<PAGE>
SALOMON BROTHERS Annual
Investment Series
Report
1998
DECEMBER 31, 1998
* ASIA GROWTH FUND
* SMALL CAP GROWTH FUND
* CAPITAL FUND
[GRAPHIC]
* INVESTORS FUND
* TOTAL RETURN FUND
* HIGH YIELD BOND FUND
* STRATEGIC BOND FUND
* NATIONAL INTERMEDIATE
MUNICIPAL FUND
* U.S.GOVERNMENT INCOME
FUND
* NEW YORK MUNICIPAL
MONEY MARKET FUND
* CASH MANAGEMENT FUND
<PAGE>
Table of Contents
A MESSAGE FROM THE CHAIRMAN .............................................. 1
THE SALOMON BROTHERS INVESTMENT SERIES
ASIA GROWTH FUND ....................................................... 5
SMALL CAP GROWTH FUND .................................................. 7
CAPITAL FUND ........................................................... 9
INVESTORS FUND ......................................................... 12
TOTAL RETURN FUND ...................................................... 15
HIGH YIELD BOND FUND ................................................... 17
STRATEGIC BOND FUND .................................................... 20
NATIONAL INTERMEDIATE MUNICIPAL FUND ................................... 23
U.S.GOVERNMENT INCOME FUND ............................................. 26
PORTFOLIOS OF INVESTMENTS ................................................ 30
STATEMENTS OF ASSETS AND LIABILITIES ..................................... 74
STATEMENTS OF OPERATIONS ................................................. 76
STATEMENTS OF CHANGES IN NET ASSETS ...................................... 78
STATEMENTS OF CASH FLOWS ................................................. 82
NOTES TO FINANCIAL STATEMENTS ............................................ 83
FINANCIAL HIGHLIGHTS ..................................................... 96
REPORT OF INDEPENDENT ACCOUNTANTS ........................................ 108
DIRECTORS AND OFFICERS OF
THE SALOMON BROTHERS INVESTMENT SERIES ................................. IBC
<PAGE>
[GRAPHIC] THE SALOMON BROTHERS INVESTMENT SERIES
A Message From
the Chairman
DEAR SHAREHOLDER:
We are pleased to provide the annual report for the Salomon Brothers Investment
Series - Asia Growth Fund, Small Cap Growth Fund, Capital Fund, Investors Fund,
Total Return Fund, High Yield Bond Fund, Strategic Bond Fund, National
Intermediate Municipal Fund, U.S. Government Income Fund, New York Municipal
Money Market Fund and Cash Management Fund ("Funds") for the year ended December
31, 1998.
Below is a chart showing each Fund's Class A share total return for the year
ended December 31, 1998 with and without sales charge. In addition, portfolio
information regarding the New York Municipal Money Market Fund and Cash
Management Fund can be found on pages 68 and 71, respectively.
THE PERFORMANCE OF THE SALOMON BROTHERS
INVESTMENT SERIES FUNDS
Class A shares total return for the Year Ended December 31, 1998:
WITHOUT WITH
SALES CHARGE(1) SALES CHARGE(2)
--------------- ---------------
Asia Growth Fund -13.10% -18.14%
Small Cap Growth Fund(3) 15.90% 9.24%
Capital Fund 23.68% 16.57%
Investors Fund 15.18% 8.54%
Total Return Fund 6.36% 0.25%
High Yield Bond Fund -7.05% -11.50%
Strategic Bond Fund 1.05% -3.79%
National Intermediate
Municipal Fund 4.52% -0.44%
U.S. Government Income Fund 7.62% 2.50%
(1) These total return figures assume reinvestment of all dividends and do not
reflect the deduction of a sales charge for each Fund's Class A shares.
(2) These total return figures assume reinvestment of all dividends and reflect
the deduction of the maximum front-end sales charge for each of the Fund's
Class A shares of 5.75% for the Asia Growth, Small Cap Growth, Capital,
Investors and Total Return Funds and 4.75% for the High Yield Bond,
Strategic Bond, National Intermediate Municipal and U.S. Government Income
Funds.
(3) Performance for the Small Cap Growth Fund is for the period from July 1,
1998 (inception date) to December 31, 1998.
In addition, both columns of data represent past performance, which is not
indicative of future results. 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. This shareholder report has been
prepared for the information of shareholders of the Salomon Brothers Investment
Series and is not authorized for use unless preceded or accompanied by a current
prospectus. The prospectus contains information regarding each Fund's sales
charges, expenses, objectives, policies, management and performance. Please read
it carefully before you invest or send money. Call your financial advisor or
call 1-800-725-6666 to obtain a copy of the prospectus.
1
<PAGE>
Sometimes numbers only tell part of the story. If you sampled some of the past
year's final results, they would suggest it was a pleasant ride for investors.
The S&P 500 Index, a popular measure of stock market growth, achieved a record
fourth consecutive year of twenty percent plus gains and finished the year up
28.58%. The Dow Jones Industrial Average also experienced another strong year
with an 18.13% return. A potent U.S. economy drove these returns and matched its
1997 GDP growth rate of 4%: it has not grown faster since 1984, when it surged
7%. Meanwhile, the inflation rate of 1.6% was at its lowest level since 1965.
These numbers fail to illustrate the experience of many investors. What seems
like a near perfect year at first glance was anything but that. Instead, the
year was characterized by its extreme volatility as markets responded to both
global and domestic uncertainties. On the global front, the collapse of the
Asian economy, which began in late 1997, could not be remedied. The growth
contraction and political instability experienced in these countries brought
fears of a worldwide recession. Unfortunately, these problems were not confined
to the Asia Pacific region. Turmoil in Russia shook the global markets while the
Brazilian devaluation resulted in a shorter-term reaction.
