wireless One..................................... 13.000 10/15/03 261,250
------------
4,675,000
------------
TELECOMMUNICATIONS & UTILITIES -- 4.3%
500,000 A+ Network....................................... 11.875 11/01/05 505,000
900,000 In Flight Phone, including 900 attached
warrants (Zero Coupon until 05/15/98,
14.00% thereafter)(a).......................... 19.691 05/15/02 297,000
300,000 Winstar Communications (Zero Coupon
until 10/15/00, 14.00% thereafter)(a).......... 14.000 10/15/05 475,500
------------
1,277,500
------------
TRANSPORTATION -- 2.2%
250,000 Petro PSC Properties............................. 12.500 06/01/02 240,000
500,000 Venture Holdings Trust........................... 9.750 04/01/04 417,500
------------
657,500
------------
TOTAL CORPORATE BONDS
(cost $23,018,520)............................. 23,075,778
------------
SOVEREIGN BONDS -- 15.7%
ARGENTINA -- 4.6%
1,750,000 Republic of Argentina FRB*....................... 6.813 03/31/05 1,249,063
250,000 Republic of Argentina, Par Bonds, Series L*...... 5.000 03/31/23 141,875
------------
1,390,938
------------
BRAZIL -- 3.9%
902,027 Republic of Brazil, C Bond(b).................... 8.000 04/15/14 517,537
142,500 Republic of Brazil, IDU Bonds*................... 6.688 01/01/01 122,906
750,000 Republic of Brazil, Series EI*................... 6.813 04/15/06 515,625
------------
1,156,068
------------
BULGARIA -- 1.3%
750,000 Republic of Bulgaria, Discount Bonds,
Series A*...................................... 6.750 07/28/24 399,844
------------
ECUADOR -- 1.5%
1,379,003 Republic of Ecuador, PDI Bonds*(b)............... 6.813 02/27/15 461,966
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 18
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
SALOMON BROTHERS HIGH YIELD BOND FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MEXICO -- 1.1%
$ 500,000 United Mexican States, Par Bonds, Series A,
including 500,000 attached warrants............ 6.250% 12/31/19 $ 328,750
------------
POLAND -- 3.3%
1,250,000 Republic of Poland, PDI Bonds*................... 3.750 10/27/14 814,063
350,000 Republic of Poland, Series RSTA*................. 2.750 10/27/24 174,125
------------
988,188
------------
TOTAL SOVEREIGN BONDS
(cost $4,340,570).............................. 4,725,754
------------
LOAN PARTICIPATION -- 1.1%
500,000 Kingdom of Morocco, Tranche A* (c)
(Chase Manhattan Bank, N.A. and
Morgan Guaranty Trust Company)
(cost $317,724)................................ 6.594 01/01/09 336,250
------------
TOTAL INVESTMENTS -- 93.7%
(cost $27,676,814)............................. 28,137,782
------------
REPURCHASE AGREEMENTS -- 7.9%
1,187,000 Repurchase Agreement dated 12/29/95, with
J.P. Morgan, collateralized by $910,000
U.S. Treasury Bonds, 8.500%, due 02/15/20,
valued at $1,211,438; proceeds: $1,187,758..... 5.750 01/02/96 1,187,000
1,187,000 Repurchase Agreement dated 12/29/95, with
Merrill Lynch, collateralized by $1,195,000
U.S. Treasury Notes, 5.625%, due 10/31/97,
valued at $1,214,419; proceeds: $1,187,739..... 5.600 01/02/96 1,187,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $2,374,000).............................. 2,374,000
------------
Liabilities in excess of other
assets -- (1.6%)............................... (486,048)
------------
NET ASSETS -- 100.0%............................. $ 30,025,734
------------
------------
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
(a) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(b) Payment-in-kind security for which part of the interest earned is paid by
the issuance of additional bonds.
(c) Participation interest was acquired through the financial institutions
indicated parenthetically.
Abbreviations used in this statement:
<TABLE>
<S> <C>
EI -- Eligible Interest.
FRB -- Floating Rate Bond.
IDU -- Interest Due and Unpaid.
PDI -- Past Due Interest.
</TABLE>
See accompanying notes to financial statements.
PAGE 19
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -----------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS STRATEGIC BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS -- 49.1%
BASIC INDUSTRIES -- 9.6%
$ 250,000 Foamex............................................... 11.875% 10/01/04 $ 245,000
250,000 RBX.................................................. 11.250 10/15/05 247,500
250,000 Renco Metals......................................... 12.000 07/15/00 271,250
250,000 Terex................................................ 13.750 05/15/02 216,875
250,000 Valcor............................................... 9.625 11/01/03 230,000
------------
1,210,625
------------
CONSUMER CYCLICALS -- 5.9%
250,000 Cole National........................................ 11.250 10/01/01 250,625
250,000 Hines Horticulture................................... 11.750 10/15/05 259,375
200,000 U.S. Leasing International........................... 8.450 01/25/05 226,250
------------
736,250
------------
CONSUMER NON-CYCLICALS -- 20.5%
250,000 American Safety Razor................................ 9.875 08/01/05 254,375
250,000 Bally's Grand........................................ 10.375 12/15/03 255,000
250,000 Berry Plastics....................................... 12.250 04/15/04 268,750
250,000 Dade International................................... 13.000 02/01/05 280,000
250,000 Hollywood Casino..................................... 12.750 11/01/03 228,750
450,000 Jordan Industries (Zero Coupon until
08/01/98, 11.75% thereafter)(a).................... 14.013 08/01/05 261,000
250,000 Pathmark Stores...................................... 9.625 05/01/03 243,125
250,000 Penn Traffic......................................... 9.625 04/15/05 195,000
100,000 Samsonite............................................ 11.125 07/15/05 96,000
250,000 Selmer............................................... 11.000 05/15/05 246,250
256,912 Trump Taj Mahal(b)................................... 11.350 11/15/99 247,278
------------
2,575,528
------------
MEDIA -- 8.2%
250,000 Adelphia Communications.............................. 12.500 05/15/02 245,000
500,000 Marcus Cable (Zero Coupon until 12/15/00,
14.25% thereafter)(a).............................. 12.813 12/15/05 340,000
500,000 People's Choice TV (Zero Coupon until
06/01/00, 13.125% thereafter)(a)................... 13.125 06/01/04 290,000
250,000 United International Holdings(a)..................... 13.893 11/15/99 155,000
------------
1,030,000
------------
TELECOMMUNICATIONS & UTILITIES -- 4.9%
250,000 A+ Network........................................... 11.875 11/01/05 252,500
400,000 In Flight Phone, including 400 attached
warrants (Zero Coupon until 05/15/98,
14.00% thereafter)(a).............................. 14.000 05/15/02 132,000
150,000 Winstar Communications (Zero Coupon
until 10/15/00, 14.00% thereafter)(a).............. 14.000 10/15/05 237,750
------------
622,250
------------
TOTAL CORPORATE BONDS
(cost $6,138,570).................................. 6,174,653
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 20
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SOVEREIGN BONDS -- 25.9%
ARGENTINA -- 1.1%
$ 250,000 Republic of Argentina, Par Bonds, Series
L*....................................... 5.000% 03/31/23 $ 141,875
------------
BELGIUM -- 0.3%
BEF 1,000,000 Kingdom of Belgium, Series 19.............. 6.500 03/31/05 33,537
------------
BRAZIL -- 5.3%
$ 1,167,329 Republic of Brazil, C Bond(b).............. 8.000 04/15/14 669,755
------------
BULGARIA -- 2.1%
$ 500,000 Republic of Bulgaria, Discount Bonds,
Series A*................................ 6.750 07/28/24 266,563
------------
CANADA -- 0.4%
CAD 39,000 Government of Canada....................... 9.000 12/01/04 32,203
CAD 19,000 Government of Canada....................... 6.250 02/01/98 14,004
------------
46,207
------------
DENMARK -- 0.2%
DKK 50,000 Kingdom of Denmark......................... 7.000 12/15/04 9,486
DKK 90,000 Kingdom of Denmark......................... 9.000 11/15/98 17,639
------------
27,125
------------
ECUADOR -- 2.5%
$ 850,000 Republic of Ecuador, Par Bonds*............ 3.000 02/28/25 308,125
------------
GERMANY -- 3.6%
DEM 300,000 Government of Germany, Series 91........... 8.375 05/21/01 239,185
DEM 120,000 Government of Germany, Series 95........... 7.375 01/03/05 91,018
DEM 160,000 Government of Germany, Series 106.......... 6.000 02/20/98 116,096
------------
446,299
------------
ITALY -- 0.7%
ITL 45,000,000 Government of Italy Treasury............... 9.500 01/01/05 26,521
ITL 105,000,000 Government of Italy Treasury............... 9.500 12/01/97 65,352
------------
91,873
------------
JAPAN -- 0.8%
JPY 10,000,000 Government of Japan, Series 29............. 4.200 09/21/15 103,413
------------
MEXICO -- 2.6%
$ 500,000 United Mexican States, Par Bonds,
Series A, including 500,000 attached
warrants................................. 6.250 12/31/19 328,750
------------
NETHERLANDS -- 0.5%
NLG 45,000 Netherlands Government..................... 7.000 06/15/05 29,472
NLG 60,000 Netherlands Government..................... 6.250 07/15/98 39,136
------------
68,608
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 21
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -----------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
POLAND -- 4.6%
$ 500,000 Republic of Poland, PDI Bonds*............. 3.750% 10/27/14 $ 325,625
$ 500,000 Republic of Poland, Series RSTA*........... 2.750 10/27/24 248,750
------------
574,375
------------
SPAIN -- 0.3%
ESP 590,000 Government of Spain........................ 10.000 02/28/05 4,922
ESP 3,210,000 Government of Spain........................ 11.450 08/30/98 27,734
------------
32,656
------------
UNITED KINGDOM -- 0.9%
GBP 75,000 United Kingdom Treasury.................... 7.000 11/06/01 116,581
------------
TOTAL SOVEREIGN BONDS
(cost $2,784,100)........................ 3,255,742
------------
LOAN PARTICIPATION -- 2.7%
$ 500,000 Kingdom of Morocco, Tranche A*(c)
(Chase Manhattan Bank, N.A. and
Morgan Guaranty Trust Company)
(cost $317,724).......................... 6.594 01/01/09 336,250
------------
U.S. GOVERNMENT & AGENCY -- 14.6%
$ 638,310 Federal Home Loan Mortgage
Corporation.............................. 6.000 09/01/10 631,512
$ 57,397 Federal Home Loan Mortgage
Corporation.............................. 6.000 10/01/10 56,785
$ 1,100,000 Federal National Mortgage
Association(d)........................... 6.500 ** 1,085,906
$ 60,000 U.S. Treasury Note......................... 6.125 05/31/97 60,731
------------
1,834,934
------------
TOTAL U.S. GOVERNMENT & AGENCY
(cost $1,794,702)........................ 1,834,934
------------
TOTAL INVESTMENTS -- 92.3%
(cost $11,035,096)....................... 11,601,579
------------
REPURCHASE AGREEMENTS -- 16.6%
$ 1,042,000 Repurchase Agreement dated
12/29/95, with J.P. Morgan,
collateralized by $799,000
U.S. Treasury Bonds, 8.500%, due
02/15/20, valued at $1,063,669;
proceeds: $1,042,666..................... 5.750 01/02/96 1,042,000
</TABLE>
See accompanying notes to financial statements.
PAGE 22
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
SALOMON BROTHERS STRATEGIC BOND FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,042,000 Repurchase Agreement dated
12/29/95, with Merrill Lynch,
collateralized by $1,050,000
U.S. Treasury Notes, 5.625%, due
10/31/97, valued at $1,067,063;
proceeds: $1,042,648..................... 5.600% 01/02/96 $ 1,042,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $2,084,000)........................ 2,084,000
------------
Liabilities in excess of other
assets -- (8.9%)......................... (1,119,166)
------------
NET ASSETS -- 100.0%....................... $ 12,566,413
------------
------------
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
MATURITY CONTRACTS TO CONTRACTS APPRECIATION
DATES DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PURCHASES
01/22/96 $ 272,728 DEM 389,518 $271,712 $ (1,016)
01/22/96 to 01/24/96 218,035 FRF 1,072,831 218,954 919
01/22/96 106,995 GBP 69,840 108,293 1,298
01/22/96 61,174 ITL 98,716,411 61,911 737
SALES
01/22/96 BEF 952,364 $ 31,452 32,406 (954)
01/22/96 GBP 142,788 222,561 221,404 1,157
01/22/96 CAD 59,932 43,785 43,929 (144)
01/22/96 DKK 145,898 25,492 26,266 (774)
01/22/96 FRF 1,052,926 210,037 214,885 (4,848)
01/22/96 DEM 1,045,092 724,418 729,013 (4,595)
01/22/96 ITL 243,985,473 149,511 153,019 (3,508)
01/22/96 JPY 11,118,743 110,415 107,999 2,416
01/22/96 NLG 110,912 67,897 69,148 (1,251)
01/22/96 ESP 3,840,396 30,008 31,501 (1,493)
--------------
$(12,056)
--------------
--------------
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
** TBA -- To be announced.
(a) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(b) Payment-in-kind security for which part of the interest earned is paid by
the issuance of additional bonds.
(c) Participation interest was acquired through the financial institutions
indicated parenthetically.
(d) Mortgage Dollar Roll. See Note 1.
Abbreviations used in this statement:
<TABLE>
<S> <C>
PDI -- Past Due Interest
BEF -- Belgian Franc
CAD -- Canadian Dollar
DEM -- German Deutschemark
DKK -- Danish Krone
ESP -- Spanish Peseta
FRF -- French Franc
GBP -- British Pound Sterling
ITL -- Italian Lira
JPY -- Japanese Yen
NLG -- Netherlands Guilder
</TABLE>
See accompanying notes to financial statements.
PAGE 23
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -----------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS TOTAL RETURN FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1A)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 43.2%
BASIC INDUSTRIES -- 2.3%
1,600 Dow Chemical.................................................................... $ 112,600
3,000 Dupont (E.I.) de Nemours........................................................ 209,625
------------
322,225
------------
CAPITAL GOODS -- 4.1%
2,800 Boeing.......................................................................... 219,450
6,000 Deere........................................................................... 211,500
2,200 Textron......................................................................... 148,500
------------
579,450
------------
CONSUMER CYCLICALS -- 5.9%
6,000 Ball............................................................................ 165,000
4,000 Eastman Kodak................................................................... 268,000
6,000 Ford Motor...................................................................... 174,000
5,100 May Department Stores........................................................... 215,475
------------
822,475
------------
CONSUMER NON-CYCLICALS -- 1.7%
1,500 Philip Morris Companies......................................................... 135,750
2,000 Tambrands....................................................................... 95,500
------------
231,250
------------
ENERGY -- 10.7%
3,500 Amoco........................................................................... 251,559
3,000 Exxon........................................................................... 240,375
2,000 Mobil........................................................................... 224,000
1,000 Royal Dutch Petroleum, 5 Guilder................................................ 141,125
3,000 Texaco.......................................................................... 235,500
7,000 Ultramar........................................................................ 180,250
5,000 Williams Companies.............................................................. 219,375
------------
1,492,184
------------
FINANCIAL SERVICES -- 5.0%
2,500 American General................................................................ 87,188
3,300 Citicorp........................................................................ 221,925
7,000 Prudential Reinsurance Holdings................................................. 163,625
4,200 UNUM............................................................................ 231,000
------------
703,738
------------
HEALTH CARE -- 2.9%
1,200 American Home Products.......................................................... 116,400
5,200 SmithKline Beecham -- ADR....................................................... 288,600
------------
405,000
------------
REAL ESTATE INVESTMENT TRUSTS -- 2.3%
7,000 Beacon Properties............................................................... 161,000
6,200 Patriot American Hospitality.................................................... 159,650
------------
320,650
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 24
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
SALOMON BROTHERS TOTAL RETURN FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1A)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS & UTILITIES -- 6.4%
5,000 American Electric Power......................................................... $ 202,500
3,000 Ameritech....................................................................... 177,000
4,600 BellSouth....................................................................... 200,100
3,000 Boston Edison................................................................... 88,500
5,000 GTE............................................................................. 220,000
------------
888,100
------------
TRANSPORTATION -- 1.9%
18,000 Canadian National Railway....................................................... 270,000
------------
TOTAL COMMON STOCKS
(cost $5,687,214)............................................................. 6,035,072
------------
CONVERTIBLE PREFERRED STOCKS -- 4.6%
CAPITAL GOODS -- 1.1%
3,000 Browning-Ferris 7.25%, 6/30/98.................................................. 94,125
4,000 Coopers Industries 6.00%, 01/01/99.............................................. 55,000
------------
149,125
------------
CONSUMER CYCLICALS -- 0.2%
2,500 MascoTech, $1.20, 07/01/97...................................................... 31,250
------------
CONSUMER NON-CYCLICALS -- 0.3%
1,500 James River 9.00%, 07/01/98..................................................... 35,063
------------
ENERGY -- 1.9%
1,000 Ashland, $3.125, 12/31/49....................................................... 58,875
1,000 Diamond Shamrock 5.00%, 12/31/49................................................ 55,375
1,000 Tejas Gas 5.25%, 12/31/49....................................................... 47,500
2,000 Unocal 7.00%, 12/31/49.......................................................... 107,250
------------
269,000
------------
MEDIA -- 0.4%
2,500 Times Mirror, Class A........................................................... 64,531
------------
TECHNOLOGY -- 0.7%
2,000 Elsag Bailey 5.50%, 12/31/49.................................................... 100,250
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(cost $651,064)............................................................... 649,219
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 25
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -----------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS TOTAL RETURN FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS -- 19.3%
BASIC INDUSTRIES -- 3.6%
$ 100,000 Acetex......................................... 9.750% 10/01/03 $ 104,500
100,000 Crown Paper.................................... 11.000 09/01/05 87,500
200,000 International Semi-Technology (Zero coupon
until 08/15/00, 11.50% thereafter)(a)........ 13.420 08/15/03 107,250
100,000 RBX............................................ 11.250 10/15/05 99,000
100,000 Silgan Holdings................................ 11.750 06/15/02 107,000
------------
505,250
------------
CONSUMER CYCLICALS -- 2.2%
100,000 Cole National.................................. 11.250 10/01/01 100,250
100,000 Grand Casinos.................................. 10.125 12/01/03 104,875
100,000 Herff Jones.................................... 11.000 08/15/05 106,750
------------
311,875
------------
CONSUMER NON-CYCLICALS -- 5.7%
100,000 American Safety Razor.......................... 9.875 08/01/05 101,750
100,000 Bally's Grand.................................. 10.375 12/15/03 102,000
100,000 Berry Plastics................................. 12.250 04/15/04 107,500
100,000 Carr-Gottstein Foods........................... 12.000 11/15/05 101,000
100,000 Jordan Industries.............................. 10.375 08/01/03 89,000
100,000 Pathmark Stores................................ 9.625 05/01/03 97,250
100,000 Samsonite...................................... 11.125 07/15/05 96,000
100,000 Selmer......................................... 11.000 05/15/05 98,500
------------
793,000
------------
ENERGY -- 0.7%
100,000 Public Service Electric & Gas.................. 6.500 05/01/04 100,598
------------
FINANCIAL SERVICES -- 3.8%
50,000 Commercial Credit.............................. 6.875 05/01/02 52,281
100,000 Ford Motor Credit.............................. 8.200 02/15/02 110,758
150,000 Household Finance.............................. 6.750 06/01/00 155,096
100,000 Standard Credit Card Master Trust.............. 6.750 06/07/00 102,718
100,000 USL Capital.................................... 8.125 02/15/00 107,878
------------
528,731
------------
MEDIA -- 3.3%
200,000 Diamond Cable (Zero coupon until 12/15/00,
11.750% thereafter)(a)....................... 11.750 12/15/05 117,500
200,000 Marcus Cable (Zero coupon until 12/15/00,
14.25% thereafter)(a)........................ 12.921 12/15/05 136,000
100,000 Rogers Cablesystems............................ 10.000 12/01/07 107,750
150,000 United International Holdings(a)............... 13.187 11/15/99 93,000
------------
454,250
------------
TOTAL CORPORATE BONDS
(cost $2,642,343)............................ 2,693,704
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 26
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
SALOMON BROTHERS TOTAL RETURN FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONVERTIBLE CORPORATE BONDS -- 7.0%
BASIC INDUSTRIES -- 3.5%
$ 50,000 Albany International........................... 5.250% 03/15/02 $ 44,500
50,000 Allegheny Ludlum............................... 5.875 03/15/02 51,500
150,000 Exide.......................................... 2.900 12/15/05 108,750
75,000 Magna International............................ 5.000 10/15/02 76,500
150,000 Roche Holdings(a).............................. 6.218 04/20/10 66,375
100,000 RPM(a)......................................... 5.110 09/30/12 42,875
100,000 Unifi.......................................... 6.000 03/15/02 100,500
------------
491,000
------------
CONSUMER CYCLICALS -- 1.9%
125,000 Federated Department Stores.................... 5.000 10/01/03 124,688
50,000 MascoTech...................................... 4.500 12/15/03 39,000
125,000 Proffitt's..................................... 4.750 11/01/03 106,250
------------
269,938
------------
ENERGY -- 0.4%
50,000 Pennzoil....................................... 4.750 10/01/03 50,625
------------
FINANCIAL SERVICES -- 1.2%
100,000 Liberty Property Trust......................... 8.000 07/01/01 102,750
50,000 Trenwick Group................................. 6.000 12/15/99 57,750
------------
160,500
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(cost $962,876).............................. 972,063
------------
U.S. GOVERNMENT & AGENCY -- 15.3%
48,636 Federal National Mortgage Association.......... 6.500 10/01/10 48,894
119,850 Federal National Mortgage Association.......... 7.500 08/01/23 122,860
97,811 Federal National Mortgage Association.......... 7.000 09/01/25 98,637
98,000 Federal National Mortgage Association.......... 6.500 12/01/25 96,959
350,000 U.S. Treasury Note............................. 7.750 01/31/00 380,188
450,000 U.S. Treasury Note............................. 5.750 10/31/00 456,467
650,000 U.S. Treasury Note............................. 7.875 11/15/04 752,375
150,000 U.S. Treasury Bond............................. 7.625 02/15/25 183,422
------------
TOTAL U.S. GOVERNMENT & AGENCY
(cost $2,096,216)............................ 2,139,802
------------
TOTAL INVESTMENTS -- 89.4%
(cost $12,039,713)........................... 12,489,860
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 27
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -----------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS TOTAL RETURN FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1A)
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 20.1%
$ 1,405,000 Repurchase Agreement dated 12/29/95, with
J.P. Morgan, collateralized by $1,077,000
U.S. Treasury Bonds, 8.500%, due
02/15/20, valued at $1,433,756; proceeds:
$1,405,898................................... 5.750% 01/02/96 $ 1,405,000
1,405,000 Repurchase Agreement dated 12/29/95, with
Merrill Lynch, collateralized by $1,415,000
U.S. Treasury Notes, 5.625%, due 10/31/97,
valued at $1,437,994; proceeds: $1,405,874... 5.600 01/02/96 1,405,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $2,810,000)............................ 2,810,000
------------
Liabilities in excess of other
assets -- (9.5%)............................. (1,325,621)
------------
NET ASSETS -- 100.0%........................... $ 13,974,239
------------
------------
</TABLE>
(a) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
Abbreviations used in this statement:
ADR -- American Depository Receipt.