The U.S. brought problems of its own to the already troubled markets. The near
collapse and panicked rescue of Long Term Capital Management LP, a major hedge
fund, exacerbated the third quarter market sell-off. In the political arena, the
biggest news was President Clinton's improprieties and the subsequent
impeachment process. Unexpected GOP defeats in the November elections causing a
shakeup in Republican's leadership in the House of Representatives and the
U.S.'s ongoing conflict with Iraq were among other political distractions.
Both the U.S. stock and bond markets experienced turbulence throughout the year
as a result of these events. The market fluctuations came to a head in August
culminating in a general sell-off. The declines included a 14.46% slide in the
S&P 500 Index and 6.70% decrease in the Salomon Smith Barney High Yield Market
Index for the month of August. Russia was the primary cause of the chaos as it
allowed the ruble to devalue dramatically on August 18th and failed to
effectively resolve the political struggle that ensued from the economic
turmoil. The resulting global uncertainty ignited a "flight to quality" where
investors abandoned equities and credit sensitive fixed income products for the
safety of Treasuries. After a one-day loss of 6.31% in the Dow Jones Industrials
Average on August 31st, the entire year's gains had been erased.
2
<PAGE>
It was the successive rate cuts by the Federal Reserve on September 29th,
October 15th and November 17th, coupled with extensive merger and acquisition
activity that provided the dramatic turnaround in the last quarter of the year.
Investors regained their appetite for risk and the equity and credit sensitive
markets responded strongly. The Dow and the S&P 500 Index rose 9.70% and 8.13%
respectively in September and continued to post gains for the balance of the
year. Meanwhile, high-yield bonds also advanced as the prospects of a global
slump subsided.
The final months of the year were also significant as they revealed the first
signs of life from several market segments that had been out of favor during the
first eight months. The downtrodden Asia Pacific region (ex-Japan), represented
by the Morgan Stanley Capital International All Country Asia Free Ex-Japan
Index, was perhaps the most dramatic example, skyrocketing 47.62% during the
final four months of the year. Small company stocks, as measured by the Russell
2000(R), were another notable example. After a 22.29% decline over the first
eight months, they advanced 25.41% over the balance of the year. The small cap
explosion may have been an early signal that the market dominance by a
relatively limited number of large company stocks was over. In fact, the largest
20 companies were up 55%, while the next 480 stocks rose only 16% for the year.
MARKET OUTLOOK
The current economic and market conditions are extraordinary compared to recent
history. We expect political and economic uncertainty overseas to continue,
resulting in additional volatility. The U.S. market, which has evidenced
resistance to the difficulties overseas, has a strong foundation for another
year of stable growth. Low inflation will provide the impetus for moderate
economic expansion in the coming year.
The prospect of low inflation bodes well for fixed income investors. Despite the
healthy economic scenario, we think the stock market is unlikely to experience
the hefty returns of the recent four year period. Our view is that small cap
stocks are likely to offer stronger relative performance, consistent with their
long-term performance results.
We expect the trends that began late in the third quarter to continue into 1999.
The handful of large companies that have driven up many of the broad market
averages will have a difficult time maintaining their success. Their meteoric
rise has been driven by impressive earnings, but also an expanding price-to-
earnings (P/E) multiple. In short, these companies' prices look increasingly
expensive. As a result, their stock prices may lag the overall market in 1999.
The rest of the market appears to be less expensive and may attract investors
looking to diversify from the outperformers of the last few years.
3
<PAGE>
We will continue to use a research-driven approach to identify opportunities in
many market segments. We believe this disciplined and diversified strategy for
security selection keeps us focused on achieving solid long-term performance.
Although this investment strategy may not always position us to benefit from
short-term market trends, it continues to deliver over longer-term horizons. The
result of this investment discipline is first quartile performance since
inception in six of our nine Funds (excluding money market funds).
Salomon Brothers Asset Management encourages you to maintain the same type of
discipline. Focus on asset allocation realizing the market segments that have
recently underperformed are often tomorrow's winners.
It is our pleasure to provide commentaries from the Funds' managers in the
following pages. On behalf of everyone here at Salomon Brothers Asset
Management, we would like to thank you again for your confidence in the Salomon
Brothers Investment Series.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman and President
February 26, 1999
4
<PAGE>
[GRAPHIC] THE SALOMON BROTHERS
Asia Growth Fund
INVESTMENT OBJECTIVE AND STRATEGY
The Salomon Brothers Asia Growth Fund seeks long-term capital appreciation. The
Fund invests at least 65% of total assets in the equity and equity-related
securities of Asian companies. Areas considered for investments include, but are
not limited to, China, Hong Kong, India, Indonesia, South Korea, Malaysia,
Philippines, Singapore, Taiwan, and Thailand. In seeking to capture high long-
term returns with volatility in line with or lower than that usually
experienced in the Asian markets, the Fund will allocate its assets among
countries and industries believed by the portfolio manager to be most likely to
benefit from positive regional economic trends.
- ----------------
THE FUND MANAGER
- ----------------
Giampaolo G. Guarnieri, Director and Head of Salomon Brothers Asset Management
Asia Pacific Limited (SBAM AP), has 13 years of investment industry
experience. SBAM AP is an affiliate of Salomon Brothers Asset Management Inc,
and serves as a sub-advisor to the Fund. Mr.Guarnieri is primarily responsible
for day-to-day Fund management.
PERFORMANCE UPDATE
The Asia Growth Fund's Class A shares returned -13.10 in 1998. This compares
with the -7.78% return for the Morgan Stanley Capital International All Country
Asia Free Ex-Japan Index ("MSCI AC Asia Free Ex-Japan"), and -9.05% for the
Lipper Analytical Services, Inc. Pacific Ex-Japan Funds peer group average.
MARKET REVIEW
The economies and financial markets of Asian countries experienced another
turbulent year in 1998. Hopes of a quick rebound from the crisis, which began in
August of 1997, were dashed as a deepening sense of concern continued to prevail
in this region. A contraction in economic growth (GDP) accelerated in 1998 and
resulted in price deflation throughout the region. Deteriorating socio-economic
issues in Indonesia, capital controls in Malaysia, negative GDP numbers for the
region and renewed tensions between Pakistan and India on the back of nuclear
testing exercises were among the factors contributing to the difficult
investment conditions. The focus was also on Japan: its weaker currency,
deepening recession and unhealthy economy affected regional markets adversely.
PORTFOLIO HIGHLIGHTS
The Fed's unusually responsive rate cuts in the fourth quarter led most Asian
countries, such as South Korea, Thailand, Malaysia, Singapore, Taiwan and Hong
Kong to ease their monetary and fiscal policies thus triggering a strong
liquidity rally. Equity markets responded by ending the year with four
consecutive months of positive returns. The index rose 21.74% in the month of
October alone and was up 34.3% during the fourth quarter. The Fund was up 17.26%
for October and 26.21% in the fourth quarter. The Fund's underperformance
during the fourth quarter accounted for the majority of the difference in the
Fund's returns versus its benchmark. This was mainly due to: 1) an underweight
stance in Hong Kong; 2) an underweight stance in index-related counters vs. non-
index stocks especially in Hong Kong, Singapore and Korea; 3) Malaysia's
significant weighting in the benchmark, which contributed positively to its
performance in the fourth quarter; and 4) Korea, which was the biggest
contributor to the benchmark's outperformance (up 12% in November and up 24.5%
in December). The Fund was underweight in Korea going into the fourth quarter.
Overall, the last quarter was a sharp and violent "benchmark rally" which bore
little significance for non-benchmark/specific stock focuses. Unfortunately, the
market rebound does not signal a resolution to the issues faced by this region.
The credit crunch in Hong Kong and China intensified with few banks willing to
lend despite their poor loan growth and falling rates. Most of Asia's external
accounts improved significantly during the year, as in South Korea, and this
helped stabilize the currency and allowed interest rates to be cut.
MARKET OUTLOOK
Bank recapitalization, continued reforms and restructuring will be the dominant
themes for most Asian countries in 1999. We expect the currencies of these
countries to be maintained at more stable levels than the past two years. We
will be concentrating on those countries that are generating large external
surpluses and will focus on specific corporate restructuring situations
especially in South Korea and Singapore.
Although the road to recovery in Asia is likely to be bumpy, we believe now is
the time to look for the longer-term opportunities offered by companies which
have not only survived the past year, but have also learned what they need to do
to re-emerge as stronger global players. We will continue to focus on companies
which are making major structural changes that will result in significantly
improved profitability and cash flow. In our view, this strategy will offer us a
rare opportunity to invest in Asia's longer-term recovery.
5
<PAGE>
The following graph depicts the performance of the Asia Growth Fund versus the
Morgan Stanley Capital International All Country Asia Free Ex-Japan Index. It is
important to note that the Asia Growth Fund is a professionally managed mutual
fund while the index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
- ---------------------------------------
Portfolio Highlights/#/
- ---------------------------------------
Composition of portfolio as of
December 31, 1998
[PIE CHART APPEARS HERE]
Common Stocks 90%
Convertible Securities 7%
Cash/Cash Equivalents 3%
- ---------------------------------------
- -----------------------
Breakdown By Country/#/
- -----------------------
Hong Kong 34.0%
.......................
Singapore 17.5%
.......................
Taiwan 12.8%
.......................
South Korea 12.4%
.......................
Thailand 7.7%
.......................
India 5.7%
.......................
Philippines 2.0%
.......................
Malaysia 2.0%
.......................
China 1.8%
.......................
Indonesia 1.5%
=======================
- --------------------------------------------------------------------------------
ASIA GROWTH FUND--CLASS A, B, 2 AND O SHARES
Comparison of $10,000 Investment in the Fund with MSCIAC Asia
Free Ex-Japan Index
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
MSCI AC Asia
Free
Date Class A Class B Class 2 Class O Ex-Japan Index
- ---- ------- ------- ------- ------- --------------
5/6/96 9,425 10,000 9,900 10,000 10,000
6/96 9,189 9,740 9,644 9,750 9,741
12/96 9,913 10,465 10,361 10,531 9,679
6/97 11,741 12,358 12,239 12,498 10,033
12/97 7,380 7,739 7,671 7,863 5,778
6/98 5,614 5,867 5,815 5,987 4,327
12/98 6,413 6,486 6,620 6,857 5,328
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31,1998
- --------------------------------------------------------------------------------
Class A Net Asset Value(*) Public Offering Price(**)
................................................................................
Since Inception (5/6/96) -13.48% -15.38%
1 year -13.10% -18.14%
................................................................................
Class B Return If Not Redeemed(*) Return If Redeemed(**)
................................................................................
Since Inception (5/6/96) -14.08% -15.02%
1 year -13.71% -18.02%
................................................................................
Class 2++ Return If Not Redeemed(*)Return If Redeemed(**)
................................................................................
Since Inception (5/6/96) -14.05% -14.37%
1 year -13.71% -15.48%
................................................................................
Class O Return If Not Redeemed(*) Return If Redeemed(**)
................................................................................
Since Inception (5/6/96) -13.23% -13.23%
1 year -12.80% -12.80%
================================================================================
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Lipper Comparative Performance+
Salomon Brothers Asia Growth Fund
- -----------------------------------------------------------------------------------
Lipper Category: Pacific Ex-Japan Funds
...................................................................................
1 Year & Since Inception Total Return as of 12/31/98
Class A Shares Lipper Average Fund Return(*) Ranking
...................................................................................
<S> <C> <C> <C>
Since Inception (5/6/96) -18.67% -13.48% 1st Quartile - Top 24% #14 of 60 Funds
1 year -9.05% -13.10% 3rd Quartile - Top 58% #50 of 87 Funds
...................................................................................