See accompanying notes to financial statements.
PAGE 28
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
SALOMON BROTHERS INVESTORS FUND INC
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1A)
- ------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 88.3%
BASIC INDUSTRIES -- 7.9%
104,000 Dupont (E.I.) de Nemours.................................................. $ 7,267,000
117,400 Hanna (M.A.).............................................................. 3,287,200
125,000 Hercules.................................................................. 7,046,875
141,500 OM Group.................................................................. 4,687,188
345,000 Praxair................................................................... 11,600,625
------------
33,888,888
------------
CAPITAL GOODS -- 12.6%
150,000 AlliedSignal.............................................................. 7,125,000
220,000 Browning-Ferris Industries................................................ 6,490,000
35,000 Champion Enterprises...................................................... 1,080,625
280,500 Deere..................................................................... 9,887,625
107,500 General Electric.......................................................... 7,740,000
242,000 Raytheon.................................................................. 11,434,500
300,500 Tyco International........................................................ 10,705,313
------------
54,463,063
------------
CONSUMER CYCLICALS -- 11.4%
150,000 Ball...................................................................... 4,125,000
10,000 Centex.................................................................... 347,500
37,000 Chrysler.................................................................. 2,048,875
100,000 Eastman Kodak............................................................. 6,700,000
235,000 Federated Department Stores*.............................................. 6,462,500
150,000 Ford Motor................................................................ 4,350,000
320,000 Host Marriott*............................................................ 4,240,000
25,000 Lennar.................................................................... 628,125
137,500 MascoTech................................................................. 1,495,313
212,500 Sears, Roebuck............................................................ 8,287,500
157,300 Sherwin-Williams.......................................................... 6,409,975
229,000 U.S. Industries*.......................................................... 4,207,875
------------
49,302,663
------------
CONSUMER NON-CYCLICALS -- 11.7%
195,000 ConAgra................................................................... 8,043,750
60,000 Estee Lauder Companies, Class A........................................... 2,092,500
147,300 Hormel Foods.............................................................. 3,627,263
60,000 Kimberly-Clark............................................................ 4,965,000
206,200 Kroger*................................................................... 7,732,500
99,000 Penn Traffic*............................................................. 1,485,000
85,000 Philip Morris Companies................................................... 7,692,500
488,800 Stop & Shop Companies*.................................................... 11,303,500
100,000 Sysco..................................................................... 3,250,000
------------
50,192,013
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 29
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -----------------------------------------------------------
Portfolio of Investments
December 31, 1995
SALOMON BROTHERS INVESTORS FUND INC (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1A)
- ------------------------------------------------------------------------------------------------------
<C> <S> <C>
ENERGY -- 14.0%
113,500 Amoco..................................................................... $ 8,157,813
85,000 Chevron................................................................... 4,462,500
105,000 Mobil..................................................................... 11,760,000
93,000 Royal Dutch Petroleum, 5 Guilder.......................................... 13,124,625
73,000 Texaco.................................................................... 5,730,500
130,117 TOTAL -- ADR.............................................................. 4,423,978
51,600 Union Pacific Resources Group............................................. 1,309,350
75,000 Union Texas Petroleum Holdings............................................ 1,453,125
230,000 Williams Companies........................................................ 10,091,250
------------
60,513,141
------------
FINANCIAL SERVICES -- 13.5%
147,500 American Express.......................................................... 6,102,813
47,000 Amerin*................................................................... 1,257,250
207,200 Bank of New York.......................................................... 10,101,000
37,500 BayBanks.................................................................. 3,684,375
73,500 Federal Home Loan Mortgage Corporation.................................... 6,137,250
27,500 Federal National Mortgage Association..................................... 3,413,438
60,000 MGIC Investment........................................................... 3,255,000
163,500 Prudential Reinsurance Holdings........................................... 3,821,808
103,400 St. Paul Companies........................................................ 5,751,625
120,000 SunAmerica................................................................ 5,700,000
138,843 Travelers Group........................................................... 8,729,763
------------
57,954,322
------------
HEALTH CARE -- 6.7%
230,000 Columbia/HCA Healthcare................................................... 11,672,500
225,000 SmithKline Beecham -- ADR................................................. 12,487,500
100,000 U.S. HealthCare........................................................... 4,650,000
------------
28,810,000
------------
REAL ESTATE INVESTMENT TRUSTS -- 1.8%
75,000 Beacon Properties......................................................... 1,725,000
40,000 Crescent Real Estate Equities............................................. 1,365,000
75,000 Highwoods Properties...................................................... 2,118,750
96,500 Patriot American Hospitality.............................................. 2,484,875
------------
7,693,625
------------
TECHNOLOGY -- 3.7%
30,500 DST Systems*.............................................................. 869,250
179,500 First Data................................................................ 12,004,063
30,000 National Data............................................................. 742,500
60,000 Plantronics*.............................................................. 2,167,500
------------
15,783,313
------------
TELECOMMUNICATIONS & UTILITIES -- 1.2%
190,000 AirTouch Communications*.................................................. 5,367,500
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 30
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
SALOMON BROTHERS INVESTORS FUND INC (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1A)
- ------------------------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- 3.8%
188,000 Canadian National Railway................................................. $ 2,820,000
52,000 Norfolk Southern.......................................................... 4,127,500
200,000 Pittston Services Group................................................... 6,275,000
45,000 Union Pacific............................................................. 2,970,000
------------
16,192,500
------------
TOTAL COMMON STOCKS (cost $281,370,713)................................... 380,161,028
------------
CONVERTIBLE PREFERRED STOCKS -- 1.8%
CONSUMER CYCLICALS -- 0.2%
75,000 MascoTech, $1.20, 07/01/97................................................ 937,500
------------
FINANCIAL SERVICES -- 0.2%
20,000 Merrill Lynch 6.50%....................................................... 1,037,500
------------
TECHNOLOGY -- 1.4%
62,500 Ceridian 5.50%............................................................ 5,781,250
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $5,317,287)...................... 7,756,250
------------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<C> <S> <C>
CONVERTIBLE BONDS -- 1.2%
BASIC INDUSTRIES -- 0.2%
$ 1,000,000 Unifi, 6.00%, due 03/15/02................................................ 983,750
------------
CONSUMER CYCLICALS -- 1.0%
2,000,000 Federated Department Stores, 5.00%, due 10/01/03.......................... 2,022,500
2,000,000 Time Warner, 8.75%, due 01/10/15.......................................... 2,072,500
------------
4,095,000
------------
TOTAL CONVERTIBLE BONDS (cost $5,091,250)................................. 5,078,750
------------
U.S. TREASURY OBLIGATION -- 1.0%
4,295,000 U.S. Treasury Bill, 6.81%, 01/11/96 (cost $4,286,875)..................... 4,288,257
------------
TOTAL INVESTMENTS -- 92.3% (cost $296,066,125)............................ 397,284,285
------------
REPURCHASE AGREEMENTS -- 8.5%
18,268,000 Repurchase Agreement, 5.750% due 01/02/96, dated 12/29/95, J.P. Morgan,
collateralized by $14,687,000 U.S. Treasury Bonds, 8.125%, due 05/15/21
valued at $18,634,131; proceeds: $18,279,671............................ 18,268,000
18,267,000 Repurchase Agreement, 5.600% due 01/02/96, dated 12/29/95, Merrill Lynch,
collateralized by $18,335,000 U.S. Treasury Bonds, 5.625%, due 10/31/97,
valued at $18,632,944; proceeds: $18,278,366............................ 18,267,000
------------
TOTAL REPURCHASE AGREEMENTS (cost $36,535,000)............................ 36,535,000
------------
Liabilities in excess of other assets -- (0.8%)........................... (3,405,679)
------------
NET ASSETS -- 100.0%...................................................... $430,413,606
------------
------------
</TABLE>
* Non-income producing security.
Abbreviations used in this statement:
ADR -- American Depository Receipt.
See accompanying notes to financial statements.
PAGE 31
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
December 31, 1995
<TABLE>
<CAPTION>
CASH NEW YORK
MANAGEMENT MUNICIPAL
FUND BOND FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Note A)................................. $9,699,491 $3,536,175
Repurchase agreements, at value and cost....................... 1,036,551 --
Cash........................................................... 5,048 35,613
Receivable for securities sold................................. -- --
Receivable for fund shares sold................................ 19,469 130,016
Interest and dividends receivable.............................. 37,309 56,833
Receivable from investment advisor............................. 75,716 63,088
Deferred organization expense.................................. -- 27,895
Other assets................................................... 10,582 --
----------- ----------
Total assets................................................... 10,884,166 3,849,620
----------- ----------
LIABILITIES:
Payable for:
Securities purchased......................................... -- --
Fund shares redeemed......................................... -- --
Dividends and distributions declared......................... 16,946 4,509
Affiliate transactions:
Management fees............................................ -- --
Service and distribution fees.............................. -- 736
Net unrealized depreciation of forward foreign currency
contracts.................................................... -- --
Accrued expenses and other liabilities......................... 6,416 10,424
----------- ----------
Total Liabilities.............................................. 23,362 15,669
----------- ----------
NET ASSETS..................................................... $10,860,804 $3,833,951
----------- ----------
----------- ----------
NET ASSETS CONSIST OF:
Paid-in capital................................................ $10,862,918 $4,303,977
Undistributed net investment income or (distributions in excess
of net investment income).................................... 3,359
Accumulated net realized gain (loss) on investments, options
and foreign currency transactions or (distributions in excess of
net realized gains).......................................... (2,114 ) (623,945 )
Net unrealized appreciation on investments, foreign currency
transactions and other assets................................ -- 150,560
----------- ----------
NET ASSETS..................................................... $10,860,804 $3,833,951
----------- ----------
----------- ----------
Class A........................................................ $1,755,547 $ 545,852
----------- ----------
----------- ----------
Class B........................................................ $2,238,486 $ 528,143
----------- ----------
----------- ----------
Class C........................................................ $ 182,541 $ 265,612
----------- ----------
----------- ----------
Class O........................................................ $6,684,230 $2,494,344
----------- ----------
----------- ----------
<PAGE>
SHARES OUTSTANDING:
Class A........................................................ 1,755,547 53,980
----------- ----------
----------- ----------
Class B........................................................ 2,238,486 52,234
----------- ----------
----------- ----------
Class C........................................................ 182,541 26,267
----------- ----------
----------- ----------
Class O........................................................ 6,686,344 246,653
----------- ----------
----------- ----------
NET ASSET VALUE:
CLASS A SHARES
Net asset value and redemption price per share................. $ 1.00 $ 10.11
----------- ----------
----------- ----------
Maximum offering price per share (based on maximum sales charge
of 4.75%, except Cash Management Fund)....................... $ 1.00 $ 10.61
----------- ----------
----------- ----------
CLASS B SHARES
Net asset value and offering price per share *................. $ 1.00 $ 10.11
----------- ----------
----------- ----------
CLASS C SHARES
Net asset value and offering price per share *................. $ 1.00 $ 10.11
----------- ----------
----------- ----------
CLASS O SHARES
Net asset value, offering price and redemption price per
share........................................................ $ 1.00 $ 10.11
----------- ----------
----------- ----------
Note A: Cost of investments.................................... $9,699,491 $3,385,615
----------- ----------
----------- ----------
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See accompanying notes to financial statements.
PAGE 32
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
NATIONAL U.S.
INTERMEDIATE GOVERNMENT HIGH YIELD STRATEGIC TOTAL INVESTORS
MUNICIPAL FUND INCOME FUND BOND FUND BOND FUND RETURN FUND FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 10,499,595 $10,176,161 $28,137,782 $11,601,579 $12,489,860 $397,284,285
-- 2,064,000 2,374,000 2,084,000 2,810,000 36,535,000
136,414 162 552 461 784 467
72,129 -- -- -- -- 4,984,053
-- -- 464,168 19,033 117,005 3,207
181,612 137,503 577,083 219,734 105,572 713,554
35,803 39,324 -- 11,822 4,346 --
101,185 104,594 126,477 126,910 89,854 --
10,608 10,608 15,358 10,608 7,182 31
-------------- ----------- ----------- ----------- ----------- ------------
11,037,346 12,532,352 31,695,420 14,074,147 15,624,603 439,520,597
-------------- ----------- ----------- ----------- ----------- ------------
-- 1,680,094 1,266,635 1,084,417 1,562,019 304,968
-- -- 858 -- 901 22,011
71,326 157,141 335,268 385,850 77,289 8,243,742
-- -- 29,150 -- -- 477,789
712 730 10,793 1,891 5,055 947
-- -- -- 12,056 -- --
18,268 19,448 26,982 23,520 5,100 57,534
-------------- ----------- ----------- ----------- ----------- ------------
90,306 1,857,413 1,669,686 1,507,734 1,650,364 9,106,991
-------------- ----------- ----------- ----------- ----------- ------------
$ 10,947,040 $10,674,939 $30,025,734 $12,566,413 $13,974,239 $430,413,606
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
$ 10,509,907 $10,354,517 $29,486,368 $12,033,429 $13,514,968 $314,330,433
3,929 -- 28,464 (29,376 ) -- --
9,324 (4,982 ) 62,774 12,072 9,124 14,865,013
423,880 325,404 448,128 550,288 450,147 101,218,160
-------------- ----------- ----------- ----------- ----------- ------------
$ 10,947,040 $10,674,939 $30,025,734 $12,566,413 $13,974,239 $430,413,606
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
$ 569,222 $ 277,961 $10,789,155 $ 512,897 $3,658,044 $ 441,420
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
$ 431,688 $ 572,178 $10,108,061 $1,879,195 $5,378,037 $ 715,646
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
$ 270,683 $ 273,265 $1,274,433 $ 411,135 $ 444,641 $ 306,499
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
$ 9,675,447 $9,551,535 $7,854,085 $9,763,186 $4,493,517 $428,950,041
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
54,591 26,945 1,024,197 48,705 346,685 26,563
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
41,423 55,470 960,116 178,426 510,399 43,089
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
25,972 26,488 121,069 39,045 42,109 18,455
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
928,011 925,812 745,520 927,028 425,125 25,828,464
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
$ 10.43 $ 10.32 $ 10.53 $ 10.53 $ 10.55 $ 16.62
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
$ 10.95 $ 10.83 $ 11.06 $ 11.06 $ 11.08 $ 17.45
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
$ 10.42 $ 10.32 $ 10.53 $ 10.53 $ 10.54 $ 16.61
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
$ 10.42 $ 10.32 $ 10.53 $ 10.53 $ 10.56 $ 16.61
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
$ 10.43 $ 10.32 $ 10.54 $ 10.53 $ 10.57 $ 16.61
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
$ 10,075,715 $9,850,757 $27,676,814 $11,035,096 $12,039,713 $296,066,125
-------------- ----------- ----------- ----------- ----------- ------------
-------------- ----------- ----------- ----------- ----------- ------------
</TABLE>
See accompanying notes to financial statements.
PAGE 33
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- --------------------------------------------------------------
Statements of Operations
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
CASH NEW YORK
MANAGEMENT MUNICIPAL
FUND BOND FUND
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME (Note A):
Interest...................................................... $ 765,757 $227,209
Dividends..................................................... -- --
---------- ---------
765,757 227,209
EXPENSES:
Management fee................................................ 25,505 19,069
Registration and filing fees.................................. 40,284 7,001
Custody and administration fees............................... 30,009 9,059
Legal......................................................... 26,692 24,399
Printing and postage.......................................... 15,750 14,702
Shareholder services.......................................... 10,700 3,101
Amortization of organization expenses......................... 9,071 14,001
Audit and tax return preparation fees......................... 9,000 7,201
Directors' fees and expenses.................................. 1,618 1,551
Other......................................................... 2,740 2,900
---------- ---------
171,369 102,984
Management fee waived and expenses absorbed by investment
advisor..................................................... (101,221) (82,157)
Credits earned from custodian on cash balances................ (9) (1,758)
---------- ---------
70,139 19,069
Distribution and service fees:
Class A Shares................................................ -- 577
Class B Shares................................................ -- 3,044
Class C Shares................................................ -- 2,153
---------- ---------
Net expenses.................................................. 70,139 24,843
---------- ---------
Net investment income......................................... 695,618 202,366
---------- ---------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments and options..................................... -- (65,526)
Foreign currency transactions............................... -- --
---------- ---------
Net realized gain (loss).................................. -- (65,526)
---------- ---------
Net change in unrealized appreciation (depreciation) on:
Investments and options..................................... -- 481,771
Foreign currency transactions and other assets.............. -- --
---------- ---------
Net unrealized appreciation during the period............. -- 481,771
---------- ---------
NET REALIZED AND UNREALIZED GAIN.............................. -- 416,245
---------- ---------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................... $ 695,618 $618,611
---------- ---------
---------- ---------
Note A: Net of foreign withholding tax of:.................... -- --
</TABLE>
* Fund's commencement of investment operations was February 22, 1995.
** Fund's commencement of investment operations was September 11, 1995.
See accompanying notes to financial statements.
PAGE 34
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
NATIONAL U.S.
INTERMEDIATE GOVERNMENT HIGH YIELD STRATEGIC TOTAL INVESTORS
MUNICIPAL FUND* INCOME FUND* BOND FUND* BOND FUND* RETURN FUND** FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 481,522 $ 576,679 $ 1,684,232 $ 1,016,101 $ 116,200 $ 2,303,702
-- -- -- -- 39,659 6,950,103
-------------------- ----------------- --------------- --------------- ------------------ ------------
481,522 576,679 1,684,232 1,016,101 155,859 9,253,805
44,953 53,073 108,535 71,026 15,069 1,614,897
6,000 6,000 6,000 6,000 -- 67,860
15,181 21,781 29,162 27,129 4,315 68,894
8,000 8,000 10,000 10,000 1,000 159,055
5,000 4,000 7,000 5,000 1,000 250,950
21,200 21,281 23,800 21,500 1,000 344,650
20,904 21,606 26,114 26,205 5,868 --
5,000 5,000 7,500 5,000 3,000 74,855
2,250 2,250 2,275 2,250 1,375 69,450
2,500 2,500 3,000 2,700 500 60,000
-------------------- ----------------- --------------- --------------- ------------------ ------------
130,988 145,491 223,386 176,810 33,127 2,710,611
(80,756) (92,397) (79,385) (82,848) (19,415) --
(5,279) (21) (735) (208) (13) (529)
-------------------- ----------------- --------------- --------------- ------------------ ------------
44,953 53,073 143,266 93,754 13,699 2,710,082
948 561 10,394 794 1,287 725
2,914 3,304 22,829 6,487 7,696 3,443
2,193 2,231 4,457 2,672 1,086 2,402
-------------------- ----------------- --------------- --------------- ------------------ ------------
51,008 59,169 180,946 103,707 23,768 2,716,652
-------------------- ----------------- --------------- --------------- ------------------ ------------
430,514 517,510 1,503,286 912,394 132,091 6,537,153
-------------------- ----------------- --------------- --------------- ------------------ ------------
39,589 110,378 472,003 217,956 24,049 49,873,105
-- -- -- 60,525 -- 63
-------------------- ----------------- --------------- --------------- ------------------ ------------
39,589 110,378 472,003 278,481 24,049 49,873,168
-------------------- ----------------- --------------- --------------- ------------------ ------------
423,880 325,404 460,968 566,483 450,147 62,151,251
-- -- (12,840) (16,195) -- --
-------------------- ----------------- --------------- --------------- ------------------ ------------
423,880 325,404 448,128 550,288 450,147 62,151,251
-------------------- ----------------- --------------- --------------- ------------------ ------------
463,469 435,782 920,131 828,769 474,196 112,024,419
-------------------- ----------------- --------------- --------------- ------------------ ------------
$ 893,983 $ 953,292 $ 2,423,417 $ 1,741,163 $ 606,287 $118,561,572
-------------------- ----------------- --------------- --------------- ------------------ ------------
-------------------- ----------------- --------------- --------------- ------------------ ------------
-- -- -- $ 589 $ 282 $ 91,274
--------------- ------------------ ------------
--------------- ------------------ ------------
</TABLE>
See accompanying notes to financial statements.