Class B Shares Ranking
...................................................................................
Since Inception (5/6/96) -14.08% 2nd Quartile - Top 27% #16
1 year -13.71% 3rd Quartile - Top 63% #54
...................................................................................
Class 2 Shares++ Ranking
...................................................................................
Since Inception (5/6/96) -14.05% 1st Quartile - Top 24% #15
1 year -13.71% 3rd Quartile - Top 63% #54
...................................................................................
Class O Shares Ranking
...................................................................................
Since Inception (5/6/96) -13.23% 1st Quartile - Top 24% #11
1 year -12.80% 3rd Quartile - Top 53% #47
===================================================================================
</TABLE>
Portfolio holdings may vary. See pages 28 and 29 for all footnotes.
6
<PAGE>
[GRAPHIC] THE SALOMON BROTHERS
Small Cap Growth Fund
INVESTMENT OBJECTIVE
AND STRATEGY
The Small Cap Growth Fund seeks to obtain long-term growth of capital. The Fund
seeks to achieve its objective by investing primarily in securities of companies
with market capitalizations at the time of purchase similar to that of companies
included in the Russell 2000 Index ("Small Cap Companies"). The Russell 2000
Index includes companies with market capitalizations below the top 1,000 stocks
of the equity market. As of December 31, 1998, the market capitalization of
companies included in the Russell 2000 Index ranged from $4.4 million to $3.1
billion. Under normal market conditions the Small Cap Growth Fund will invest at
least 65% of its total assets in equity securities of Small Cap Companies. This
revised investment objective was effective as of February 25, 1999.
THE FUND MANAGER
[PHOTO] Pamela P. Milunovich, Director and Portfolio Manager at Salomon
Brothers Asset Management Inc, has 15 years of investment industry experience.
Ms. Milunovich is primarily responsible for the day-to-day management of the
Small Cap Growth Fund.
PERFORMANCE UPDATE
The Small Cap Growth Fund's Class A shares returned 15.90% for the period
beginning with its July 1, 1998 inception date and ending on December 31, 1998.
This compares quite favorably with the -7.12% return for the Russell 2000 Index,
and -6.64% for the Lipper Analytical Services, Inc. Small Cap Funds peer group
average.
MARKET REVIEW
1998 was a volatile year as the stock market declined and rebounded in response
to investors' fears of a U.S. recession, an Asian recession, a global credit
squeeze and an impeachment of our President. The swift moves by the Federal
Reserve to cut interest rates in October helped the stock market recover. From
October 8th lows, the Russell 2000 Index advanced 36.2%, while the S&P 500
rebounded 28.5%. We believe small capitalization stocks should continue to do
well.
PORTFOLIO HIGHLIGHTS
The economy's expansion was fueled by strong consumer spending and improvements
in productivity due to technological advances. The Fund's overweighting in the
consumer area and timely additions to the technology sectors enabled it to
benefit from these trends. The Fund's minimal commitment to underperforming
sectors such as energy and basic materials helped drive the favorable return.
The Small Cap Growth Fund uses a bottom-up approach to select small
capitalization companies that are growing their earnings faster than the overall
market. Ideally, the companies should be on the verge of a sustainable growth
spurt from new products, technology or consolidation within an industry. The
Fund invests in several companies which meet this criteria found primarily in
four sectors: technology, healthcare, consumer and financial services.
MARKET OUTLOOK
We continue to see a generally positive economic environment with moderate
inflation. The Fund is focusing upon companies with powerful franchises and
market position which can continue to increase earnings in a slower growth U.S.
economy.
We believe small capitalization stocks are poised to outperform the broader U.S.
market over the next year. Three factors which should drive the outperformance
are strong earnings, deeply discounted valuations and portfolio migration. Small
caps are posting strong earnings results in comparison with larger stocks.
Second, the price/earnings spread between large and small cap stocks is as wide
as it has been since 1974 which preceded an eleven year run of outperformance by
small caps. Lastly, according to Morningstar large capitalization growth
portfolios only had 1.8% of their portfolios invested in small companies with
market capitalizations of $1 billion or less as of July 1998 compared with 12.4%
in such assets in July 1997. If large cap managers increase their small cap
holdings, small cap stocks should rally.
7
<PAGE>
The following graph depicts the performance of the Small Cap Growth Fund versus
the Russell 2000 Index. It is important to note that the Small Cap Growth Fund
is a professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only.
- ---------------------------------------
Portfolio Highlights/#/
- ---------------------------------------
Composition of portfolio as of
December 31, 1998
[PIE CHART APPEARS HERE]
Common Stocks 97%
Cash/Cash Equivalents 3%
- ---------------------------------------
- -----------------------------------
Top Holdings/#/
- -----------------------------------
MedQuist
...................................
Protective Life
...................................
ResMed
...................................
Reinsurance Group of America
...................................
Insight Enterprises
...................................
DeVry
...................................
Matthews International
...................................
Profit Recovery Group International
...................................
Dollar Tree Stores
...................................
Fossil
===================================
- --------------------------------------------------------------------------------
SMALL CAP GROWTH--CLASS A, B, 2 AND O SHARES
Comparison of $10,000 Investment in the Fund with Russell 2000 Index
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Date Class A Class B Class 2 Class O 2000
- ---- ------- ------- ------- ------- ------
7/1/98 9,425 10,000 9,900 10,000 10,000
7/98 9,293 9,850 9,761 9,860 9,190
8/98 7,361 7,800 7,732 7,810 7,405
9/98 8,275 8,760 8,692 8,780 7,985
10/98 8,426 8,920 8,840 8,940 8,311
11/98 9,557 10,110 10,019 10,140 8,746
12/98 10,924 11,050 11,344 11,600 9,288
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
Note: Fund commenced operations 7/1/98.
- --------------------------------------------------------------------------------
Cumulatuve Total Returns for the Period Through December 31, 1998
- --------------------------------------------------------------------------------
Class A Net Asset Value(*) Public Offering Price(**)
................................................................................
Since Inception (7/1/98) 15.90% 9.24%
................................................................................
Class B Return If Not Redeemed(*) Return If Redeemed(**)
................................................................................
Since Inception (7/1/98) 15.50% 10.50%
................................................................................
Class 2+++ Return If Not Redeemed(*) Return If Redeemed(**)
................................................................................
Since Inception (7/1/98) 15.60% 13.44%
................................................................................
Class O Return If Not Redeemed(*) Return If Redeemed(**)
................................................................................
Since Inception (7/1/98) 16.00% 16.00%
================================================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Lipper Comparative Performance+
Salomon Brothers Small Cap Growth Fund
- --------------------------------------------------------------------------------
Lipper Category: Small Cap Funds
................................................................................
Cumulative Total Return 7/1/98 - 12/31/98
Class A Shares Lipper Average Fund Return(*) Ranking
................................................................................
<C> <C> <C> <C> <S>
Since Inception (7/1/98) -6.64% 15.90% 1st Quartile - Top 2% #11 of 702 Funds
................................................................................
Class B Shares Ranking
................................................................................
Since Inception (7/1/98) 15.50% 1st Quartile - Top 2% #13
................................................................................
Class 2 Shares+++ Ranking
................................................................................
Since Inception (7/1/98) 15.60% 1st Quartile - Top 2% #12
................................................................................
Class O Shares Ranking
................................................................................
Since Inception (7/1/98) 16.00% 1st Quartile - Top 2% #10
================================================================================
</TABLE>
Portfolio holdings may vary. See pages 28 and 29 for all footnotes.
8
<PAGE>
[GRAPHIC] THE SALOMON BROTHERS
Capital Fund
INVESTMENT OBJECTIVE AND STRATEGY
The Capital Fund seeks capital appreciation through investments primarily in
common stocks or securities convertible into common stocks. The Fund seeks to
achieve its investment objective through investments in securities that are
believed to have above-average price appreciation potential. Such investments
may also involve above-average risk. The Fund may invest in seasoned,
established companies, relatively small new companies as well as new issues.
- ----------------
THE FUND MANAGER
- ----------------
[PHOTO] Ross Margolies, Managing Director and Portfolio Manager at Salomon
Brothers Asset Management Inc, has 18 years of investment industry experience in
the equity, convertible and high yield markets. Mr. Margolies is primarily
responsible for day-to-day Fund management.
[PHOTO] Robert Donahue, Director and Co-Portfolio Manager at Salomon Brothers
Asset Management Inc, has 6 years of investment industry experience. Mr. Donahue
assists in the day-to-day management of the Fund.
PERFORMANCE UPDATE
The Capital Fund's Class A shares returned 23.68% in 1998. This compares with a
return of 24.14% for the Russell 3000 Index((R)) and 19.96% for the Lipper
Analytical Services Inc. Capital Appreciation Funds peer group average. (The
Russell 3000 Index((R)) is a market capitalization weighted index made up of the
3000 largest U.S. stocks in terms of market capitalization and is the Fund's
performance benchmark.)
MARKET REVIEW
The three key factors driving the market are low inflation, low interest rates
and a strong economy which is generating continued profit growth. These have
proven to be both powerful and resilient trends. The combination of the three
has propelled the market to very high levels and has provided the greatest
benefits to large, growing companies. These companies can take advantage of
their scale, market positions and cheap financing to gain market share and
profitability. Investors recognized these advantages and over the past few years
have bid a small group of large company stocks to levels that assume continued
benefits from these factors well into the future. Since these companies make up
such a large portion of the market, based on capitalization, the market appeared
to be up strongly last year even though the average stock on the New York Stock
Exchange declined.
The current stock market environment contains three key risks: 1) a reversal of
the current economic trends 2) overvaluation of the large cap growth companies
and 3) commoditization of the market. Commoditization of the market is unusual
because stocks generally move based on their fundamentals. As a by-product of
this long bull market, investors have begun purchasing stocks as if they were
commodities. In other words, much of the market and particularly, large, liquid
stocks, is trading based on near-term supply and demand and not long-term
fundamentals. The most extreme example is the demand created when a stock is
added to a popular market index such as the S&P 500. Despite the fact that a
company's intrinsic value does not change when it is added to the S&P 500, its
stock price changes and often dramatically.
PORTFOLIO HIGHLIGHTS
The Capital Fund used an "all capitalization" investment strategy to capture the
bulk of the index returns without purchasing the mega-cap companies that were
the primary contributors to the overall market growth. We believe one of the
reasons the Fund's small and mid capitalization stocks performed better than
their peers is that many of the Capital Fund's holdings are smaller companies
that are leaders in their industry or market segment. Their strong market
positions allow them to get some of the competitive benefits that larger
companies have in their industries. The top five contributors to the Capital
Fund's performance in 1998 were Plantronics, Viacom, Costco, NTL and Seagate.
These companies were in the top ten holdings periodically during the year, and
all but Viacom were originally purchased as small or mid cap companies.
Underperformers included Breed Technologies, Cytec and Nuevo Energy -- all
relatively smaller companies that had earnings disappointments. During 1998, the
market was particularly harsh on smaller companies that missed their earnings
targets.
9
<PAGE>
MARKET OUTLOOK
The secular issues that have driven the large cap growth sector to such lofty
levels are powerful and cannot be quickly reversed. The market, however, has
moved to valuations that discount the positive scenario far into the future.
Ultimately, one of the three key factors mentioned will change. The market will
probably start discounting the change before it actually happens, a process that
will not be enjoyable given how high the market has gone. Our investment
strategy balances hope for the best with preparation for the worst.