PAGE 35
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
CASH NEW YORK
MANAGEMENT MUNICIPAL
FUND BOND FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income......................................... $ 695,618 $ 202,366
Net realized gain (loss) on investments, options, and foreign
currency transactions....................................... -- (65,526)
Net change in unrealized appreciation (depreciation) on
investments, options, foreign currency transactions and
other assets................................................ -- 481,771
------------ -----------
Net increase in net assets from operations.................... 695,618 618,611
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income:
Class A..................................................... (40,161 ) (11,538)
Class B..................................................... (26,516 ) (12,739)
Class C..................................................... (2,693 ) (9,206)
Class O..................................................... (626,248 ) (165,524)
------------ -----------
(695,618 ) (199,007)
------------ -----------
Distributions from net realized gains:
Class A..................................................... -- --
Class B..................................................... -- --
Class C..................................................... -- --
Class O..................................................... -- --
------------ -----------
-- --
------------ -----------
Distributions in excess of net realized gains:
Class A..................................................... -- --
Class B..................................................... -- --
Class C..................................................... -- --
Class O..................................................... -- --
------------ -----------
-- --
------------ -----------
NET FUND CAPITAL SHARE TRANSACTIONS:
Class A..................................................... 1,755,547 528,982
Class B..................................................... 2,238,486 504,427
Class C..................................................... 182,541 250,059
Class O..................................................... (12,442,586 ) (1,202,551)
------------ -----------
Net increase (decrease) in net assets derived from share
transactions........................................... (8,266,012 ) 80,917
------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS........................... (8,266,012 ) 500,521
NET ASSETS:
Beginning of period........................................... 19,126,816 3,333,430
------------ -----------
End of period (a)............................................. $10,860,804 $ 3,833,951
------------ -----------
------------ -----------
(a) Including undistributed net investment income or
distributions in excess of net investment income of: -- $ 3,359
-----------
-----------
</TABLE>
* Fund's commencement of investment operations was February 22, 1995.
** Fund's commencement of investment operations was September 11, 1995.
See accompanying notes to financial statements.
PAGE 36
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
NATIONAL U.S.
INTERMEDIATE GOVERNMENT HIGH YIELD STRATEGIC TOTAL INVESTORS
MUNICIPAL FUND* INCOME FUND* BOND FUND* BOND FUND* RETURN FUND** FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 430,514 $ 517,510 $1,503,286 $ 912,394 $ 132,091 $ 6,537,153
39,589 110,378 472,003 278,481 24,049 49,873,168
423,880 325,404 448,128 550,288 450,147 62,151,251
--------------- ------------ ----------- ----------- ------------- ------------
893,983 953,292 2,423,417 1,741,163 606,287 118,561,572
--------------- ------------ ----------- ----------- ------------- ------------
(17,376) (12,734) (428,959) (30,591) (35,724) (4,087)
(11,207) (16,038) (212,975) (59,198) (47,121) (2,179)
(8,442) (10,967) (42,228) (23,725) (3,465) (1,577)
(389,560) (477,771) (790,660) (804,713) (45,781) (6,529,373)
--------------- ------------ ----------- ----------- ------------- ------------
(426,585) (517,510) (1,474,822) (918,227) (132,091) (6,537,216)
--------------- ------------ ----------- ----------- ------------- ------------
(1,569) (2,801) (146,101) (11,724) (3,900) (37,569)
(1,193) (4,374) (137,393) (42,853) (5,711) (61,264)
(749) (2,795) (17,451) (9,338) (469) (26,879)
(26,754) (100,408) (108,284) (226,037) (4,845) (36,419,464)
--------------- ------------ ----------- ----------- ------------- ------------
(30,265) (110,378) (409,229) (289,952) (14,925) (36,545,176)
--------------- ------------ ----------- ----------- ------------- ------------
-- (216) -- -- -- --
-- (1,765) -- -- -- --
-- (174) -- -- -- --
-- (2,827) -- -- -- --
--------------- ------------ ----------- ----------- ------------- ------------
-- (4,982) -- -- -- --
--------------- ------------ ----------- ----------- ------------- ------------
551,191 269,838 10,746,292 498,371 3,580,176 396,175
417,842 561,475 10,103,804 1,866,229 5,255,708 675,659
260,067 265,054 1,264,713 397,920 424,084 264,858
9,280,727 9,258,070 7,371,479 9,270,829 4,250,000 5,383,498
--------------- ------------ ----------- ----------- ------------- ------------
10,509,827 10,354,437 29,486,288 12,033,349 13,509,968 6,720,190
--------------- ------------ ----------- ----------- ------------- ------------
10,946,960 10,674,859 30,025,654 12,566,333 13,969,239 82,199,370
80 80 80 80 5,000 348,214,236
--------------- ------------ ----------- ----------- ------------- ------------
$10,947,040 $10,674,939 $30,025,734 $12,566,413 $13,974,239 $430,413,606
--------------- ------------ ----------- ----------- ------------- ------------
--------------- ------------ ----------- ----------- ------------- ------------
$ 3,929 -- $ 28,464 $ (29,376) -- --
--------------- ----------- -----------
--------------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
PAGE 37
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- -------------------------------------------------------------
Statements of Cash Flows
For the period ended December 31, 1995*
U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Purchases of short-term portfolio investments, net.................................... $ (2,064,000)
Purchases of long-term portfolio investments.......................................... (25,786,224)
Proceeds from disposition of long-term portfolio investments and principal paydowns... 17,724,056
------------
(10,126,168)
Net investment income................................................................. 517,510
Net amortization of premium/discount on investments................................... 1,883
Amortization of organization expenses................................................. 21,606
Net change in receivables/payables related to operations.............................. (293,456)
------------
Net cash flows used by operating activities......................................... (9,878,625)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares sold............................................................. 10,348,090
Payments on shares redeemed........................................................... (9,286)
Cash dividends paid................................................................... (460,097)
------------
Net cash flows provided by financing activities..................................... 9,878,707
------------
Net increase in cash.................................................................... 82
Cash at beginning of period............................................................. 80
------------
Cash at end of period................................................................... $ 162
------------
------------
</TABLE>
* Fund's commencement of investment operations was February 22, 1995.
Note: Other non-cash activity includes mortgage dollar roll transactions. See
Note 1.
See accompanying notes to financial statements.
PAGE 40
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- ----------------------------------------------------------------------
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Salomon Brothers Investment Series (the 'Investment Series') consists of
certain portfolios of the Salomon Brothers Series Funds Inc (the 'Series
Funds'), as indicated below, and the Salomon Brothers Investors Fund Inc (the
'Investors Fund'). The Series Funds were incorporated in Maryland on April 17,
1990 as an open-end management investment company, and currently operates as a
series company comprised of nine portfolios: Salomon Brothers Cash Management
Fund (the 'Cash Management Fund'), Salomon Brothers New York Municipal Money
Market Fund, (the 'New York Municipal Money Fund'), Salomon Brothers U.S.
Treasury Securities Money Market Fund (the 'U.S. Treasury Fund'), Salomon
Brothers New York Municipal Bond Fund (the 'New York Municipal Bond Fund'),
Salomon Brothers National Intermediate Municipal Fund (the 'National
Intermediate Municipal Fund'), Salomon Brothers U.S. Government Income Fund (the
'U.S. Government Income Fund'), Salomon Brothers High Yield Bond Fund (the 'High
Yield Bond Fund'), Salomon Brothers Strategic Bond Fund (the 'Strategic Bond
Fund'), and Salomon Brothers Total Return Fund (the 'Total Return Fund').
Separate financial statements are prepared for the New York Municipal Money Fund
and U.S. Treasury Fund which are not part of the Investment Series. All of the
other portfolios of the Series Funds are included in the Investment Series,
which also includes the Investors Fund, a diversified open-end management
investment company incorporated in Maryland on April 2, 1958. The Investment
Series operates under a multiple class pricing structure, with each portfolio of
the Investment Series (individually, a 'Fund') offering Class A, Class B, Class
C, and Class O shares, each with their own expense structure. Each fund has a
specific investment objective: the Cash Management Fund's objective is to seek
as high a level of current income as is consistent with liquidity and the
stability of principal; the New York Municipal Bond Fund's objective is to
achieve a high level of current income which is exempt from regular federal
income taxes and New York State and New York City personal income taxes,
consistent with the preservation of capital; the National Intermediate Municipal
Fund's objective is to achieve a high level of current income which is exempt
from regular federal income taxes; the U.S. Government Income Fund's objective
is to obtain a high level of current income; the High Yield Bond Fund's
objective is to maximize current income; the Strategic Bond Fund's objective is
to seek a high level of current income; the Total Return Fund's objective is to
obtain above-average income (compared to a portfolio entirely invested in equity
securities); the Investors Fund's objective is to seek long-term growth of
capital.
Certain costs incurred in connection with each Fund's organization, which were
payable to Salomon Brothers Asset Management Inc ('SBAM') have been deferred and
are being amortized by the Funds over a 60 month period from the date each Fund
PAGE 41
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- ----------------------------------------------------------------------
Notes to Financial Statements
commenced investment operations. A summary of those expenditures that remain as
of December 31, 1995 for each Fund is as follows:
<TABLE>
<CAPTION>
FUND EXPIRATION OF AMORTIZATION AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
New York Municipal Bond Fund............................. February 1998 $27,895
National Intermediate Municipal Fund..................... February 2000 $101,185
U.S. Government Income Fund.............................. February 2000 $104,594
High Yield Bond Fund..................................... February 2000 $126,477
Strategic Bond Fund...................................... February 2000 $126,910
Total Return Fund........................................ September 2000 $89,854
</TABLE>
The following is a summary of significant accounting policies followed by the
Investment Series in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles ('GAAP'). The
preparation of financial statements in accordance with GAAP requires management
to make estimates of certain reported amounts in the financial statements.
Actual amounts could differ from those estimates.
(A) INVESTMENT VALUATION. Portfolio securities listed or traded on
national securities exchanges, or reported on the NASDAQ national market
system, are valued at the last sale price, or if there have been no sales
on that day, at the mean of the current bid and asked price which
represents the current value of the security. Over-the-counter securities
are valued at the mean of the current bid and asked price. Debt securities
are valued by using either market quotations or independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Publicly traded sovereign bonds are typically
traded internationally on the over-the-counter market and are valued at the
mean of the last current bid and asked price as of the close of business of
that market. Short-term securities with less than 60 days remaining to
maturity when acquired by a Fund will be valued at amortized cost which
approximates market value. If a Fund, other than the Cash Management Fund,
acquires such securities with more than 60 days remaining to maturity, they
will be valued at current market value (using the bid price), until the
60th day prior to maturity, and will then be valued on an amortized cost
basis.
Portfolio securities for the Cash Management Fund are valued using the
amortized cost method, which involves initially valuing an investment at
its cost and thereafter assuming a constant amortization to maturity of any
premium or discount. This method results in a value approximating market
value.
Foreign securities quoted in a foreign currency are translated into
U.S. dollars using exchange rates at 2:30 p.m. Eastern time or at such
other rates as SBAM may determine to be appropriate in computing net asset
value.
PAGE 42
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
Securities for which reliable quotations or prices from pricing
services are not readily available (as may be the case for securities of
limited marketability) and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Board of Directors.
(B) FUTURES CONTRACTS. The New York Municipal Bond Fund, National
Intermediate Municipal Fund, High Yield Bond Fund, Strategic Bond Fund,
Total Return Fund and Investors Fund may enter into futures contracts for
hedging purposes, which involves paying or receiving variation margin,
which will be recorded as unrealized gain or loss until the contract is
closed. When the contract is closed, a realized gain or loss will be
recognized. Outstanding contracts involve elements of market risk in excess
of amounts reported in the financial statements.
(C) OPTION CONTRACTS. When a Fund writes or purchases a call or a put
option, an amount equal to the premium received or paid by the Fund is
recorded as a liability or asset, the value of which is marked-to-market
daily to reflect the current market value of the option. When the option
expires, the Fund realizes a gain or loss equal to the amount of the
premium received or paid. When the Fund exercises an option or enters into
a closing transaction by purchasing or selling an offsetting option, it
realizes a gain or loss without regard to any unrealized gain or loss on
the underlying security. When a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received.
When a written put option is exercised, the amount of the premium received
reduces the cost of the security that the Fund purchased upon exercise of
the option.
(D) MORTGAGE ROLLS. The U.S. Government Income Fund and the Strategic
Bond Fund may enter into mortgage 'dollar rolls' in which a Fund sells
mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type,
coupon and maturity) securities on a specified future date. The Fund is
compensated by a fee paid by the counterparty. Dollar rolls are accounted
for as financing arrangements; the fee is accrued into interest income
ratably over the term of the dollar roll and any gain or loss on the roll
is deferred until disposition of the rolled security. The average daily
balance of dollar rolls outstanding during the period ended December 31,
1995 was approximately $2,150,000 and $1,052,000 for the U.S. Government
Income Fund and the Strategic Bond Fund, respectively.
(E) REPURCHASE AGREEMENTS. When entering into repurchase agreements,
it is each Fund's policy that the Fund take possession, through its
custodian, of the underlying collateral and monitor the collateral's value
at the time the agreement is entered into and on a daily basis during the
term of the repurchase agreement to ensure that it always equals or exceeds
the repurchase price. In the event of default or bankruptcy by the other
party to the agreement, realization and/or retention of the collateral may
be subject to legal proceedings.
(F) FOREIGN CURRENCY TRANSLATION. The accounting records of each Fund
are maintained in U.S. dollars. Investment securities and other assets and
liabilities of the High Yield Bond Fund, Strategic Bond Fund, Total Return
Fund and Investors
PAGE 43
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- ----------------------------------------------------------------------
Notes to Financial Statements
Fund denominated in a foreign currency are translated into U.S. dollars at
the prevailing rates of exchange each day. Purchases and sales of
securities, income receipts and expense payments are translated into U.S.
dollars at the prevailing exchange rate on the respective dates of the
transactions. Net realized gains and losses on foreign currency
transactions represent net gains and losses from sales and maturities of
forward currency contracts, disposition of foreign currencies, currency
gains and losses realized between the trade and settlement dates on
securities transactions and the difference between the amount of net
investment income accrued and the U.S. dollar amount actually received. The
effect of changes in foreign currency exchange rates on investments in
securities are not segregated in the Statements of Operations from the
effects of changes in market prices of those securities, but are included
with the net realized and unrealized gain or loss on investments.
(G) FORWARD FOREIGN CURRENCY CONTRACTS. The High Yield Bond Fund,
Strategic Bond Fund, Total Return Fund and Investors Fund may enter into
forward foreign currency contracts in connection with planned purchases or
sales of securities or to hedge the value of portfolio securities. A
forward foreign currency contract is an agreement between two parties to
buy and sell a currency at a set price on a future date. The contract is
marked-to-market daily and the change in value is recorded by the Fund as
an unrealized gain or loss. When a forward foreign currency contract is
extinguished, through either delivery or offset by entering into another
forward foreign currency contract, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value of the contract at the time it was extinguished or
offset.
(H) LOAN PARTICIPATIONS. The High Yield Bond Fund, Strategic Bond Fund
and Total Return Fund may invest in fixed and floating rate loans arranged
through private negotiations between a foreign sovereign entity and one or
more financial institutions ('lender'). The market values of the High Yield
Bond Fund and the Strategic Bond Fund's loan participations at December 31,
1995 were $336,250 each.
In connection with purchasing participations, the Fund generally will
have no right to enforce compliance by the borrower, and the Fund may not
benefit directly from any collateral supporting the loan in which it has
purchased the participation. As a result, the Fund will assume the credit
risk of both the borrower and the lender that is selling the participation.
In the event of the insolvency of the lender selling the participation, the
Fund may be treated as a general creditor of the lender and may not benefit
from any set-off between the lender and the borrower.
(I) FEDERAL INCOME TAXES. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, including the distribution requirements of the Tax
Reform Act of 1986, and to distribute all of its income, including any net
realized gains, to shareholders. Therefore, no Federal income tax or excise
tax provision is required.
(J) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net
investment income for each of the Funds (except the Investors Fund) are
declared each business day to shareholders of record that day, and are paid
on the last
PAGE 44
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
business day of the month. Dividends from net investment income for the
Investors Fund are declared on a quarterly basis. Distributions of net
realized gains to shareholders of each Fund, if any, are declared at least
annually. Dividends and distributions to shareholders of each Fund are
recorded on the ex-dividend date and are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles due primarily to differences in the treatment of foreign
currency gains/losses and deferral of wash sales and post-October losses
incurred by each Fund. Permanent book/tax differences are reclassified
within the capital accounts based on their federal income tax basis
treatment; temporary differences do not require reclassifications.
Dividends and distributions which exceed net investment income and net
realized gains for financial reporting purposes but not for tax purposes
are reported as distributions in excess of net investment income and
distributions in excess of net realized capital gains.
(K) CLASS ACCOUNTING. Investment income, common expenses and gain
(loss) on investments are allocated to the various classes of a Fund on the
basis of daily net assets of each class. Distribution and shareholder
servicing fees relating to a specific class are charged directly to that
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
(L) EXPENSES. Direct expenses are charged to the Fund that incurred
them, and general expenses of the Investment Series are allocated to the
Funds based on each Fund's relative net assets.
(M) OTHER. Investment transactions are recorded as of the trade date.
Dividend income is recorded on the ex-dividend date. Interest income,
including the accretion of discounts or amortization of premiums, is
recognized when earned. Gains or losses on sales of securities are
calculated for financial accounting and Federal income tax purposes on the
identified cost basis.
(N) CASH FLOW INFORMATION. Statement of Financial Accounting Standards
Number 102 generally exempts entities such as the Funds from reporting a
Statement of Cash Flows. However, the amount and nature of certain
activities entered into by the U.S. Government Income Fund and Strategic
Bond Fund may be considered financing arrangements, which may require the
presentation of a Statement of Cash Flows. General investing and operating
activities of the Funds are reported in the Statement of Changes in Net
Assets and additional information on cash receipts and cash payments are
presented in the Statement of Cash Flows. Accounting practices that do not
affect reporting activities on a cash basis include carrying investments at
value and amortizing discounts or premiums on debt obligations.
2. MANAGEMENT FEE AND OTHER AGREEMENTS
Each Fund retains SBAM, an indirect wholly owned subsidiary of Salomon Inc, to
act as investment manager, subject to the supervision by the Board of Directors
of each Fund.
PAGE 45
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- ----------------------------------------------------------------------
Notes to Financial Statements
SBAM furnishes each Fund in the Investment Series with office space and certain
services and facilities required for conducting the business of the Investment
Series and pays the compensation of its officers. The management fee for these
services for each Fund (except the Investors Fund) is payable monthly and is
based on the following annual percentages of each Funds' average daily net
assets: .20% for the Cash Management Fund, .50% for the New York Municipal Bond
Fund and the National Intermediate Municipal Fund, .60% for the U.S. Government
Income Fund, .75% for the High Yield Bond Fund and Strategic Bond Fund, and .55%
for the Total Return Fund. SBAM Limited provides certain advisory services to
SBAM for the benefit of the Strategic Bond Fund. SBAM Limited is compensated by
SBAM at no additional expense to the Strategic Bond Fund.
The Investors Fund pays SBAM a base fee subject to an increase or decrease
depending on the extent, if any, to which the investment performance of the
Investors Fund exceeds or is exceeded by the investment record of the Standard &
Poor's 500 Index of Composite Stocks ('S&P 500 Index'). The base fee is paid
quarterly based on the following annual rates:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- --------------------------------------------------------------------------------------------------------
<S> <C>
First $350 million.................................................................. .500%
Next $150 million................................................................... .400%
Next $250 million................................................................... .375%
Next $250 million................................................................... .350%
Over $1 billion..................................................................... .300%
</TABLE>
The performance adjustment is paid quarterly based on a rolling one year period.