The portfolio continues to own very few "Nifty Fifty" type growth stocks. We are
paying particular attention to valuation--not owning a portfolio of overpriced
stocks will have a cushioning effect when the market turns. In addition, we are
increasing the position concentration of the portfolio when we can get in at the
right price--having fewer companies in the portfolio allows us to focus more on
our best ideas and hopefully reduce the number of mistakes. At the same time, we
are keeping core positions in many of the best companies we own to participate
in the market's continued upside. We add to these positions when the market
corrects and trim when it has a strong rally. The portfolio continues to be
overweighted towards small and mid cap stocks relative to its Russell 3000
benchmark and the overall market. Many of our selections have businesses that
benefit from the same three factors that have driven large cap growth
valuations.
At year-end we had started to trim the overweighted position in technology
stocks that we had accumulated during the previous several months. Many of these
stocks more than doubled off of their lows while the profit recovery has not
been nearly as fast. We expect to continue to hold several core technology
positions, but will trade the sector aggressively if it continues to have the
wild swings it has been experiencing. We believe that it is still too early to
accumulate large energy positions as inventories have not moved down as fast we
had hoped. Valuations in this sector are very attractive and we expect to add
significant positions during 1999. We retain our overweight position in consumer
staples, as we believe that many of these stocks offer the most attractive
risk/reward trade-offs in the market. We still expect to see a resolution during
the coming 12-18 months to the debate between health advocates' position
regarding the dangers of cigarette smoking and the tobacco industry's civil
libertarian position for the right of adults to use a dangerous but legal
product. The stocks' prices discount significant bad news, but the worst case
scenarios are not in the economic interest of the industry's opponents.
10
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL FUND--CLASS A, B AND 2 SHARES
Comparison of $10,000 Investment in the Fund with Russell 3000 Index
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Date Class A Class B Class 2 S&P 500 Russel 3000
- ---- ------- ------- ------- ------- -----------
10/31/96 9425 10000 9900 10000 10000
12/96 10154 10763 10660 10542 10576
6/97 11602 12265 12153 12714 12455
12/97 12836 13519 13389 14059 13938
6/98 14792 15525 15379 16550 16044
12/98 15876 16273 16415 18079 17303
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
CAPITAL FUND--CLASS O SHARES
Comparison of $10,000 Investment in the Fund with Russell 3000 Index
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Date Class O S&P 500 Russel 3000
- ---- ------- ------- -----------
12/88 10000 10000 10000
12/89 13974 13163 12932
12/90 12708 12754 12278
12/91 16957 16631 16410
12/92 17756 17896 17999
12/93 20804 19697 19955
12/94 17859 19955 19991
12/95 24088 27444 27350
12/96 32119 33742 33318
12/97 40713 44995 43909
12/98 50416 57864 54509
Past performance is not predictive of future performance.
The graphs above depict the performance of the Capital Fund and the Russell 3000
Index. It is important to note that the Capital Fund is a professionally managed
mutual fund while the index is not available for investment and is unmanaged.
The comparisons are shown for illustrative purposes only.
- ---------------------------------------
Portfolio Hightlights/#/
- ---------------------------------------
Composition of portfolio as of
December 31,1998
[PIE CHART APPEARS HERE]
Common Stocks 86%
Convertible Securities 6%
Cash/Cash Equivalents 8%
- ---------------------------------------
- -----------------------
Top Stock Holdings/#/
- -----------------------
RJR Nabisco Holdings
.......................
Philip Morris Companies
.......................
Costco Companies
.......................
Hormel Foods
.......................
Food Lion
.......................
Plantronics
.......................
Bank of New York
.......................
Bell Atlantic
.......................
Rogers Cantel Mobile
Communications
.......................
OM Group
=======================
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1998
- --------------------------------------------------------------------------------
Class A Net Asset Value(*) Public Offering Price(**)
................................................................................
Since Inception (11/1/96) 27.16% 23.74%
1 year 23.68% 16.57%
................................................................................
Class B Return If Not Redeemed(*) Return If Redeemed(**)
................................................................................
Since Inception (11/1/96) 26.21% 25.16%
1 year 22.59% 17.59%
................................................................................
Class 2+++ Return If Not Redeemed(*) Return If Redeemed(**)
................................................................................
Since Inception (11/1/96) 26.24% 25.66%
1 year 22.59% 20.38%
................................................................................
Class O Return If Not Redeemed(*) Return If Redeemed(**)
................................................................................
10 year 17.56% 17.56%
5 year 19.37% 19.37%
3 year 27.91% 27.91%
1 year 23.83% 23.83%
================================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Lipper Comparative Performance+
Salomon Brothers Capital Fund
- ---------------------------------------------------------------------------------------------
Lipper Category: Capital Appreciation Funds
.............................................................................................
1 Year & Since Inception Total Return as of 12/31/98
Class A Shares Lipper Average Fund Return(*) Ranking
.............................................................................................
<C> <C> <C> <C> <S>
Since Inception (11/1/96) 16.18% 27.16% 1st Quartile - Top 21% #37 of 184 Funds
1 year 19.96% 23.68% 2nd Quartile - Top 40% #99 of 250 Funds
.............................................................................................
Class B Shares Ranking
.............................................................................................
Since Inception (11/1/96) 26.21% 2nd Quartile - Top 26% #47
1 year 22.59% 2nd Quartile - Top 44% #108
.............................................................................................
Class 2 Shares+++ Ranking
.............................................................................................
Since Inception (11/1/96) 26.24% 2nd Quartile - Top 26% #48
1 year 22.59% 2nd Quartile - Top 45% #111
.............................................................................................
Class O Shares Ranking
.............................................................................................
Since Inception N/A N/A
1 year 23.83% 2nd Quartile - Top 39% #97
=============================================================================================
</TABLE>
Portfolio holdings may vary. See pages 28 and 29 for all footnotes.