A performance adjustment will only be made after the investment performance of
the Investors Fund exceeds or is exceeded by the investment record of the S&P
500 Index by at least one percentage point. For each percentage point by which
the investment performance of the Investors Fund exceeds or is exceeded by the
investment record of the S&P 500 Index, the base fee will be adjusted upward or
downward by .01% (annualized). The maximum annual adjustment is .10% which would
occur if the Investors Fund's performance exceeds or is exceeded by the S&P 500
Index by ten or more percentage points. The first performance adjustment
reducing the management fee by $267,836 was made on September 30, 1995,
representing a seven percent higher performance by the S&P 500 Index for the
period from October 1, 1994 through September 30, 1995. An additional reduction
in the base management fee of $31,182 was recorded for the quarter ended
December 31, 1995, representing a three percent higher performance by the S&P
500 Index.
For the year ended December 31, 1995, SBAM waived management fees of $25,505,
$19,069, $44,953, $53,073, $79,385, $71,026 and $15,069 for the Cash Management
Fund, New York Municipal Bond Fund, National Intermediate Municipal Fund, U.S.
Government Income Fund, High Yield Bond Fund, Strategic Bond Fund and Total
Return Fund, respectively, and voluntarily absorbed expenses of $75,716,
$63,088,
PAGE 46
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
$35,803, $39,324, $11,822 and $4,346 for the Cash Management Fund, New York
Municipal Bond Fund, National Intermediate Municipal Fund, U.S. Government
Income Fund, Strategic Bond Fund and Total Return Fund, respectively.
If in any fiscal year total expenses of any Fund, excluding taxes, interest,
brokerage and extraordinary expenses, but including the management fee, exceed
the most stringent expense limitations imposed by state securities regulations
applicable to the Fund, SBAM will pay or reimburse the Fund for the excess.
Currently, the most restrictive of these limitations on an annual basis is 2.5%
of the first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of average daily net assets in
excess of $100 million. No such expense reimbursement was required for the year
ending December 31, 1995.
Investors Bank & Trust Company serves as custodian and administrator for each
Fund, which includes performing certain administrative services in connection
with the operation of each Fund. During the year ended December 31, 1995,
credits earned on outstanding cash balances were used to reduce custodian fees
by $9, $1,758, $5,279, $21, $735, $208, $13 and $529 for the Cash Management
Fund, New York Municipal Bond Fund, National Intermediate Municipal Fund, U.S.
Government Income Fund, High Yield Bond Fund, Strategic Bond Fund, Total Return
Fund and Investors Fund, respectively.
Each Fund has an agreement with Salomon Brothers Inc ('Salomon Brothers'), an
affiliate of the Investment Adviser, to distribute its shares pursuant to a
multiple pricing system. Each class (except for Class O) of each Fund (except
for the Cash Management Fund) is authorized pursuant to a services and
distribution plan applicable to that class of shares (the 'Class A Plan,' the
'Class B Plan,' and the 'Class C Plan,' collectively, the 'Plans') adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
'1940 Act'), to pay Salomon Brothers an annual service fee with respect to Class
A, Class B, and Class C shares of the applicable Funds at the rate of .25% of
the value of the average daily net assets of the respective class. Salomon
Brothers is also paid an annual distribution fee with respect to Class B and
Class C shares of each Fund (except for the Cash Management Fund) at the rate of
.75% of the value of the average daily net assets of the respective class. Class
O shares are not subject to a services and distribution plan fee.
Brokerage commissions of $210 and $95,179 were paid by the Total Return Fund and
Investors Fund, respectively, to Salomon Brothers, the Funds' distributor and an
indirect wholly-owned subsidiary of Salomon Inc, for transactions executed on
behalf of the Funds for the period ended December 31, 1995.
Salomon Brothers received $1,990 as its portion of the front-end sales charge on
sales of Class A shares of the Funds. In addition, contingent deferred sales
charges of $2,290 were paid to Salomon Brothers in connection with redemptions
of certain Class B and Class C shares of the Funds during the year ended
December 31, 1995.
PAGE 47
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- ----------------------------------------------------------------------
Notes to Financial Statements
3. CAPITAL STOCK
At December 31, 1995, the Series Funds had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share, of which the Cash Management Fund, New
York Municipal Bond Fund, National Intermediate Municipal Fund, U.S. Government
Income Fund, High Yield Bond Fund and Strategic Bond Fund each had 1,111,111,112
shares authorized, and the Total Return Fund had 1,111,111,104 shares
authorized. The Investors Fund had 50,000,000 shares of authorized capital
stock, par value $1.00 per share. Transactions in Fund shares for the periods
indicated were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1995
------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH MANAGEMENT FUND
Sold................. 8,291,614 $ 8,291,614 -- -- 3,213,151 $ 3,213,151
Issued as
reinvestment........ 4,672 4,672 -- -- 24,262 24,262
Redeemed............. (6,540,739) (6,540,739) -- -- (998,927) (998,927)
---------- ----------- ---------- ----------- ---------- -----------
Net increase
(decrease).......... 1,755,547 $ 1,755,547 -- -- 2,238,486 $ 2,238,486
---------- ----------- ---------- ----------- ---------- -----------
---------- ----------- ---------- ----------- ---------- -----------
NEW YORK MUNICIPAL
BOND FUND
Sold................. 53,966 $ 528,846 -- -- 52,010 $ 502,220
Issued as
reinvestment........ 16 157 -- -- 226 2,229
Redeemed............. (2) (21) -- -- (2) (22)
---------- ----------- ---------- ----------- ---------- -----------
Net increase
(decrease).......... 53,980 $ 528,982 -- -- 52,234 $ 504,427
---------- ----------- ---------- ----------- ---------- -----------
---------- ----------- ---------- ----------- ---------- -----------
NATIONAL INTERMEDIATE
MUNICIPAL FUND
Sold................. 54,100 $ 546,146 -- -- 41,260 $ 416,180
Issued as
reinvestment........ 710 7,331 -- -- 163 1,682
Redeemed............. (221) (2,286) -- -- (2) (20)
---------- ----------- ---------- ----------- ---------- -----------
Net increase......... 54,589 $ 551,191 -- -- 41,421 $ 417,842
---------- ----------- ---------- ----------- ---------- -----------
---------- ----------- ---------- ----------- ---------- -----------
U.S. GOVERNMENT
INCOME FUND
Sold................. 26,869 $ 269,137 -- -- 54,833 $ 554,953
Issued as
reinvestment........ 76 721 -- -- 637 6,542
Redeemed............. (2) (20) -- -- (2) (20)
---------- ----------- ---------- ----------- ---------- -----------
Net increase......... 26,943 $ 269,838 -- -- 55,468 $ 561,475
---------- ----------- ---------- ----------- ---------- -----------
---------- ----------- ---------- ----------- ---------- -----------
HIGH YIELD BOND FUND
Sold................. 1,019,841 $10,701,496 -- -- 946,768 $ 9,961,848
Issued as
reinvestment........ 40,936 430,949 -- -- 15,920 168,888
Redeemed............. (36,582) (386,153) -- -- (2,574) (26,932)
---------- ----------- ---------- ----------- ---------- -----------
Net increase......... 1,024,195 $10,746,292 -- -- 960,114 $10,103,804
---------- ----------- ---------- ----------- ---------- -----------
---------- ----------- ---------- ----------- ---------- -----------
STRATEGIC BOND FUND
Sold................. 53,771 $ 551,616 -- -- 174,744 $ 1,827,448
Issued as
reinvestment........ 1,158 12,171 -- -- 3,737 39,371
Redeemed............. (6,226) (65,416) -- -- (57) (590)
---------- ----------- ---------- ----------- ---------- -----------
Net increase......... 48,703 $ 498,371 -- -- 178,424 $ 1,866,229
---------- ----------- ---------- ----------- ---------- -----------
---------- ----------- ---------- ----------- ---------- -----------
TOTAL RETURN FUND
Sold................. 343,940 $ 3,552,510 -- -- 518,625 $ 5,342,405
Issued as
reinvestment........ 2,713 28,624 -- -- 3,801 40,062
Redeemed............. (93) (958) -- -- (12,152) (126,759)
---------- ----------- ---------- ----------- ---------- -----------
Net increase......... 346,560 $ 3,580,176 -- -- 510,274 $ 5,255,708
---------- ----------- ---------- ----------- ---------- -----------
---------- ----------- ---------- ----------- ---------- -----------
INVESTORS FUND
Sold................. 27,922 $ 420,791 -- -- 41,769 $ 654,082
Issued as
reinvestment........ 760 12,451 -- -- 1,335 21,837
Redeemed............. (2,119) (37,067) -- -- (15) (260)
---------- ----------- ---------- ----------- ---------- -----------
Net increase......... 26,563 $ 396,175 -- -- 43,089 $ 675,659
---------- ----------- ---------- ----------- ---------- -----------
---------- ----------- ---------- ----------- ---------- -----------
<PAGE>
<CAPTION>
CLASS B
-------------------------
YEAR ENDED
DECEMBER 31, 1994
-------------------------
SHARES AMOUNT
-------------------------
<S> <C> <C>
CASH MANAGEMENT FUND
Sold................. -- --
Issued as
reinvestment........ -- --
Redeemed............. -- --
---------- ----------
Net increase
(decrease).......... -- --
---------- ----------
---------- ----------
NEW YORK MUNICIPAL
BOND FUND
Sold................. -- --
Issued as
reinvestment........ -- --
Redeemed............. -- --
---------- ----------
Net increase
(decrease).......... -- --
---------- ----------
---------- ----------
NATIONAL INTERMEDIATE
MUNICIPAL FUND
Sold................. -- --
Issued as
reinvestment........ -- --
Redeemed............. -- --
---------- ----------
Net increase......... -- --
---------- ----------
---------- ----------
U.S. GOVERNMENT
INCOME FUND
Sold................. -- --
Issued as
reinvestment........ -- --
Redeemed............. -- --
---------- ----------
Net increase......... -- --
---------- ----------
---------- ----------
HIGH YIELD BOND FUND
Sold................. -- --
Issued as
reinvestment........ -- --
Redeemed............. -- --
---------- ----------
Net increase......... -- --
---------- ----------
---------- ----------
STRATEGIC BOND FUND
Sold................. -- --
Issued as
reinvestment........ -- --
Redeemed............. -- --
---------- ----------
Net increase......... -- --
---------- ----------
---------- ----------
TOTAL RETURN FUND
Sold................. -- --
Issued as
reinvestment........ -- --
Redeemed............. -- --
---------- ----------
Net increase......... -- --
---------- ----------
---------- ----------
INVESTORS FUND
Sold................. -- --
Issued as
reinvestment........ -- --
Redeemed............. -- --
---------- ----------
Net increase......... -- --
---------- ----------
---------- ----------
</TABLE>
PAGE 48
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
CLASS C CLASS O
- --------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1994
- --------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
180,044 $ 180,044 -- -- 47,254,877 $ 47,254,877 75,796,036 $ 75,796,036
2,497 2,497 -- -- 431,706 431,706 401,895 401,895
-- -- -- -- (60,129,169) (60,129,169) (72,120,070) (72,120,070)
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
182,541 $ 182,541 -- -- (12,442,586) $(12,442,586) 4,077,861 $ 4,077,861
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
26,263 $ 250,020 -- -- 14,323 $ 137,924 194,976 $ 1,960,677
6 60 -- -- 17,711 169,082 40,650 390,961
(2) (21) -- -- (156,388) (1,509,557) (665,997) (6,193,972)
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
26,267 $ 250,059 -- -- (124,354) $ (1,202,551) (430,371) $ (3,842,334)
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
25,963 $ 260,000 -- -- 927,748 $ 9,278,117 -- --
9 87 -- -- 263 2,630 -- --
(2) (20) -- -- (2) (20) -- --
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
25,970 $ 260,067 -- -- 928,009 $ 9,280,727 -- --
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
27,164 $ 272,000 -- -- 925,200 $ 9,252,000 -- --
20 206 -- -- 816 8,164 -- --
(698) (7,152) -- -- (206) (2,094) -- --
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
26,486 $ 265,054 -- -- 925,810 $ 9,258,070 -- --
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
124,291 $ 1,298,229 -- -- 926,518 $ 9,265,788 -- --
1,229 12,925 -- -- 791 7,911 -- --
(4,453) (46,441) -- -- (181,791) (1,902,220) -- --
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
121,067 $ 1,264,713 -- -- 745,518 $ 7,371,479 -- --
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
38,420 $ 391,367 -- -- 926,274 $ 9,263,323 -- --
625 6,573 -- -- 754 7,526 -- --
(2) (20) -- -- (2) (20) -- --
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
39,043 $ 397,920 -- -- 927,026 $ 9,270,829 -- --
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
41,886 $ 423,053 -- -- 425,000 $ 4,250,000 -- --
99 1,041 -- -- -- -- -- --
(1) (10) -- -- -- -- -- --
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
41,984 $ 424,084 -- -- 425,000 $ 4,250,000 -- --
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
18,595 $ 267,020 -- -- 245,958 $ 3,783,857 1,535,504 $ 22,813,829
60 980 -- -- 2,017,845 32,672,713 2,324,823 32,449,031
(200) (3,142) -- -- (1,987,122) (31,073,072) (3,057,955) (45,611,321)
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
18,455 $ 264,858 -- -- 276,681 $ 5,383,498 802,372 $ 9,651,539
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
- ---------- ----------- ---------- ---------- ----------- ------------ ----------- ------------
</TABLE>
PAGE 49
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- ----------------------------------------------------------------------
Notes to Financial Statements
At December 31, 1995, Salomon Brothers owned approximately the following
percentages of total shares outstanding of the following Funds:
<TABLE>
<S> <C>
New York Municipal Bond Fund........................................................... 21%
National Intermediate Municipal Fund................................................... 95%
U.S. Government Income Fund............................................................ 97%
High Yield Bond Fund................................................................... 29%
Strategic Bond Fund.................................................................... 84%
Total Return Fund...................................................................... 38%
</TABLE>
4. PORTFOLIO ACTIVITY
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, for the period ended December 31, 1995, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
New York Municipal Bond Fund............................... $ 787,738 $ 1,438,362
------------ ------------
------------ ------------
National Intermediate Municipal Fund....................... $ 12,789,131 $ 2,738,946
------------ ------------
------------ ------------
U.S. Government Income Fund
U.S. Government Securities............................... $ 27,466,318 $ 17,724,056
------------ ------------
------------ ------------
High Yield Bond Fund....................................... $ 44,314,086 $ 17,461,424
------------ ------------
------------ ------------
Strategic Bond Fund
U.S. Government Securities............................... $ 8,520,260 $ 6,824,704
Other Investments........................................ 17,916,013 9,025,947
------------ ------------
$ 26,436,273 $ 15,850,651
------------ ------------
------------ ------------
Total Return Fund
U.S. Government Securities............................... $ 2,461,806 $ 364,527
Other Investments........................................ 10,798,038 884,107
------------ ------------
$ 13,259,844 $ 1,248,634
------------ ------------
------------ ------------
Investors Fund
U.S. Government Securities............................... -- $ 3,962,031
Other Investments........................................ $317,547,885 364,164,543
------------ ------------
$317,547,885 $368,126,574
------------ ------------
------------ ------------
</TABLE>
PAGE 50
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
Transactions in options written for the Investors Fund during the year ended
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1994......................... (1,825) (428,151)
Options written.................................................. (1,115) (289,198)
Options terminated in closing purchase transactions.............. 2,765 681,423
Options expired.................................................. -- --
Options exercised................................................ 175 35,926
--------- --------
Options outstanding at December 31, 1995......................... -- --
--------- --------
--------- --------
</TABLE>
During the year ended December 31, 1995, net realized loss from written option
transactions for the Investors Fund amounted to $268,953 and net realized loss
from purchased option transactions amounted to $113,136, for a net realized loss
on all option transactions for the Investors Fund of $382,089.
During the period ended December 31, 1995, net realized gain from forward
foreign currency contracts for the Strategic Bond Fund amounted to $67,840, and
net realized gains on mortgage dollar rolls amounted to $57,813 and $17,359 for
the U.S. Government Income Fund and the Strategic Bond Fund, respectively.
During the year ended December 31, 1995, permanent book/tax differences of
$(23,543) and $63 for the Strategic Bond Fund and Investors Fund, respectively,
arising primarily from foreign currency gains (losses) have been reclassified
from accumulated gain (loss) on investments to undistributed net investment
income. Net investment income, net realized losses and net assets were not
affected by this reclassification.
5. PORTFOLIO INVESTMENT RISKS
CREDIT AND MARKET RISK. Funds that invest in high yield and emerging market
instruments are subject to certain credit and market risks. The yields of high
yield and emerging market debt obligations reflect, among other things,
perceived credit risk. The Funds' investment in securities rated below
investment grade typically involve risks not associated with higher rated
securities including, among others, greater risk of timely and ultimate payment
of interest and principal, greater market price volatility and less liquid
secondary market trading. The consequences of political, social, economic or
diplomatic changes may have disruptive effects on the market prices of
investments held by the Funds. The Funds' investment in non-dollar denominated
securities may also result in foreign currency losses caused by devaluations and
exchange rate fluctuations.
The Cash Management Fund invests in money market instruments maturing in
thirteen months or less whose credit ratings are within the highest ratings
category of two nationally recognized statistical rating organizations
('NRSROs') or if rated by only one
PAGE 51
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- ----------------------------------------------------------------------
Notes to Financial Statements
NRSRO, the highest rating of that NRSRO, or, if not rated, are believed by the
investment manager to be of comparable quality. The New York Municipal Bond Fund
pursues its investment objectives by investing at least 80% of its net assets in
obligations the interest on which is exempt from regular federal income taxes
and at least 65% of its net assets in obligations the interest on which is
exempt from personal income taxes of the State and City of New York. Because the
New York Municipal Bond Fund invests primarily in obligations of the State and
City of New York, it is more susceptible to factors adversely affecting issuers
of such obligations than a fund that is more diversified.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK. Certain Funds enter into
forward foreign currency contracts ('forward contracts') to facilitate
settlement of foreign currency denominated portfolio transactions or to manage
foreign currency exposure associated with foreign currency denominated
securities. Forward contracts involve elements of market risk in excess of the
amounts reflected in the Statements of Assets and Liabilities. The Funds bear
the risk of an unfavorable change in the foreign exchange rate underlying the
forward contract. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
Funds that enter into mortgage dollar rolls are subject to the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a mortgage dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the dollar roll may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities.
Consistent with their objective to seek high current income, the High Yield Bond
Fund and the Strategic Bond Fund may invest in instruments whose values and
interest rates may be linked to foreign currencies, interest rates, indices or
some other financial indicator. The value at maturity or interest rates for
these instruments will increase or decrease according to the change in the
indicator to which it is indexed. These securities are generally more volatile
in nature and the risk of loss of principal is greater.
A risk in writing a covered call option is that the Fund may forego the
opportunity of profit if the market price of the underlying security increases
and the option is exercised. A risk in writing a put option is that the Fund may
incur a loss if the market price of the underlying security decreases and the
option is exercised. In addition, there is the risk that the Fund may not be
able to enter a closing transaction because of an illiquid secondary market.
PAGE 52
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
6. TAX INFORMATION
At December 31, 1995, the Cash Management Fund and New York Municipal Bond Fund
had net capital loss carry-forwards available to offset future capital gains as
follows:
<TABLE>
<CAPTION>
NEW YORK
CASH MUNICIPAL
YEAR OF MANAGEMENT BOND
EXPIRATION FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1999............................................................... $ 894 --
2000............................................................... 396 --
2001............................................................... 409 --
2002............................................................... 415 $305,822
2003............................................................... -- 318,123
---------- ---------
$2,114 $623,945
---------- ---------
---------- ---------
</TABLE>
At December 31, 1995, as permitted under federal income tax regulations, the
Strategic Bond Fund has elected to defer $14,806 of Post-October net capital
losses and $41,069 of Post-October net foreign currency losses to the next
taxable year.
At December 31, 1995, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments and repurchase
agreements held in each Fund were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
AGGREGATE UNREALIZED UNREALIZED UNREALIZED
COST APPRECIATION (DEPRECIATION) APPRECIATION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York Municipal Bond......... $ 3,385,615 $ 150,560 -- $ 150,560
National Intermediate
Municipal..................... 10,075,715 427,222 $ (3,342) 423,880
U.S. Government Income.......... 11,920,393 319,768 -- 319,768
High Yield Bond................. 30,050,814 964,094 (503,126) 460,968
Strategic Bond.................. 13,120,041 813,804 (248,266) 565,538
Total Return.................... 14,849,713 508,518 (58,371) 450,147
Investors....................... 332,596,925 104,734,626 (3,512,266) 101,222,360
</TABLE>
PAGE 53
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- ---------------------------------------------------
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period................. $ 1.000 $ 1.000 $ 1.000
------- ------- -------
Net investment income................................ 0.044 0.043 0.043
Dividends from net investment income................. (0.044) (0.043) (0.043)
------- ------- -------
Net asset value, end of period....................... $ 1.000 $ 1.000 $ 1.000
------- ------- -------
------- ------- -------
Net assets, end of period (thousands)................ $1,756 $2,238 $183
Total return*........................................ +4.5 % +4.4 % +4.4 %
Ratios to average net assets:
Expenses............................................. 0.55 % 0.55 % 0.55 %
Net investment income................................ 5.42 % 5.38 % 5.40 %
Before waiver of management fee, expenses absorbed by
SBAM and credits earned on custodian cash balances,
net investment income per share and expense ratios
would have been:
Net investment income per share...................... $ 0.037 $ 0.037 $ 0.036
Expense ratio........................................ 1.35 % 1.34 % 1.34 %
</TABLE>
NEW YORK MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period................. $ 8.96 $ 8.96 $ 8.96
------- ------- -------
Net investment income................................ 0.42 0.36 0.36
Net gain (loss) on securities and futures
(both realized and unrealized)..................... 1.14 1.14 1.14
------- ------- -------
Total from investment operations..................... 1.56 1.50 1.50
------- ------- -------
Dividends from net investment income................. (0.41) (0.35) (0.35)
Distributions from net realized gain on securities
and futures........................................ -- -- --
------- ------- -------
Total dividends and distributions.................... (0.41) (0.35) (0.35)
------- ------- -------
Net asset value, end of period....................... $ 10.11 $ 10.11 $ 10.11
------- ------- -------
------- ------- -------
Net assets, end of period (thousands)................ $546 $528 $266
Total return*........................................ +17.7 % +17.0 % +17.0 %
Ratios to average net assets:
Expenses............................................. 0.75% 1.50% 1.50%
Net investment income................................ 5.12% 4.30% 4.38%
Portfolio turnover rate.............................. 22% 22% 22%
Before waiver of management fee, expenses absorbed by
SBAM and credits earned on custodian cash balances,
net investment income per share and expense ratios
would have been:
Net investment income per share...................... $ 0.24 $ 0.17 $ 0.18
Expense ratio........................................ 2.96% 3.70% 3.71%
</TABLE>
(a) February 1, 1993, commencement of investment operations, through December
31, 1993.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated
for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements.
PAGE 54
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
CLASS O
- -----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
0.055 0.038 0.027 0.033 0.055
(0.055) (0.038) (0.027) (0.033) (0.055)
-------- ------- ------- ------- -------
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
$6,684 $19,127 $15,049 $11,613 $22,982
+5.6 % +3.9 % +2.7 % +3.4 % +5.7 %
0.55 % 0.61 % 0.65 % 0.65 % 0.65 %
5.46 % 3.79 % 2.68 % 3.41 % 5.43 %
$ 0.047 $ 0.036 $ 0.025 $ 0.030 $ 0.053
1.34 % 0.81 % 0.85 % 0.85 % 0.85 %
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS O
- ---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
- ---------------------------------------- PERIOD ENDED
1995 1994 DECEMBER 31, 1993(a)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
$ 8.98 $ 10.44 $ 10.00
------ ------- --------
0.53 0.55 0.46
1.12 (1.46) 0.46
------- ------- --------
1.65 (0.91) 0.92
------- ------- --------
(0.52) (0.55) (0.46)
-- -- (0.02)
-------- ------- --------
(0.52) (0.55) (0.48)
------ ------- --------
$10.11 $ 8.98 $ 10.44
------ ------- --------
------ ------- --------
$2,494 $3,333 $ 8,364
+18.8 % -8.8 % +9.4 %
0.50% 0.50% 0.50%**
5.50% 5.72% 4.99%**
22% 63% 24%
$ 0.32 $ 0.49 $ 0.40
2.71% 1.17% 1.24%**
</TABLE>
See accompanying notes to financial statements.
PAGE 55
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- ---------------------------------------------------
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
NATIONAL INTERMEDIATE MUNICIPAL FUND
- --------------------------------------------------------------------------------
[CAPTION]
<TABLE>
CLASS A CLASS B CLASS C CLASS O
-------------------------------------------
PERIOD ENDED DECEMBER 31, 1995(a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- ------- ------- -------
Net investment income................................ 0.40 0.34 0.34 0.42
Net gain on investments (both realized and
unrealized)........................................ 0.46 0.45 0.45 0.46
------- ------- ------- -------
Total from investment operations..................... 0.86 0.79 0.79 0.88
------- ------- ------- -------
Dividends from net investment income................. (0.40) (0.34) (0.34) (0.42)
Distributions from net realized gain on
investments........................................ (0.03) (0.03) (0.03) (0.03)
------- ------- ------- -------
Total dividends and distributions.................... (0.43) (0.37) (0.37) (0.45)
------- ------- ------- -------
Net asset value, end of period....................... $ 10.43 $ 10.42 $ 10.42 $ 10.43
------- ------- ------- -------
------- ------- ------- -------
Net assets, end of period (thousands)................ $ 569 $ 432 $ 271 $ 9,675
Total return*........................................ +8.7 % +8.0 % +8.0 % +9.0 %
Ratios to average net assets:
Expenses............................................. 0.75%** 1.50%** 1.50%** 0.50%**
Net investment income................................ 4.63%** 3.85%** 3.85%** 4.86%**
Portfolio turnover rate.............................. 29% 29% 29% 29%
Before waiver of management fee, expenses absorbed
by SBAM and credits earned on custodian cash
balances, net investment income per share and
expense ratios would have been:
Net investment income per share...................... $ 0.32 $ 0.25 $ 0.25 $ 0.34
Expense ratio........................................ 1.71%** 2.45%** 2.46%** 1.46%**
</TABLE>
U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
[CAPTION]
<TABLE>
CLASS A CLASS B CLASS C CLASS O
--------------------------------------------
PERIOD ENDED DECEMBER 31, 1995(a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- ------- ------- -------
Net investment income................................ 0.49 0.43 0.43 0.52
Net gain on investments
(both realized and unrealized)..................... 0.43 0.43 0.43 0.42
------- ------- ------- -------
Total from investment operations..................... 0.92 0.86 0.86 0.94
------- ------- ------- -------
Dividends from net investment income................. (0.49) (0.43) (0.43) (0.52)
Distributions from net realized gain on
investments........................................ (0.10) (0.10) (0.10) (0.10)
Distributions in excess of net realized gain on
investments........................................ (0.01) (0.01) (0.01) --
------- ------- ------- -------
Total dividends and distributions.................... (0.60) (0.54) (0.54) (0.62)
------- ------- ------- -------
Net asset value, end of period....................... $ 10.32 $ 10.32 $ 10.32 $ 10.32
------- ------- ------- -------
------- ------- ------- -------
Net assets, end of period (thousands)................ $ 278 $ 572 $ 273 $ 9,552
Total return*........................................ +9.5 % +8.8 % +8.8 % +9.7 %
Ratios to average net assets:
Expenses............................................. 0.85%** 1.60%** 1.60%** 0.60%**
Net investment income................................ 5.67%** 4.85%** 4.92%** 5.92%**
Portfolio turnover rate.............................. 230% 230% 230% 230%
Before waiver of management fee, expenses absorbed by
SBAM and credits earned on custodian cash balances,
net investment income per share and expense ratios
would have been:
Net investment income per share...................... $ 0.40 $ 0.34 $ 0.34 $ 0.42
Expense ratio........................................ 1.90%** 2.64%** 2.64%** 1.64%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated
for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements.
PAGE 56
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS O
---------------------------------------------
PERIOD ENDED DECEMBER 31, 1995(a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- ------- ------- -------
Net investment income................................ 0.92 0.85 0.85 0.95
Net gain on investments
(both realized and unrealized)..................... 0.67 0.68 0.68 0.67
------- ------- ------- -------
Total from investment operations..................... 1.59 1.53 1.53 1.62
------- ------- ------- -------
Dividends from net investment income................. (0.91) (0.85) (0.85) (0.93)
Distributions from net realized gain on
investments........................................ (0.15) (0.15) (0.15) (0.15)
------- ------- ------- -------
Total dividends and distributions.................... (1.06) (1.00) (1.00) (1.08)
------- ------- ------- -------
Net asset value, end of period....................... $ 10.53 $ 10.53 $ 10.53 $ 10.54
------- ------- ------- -------
------- ------- ------- -------
Net assets, end of period (thousands)................ $10,789 $10,108 $ 1,274 $ 7,854
Total return*........................................ +16.6 % +15.7 % +15.8 % +16.8 %
Ratios to average net assets:
Expenses............................................. 1.24%** 1.96%** 1.98%** 1.00%**
Net investment income................................ 10.58%** 9.53%** 9.61%** 10.59%**
Portfolio turnover rate.............................. 109% 109% 109% 109%
Before waiver of management fee by SBAM and
credits earned on custodian cash balances, net
investment income per share and expense ratios
would have been:
Net investment income per share...................... $ 0.87 $ 0.80 $ 0.80 $ 0.90
Expense ratio........................................ 1.80%** 2.51%** 2.54%** 1.55%**
</TABLE>
STRATEGIC BOND FUND
- --------------------------------------------------------------------------------
[CAPTION]
<TABLE>
CLASS A CLASS B CLASS C CLASS O
--------------------------------------------
PERIOD ENDED DECEMBER 31, 1995(a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- ------- ------- -------
Net investment income................................ 0.84 0.76 0.77 0.87
Net gain on investments
(both realized and unrealized)..................... 0.78 0.79 0.78 0.77
------- ------- ------- -------
Total from investment operations..................... 1.62 1.55 1.55 1.64
------- ------- ------- -------
Dividends from net investment income................. (0.85) (0.78) (0.78) (0.87)
Distributions from net realized gain on
investments........................................ (0.24) (0.24) (0.24) (0.24)
------- ------- ------- -------
Total dividends and distributions.................... (1.09) (1.02) (1.02) (1.11)
------- ------- ------- -------
Net asset value, end of period....................... $ 10.53 $ 10.53 $ 10.53 $ 10.53
------- ------- ------- -------
------- ------- ------- -------
Net assets, end of period (thousands)................ $ 513 $ 1,879 $ 411 $ 9,763
Total return*........................................ +16.8 % +16.1 % +16.1 % +17.0 %
Ratios to average net assets:
Expenses............................................. 1.23%** 1.97%** 1.99%** 0.99%**
Net investment income................................ 9.51%** 8.75%** 8.77%** 9.74%**
Portfolio turnover rate.............................. 161% 161% 161% 161%
Before waiver of management fee, expenses absorbed
by SBAM and credits earned on custodian cash
balances, net investment income per share and
expense ratios would have been:
Net investment income per share...................... $ 0.76 $ 0.69 $ 0.70 $ 0.79
Expense ratio........................................ 2.11%** 2.85%** 2.87%** 1.87%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated
for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements.
PAGE 57
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- ---------------------------------------------------
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
TOTAL RETURN FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS O
--------------------------------------------
PERIOD ENDED DECEMBER 31, 1995(a)SS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- ------- ------- -------
Net investment income................................ 0.15 0.13 0.14 0.17
Net gain on investments
(both realized and unrealized)..................... 0.52 0.51 0.51 0.52
------- ------- ------- -------
Total from investment operations..................... 0.67 0.64 0.65 0.69
------- ------- ------- -------
Dividends from net investment income................. (0.11) (0.09) (0.08) (0.11)
Distributions from net realized gain on
investments........................................ (0.01) (0.01) (0.01) (0.01)
------- ------- ------- -------
Total dividends and distributions.................... (0.12) (0.10) (0.09) (0.12)
------- ------- ------- -------
Net asset value, end of period....................... $ 10.55 $ 10.54 $ 10.56 $ 10.57
------- ------- ------- -------
------- ------- ------- -------
Net assets, end of period (thousands)................ $ 3,658 $ 5,378 $ 445 $ 4,494
Total return*........................................ +6.7 % +6.4 % +6.5 % +6.9 %
Ratios to average net assets:
Expenses............................................. 0.74%** 1.49%** 1.51%** 0.51%**
Net investment income................................ 4.82%** 4.06%** 4.26%** 5.30%**
Portfolio turnover rate.............................. 16% 16% 16% 16%
Before waiver of management fee, expenses absorbed
by SBAM and credits earned on custodian cash
balances, net investment income per share and
expense ratios would have been:
Net investment income per share...................... $ 0.13 $ 0.11 $ 0.11 $ 0.15
Expense ratio........................................ 1.45%** 2.19%** 2.22%** 1.22%**
</TABLE>
INVESTORS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------------
PERIOD ENDED DECEMBER 31,
-------------------------------
1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period................. $ 13.61 $ 13.61 $ 13.61
------- ------- -------
Net investment income................................ 0.19 0.10 0.09
Net gain (loss) on investments (both realized and
unrealized)........................................ 4.55 4.54 4.55
------- ------- -------
Total from investment operations..................... 4.74 4.64 4.64
------- ------- -------
Dividends from net investment income................. (0.23) (0.14) (0.14)
Distributions from net realized gain on
investments........................................ (1.50) (1.50) (1.50)
------- ------- -------
Total dividends and distributions.................... (1.73) (1.64) (1.64)
------- ------- -------
Net asset value, end of period....................... $ 16.62 $ 16.61 $ 16.61
------- ------- -------
------- ------- -------
Net assets, end of period (thousands)................ $ 441 $ 716 $ 306
Total return*........................................ +35.3 % +34.5 % +34.5 %
Ratios to average net assets:
Expenses............................................. 0.94% 1.71% 1.68%
Net investment income................................ 1.41% 0.63% 0.66%
Portfolio turnover rate.............................. 86% 86% 86%
</TABLE>
(a) September 11, 1995, commencement of investment operations, through December
31, 1995.
SS Per share information calculated using the average shares outstanding
method, which more accurately represent amounts.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements.
PAGE 58
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS O
- -----------------------------------------------------------
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
$ 13.63 $ 15.60 $ 16.10 $ 17.10 $ 14.54
- --------- -------- -------- -------- --------
0.27 0.27 0.32 0.41 0.44
4.48 (0.48) 2.03 0.79 3.68
- -------- -------- -------- -------- --------
4.75 (0.21) 2.35 1.20 4.12
- -------- -------- -------- -------- --------
(0.27) (0.27) (0.33) (0.41) (0.46)
(1.50) (1.49) (2.52) (1.79) (1.10)
- --------- -------- -------- -------- --------
(1.77) (1.76) (2.85) (2.20) (1.56)
- --------- -------- -------- -------- --------
$ 16.61 $ 13.63 $ 15.60 $ 16.10 $ 17.10
- -------- -------- -------- -------- --------
$428,950 $348,214 $386,147 $370,350 $378,615
+35.4 % - 1.3 % +15.1 % +7.4 % +29.3 %
0.69% 0.69% 0.68% 0.68% 0.70%
1.67% 1.75% 1.90% 2.47% 2.67%
86% 66% 79% 48% 44%
</TABLE>
See accompanying notes to financial statements.
PAGE 59
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Boards of Directors and Shareholders of
Salomon Brothers Cash Management Fund
Salomon Brothers New York Municipal Bond Fund
Salomon Brothers National Intermediate Municipal Fund
Salomon Brothers U.S. Government Income Fund
Salomon Brothers High Yield Bond Fund
Salomon Brothers Strategic Bond Fund
Salomon Brothers Total Return Fund
Salomon Brothers Investors Fund Inc
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations, of cash
flows (for Salomon Brothers U.S. Government Income Fund) and of changes in net
assets and the financial highlights present fairly, in all material respects,
the financial position of the Salomon Brothers Cash Management Fund, Salomon
Brothers New York Municipal Bond Fund, Salomon Brothers National Intermediate
Municipal Fund, Salomon Brothers U.S. Government Income Fund, Salomon Brothers
High Yield Bond Fund, Salomon Brothers Strategic Bond Fund, Salomon Brothers
Total Return Fund (seven of the portfolios constituting Salomon Brothers Series
Funds Inc) and Salomon Brothers Investors Fund Inc (hereafter referred to as the
'Funds') at December 31, 1995, the results of each of their operations, the cash
flows (for Salomon Brothers U.S. Government Income Fund), the changes in each of
their net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as 'financial
statements') are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 16, 1996
PAGE 60
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Statement of Net Assets December 31, 1995
Common Stocks -- 89.1% of Net Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
Basic Industries -- 5.1%
25,000 Allegheny Ludlum ......................... $ 426,500 $ 462,500
25,000 Hercules ................................. 1,169,906 1,409,375
20,000 Hanna (M.A.) ............................. 533,710 560,000
30,000 OM Group ................................. 918,661 993,750
30,000 Praxair .................................. 691,980 1,008,750
30,000 Sonoco Products .......................... 808,670 787,500
----------- ------------
4,549,427 5,221,875
----------- ------------
Capital Goods -- 6.0%
60,000 Browning-Ferris Industries ............... 2,016,120 1,770,000
25,000 Deere .................................... 693,854 881,250
40,000 Raytheon ................................. 1,287,429 1,890,000
46,000 Tyco International ....................... 1,082,070 1,638,750
----------- ------------
5,079,473 6,180,000
----------- ------------
Consumer Cyclicals -- 19.5%
130,000 Big Flower Press Holdings* ............... 2,048,026 2,015,000
35,000 Gadzooks* ................................ 615,000 883,750
30,000 Exide .................................... 1,382,425 1,376,250
60,000 Federated Department Stores* ............. 1,312,617 1,650,000
150,000 Hollinger ................................ 1,136,000 1,087,500
125,000 MascoTech ................................ 1,531,529 1,359,375
60,000 Omnicom Group ............................ 1,768,020 2,235,000
130,000 Price\Costco* ............................ 2,282,435 1,982,500
45,000 Proffitts* ............................... 1,161,359 1,181,250
100,000 Sears, Roebuck ........................... 3,178,280 3,900,000
40,000 Sherwin-Williams ......................... 1,396,315 1,630,000
20,000 Times Mirror, Class A .................... 601,200 677,500
----------- ------------
18,413,206 19,978,125
----------- ------------
Consumer Staples -- 15.3%
45,000 Albertson's .............................. 1,361,636 1,479,375
70,000 ConAgra .................................. 2,315,459 2,887,500
15,000 Estee Lauder Companies, Class A .......... 390,000 523,125
80,000 Kroger* .................................. 2,123,840 3,000,000
23,300 Penn Traffic* ............................ 369,153 349,500
60,000 Riviana Foods ............................ 754,522 795,000
160,000 Stop & Shop Companies* ................... 3,105,918 3,700,000
35,000 Sysco .................................... 993,475 1,137,500
77,300 Whitman .................................. 1,654,688 1,797,225
----------- ------------
13,068,691 15,669,225
----------- ------------
Energy -- 17.4%
30,000 Amoco .................................... 1,893,920 2,156,250
35,000 Ashland .................................. 1,083,355 1,229,375
40,000 Chevron .................................. 1,931,150 2,100,000
75,000 Diamond Shamrock ......................... 1,876,590 1,940,625
20,000 Mobil .................................... 2,142,450 2,240,000
50,000 Noble Affiliates ......................... 1,302,375 1,493,750
20,000 Texaco ................................... 1,548,075 1,570,000
10,000 Tejas Gas* ............................... 480,250 528,750
70,000 Unocal ................................... 1,827,950 2,038,750
100,000 Union Pacific Resources Group ............ 2,188,999 2,537,500
----------- ------------
16,275,114 17,835,000
----------- ------------
</TABLE>
5
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Statement of Net Assets December 31, 1995 (continued)
Common Stocks (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
Financial Services -- 8.3%
70,000 Bank of New York ......................... $ 2,588,120 $ 3,412,500
15,000 NationsBank .............................. 1,081,525 1,044,375
65,000 Prudential Reinsurance Holdings .......... 1,246,597 1,519,375
10,000 St. Paul Companies ....................... 553,037 556,250
35,000 Trenwick Group ........................... 1,762,413 1,968,750
----------- ------------
7,231,692 8,501,250
Health Care -- 7.4%
60,000 Columbia/HCA Healthcare .................. 2,544,558 3,045,000
60,000 SmithKline Beecham -- ADR ................ 2,933,140 3,330,000
25,000 U.S. HealthCare .......................... 1,025,720 1,162,500
----------- ------------
6,503,418 7,537,500
Technology -- 3.5%
75,000 Plantronics* ............................. 2,170,918 2,709,375
40,000 Spectrian* ............................... 961,255 890,000
----------- ------------
3,132,173 3,599,375
Transportation -- 3.6%
140,000 Canadian National Railway ................ 2,033,637 2,100,000
50,000 Pittston Services Group .................. 1,240,283 1,568,750
----------- ------------
3,273,920 3,668,750
Telecommunications & Utilities -- 3.0%
47,500 Midcom Communications* ................... 663,562 866,875
50,000 Williams Companies ....................... 1,928,000 2,193,750
----------- ------------
2,591,562 3,060,625
----------- ------------
Total Common Stocks ...................... 80,118,676 91,251,725
----------- ------------
Preferred Stocks -- 2.3%
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------
Capital Goods -- 1.5%
30,000 Elsag Bailey, 5.50% Convertible .......... 1,516,250 1,511,250
----------- ------------
Consumer Staples-- 0.8%
37,000 James River Depository Shares, 9% ........ 841,414 864,875
----------- ------------
Total Preferred Stocks ................... 2,357,664 2,376,125
----------- ------------
</TABLE>
6
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Statement of Net Assets December 31, 1995 (continued)
Purchased Options -- 0.0%
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Premium Value
Contracts Paid (Note 1a)
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
100 S&P Midcap 400 Index Puts
(expiring January 1996, exercise price $195) $ 9,575 $ 1,562
50 S&P Midcap 400 Index Puts
(expiring January 1996, exercise price $200) 2,600 1,250
50 S&P Midcap 400 Index Puts
(expiring February 1996, exercise price $200) 5,150 3,594
----------- ------------
Total purchased options 17,325 6,406
----------- ------------
Total Investments -- 91.4% ........................... $82,493,665 93,634,256
=========== ------------
Repurchase Agreements -- 9.3%
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount
(thousands)
- --------------------------------------------------------------------------------
<C> <S> <C>
$4,750 J.P. Morgan Securities, 5.75%, cost $4,750,000
dated 12/29/95, $4,753,035 due 1/2/96,
collateralized by $3,819,000 U.S. Treasury Bonds,
8.125%, valued at $4,845,356 due 2/15/21 ... 4,750,000
4,750 Merrill Lynch, 5.60%, cost $4,750,000,
dated 12/29/95, $4,752,956 due 1/2/96,
collateralized by $4,770,000 U.S. Treasury Notes,
5.625%, valued at $4,847,513 due 10/31/97 .. 4,750,000
------------
Total Repurchase Agreements ................. 9,500,000
------------
Cash and Receivables -- 3.3% ................ $33,364,953
Liabilities -- (4.0)% ....................... (4,070,582) (705,629)
----------- ------------
Net Assets -- equivalent to $18.67, offering and
redemption price per share on 5,484,823 shares of
$1.00 par value capital stock outstanding; 25,000,000
shares authorized .......................... $102,428,627
============
Net Assets Consist of:
Capital stock ............................... $ 5,484,823
Additional paid-in capital .................. 80,484,396
Undistributed net investment income ......... 4,470
Undistributed net realized gain ............. 5,314,347
Net unrealized appreciation ................. 11,140,591
------------
Net Assets .................................. $102,428,627
============
</TABLE>
- ----------
*Non-income producing security.