11
<PAGE>
[GRAPHIC] THE SALOMON BROTHERS
Investors Fund
INVESTMENT OBJECTIVE
AND STRATEGY
The Salomon Brothers Investors Fund seeks long-term growth of capital. Current
income is a secondary objective. The Fund invests primarily in common stocks of
large-capitalization stocks representing well-known companies with good growth
potential at a reasonable price.
THE FUND MANAGERS
[PHOTO] John B. Cunningham, Director and Portfolio Manager at Salomon Brothers
Asset Management Inc, has 10 years of financial industry experience. Mr.
Cunningham assists in day-to-day management of the Fund.
[PHOTO] Ross Margolies, Managing Director and Portfolio Manager at Salomon
Brothers Asset Management Inc, has 18 years of investment industry experience in
the equity, convertible and high yield markets. Mr. Margolies is primarily
responsible for day-to-day Fund management.
PERFORMANCE UPDATE
The Investors Fund's Class A shares returned 15.18% in 1998. This compares with
a return of 28.58% for the S&P 500 Index and 15.61% for the Lipper Analytical
Services, Inc. Growth & Income Funds peer group average.
MARKET REVIEW
The equity market finished its fourth consecutive year of returns in excess of
20% with the S&P 500 Index returning 28.58%. Investors experienced significant
volatility during the year as the S&P 500 Index increased more than 20% through
early July, only to fall back into negative territory in the beginning of
October. Worldwide political and economic turmoil resulted in a loss of
confidence by U.S. equity investors late in the summer. By early fall, however,
the Federal Reserve came to the market's rescue by cutting the federal funds
rate and discount rate. Three consecutive reductions increased investor
confidence and provided liquidity to fuel the market's strong fourth quarter
performance.
1998 market returns were narrowly distributed. Just 14 stocks accounted for more
than half of the performance of the S&P 500 Index. Large-cap growth stocks
significantly outperformed their large-cap value peers. Morningstar's large-cap
growth category returned 35.8% versus 12.3% for the large-cap value category.
The Fund outperformed its large-cap value peers, returning 15.18%, but lagged
the broad market.
PORTFOLIO HIGHLIGHTS
In 1998, the S&P 500 Index performance was led by the technology, healthcare and
communications sectors; meanwhile, basic industries, transportation and energy
had negative returns for the year. The Investors Fund benefited from holdings in
the communications and technology sectors, in particular, MCI WorldCom, Texas
Instruments and IBM led the Fund's performance. Other significant contributors
included Viacom, Tyco International and Costco. The Fund's energy and REIT
holdings held back performance.
12
<PAGE>
MARKET OUTLOOK
In 1999, we expect equity market performance to return to more historical
levels. International events will continue to have an impact on U.S. markets,
though perhaps a less dramatic one than in 1998. We expect the U.S. economy to
benefit from the series of interest rate cuts over the past several months.
Continued economic growth should boost corporate profits and support stock
prices.
The Investors Fund continues to focus on stocks with attractive valuations and
favorable earnings growth prospects. Recently, we have been adding cyclical
names like International Paper and Raytheon. We are also targeting
multi-national companies that should benefit from a weaker U.S. dollar. We are
confident that our value strategy will continue to reward shareholders over
time.
13
<PAGE>
- --------------------------------------------------------------------------------
INVESTORS FUND--CLASS A, B AND 2 SHARES
Comparison of $10,000 Investment in the Fund with S&P 500 Index
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Date Class A Class B Class 2 S&P 500
- ---- ------- ------- ------- -------
1/3/95 9425 10000 9900 10000
6/95 11016 11655 11538 12019
12/95 12756 13450 13316 13753
6/96 14348 15061 14911 15141
12/96 16620 17381 17211 16910
6/97 19096 19897 19701 20393
12/97 20972 21774 21549 22550
6/98 23501 24313 24073 26546
12/98 24156 24576 24624 28999
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
INVESTORS FUND--CLASS O SHARES
Comparison of $10,000 Investment in the Fund with S&P 500 Index
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Date Class O S&P 500
- ---- ------- -------
12/88 10000 10000
12/89 12184 13163
12/90 11393 12754
12/91 14733 16631
12/92 15826 17896
12/93 18229 19697
12/94 17999 19955
12/95 24370 27444
12/96 31817 33742
12/97 40240 44995
12/98 46452 57864
Past performance is not predictive of future performance.
The graphs above depict the performance of the Investors Fund versus the S&P 500
Index. It is important to note that the Investors Fund is a professionally
managed mutual fund while the index is not available for investment and is
unmanaged. The comparison is shown for illustrative purposes only.
- ---------------------------------------
Portfolio Highlights/#/
- ---------------------------------------
Composition of portfolio as of
December 31, 1998
[PIE CHART APPEARS HERE]
- ---------------------------------------
Common Stocks 88%
Cash/Cash Equivalents 8%
Convertible Securities 4%
- ---------------------------------------
- -------------------------
Top Stock Holdings/#/
- -------------------------
Bank of New York
.........................
RJR Nabisco Holdings
.........................
Costco Companies
.........................
Philip Morris
Companies
.........................
International
Business Machines
.........................
Federal Home
Loan Mortgage
.........................
TCI Ventures Group
.........................
Provident Companies
.........................
News Corp. ADR
.........................
OM Group
=========================
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1998
- --------------------------------------------------------------------------------
Class A Net Asset Value(*) Public Offering Price(**)
................................................................................
Since Inception (1/3/95) 26.53% 24.67%
3 year 23.63% 21.23%
1 year 15.18% 8.54%
................................................................................
Class B Return If Not Redeemed(*) Return If Redeemed(**)
................................................................................
Since Inception (1/3/95) 25.59% 25.21%
3 year 22.67% 22.00%
1 year 14.25% 9.25%
................................................................................
Class 2++ Return If Not Redeemed(*) Return If Redeemed(**)
................................................................................
Since Inception (1/3/95) 25.59% 25.27%
3 year 22.67% 22.25%
1 year 14.29% 12.16%
................................................................................