See accompanying notes to financial statements.
7
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Statement of Operations year ended December 31, 1995
<TABLE>
<S> <C> <C>
Investment Income
Income
Dividends (net of foreign withholding taxes of $16,179) .......... $ 1,378,300
Interest ......................................................... 624,141
------------
2,002,441
Expenses
Management fee ...................................... $ 957,755
Directors' fees and expenses ........................ 64,780
Legal ............................................... 61,275
Audit and tax return preparation fees ............... 57,750
Shareholder services ................................ 50,150
Custodian ........................................... 39,735
Printing ............................................ 30,850
Other ............................................... 37,150 1,299,445
------------ ------------
Net investment income ............................................ 702,996
------------
Net Realized and Unrealized Gain on Investments
Realized gain on investments and options ......................... 20,581,764
Net Unrealized Appreciation of Investments
Beginning of year ................................... 3,724,714
End of year ......................................... 11,140,591
------------
Increase in net unrealized appreciation .......................... 7,415,877
------------
Net realized gain and increase in net unrealized appreciation .... 27,997,641
------------
Net increase in net assets from operations ....................... $ 28,700,637
============
See accompanying notes to financial statements.
8
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Statement of Changes in Net Assets
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income ........................................... $ 702,996 $ 129,318
Net realized gain on investments and options .................... 20,581,764 2,885,474
Change in net unrealized appreciation ........................... 7,415,877 (19,541,271)
------------ -----------
Net change in net assets from operations ........................ 28,700,637 (16,526,479)
------------ -----------
Distributions to Shareholders from
Net investment income ........................................... (698,526) (148,595)
Net realized gain on investments ................................ (11,082,177) (8,197,412)
Distributions in excess of net realized gains ................... -- (4,185,240)
------------ -----------
(11,780,703) (12,531,247)
------------ -----------
Capital Share Transactions
Proceeds from sales of 1,609,281 and 1,403,122 shares,
respectively .................................................. 29,031,088 26,086,673
Net asset value of 600,042 and 677,223 shares, respectively,
issued in reinvestment of net investment income and net
realized gain distributions ................................... 11,026,944 11,471,834
Payment for redemption of 2,277,011 and 2,003,136 shares,
respectively .................................................. (41,253,697) (35,701,771)
------------ -----------
Change in net assets resulting from capital share
transactions, representing net decrease of 67,688 and
net increase of 77,209 shares, respectively ................... (1,195,665) 1,856,736
------------ -----------
Total change in net assets ...................................... 15,724,269 (27,200,990)
------------ -----------
Net Assets
Beginning of year ............................................... 86,704,358 113,905,348
------------ -----------
End of year (includes undistributed net investment income
of $4,470 for 1995) .......................................... $102,428,627 $86,704,358
============ ===========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Notes to Financial Statements
1. Significant Accounting Policies
The Fund is registered as a non-diversified, open-end, management investment
company under the Investment Company Act of 1940, as amended. The Fund's
investment objective is capital appreciation through investments primarily in
common stocks or securities convertible into common stocks which are believed to
have above-average price appreciation potential and which may also involve
above-average risk. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles ("GAAP"). The preparation of financial statements in accordance with
GAAP requires management to make estimates of certain reported amounts in the
financial statements. Actual amounts could differ from those estimates.
(a) Securities Valuation. Portfolio securities listed or traded on
national securities exchanges, or reported by the NASDAQ national market
system, are valued at the last sale price, or, if there have been no sales
on that day, at the mean of the current bid and ask price which represents
the current value of the security. Over-the-counter securities are valued at
the mean of the current bid and ask price. If no quotations are readily
available (as may be the case for securities of limited marketability), such
portfolio securities are valued at a fair value determined pursuant to
procedures established by the Board of Directors.
(b) Option Contracts. When the Fund writes or purchases a call option or
a put option, an amount equal to the premium received or paid is recorded as
a liability or asset, the value of which is marked-to-market daily to
reflect the current market value of the option. When the option expires, the
Fund realizes a gain or loss equal to the amount of the premium received or
paid. When the Fund enters into a closing transaction by purchasing or
selling an offsetting option, it realizes a gain or loss without regard to
any unrealized gain or loss on the underlying security. When a written call
option is exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the
premium originally received. When a written put option is exercised, the
amount of the premium received reduces the cost of the security that the
Fund purchased upon exercise.
(c) Federal Income Taxes. The Fund has complied and intends to continue
to comply with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies, and to distribute all
of its taxable income to its shareholders. Therefore, no Federal income tax
or excise tax provision is required.
(d) Repurchase Agreements. When entering into repurchase agreements, it
is the Fund's policy to take possession, through its custodian, of the
underlying collateral and to monitor its value at the time the arrangement
is entered into and at all times during the term of the repurchase agreement
to ensure that it always equals or exceeds the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or retention
of the collateral may be subject to legal proceedings.
10
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Notes to Financial Statements (continued)
(e) Dividends and Distributions. Dividends and distributions to
shareholders are recorded on the ex-dividend date, and determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles due primarily to deferral of wash sales.
(f) Other. Securities transactions are recorded as of the trade date.
Dividend income is recorded on the ex-dividend date. Gains or losses on
sales of securities are calculated for financial accounting and Federal tax
purposes on the identified cost basis. Interest is recognized as interest
income when earned.
2. Capital Stock
Payable for Fund shares redeemed at December 31, 1995 amounted to
$1,872,782.
3. Management Fee and Other Transactions
The Fund retains Salomon Brothers Asset Management Inc ("SBAM"), an
indirect, wholly-owned subsidiary of Salomon Inc, to act as investment manager
of the Fund subject to supervision by the Board of Directors of the Fund. SBAM
furnishes the Fund with office space and pays the compensation of its officers.
The management fee for these services is payable monthly and is based on the
following annual percentages of the Fund's average daily net assets: first $100
million--1%; next $100 million--.75%; next $200 million--.625%; excess over $400
million--.50%. The management fee payable at December 31, 1995 was $85,026.
Brokerage commissions of $57,993 were paid to Salomon Brothers Inc, the
Fund's distributor and an indirect wholly-owned subsidiary of Salomon Inc, for
transactions executed on behalf of the Fund during the year ended December 31,
1995.
If in any fiscal year the total expenses of the Fund, excluding taxes,
interest, brokerage and extraordinary expenses, but including the management
fee, exceed the most stringent expense limitation imposed by state securities
regulations applicable to the Fund, SBAM will pay or reimburse the Fund for the
excess. Currently, this limitation on an annual basis is 2.5% of the first $30
million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of average daily net assets in excess of $100 million.
For the year ended December 31, 1995, there was no such reimbursement.
11
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Notes to Financial Statements (continued)
4. Portfolio Activity
The cost of securities purchased and proceeds from securities sold (other
than short-term investments) during the year ended December 31, 1995 aggregated
$193,714,152 and $210,691,117, respectively. Amounts payable for securities
purchased at December 31, 1995 aggregated $1,325,453.
Cost of securities held (excluding short-term investments and written
options) on December 31, 1995 for Federal income tax purposes was substantially
the same as for book purposes. As of December 31, 1995, total unrealized
appreciation and depreciation, based on the cost for Federal income tax
purposes, was approximately $12,101,000 and $960,000, respectively, resulting in
net unrealized appreciation of approximately $11,141,000.
Transactions in options written during the year ended December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
--------- --------
<S> <C> <C>
Options outstanding at December 31, 1994 ........... (1,550) $(441,761)
Options written .................................... (779) (135,739)
Options terminated in closing purchase transactions. 2,100 563,231
Options expired .................................... 29 1,211
Options exercised .................................. 200 13,058
----- ---------
Options outstanding at December 31, 1995 ........... -- --
===== =========
</TABLE>
During the year ended December 31, 1995 net realized loss from written
option transactions amounted to $507,368. During the year ended December 31,
1995 net realized loss from purchased option transactions amounted to $347,275,
for a net realized loss on all option transactions of $854,643.
The risk in writing a covered call option is that the Fund may forego the
opportunity of profit if the market price of the underlying security increases
and the option is exercised. The risk in writing a put option is that the Fund
may incur a loss if the market price of the underlying security decreases and
the option is exercised. In addition, there is the risk that the Fund may not be
able to enter a closing transaction because of an illiquid secondary market.
12
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Financial Highlights
Selected data per share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990+ 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year .. $15.62 $20.80 $19.64 $19.06 $14.86 $16.75 $15.58 $16.58 $17.87 $19.75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income ............... .14 .03 .028 .10 .33 .20 .05 .01P. .04 .13
Net gains (losses) on securities
(both realized and unrealized) .... 5.27 (2.87) 3.242 .80 4.56 (1.715) 6.25 (.775) .355* 2.275
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations .. 5.41 (2.84) 3.27 .90 4.89 (1.515) 6.30 (.765) .395 2.405
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less dividends and distributions:
Divdends from net investment income . (.14) (.03) (.035) (.105) (.325) (.285) -- -- (.13) (.25)
Distributions from net realized gain
on investments .................... (2.22) (1.51) (2.075) (.215) (.365) (.09) (5.13) (.235) (1.555) (4.035)
Distributions in excess of net
realized gains .................... -- (.80) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and distributions (2.36) (2.34) (2.11) (.32) (.69) (.375) (5.13) (.235) (1.685) (4.285)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year ........ $18.67 $15.62 $20.80 $19.64 $19.06 $14.86 $16.75 $15.58 $16.58 $17.87
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total investment return based on net
asset value per share ............. +34.9% -14.2% +17.2% +4.7% +33.4% -9.1% +39.7% -4.6% +1.7% +13.7%
Ratios/Supplemental Data:
Net assets end of year
(thousands) ....................... $102,429 $86,704 $113,905 $103,356 $89,829 $75,815 $72,621 $64,267 $91,313 $105,215
Ratio of expenses to average net
assets++ .......................... 1.36% 1.30% 1.31% 1.34% 1.48% 1.44% 1.48% 1.27% 1.17%* 1.13%
Ratio of net investment income to
average net assets ................ .74% 0.12% 0.13% 0.58% 1.87% 1.59% 0.33% 0.03% 0.19% 0.65%
Portfolio turnover rate ............. 217% 152% 104% 41% 94% 156% 362% 270% 395% 279%
</TABLE>
- ----------
<TABLE>
<C> <S>
* Net of provision for income taxes of $.057 per share. Expense ratio including provision would be 1.45%.
P. Calculated using average shares outstanding.
++ Net of reimbursement for years 1986 through 1988.
+ Since May 1, 1990, the Fund has been managed by SBAM. Prior thereto, the Lehman Management Co. division of Shearson
Lehman Brothers Inc. served as the Fund's investment manager.
</TABLE>
13
<PAGE>
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Report of Independent Accountants
To the Board of Directors and Shareholders of
Salomon Brothers Capital Fund Inc
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Salomon Brothers Capital Fund Inc (the "Fund") at December 31, 1995, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the ten years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 16, 1996
14
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
September 30, 1996 (Unaudited)
SALOMON BROTHERS ASIA GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1a)
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
COMMON STOCKS -- 93.7%
HONG KONG -- 32.6%
30,100 Asia Satellite Telecommunications Holdings*................................. $ 79,600
44,000 ASM Pacific Technology...................................................... 35,277
14,800 Bank of East Asia........................................................... 54,450
30,000 Cheung Kong Holdings........................................................ 230,829
37,000 Cheung Kong Infrastructure*................................................. 61,005
75,000 China Resources Enterprises................................................. 75,650
7,000 Citic Pacific............................................................... 31,682
30,000 Consolidated Electric Power................................................. 63,429
29,000 Dickson Concepts International*............................................. 93,192
150,000 Glorious Sun*............................................................... 58,677
136,000 Guangdong Investment........................................................ 95,849
50,020 HKR International........................................................... 58,215
55,300 Hong Kong Land Holdings..................................................... 128,849
50,000 Hong Kong Telecommunications................................................ 90,521
10,600 HSBC Holdings............................................................... 196,704
29,000 Hutchison Whampoa........................................................... 195,008
16,000 Hysan Development........................................................... 50,071
27,000 New World Development....................................................... 141,756
80,000 Qingling Motors*............................................................ 30,777
410,000 Shanghai Petrochemical...................................................... 108,690
10,000 Swire Pacific............................................................... 89,551
------------
1,969,782
------------
INDIA -- 7.2%
22,300 Arvind Mills -- GDR......................................................... 82,510
7,200 Ashok Leyland -- GDR*....................................................... 77,400
4,000 Industrial Credit & Investment -- GDR*...................................... 43,750
2,300 Larsen & Toubro -- GDR...................................................... 33,580
10,000 Mahindra & Mahindra -- GDR*................................................. 102,500
5,100 Reliance Industries -- GDR.................................................. 54,825
3,200 Tata Engineering & Locomotive -- GDR........................................ 41,600
------------
436,165
------------
INDONESIA -- 3.8%
50,000 Lippo Karawaci (a).......................................................... 58,115
4,500 PT Hm Sampoerna (a)......................................................... 43,780
50,000 PT Inti Indorayon Utama (a)................................................. 43,586
49,000 PT Lippo Life Insurance (a)................................................. 43,241
26,000 PT Telekomunikasion* (a).................................................... 40,293
------------
229,015
------------
KOREA -- 4.1%
8,500 Hanwha Chemical............................................................. 77,385
4,400 Korea Mobile Telecommunications -- ADR*..................................... 66,550
3,200 LG Electronics.............................................................. 55,787
380 LG Information & Communication.............................................. 46,695
------------
246,417
------------
MALAYSIA -- 17.1%
22,000 Aokam Perdana............................................................... 36,690
26,000 DCB Holdings................................................................ 89,212
13,000 Ekran....................................................................... 56,017
67,000 Industrial Oxygen........................................................... 102,115
</TABLE>
See accompanying notes to financial statements.
PAGE 78
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
SALOMON BROTHERS ASIA GROWTH FUND (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1a)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
17,000 Kian Joo Can Factory........................................................ $ 93,600
25,000 Land & General.............................................................. 53,363
48,000 Leader Universal Holdings................................................... 103,415
11,000 Malakoff.................................................................... 55,298
4,000 Malayan Banking............................................................. 39,738
12,000 Malaysia Assurance Alliance................................................. 66,071
46,000 MBF Capital................................................................. 65,337
27,000 MBM Resources............................................................... 59,248
15,000 Rashid Hussein.............................................................. 83,187
17,000 United Engineers............................................................ 131,583
------------
1,034,874
------------
PAKISTAN -- 1.0%
6,800 Pakistan State Oil*......................................................... 61,127
------------
PHILIPPINES -- 1.8%
60,000 Ayala Land, Series B........................................................ 73,185
125,000 Belle*...................................................................... 36,688
------------
10,9873
------------
SINGAPORE -- 11.0%
6,400 Cerebos Pacific............................................................. 54,083
13,300 Cycle & Carriage............................................................ 144,504
13,000 Hong Leong Finance.......................................................... 42,281
20,000 Sembawang................................................................... 93,737
2,500 Singapore Press Holdings (a)................................................ 45,626
15,000 United Overseas Bank (a).................................................... 145,931
58,000 Wing Tai Holdings........................................................... 140,037
------------
666,199
------------
SRI LANKA -- 0.6%
162,800 Asia Capital*............................................................... 21,572
26,000 United Motors Lanka......................................................... 15,216
------------
36,788
------------
TAIWAN -- 7.1%
15,000 Cathay Life Insurance....................................................... 96,070
45,000 China Steel................................................................. 41,921
34,000 Formosa Plastics............................................................ 75,473
28,000 International Commercial Bank............................................... 86,099
44,000 Pacific Construction*....................................................... 41,470
67,000 Yang Ming Marine Transport.................................................. 88,504
------------
429,537
------------
THAILAND -- 7.4%
13,650 Bangkok Bank................................................................ 122,407
6,800 Dhana Siam Finance.......................................................... 30,757
3,000 Dhana Siam Finance (a)...................................................... 14,159
15,000 Property Perfect (a)........................................................ 44,248
32,000 Siam City Bank.............................................................. 50,029
16,800 Thai Farmers Bank........................................................... 114,973
41,000 Thai Telephone & Telecommunications* (a).................................... 70,147
------------
446,720
------------
TOTAL COMMON STOCKS (cost $5,767,955)....................................... 5,666,497
------------
</TABLE>
See accompanying notes to financial statements.
PAGE 79
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- -----------------------------------------------------------
Portfolio of Investments
September 30, 1996 (Unaudited)
SALOMON BROTHERS ASIA GROWTH FUND (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES DESCRIPTION (NOTE 1a)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
WARRANTS -- 3.7%
1,550,000 China Resources Warrants (expiring 08/28/97)................................ $ 46,302
550,000 Henderson Investment Call Warrants (expiring 02/17/97)...................... 20,982
260,000 Hutchison Whampoa Warrants (expiring 08/12/97).............................. 45,054
280,000 New World Development Warrants (expiring 4/29/97)........................... 31,139
114,000 Peregrine Investment Holdings Warrants (expiring 5/15/98)................... 21,376
45,000 PT Indah Kiat Pulp & Paper Warrants (expiring 04/13/01)..................... 18,403
190,000 Swire Pacific A Call Warrants (expiring 5/30/97)............................ 38,821
9,000 Thai Basket Warrants (expiring 11/19/96).................................... 1,157
------------
223,234
------------
TOTAL WARRANTS (cost $237,103).............................................. 223,234
------------
<CAPTION>
CONTRACTS
- -----------
<C> <S> <C>
PURCHASED OPTIONS -- 1.2%
352 Hang Seng Index Call (expiring 12/30/96, exercise price HKD 11,541)......... 27,861
8 Hang Seng Index Put (expiring 12/6/96, exercise price HKD 10,600)........... 3,155
100,000 Hutchison Whampoa Call (expiring 12/20/96, exercise price HKD 51.66)........ 29,096
103,000 Hysan Call (expiring 01/17/97, exercise price HKD 25.3575).................. 12,334
------------
TOTAL PURCHASED OPTIONS (cost $68,400)...................................... 72,446
------------
TOTAL INVESTMENTS -- 98.6%
(cost $6,073,458)......................................................... 5,962,177
------------
Other assets in excess of liabilities -- 1.4%.............................. 82,216
------------
NET ASSETS -- 100.0%........................................................ $ 6,044,393
------------
------------
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY CONTRACTS TO CONTRACTS UNREALIZED
DATE DELIVER IN EXCHANGE FOR AT VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
PURCHASES
10/03/96 MYR 148,886 $59,538 $59,397 $ (141)
------
------
</TABLE>
* Non-income producing security.
(a) Foreign Shares
Abbreviations used in this statement:
<TABLE>
<S> <C>
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
HKD -- Hong Kong Dollar
MYR -- Malaysian Ringgit
</TABLE>
See accompanying notes to financial statements.
PAGE 80
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
September 30, 1996 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Note A)............................................................. $5,962,177
Foreign currency, at value (Note B)........................................................ 80,523
Cash....................................................................................... 12,420
Receivable for securities sold............................................................. 65,428
Receivable for fund shares sold............................................................ 23,353
Interest and dividends receivable.......................................................... 9,713
Deferred organization expense.............................................................. 91,727
Net receivable from investment advisor..................................................... 32,903
----------
Total assets............................................................................... 6,278,244
----------
LIABILITIES:
Payable for:
Securities purchased..................................................................... 92,348
Organization fees........................................................................ 93,550
Service and distribution fees............................................................ 8,634
Unrealized depreciation of forward foreign currency contracts.......................... 141
Accrued expenses....................................................................... 39,178
----------
Total Liabilities.......................................................................... 233,851
----------
Net assets................................................................................. $6,044,393
----------
----------
NET ASSETS CONSIST OF:
Paid-in capital............................................................................ $6,207,487
Undistributed net investment income........................................................ $ 20,506
Accumulated net realized loss on investments, options and foreign currency transactions.... (72,113)
Net unrealized depreciation on investments, foreign currency transactions and other
assets................................................................................... (111,487)
----------
NET ASSETS................................................................................. $6,044,393
----------
----------
Class A.................................................................................... $3,104,675
----------
----------
Class B.................................................................................... $2,648,241
----------
----------
Class C.................................................................................... $ 174,763
----------
----------
Class O.................................................................................... $ 116,714
----------
----------
SHARES OUTSTANDING:
Class A.................................................................................... 320,802
----------
----------
Class B.................................................................................... 274,400
----------
----------
Class C.................................................................................... 18,104
----------
----------
Class O.................................................................................... 12,047
----------
----------
NET ASSET VALUE:
CLASS A SHARES
Net asset value and redemption price per share............................................. $ 9.68
----------
----------
Maximum offering price per share (based on maximum front end sales charge of 4.75%)........ $ 10.16
----------
----------
CLASS B SHARES
Net asset value and offering price per share*.............................................. $ 9.65
----------
----------
CLASS C SHARES
Net asset value and offering price per share*.............................................. $ 9.65
----------
----------
CLASS O SHARES
Net asset value, offering price and redemption price per share............................. $ 9.69
----------
----------
Note A: Cost of investments................................................................ $6,073,458
----------
----------
Note B: Cost of foreign currency........................................................... $ 80,655
----------
----------
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See accompanying notes to financial statements.
PAGE 81
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Period Ended September 30, 1996 * (Unaudited)
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM:
OPERATIONS:
Net investment income.................................................................... $ 20,506
Net realized loss on investments, options and foreign currency transactions.............. (72,113)
Net change in unrealized depreciation on investments, foreign currency transactions and
other assets........................................................................... (111,487)
Net decrease in net assets resulting from operations..................................... (163,094)
----------
NET FUND CAPITAL SHARE TRANSACTIONS:
Class A.................................................................................. 3,175,287
Class B.................................................................................. 2,728,887
Class C.................................................................................. 180,140
Class O.................................................................................. 118,173
----------
Net increase in net assets derived from share transactions............................. 6,202,487
----------
NET INCREASE IN NET ASSETS................................................................. 6,039,393
NET ASSETS:
Beginning of period...................................................................... 5,000
----------
End of period (including undistributed net investment income of $20,506)................. $6,044,393
----------
----------
</TABLE>
* Fund's commencement of investment operations was May 6, 1996.
See accompanying notes to financial statements.
PAGE 83
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ----------------------------------------------------------------------
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Salomon Brothers Asia Growth Fund (the 'Fund') is a portfolio of the Salomon
Brothers Series Funds Inc (the 'Series Funds'). The Series Funds were
incorporated in Maryland on April 17, 1990 as an open-end management investment
company. The Fund's objective is to seek long-term capital appreciation.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles ('GAAP'). The
preparation of financial statements in accordance with GAAP requires management
to make estimates of certain reported amounts in the financial statements.
Actual amounts could differ from those estimates.
(a) INVESTMENT VALUATION. Portfolio securities listed or traded on
national securities exchanges, or reported on the NASDAQ national market
system, are valued at the last sale price, or if there have been no sales
on that day, at the mean of the current bid and asked price which
represents the current value of the security. Over-the-counter securities
are valued at the mean of the current bid and asked price. Debt securities
are valued by using either market quotations or independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Short-term securities with less than 60 days
remaining to maturity when acquired by the Fund will be valued at amortized
cost which approximates market value. If the Fund acquires such securities
with more than 60 days remaining to maturity, they will be valued at
current market value (using the bid price), until the 60th day prior to
maturity, and will then be valued on an amortized cost basis.
Foreign securities quoted in a foreign currency are translated into
U.S. dollars using exchange rates at 12:30 p.m. Eastern time, or at such
other rates as Salomon Brothers Asset Management Inc ('SBAM') may determine
to be appropriate in computing net asset value.
Prior governmental approval for foreign investments may be required
under certain circumstances in some emerging countries, and the extent of
foreign investment in domestic companies may be subject to limitation in
other emerging countries. Foreign ownership limitations also may be imposed
by the charters of individual companies in emerging countries to prevent,
among other things, violation of foreign investment limitations. As a
result, an additional class of shares (identified as 'Foreign [^Shares' in
the Portfolio of Investments) may be created and offered for investment by
such companies. The 'local' and 'foreign' shares' market values may differ.
Securities for which reliable quotations or prices from pricing
services are not readily available (as may be the case for securities of
limited marketability) and all
PAGE 84
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
other assets are valued at their respective fair value as determined in
good faith by, or under procedures established by, the Board of Directors.
(b) OPTION CONTRACTS. When the Fund writes or purchases a call or a
put option, an amount equal to the premium received or paid by the Fund is
recorded as a liability or asset, the value of which is marked-to-market
daily to reflect the current market value of the option. When the option
expires, the Fund realizes a gain or loss equal to the amount of the
premium received or paid. When the Fund exercises an option or enters into
a closing transaction by purchasing or selling an offsetting option, it
realizes a gain or loss without regard to any unrealized gain or loss on
the underlying security. When a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received.
When a written put option is exercised, the amount of the premium received
reduces the cost of the security that the Fund purchased upon exercise of
the option.
(c) REPURCHASE AGREEMENTS. When entering into repurchase agreements,
it is the Fund's policy that the Fund take possession, through its
custodian, of the underlying collateral and monitor the collateral's value
at the time the agreement is entered into and on a daily basis during the
term of the repurchase agreement to ensure that it equals or exceeds the
repurchase price. In the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings.
(d) FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund
are maintained in U.S. dollars. Investment securities and other assets and
liabilities of the Fund denominated in a foreign currency are translated
into U.S. dollars at the prevailing rates of exchange each day. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions. Net realized gains and losses on
foreign currency transactions represent net gains and losses from sales and
maturities of forward currency contracts, disposition of foreign
currencies, currency gains and losses realized between the trade and
settlement dates on securities transactions and the difference between the
amount of net investment income accrued and the U.S. dollar amount actually
received. The effect of changes in foreign currency exchange rates on
investments in securities are not segregated in the Statements of
Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or
loss on investments.
(e) FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may enter into
forward foreign currency contracts in connection with planned purchases or
sales of securities or to hedge the value of portfolio securities. A
forward foreign currency contract is an agreement between two parties to
buy and sell a currency at a set price on a future date. The contract is
marked-to-market daily and the change in
PAGE 85
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ----------------------------------------------------------------------
Notes to Financial Statements (unaudited)
value is recorded by the Fund as an unrealized gain or loss. When a forward
foreign currency contract is extinguished, through either delivery or
offset by entering into another forward foreign currency contract, the Fund
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value of the contract at
the time it was extinguished or offset.
(f) FEDERAL INCOME TAXES. The Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies by distributing all of its income, including any net
realized gains, to shareholders. Therefore, no Federal income tax or excise
tax provision is required.
(g) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. The Fund will declare
dividends from net investment income annually. Distributions of net
realized gains to shareholders of the Fund, if any, are declared at least
annually. Dividends and distributions to shareholders of the Fund are
recorded on the ex-dividend date and are determined in accordance with
income tax regulations which may differ from GAAP primarily due to
differences in the treatment of foreign currency gains/losses, deferral of
wash sales, and post-October losses incurred by the Fund. Permanent
book/tax differences are reclassified within the capital accounts based on
their federal income tax basis treatment; temporary differences do not
require reclassifications. Dividends and distributions which exceed net
investment income and net realized gains for financial reporting purposes
but not for tax purposes are reported as dividends in excess of net
investment income and distributions in excess of net realized capital
gains.
(h) CLASS ACCOUNTING. Investment income, common expenses and gain
(loss) on investments are allocated to the various classes of the Fund on
the basis of daily net assets of each class. Distribution and shareholder
servicing fees relating to a specific class are charged directly to that
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
(i) EXPENSES. Direct expenses of the Fund are charged to it, and
general expenses of the Series Funds are allocated to the Fund based on its
relative net assets.
(j) ORGANIZATIONAL COSTS. Certain costs incurred in connection with
the Fund's organization have been deferred and are being amortized by the
Fund over a 60 month period from the date the Fund commenced investment
operations.
(k) OTHER. Investment transactions are recorded as of the trade date.
Dividend income is recorded on the ex-dividend date or on a when-known
basis. Interest income, including the accretion of discounts or
amortization of premiums, is recognized when earned. Gains or losses on
sales of securities are calculated for financial accounting and Federal
income tax purposes on the identified cost basis. Net investment income
(other than distribution fees) and unrealized and realized
PAGE 86
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
gains or losses are allocated daily to each class of shares based upon the
relative proportion of each class's net assets to the Fund's total net
assets.
2. MANAGEMENT FEE AND OTHER AGREEMENTS
The Fund retains SBAM, an indirect wholly owned subsidiary of Salomon Inc, to
act as investment manager of the Fund, subject to the supervision by the Board
of Directors of the Series Funds. Among other things, SBAM furnishes the Fund
with office space and certain services and facilities required for conducting
the business of the Fund, and pays the compensation of its officers. The
management fee for these services is payable monthly at an annual rate of .80%
of the Fund's average daily net assets. SBAM has retained Salomon Brothers Asset
Management Asia Pacific Limited ('SBAM AP'), an affiliate of SBAM, to act as
sub-advisor to the Fund. Salomon Brothers Asset Management Limited ('SBAM
Limited'), an affiliate of SBAM, provides certain administrative services to the
Fund. SBAM AP and SBAM Limited are compensated by SBAM at no additional expense
to the Fund. If in any fiscal year total expenses of the Fund, excluding taxes,
interest, brokerage and extraordinary expenses, but including the management
fee, exceed the most stringent expense limitations imposed by state securities
regulations applicable to the Fund, SBAM will pay or reimburse the Fund for the
excess. Currently, the most restrictive of these limitations on an annual basis
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million of average daily net assets and 1.5% of average daily net assets in
excess of $100 million.
For the period ended September 30, 1996, SBAM voluntarily waived management fees
of $17,499 and absorbed expenses of $32,902 for the Fund.
The Fund has an agreement with Salomon Brothers Inc ('Salomon Brothers'), an
affiliate of SBAM, to distribute its shares pursuant to a multiple class pricing
system. Each class (except for Class O) of the Fund is authorized pursuant to a
services and distribution plan applicable to that class of shares (the 'Class A
Plan,' the 'Class B Plan,' and the 'Class C Plan,' collectively, the 'Plans')
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the '1940 Act'), to pay Salomon Brothers an annual service fee with
respect to Class A, Class B, and Class C shares of the Fund at the rate of .25%
of the value of the average daily net assets of the respective class. Salomon
Brothers is also paid an annual distribution fee with respect to Class B and
Class C shares of the Fund at the rate of .75% of the value of the average daily
net assets of the respective class. Class O shares are not subject to a services
and distribution plan fee.
PAGE 87
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ----------------------------------------------------------------------
Notes to Financial Statements (unaudited)
3. CAPITAL STOCK
At September 30, 1996, the Series Funds had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share, of which, the Fund had 999,999,992
shares authorized. Transactions in Fund shares for the period ended September
30, 1996 were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS O
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold.......... 321,622 $3,182,950 274,275 $2,727,637 28,310 $275,175 11,922 $116,923
Shares redeemed...... (945) (8,913) -- -- (10,331) (96,285) -- --
------- ---------- ------- ---------- ------- -------- ------ --------
Net increase......... 320,677 $3,174,037 274,275 $2,727,637 17,979 $178,890 11,922 $116,923
------- ---------- ------- ---------- ------- -------- ------ --------
------- ---------- ------- ---------- ------- -------- ------ --------
</TABLE>
At September 30, 1996, Salomon Brothers owned approximately 80% of total shares
outstanding of the Fund.
4. PORTFOLIO ACTIVITY
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, during the period ended September 30, 1996 aggregated $8,835,644
and $2,451,031, respectively.
At September 30, 1996, the cost for Federal income tax purposes is $6,073,458,
resulting in gross unrealized appreciation and depreciation of $287,390 and
$398,671, respectively, and net unrealized depreciation of $111,281.
Transactions in options written for the Fund during the period ended September
30, 1996 were as follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
<S> <C> <C>
Options written............................................ 26,000 $ 4,353
Options terminated in closing purchase transactions........ (26,000) (4,353)
------------ ------------
Options outstanding at September 30, 1996..................
------------ ------------
------------ ------------
</TABLE>
5. PORTFOLIO INVESTMENT RISKS
The Fund may enter into forward foreign currency contracts ('forward contracts')
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities. Forward contracts involve elements of market risk in
excess of the amounts reflected in the Statements of Assets and Liabilities. The
Fund bears the risk of an unfavorable change in the foreign exchange rate
underlying the forward contract. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the terms
of their contracts.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and
PAGE 88
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
regulation of foreign securities markets and the possibility of political or
economic instability. The consequences of political, social, economic or
diplomatic changes may have disruptive effects on the market prices of
investments held by the Funds. The Funds' investment in non-dollar denominated
securities may also result in foreign currency losses caused by devaluations and
exchange rate fluctuations.
The Fund may write covered call and put options. A risk in writing a covered
call option is that the Fund may forego the opportunity of profit if the market
price of the underlying security increases and the option is exercised. A risk
in writing a put option is that the Fund may incur a loss if the market price of
the underlying security decreases and the option is exercised. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market.
PAGE 89
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
- ---------------------------------------------------
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
SALOMON BROTHERS ASIA GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS O
PERIOD ENDED SEPTEMBER 30, 1996 (a)
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 10.00 $10.00 $ 10.00 $10.00
----------- ------ ----------- ------
Net investment income........................... 0.04 0.02 0.01 0.05
Net loss on investments (both realized and
unrealized)................................... (0.36) (0.37) (0.36) (0.36)
----------- ------ ----------- ------
Total from investment operations................ (0.32) (0.35) (0.35) (0.31)
----------- ------ ----------- ------
Net asset value, end of period.................. $ 9.68 $ 9.65 $ 9.65 $ 9.69
----------- ------ ----------- ------
----------- ------ ----------- ------
Net assets, end of period (thousands)........... $3,105 $2,648 $175 $117
Total return *.................................. -3.20% -3.50% -3.50% -3.10%
Ratios to average net assets:
Expenses........................................ 1.24%** 1.99%** 2.00%** 0.99%**
Net investment income........................... 1.26%** 0.58%** 0.43%** 1.60%**
Portfolio turnover rate......................... 49 % 49 % 49 % 49 %
Average broker commission rate.................. $0.0064 $0.0064 $0.0064 $0.0064
Before waiver of management fee and expenses
absorbed by SBAM, net investment loss per
share and expense ratios would have been:
Net investment loss per share................... ($0.04) ($0.06) ($ 0.06) ($0.02)
Expense ratio................................... 3.54%** 4.29%** 4.31%** 3.29%**
</TABLE>
(a) May 6, 1996, commencement of investment operations, through September 30,
1996.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value on
the ex-dividend date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated for
a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements.
PAGE 90
<PAGE>
<PAGE>
SALOMON BROTHERS CAPITAL FUND INC
PART C.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Financial Statements included in Part A:
For Salomon Brothers Cash Management Fund ('Cash Management Fund'),
Salomon Brothers New York Municipal Money Market Fund ('New York
Municipal Money Market Fund'), Salomon Brothers New York Municipal Bond
Fund ('New York Municipal Bond Fund'), Salomon Brothers National
Intermediate Municipal Fund ('National Intermediate Municipal Fund'),
Salomon Brothers U.S. Government Income Fund ('U.S. Government Income
Fund'), Salomon Brothers High Yield Bond Fund ('High Yield Bond Fund'),
Salomon Brothers Strategic Bond Fund ('Strategic Bond Fund'), Salomon
Brothers Total Return Fund ('Total Return Fund'), Salomon Brothers Asia
Growth Fund ('Asia Growth Fund'), Salomon Brothers Investors Fund Inc
('Investors Fund') and Salomon Brothers Capital Fund Inc ('Capital
Fund'):
Selected Per Share Data and Ratios for the specified periods for
each Fund are presented under the heading 'Financial Highlights' in
the Prospectus
Financial Statements included in Part B:
1. For Cash Management Fund, New York Municipal Bond Fund, National
Intermediate Municipal Fund, U.S. Government Income Fund, High Yield
Bond Fund, Strategic Bond Fund, Total Return Fund, Asia Growth Fund and
Investors Fund:
<TABLE>
<C> <S>
(i) Portfolio of Investments at June 30, 1996
(ii) Statement of Assets and Liabilities at June 30, 1996
(iii) Statement of Operations for the six months ended June 30, 1996
(iv) Statement of Changes in Net Assets for the six months ended June 30, 1996
(v) Notes to Financial Statements
(vi) Financial Highlights
</TABLE>
2. For New York Municipal Money Market Fund:
<TABLE>
<C> <S>
(i) Portfolio of Investments at June 30, 1996
(ii) Statement of Assets and Liabilities at June 30, 1996
(iii) Statement of Operations for the six months ended June 30, 1996
(iv) Statement of Changes in Net Assets for the six months ended June 30, 1996
(v) Financial Highlights
(vi) Notes to Financial Statements
</TABLE>
3. For Capital Fund:
<TABLE>
<C> <S>
(i) Statement of Net Assets at June 30, 1996
(ii) Statement of Operations for the six months ended June 30, 1996
(iii) Statement of Changes in Net Assets for the six months ended June 30, 1996
(iv) Notes to Financial Statements
(v) Financial Highlights
</TABLE>
4. For New York Municipal Money Market Fund and U.S. Treasury
Securities Money Market Fund:
<TABLE>
<C> <S>
(i) Portfolio of Investments at December 31, 1995
(ii) Statement of Assets and Liabilities at December 31, 1995
(iii) Statement of Operations for the year ended December 31, 1995
</TABLE>
C-1
<PAGE>
<PAGE>
<TABLE>
<C> <S>
(iv) Statement of Changes in Net Assets for the years ended December 31, 1995 and 1994
(v) Financial Highlights
(vi) Notes to Financial Statements
(vii) Report of Independent Accountants
</TABLE>
5. For Cash Management Fund, New York Municipal Bond Fund, National
Intermediate Municipal Fund, U.S. Government Income Fund, High Yield Bond
Fund, Strategic Bond Fund, Total Return Fund and Investors Fund:
<TABLE>
<C> <S>
(i) Portfolio of Investments at December 31, 1995
(ii) Statement of Assets and Liabilities at December 31, 1995
(iii) Statement of Operations for the year ended December 31, 1995
(iv) Statement of Changes in Net Assets for the years ended December 31, 1995 and, with respect to the
Cash Management Fund, New York Municipal Bond Fund and Investors Fund only, 1994
(v) Statement of Cash Flows for the U.S. Government Income Fund for the period from February 22, 1995
(commencement of operations) through December 31, 1995
(vi) Notes to Financial Statements
(vii) Financial Highlights
(viii) Report of Independent Accountants
</TABLE>
6. For Capital Fund:
<TABLE>
<C> <S>
(i) Statement of Net Assets at December 31, 1995
(ii) Statement of Operations for the year ended December 31, 1995
(iii) Statement of Changes in Net Assets for the years ended December 31, 1995 and 1994
(iv) Notes to Financial Statements
(v) Financial Highlights for the years ended December 31, 1995, 1994, 1993, 1992, 1991, 1990, 1989,
1988, 1987 and 1986
(vi) Report of Independent Accountants
</TABLE>
7. For Asia Growth Fund:
<TABLE>
<C> <S>
(i) Portfolio of Investments at September 30, 1996
(ii) Statement of Assets and Liabilities at September 30, 1996
(iii) Statement of Changes in Net Assets for the period ended September 30, 1996
(iv) Notes to Financial Statements
(v) Financial Highlights
</TABLE>
(b) Exhibits:
<TABLE>
<C> <S>
Description
1(a) -- Registrant's Articles of Incorporation are incorporated by reference to Exhibit 1 of the
Registration Statement on Form S-5.
1(b) -- Registrant's Articles of Incorporation, as amended, are incorporated by reference to Exhibit 1(1) of
Amendment No. 1 to the Registration Statement on Form S-5.
1(c) -- Registrant's Articles of Incorporation, as amended, are incorporated by reference to its
Registration Statement on Form N-1A, filed for the quarter ended September 30, 1978.
1(d) -- Registrant's Articles of Incorporation, as amended, are incorporated by reference to Exhibit 1(d) of
Post-Effective No. 7 to the Registration Statement on Form N-1.
1(e) -- Registrant's Articles of Incorporation, as amended on April 24, 1989, are incorporated by reference
to Exhibit 1(e) of Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A.
1(f) -- Registrant's Articles of Incorporation, as amended on April 20, 1990, are incorporated by reference
to Exhibit 1(f) of Post-Effective Amendment No. 15 to the Registration Statement on Form N-1A.
1(g) -- Form of Articles of Amendment and Restatement is incorporated by reference to Exhibit 1(g) to
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A.
</TABLE>
C-2
<PAGE>
<PAGE>
<TABLE>
<C> <S>
2 -- Registrant's By-Laws, as amended, are incorporated by reference to Exhibit 2 of Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A.
3 -- Not applicable.
4(a) -- Specimen Certificate of Capital Stock is incorporated by reference to Exhibit 1(4)(a) of
Amendment No. 1 to the Registration Statement on Form S-5.
4(b) -- Forms of Specimen Stock Certificates for Class A, Class B, Class C and Class O of Registrant
is filed herein.
5 -- Management Contract between Registrant and Salomon Brothers Asset Management Inc ('SBAM') is
incorporated by reference to Exhibit 5(b) to Amendment No. 14 to the Registration Statement on
Form N-1A.
6(a) -- Distribution Agreement between Registrant and Salomon Brothers Inc is incorporated by
reference to Exhibit 6(a) of Post-Effective Amendment No. 15 to the Registration Statement on
Form N-1A.
6(b) -- Form of Distribution Agreement between Registrant and Salomon Brothers Inc ('Salomon
Brothers') is incorporated by reference to Exhibit 6(b) of Post-Effective Amendment No. 23 to
the Registration Statement on Form N-1A.
7 -- Not applicable.
8(a) -- Custodian Agreement between Registrant and Boston Safe Deposit and Trust Company is
incorporated by reference to Exhibit 8 of Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A.
8(b) -- Custodian Agreement between Registrant and Investors Bank & Trust Company is incorporated by
reference to Exhibit 8(b) of Post-Effective Amendment No. 23 to the Registration Statement on
Form N-1A.
9(a) -- Transfer Agency Agreement between Registrant and Boston Safe Deposit and Trust Company dated
May 3, 1985 is incorporated by reference to Exhibit 9 of Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A.
9(b) -- Subadministration Agreement between SBAM and Investors Bank & Trust Company is incorporated by
reference to Exhibit 9(b) to Post-Effective Amendment No. 23 to the Registration Statement on
Form N-1A.
10 -- Opinion of Counsel as to the Legality of Securities Being Registered is incorporated by
reference to Exhibit 10 to Post-Effective Amendment No. 23 to the Registration Statement on
Form N-1A.
11 -- Consent of Price Waterhouse LLP, Independent Accountants is filed herein.
12 -- Not applicable.
13(a) -- Share Purchase Agreement between Registrant and Lehman Brothers Kuhn Loeb Incorporated is
incorporated by reference to Exhibit 1(3) of Amendment No. 3 to the Registration Statement on
Form N-1.
13(b) -- Form of Share Purchase Agreement between Registrant and SBAM is incorporated by reference to
Exhibit 13(b) of Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A.
14(a) -- Prototype Profit Sharing and Money Purchase Pension Plan are incorporated by reference to
Exhibit 14(a) of Amendment No. 5 to the Registration Statement on Form N-1.
14(b) -- Prototype Individual Retirement Account Plan is incorporated by reference to Exhibit 14(b) of
Amendment No. 5 to the Registration Statement on Form N-1.
15 -- Form of Services and Distribution Plan is incorporated by reference to Exhibit 15 of
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A.
16 -- Performance Calculations incorporated by reference to Exhibit 16 of Amendment No. 12 to the
Registration Statement on Form N-1A.
17 -- Financial Data Schedule is filed herein.
18(a) -- Form of Multiclass Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940 is
incorporated by reference to Exhibit 18(a) to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A.
18(b) -- Form of Application and Signature Card for Salomon Brothers Investment Series is incorporated
by reference to Exhibit 18(b) to Post-Effective Amendment No. 23 to the Registration Statement
on Form N-1A.
18(c) -- Powers of Attorney for Michael S. Hyland, Charles F. Barber, Andrew L. Breech, Thomas W.
Brock, Carol L. Colman, William R. Dill, Clifford M. Kirkland, Jr., Robert W. Lawless, Louis P.
Mathis and Thomas F. Schlafly are incorporated by reference to Exhibit 18(c) to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A.
</TABLE>
C-3
<PAGE>
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Entities within the Salomon Brothers group own greater than 25% of the
outstanding shares of (i) the Registrant, (ii) Salomon Brothers Institutional
Series Fund Inc, (iii) Class C of Salomon Brothers Investors Fund and (iv) the
classes of Salomon Brothers Series Funds Inc set forth below, and therefore may
be deemed to be control persons of such funds and classes. As a result, such
funds and classes may be deemed to be under common control.
Cash Management Fund -- Class O
New York Municipal Bond Fund -- Class A, B and C
National Intermediate Municipal Fund -- Class O, A, B and C
U.S. Government Income Fund -- Class O, B and C
High Yield Bond Fund -- Class O
Strategic Bond Fund -- Class O
Total Return Fund -- Class O
Asia Growth Fund -- Class O, A, B and C
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AT OCTOBER 23, 1996
- -------------------------------------------------------- ------------------------
<S> <C>
Shares of Salomon Brothers Capital Fund Inc par value
$1.00 per share....................................... 1,949
</TABLE>
ITEM 27. INDEMNIFICATION
Reference is made to Article Seventh of Registrant's Article of
Incorporation, Article IV of Registrant's By-Laws and Section 4 of the
Distribution Agreement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the 'Securities Act') may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant understands that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjucation of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
SBAM, an indirect wholly owned subsidiary of Salomon Inc, is an investment
adviser registered under the Investment Advisers Act of 1940 (the 'Advisers
Act') and renders investment advice to a wide variety of individual,
institutional and investment advisory clients.
The list required by this Item 28 of officers and directors of SBAM,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
FORM ADV filed by SBAM pursuant to the Advisers Act (SEC File No. 801-32046).
C-4
<PAGE>
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) Salomon Brothers currently acts as distributor for, in addition to the
Registrant, Investors Fund, Salomon Brothers Opportunity Fund Inc, Salomon
Brothers Series Funds Inc, and Salomon Brothers Institutional Series Funds Inc.
(b) The information required by this Item 29 with respect to each director,
officer or partner of Salomon Brothers is incorporated by reference to Schedule
A of FORM BD filed by Salomon Brothers pursuant to the Securities Exchange Act
of 1934 (SEC File No. 8-26920).
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(1) SBAM
7 World Trade Center
New York, New York 10048
(2) Investors Bank and Trust Company
89 South Street
Boston, Massachusetts 02111
(3) First Data Investor Services Group, Inc.
P.O. Box 5127
Westborough, Massachusetts 01581-5127
(records relating to its function as administrator and transfer agent)
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable
(b) Not applicable
(c) The Registrant hereby undertakes to furnish each person to whom a
Prospectus is delivered with a copy of the Registrant's latest Annual Report to
shareholders upon request and without charge.
C-5
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
to the Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933, as amended, and has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 30th day
of October, 1996.
SALOMON BROTHERS CAPITAL FUND INC
(Registrant)
By /S/ MICHAEL S. HYLAND
..................................
MICHAEL S. HYLAND
CHAIRMAN OF THE BOARD AND PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment to this Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ MICHAEL S. HYLAND Chairman of the Board, President and October 30, 1996
......................................... Director (principal executive officer)
MICHAEL S. HYLAND
/s/ ALAN M. MANDEL Treasurer October 30 1996
.........................................
ALAN M. MANDEL
/s/ * Director October 30, 1996
.........................................
CHARLES F. BARBER
/s/ * Director October 30, 1996
.........................................
ANDREW L. BREECH
/s/ * Director October 30, 1996
.........................................
THOMAS W. BROCK
/s/ * Director October 30, 1996
.........................................
CAROL L. COLMAN
/s/ * Director October 30, 1996
.........................................
WILLIAM R. DILL
/s/ * Director October 30, 1996
.........................................
CLIFFORD M. KIRTLAND, JR.
/s/ * Director October 30, 1996
.........................................
ROBERT W. LAWLESS
/s/ * Director October 30, 1996
.........................................
LOUIS P. MATTIS
</TABLE>
C-6
<PAGE>
<PAGE>
<TABLE>
<C> <S> <C>
/s/ * Director October 30, 1996
.........................................
THOMAS F. SCHLAFLY
*By: /S/ ALAN M. MANDEL October 30, 1996
.........................................
ALAN M. MANDEL
AS ATTORNEY-IN-FACT
</TABLE>
C-7
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
SALOMON BROTHERS
CAPITAL FUND INC
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
[SB ] [ ]
CAPITAL STOCK CAPITAL STOCK
ACCOUNT NO.
CUSIP_____________
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT:
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.001 PER SHARE OF
THE CAPITAL STOCK OF
Capital Fund - Class A (hereinafter called the Corporation) transferable on the
books of the Corporation by the holder hereof in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held subject to all
the provisions of the Articles of Incorporation, as amended and supplemented,
and the ByLaws, as amended (copies of which are on file with the Transfer
Agent), to all of which the holder by acceptance hereof assets. This Certificate
is not valid unless countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
SALOMON BROTHERS CAPITAL FUND INC
CORPORATE
[SEAL]
MARYLAND
1976
COUNTERSIGNED and REGISTERED:
FIRST DATA INVESTOR SERVICES GROUP, INC.
a subsidiary of First Data Corporation, Transfer Agent
(Westborough, Massachusetts)
BY
AUTHORIZED SIGNATURE
(SIGNATURE)
CHAIRMAN OF THE BOARD
(SIGNATURE)
SECRETARY
<PAGE>
<PAGE>
The Corporation will furnish to any stockholder on request and without
charge a full statement of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue, of the differences in the
relative rights and preferences between the shares of each series of a preferred
or special class in series which the Corporation is authorized to issue, to the
extent they have been set, and of the authority of the Board of Directors to set
the relative rights and preferences of subsequent series of a preferred or
special class of stock. Such request may be made to the secretary of the
Corporation or to its transfer agent.
Keep this certificate in a safe place. If it is lost, stolen, or destroyed,
the Corporation will require a bond of indemnity as a condition to the issuance
of a replacement certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT/TRSFR MIN ACT-_______Custodian_______
(Cust.) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts/Transfers
to Minors
JT TEN - as joint tenants with right of Act__________________________
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For Value Received,________________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated,__________________________________
___________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatsoever.
SB-19
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
SALOMON BROTHERS
CAPITAL FUND INC
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
[SB ] [ ]
CAPITAL STOCK CAPITAL STOCK
ACCOUNT NO.
CUSIP_____________
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT:
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.001 PER SHARE OF
THE CAPITAL STOCK OF
Capital Fund - Class B (hereinafter called the Corporation) transferable on the
books of the Corporation by the holder hereof in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held subject to all
the provisions of the Articles of Incorporation, as amended and supplemented,
and the ByLaws, as amended (copies of which are on file with the Transfer
Agent), to all of which the holder by acceptance hereof assets. This Certificate
is not valid unless countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
SALOMON BROTHERS CAPITAL FUND INC
CORPORATE
[SEAL]
MARYLAND
1976
COUNTERSIGNED and REGISTERED:
FIRST DATA INVESTOR SERVICES GROUP, INC.
a subsidiary of First Data Corporation, Transfer Agent
(Westborough, Massachusetts)
BY
AUTHORIZED SIGNATURE
(SIGNATURE)
CHAIRMAN OF THE BOARD
(SIGNATURE)
SECRETARY
<PAGE>
<PAGE>
The Corporation will furnish to any stockholder on request and without
charge a full statement of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue, of the differences in the
relative rights and preferences between the shares of each series of a preferred
or special class in series which the Corporation is authorized to issue, to the
extent they have been set, and of the authority of the Board of Directors to set
the relative rights and preferences of subsequent series of a preferred or
special class of stock. Such request may be made to the secretary of the
Corporation or to its transfer agent.
Keep this certificate in a safe place. If it is lost, stolen, or destroyed,
the Corporation will require a bond of indemnity as a condition to the issuance
of a replacement certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT/TRSFR MIN ACT-_______Custodian_______
(Cust.) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts/Transfers
to Minors
JT TEN - as joint tenants with right of Act__________________________
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For Value Received,________________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated,__________________________________
___________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatsoever.
SB-19
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
SALOMON BROTHERS
CAPITAL FUND INC
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
[SB ] [ ]
CAPITAL STOCK CAPITAL STOCK
ACCOUNT NO.
CUSIP_____________
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT:
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.001 PER SHARE OF
THE CAPITAL STOCK OF
Capital Fund - Class C (hereinafter called the Corporation) transferable on the
books of the Corporation by the holder hereof in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held subject to all
the provisions of the Articles of Incorporation, as amended and supplemented,
and the ByLaws, as amended (copies of which are on file with the Transfer
Agent), to all of which the holder by acceptance hereof assets. This Certificate
is not valid unless countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
SALOMON BROTHERS CAPITAL FUND INC
CORPORATE
[SEAL]
MARYLAND
1976
COUNTERSIGNED and REGISTERED:
FIRST DATA INVESTOR SERVICES GROUP, INC.
a subsidiary of First Data Corporation, Transfer Agent
(Westborough, Massachusetts)
BY
AUTHORIZED SIGNATURE
(SIGNATURE)
CHAIRMAN OF THE BOARD
(SIGNATURE)
SECRETARY
<PAGE>
<PAGE>
The Corporation will furnish to any stockholder on request and without
charge a full statement of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue, of the differences in the
relative rights and preferences between the shares of each series of a preferred
or special class in series which the Corporation is authorized to issue, to the
extent they have been set, and of the authority of the Board of Directors to set
the relative rights and preferences of subsequent series of a preferred or
special class of stock. Such request may be made to the secretary of the
Corporation or to its transfer agent.
Keep this certificate in a safe place. If it is lost, stolen, or destroyed,
the Corporation will require a bond of indemnity as a condition to the issuance
of a replacement certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT/TRSFR MIN ACT-_______Custodian_______
(Cust.) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts/Transfers
to Minors
JT TEN - as joint tenants with right of Act__________________________
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For Value Received,________________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated,__________________________________
___________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatsoever.
SB-19
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
SALOMON BROTHERS
CAPITAL FUND INC
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
[SB ] [ ]
CAPITAL STOCK CAPITAL STOCK
ACCOUNT NO.
CUSIP_____________
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT:
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.001 PER SHARE OF
THE CAPITAL STOCK OF
Capital Fund - Class O (hereinafter called the Corporation) transferable on the
books of the Corporation by the holder hereof in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held subject to all
the provisions of the Articles of Incorporation, as amended and supplemented,
and the ByLaws, as amended (copies of which are on file with the Transfer
Agent), to all of which the holder by acceptance hereof assets. This Certificate
is not valid unless countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
SALOMON BROTHERS CAPITAL FUND INC
CORPORATE
[SEAL]
MARYLAND
1976
COUNTERSIGNED and REGISTERED:
FIRST DATA INVESTOR SERVICES GROUP, INC.
a subsidiary of First Data Corporation, Transfer Agent
(Westborough, Massachusetts)
BY
AUTHORIZED SIGNATURE
(SIGNATURE)
CHAIRMAN OF THE BOARD
(SIGNATURE)
SECRETARY
<PAGE>
<PAGE>
The Corporation will furnish to any stockholder on request and without
charge a full statement of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue, of the differences in the
relative rights and preferences between the shares of each series of a preferred
or special class in series which the Corporation is authorized to issue, to the
extent they have been set, and of the authority of the Board of Directors to set
the relative rights and preferences of subsequent series of a preferred or
special class of stock. Such request may be made to the secretary of the
Corporation or to its transfer agent.
Keep this certificate in a safe place. If it is lost, stolen, or destroyed,
the Corporation will require a bond of indemnity as a condition to the issuance
of a replacement certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT/TRSFR MIN ACT-_______Custodian_______
(Cust.) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts/Transfers
to Minors
JT TEN - as joint tenants with right of Act__________________________
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For Value Received,________________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated,__________________________________
___________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatsoever.
SB-19
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 25 to the registration
statement on Form N-1A (the "Registration Statement") for Salomon Brothers
Capital Fund Inc of our reports dated February 16, 1996, relating to the
financial statements and financial highlights of Salomon Brothers Cash
Management Fund, Salomon Brothers New York Municipal Bond Fund, Salomon Brothers
National Intermediate Municipal Fund, Salomon Brothers U.S. Government Income
Fund, Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic Bond
Fund, Salomon Brothers Total Return Fund, Salomon Brothers New York Municipal
Money Market Fund, Salomon Brothers U.S. Treasury Securities Money Market Fund
(constituting Salomon Brothers Series Funds Inc), Salomon Brothers Investors
Fund Inc and Salomon Brothers Capital Fund Inc, which appear in such Statement
of Additional Information, and to the incorporation by reference of our reports
into the Prospectus which constitute part of this Registration Statement. We
also consent to the reference to us under the heading "Independent Accountants"
in such Statement of Additional Information and to the reference to us under the
heading "Financial Highlights" in such Prospectus.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York, 10036
October 29, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Salomon Brothers Capital Fund Inc
form N-SAR for the period ended December 31, 1995
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> Capital Fund Inc
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 82,493,665
<INVESTMENTS-AT-VALUE> 93,634,256
<RECEIVABLES> 3,317,815
<ASSETS-OTHER> 9,547,138
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 106,499,209
<PAYABLE-FOR-SECURITIES> 1,325,453
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,745,129
<TOTAL-LIABILITIES> 4,070,582
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85,969,219
<SHARES-COMMON-STOCK> 5,484,823
<SHARES-COMMON-PRIOR> 5,552,511
<ACCUMULATED-NII-CURRENT> 4,470
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,314,347
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,140,591
<NET-ASSETS> 102,428,627
<DIVIDEND-INCOME> 1,378,300
<INTEREST-INCOME> 624,141
<OTHER-INCOME> 0
<EXPENSES-NET> 1,299,445
<NET-INVESTMENT-INCOME> 702,996
<REALIZED-GAINS-CURRENT> 20,581,764
<APPREC-INCREASE-CURRENT> 7,415,877
<NET-CHANGE-FROM-OPS> 28,700,637
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 698,526
<DISTRIBUTIONS-OF-GAINS> 11,082,177
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,609,281
<NUMBER-OF-SHARES-REDEEMED> 2,277,011
<SHARES-REINVESTED> 600,042
<NET-CHANGE-IN-ASSETS> 15,724,269
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 4,185,240
<GROSS-ADVISORY-FEES> 957,755
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 341,690
<AVERAGE-NET-ASSETS> 95,365,571
<PER-SHARE-NAV-BEGIN> 15.62
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 5.27
<PER-SHARE-DIVIDEND> .14
<PER-SHARE-DISTRIBUTIONS> 2.22
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.67
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Capital Fund Inc.
form N-SAR for the period ended June 30, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> Capital Fund Inc
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 107,876,312
<INVESTMENTS-AT-VALUE> 120,131,692
<RECEIVABLES> 1,542,653
<ASSETS-OTHER> 355
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 121,674,700
<PAYABLE-FOR-SECURITIES> 1,858,925
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 636,354
<TOTAL-LIABILITIES> 2,495,279
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92,426,181
<SHARES-COMMON-STOCK> 5,827,321
<SHARES-COMMON-PRIOR> 5,484,823
<ACCUMULATED-NII-CURRENT> 413,392
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,084,495
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,255,353
<NET-ASSETS> 119,179,421
<DIVIDEND-INCOME> 898,492
<INTEREST-INCOME> 237,493
<OTHER-INCOME> 0
<EXPENSES-NET> 727,063
<NET-INVESTMENT-INCOME> 408,922
<REALIZED-GAINS-CURRENT> 14,096,425
<APPREC-INCREASE-CURRENT> 1,114,762
<NET-CHANGE-FROM-OPS> 15,620,109
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 5,326,277
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 937,773
<NUMBER-OF-SHARES-REDEEMED> 859,573
<SHARES-REINVESTED> 264,298
<NET-CHANGE-IN-ASSETS> 16,750,794
<ACCUMULATED-NII-PRIOR> 4,470
<ACCUMULATED-GAINS-PRIOR> 5,314,347
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 548,783
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 727,063
<AVERAGE-NET-ASSETS> 113,011,272
<PER-SHARE-NAV-BEGIN> 18.67
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 2.67
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.96)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 20.45
<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
<PAGE>