Class O Return If Not Redeemed(*) Return If Redeemed(**)
................................................................................
10 year 16.60% 16.60%
5 year 20.57% 20.57%
3 year 23.99% 23.99%
1 year 15.44% 15.44%
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Lipper Comparative Performance+
Salomon Brothers Investors Fund
- ----------------------------------------------------------------------------------------------
Lipper Category: Growth & Income Funds
..............................................................................................
1 Year & Since Inception Total Return as of 12/31/98
Class A Shares Lipper Average Fund Return(*) Ranking
..............................................................................................
<S> <C> <C> <C> <C>
Since Inception (1/3/95) 23.76% 26.53% 2nd Quartile - Top 26% #102 of 393 Funds
1 year 15.61% 15.18% 3rd Quartile - Top 54% #410 of 768 Funds
..............................................................................................
Class B Shares Ranking
..............................................................................................
Since Inception (1/3/95) 25.59% 2nd Quartile - Top 35% #135
1 year 14.25% 3rd Quartile - Top 58% #438
..............................................................................................
Class 2 Shares++ Ranking
..............................................................................................
Since Inception (1/3/95) 25.59% 2nd Quartile - Top 36% #138
1 year 14.29% 3rd Quartile - Top 57% #436
..............................................................................................
Class O Shares Ranking
..............................................................................................
Since Inception N/A N/A
1 year 15.44% 3rd Quartile - Top 53% #406
==============================================================================================
</TABLE>
Portfolio holdings may vary. See pages 28 and 29 for all footnotes.
14
<PAGE>
[GRAPHIC] THE SALOMON BROTHERS
Total Return Fund
INVESTMENT OBJECTIVE
AND STRATEGY
The Salomon Brothers Total Return Fund seeks to obtain above-average income
compared to a portfolio that invests only in common stocks. The Fund's secondary
objective is to take advantage of opportunities for growth of capital and income
by investing in a variety of asset classes including stocks, bonds and
short-term obligations.
The Fund's equity investments have been in large-capitalization stocks that are
paying dividends greater than the S&P 500 Index average. With assets allocated
to investment-grade, high-yield and convertible securities, the bond portion of
the Fund's portfolio is distributed across a broader range of fixed income
instruments than most balanced funds. The Fund's strategic approach in the bond
market tends to raise its income potential and the variety of its bond holdings
also provides diversification benefits that the portfolio manager believes could
help to limit its volatility.
THE FUND MANAGER
[PHOTO] George J. Wiliamson, Director and Portfolio Manager at Salomon Brothers
Asset Management Inc, has 40 years of investment industry experience in the
equity markets. Mr.Williamson is primarily responsible for day-to-day Fund
management.
PERFORMANCE UPDATE
The Total Return Fund's Class A shares posted a return of 6.36% for 1998. This
compares with a 18.65% total return for a composite index of 50% Salomon Smith
Barney Broad Investment-Grade Bond Index and 50% S&P 500 Index, and 13.48% for
the Lipper Balanced Funds peer group average. The Total Return Fund's Class A
shares have a 14.37% average annual return for the three year period ended
December 31, 1998.
MARKET REVIEW
We continue to see a stock market that is dominated by large-capitalization
stocks, a number of which have reached valuations not seen in twenty-five years.
A limited number of companies receive the preponderance of investment funds as
investors seek equities which show momentum whereas a large segment of the
market tends to receive limited attention. Eventually, we believe that the
sectors which lag will return to favor as investment managers seek situations
that offer better relative value. For instance, worldwide oil demand is at an
all time record high level and it is likely that producers will adjust
production downward modestly to bring about an increase in petroleum prices. We
are maintaining holdings in Exxon, Mobil, Texaco, Royal Dutch Petroleum and
Suncor Energy in anticipation of better valuations.
PORTFOLIO HIGHLIGHTS
Large growth stocks were in high demand again in 1998 allowing them to
substantially outperform value-oriented stocks as they have done many times in
the past. The Fund benefited from its growth stock holdings including Avon
Products, and recent additions such as PepsiCo and McDonalds. Strong performance
in the communications services, consumer brands and healthcare sectors also
contributed to the success of holdings including SBC Communications, Bell
Atlantic, American Home Products and Johnson & Johnson. The high yield portion
of the Fund, which provided a high income return, declined in price in response
to the Asian and Russian crises.
MARKET OUTLOOK
The equity markets have reached high valuation levels and low dividend yields
which reflect investor optimism unprecedented in the past fifty years. Although
we expect continued moderate economic growth in North America and in Europe,
common stock prices can be expected to be highly volatile during 1999. We
believe that the balanced investment approach which emphasizes a substantial
income return will tend to provide a more consistent return during periods when
the equity markets have reached historically high levels.
15
<PAGE>
The following graph depicts the performance of the Total Return Fund versus the
Salomon Smith Barney Broad Investment-Grade Bond Index(1), the Standard & Poor's
500 Stock Index and the 50% Salomon Smith Barney Broad Investment-Grade Bond and
50% Standard & Poor's 500 Stock Index.It is important to note that the Fund is a
professionally managed mutual fund while the indexes are not available for
investment and are unmanaged. The comparison is shown for illustrative purposes
only.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN FUND--CLASS A, B, 2 AND O SHARES
Comparison of $10,000 Investment in the Fund with Salomon Smith Barney Broad
Investment-Grade Bond Index ("BIG"), Standard & Poor's 500 Stock Index and 50%
Salomon Smith Barney Board Investment-Grade Bond and 50% Standard & Poor's 500
Stock Index.
- --------------------------------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Date CLASS A CLASS B CLASS 2 CLASS O S&P 500 SSB BIG BLEND
- ---- ------- ------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
9/11/95 9425 10000 9900 10000 10000 10000 10000
12/95 10052 10644 10548 10689 10602 10434 10518
6/96 10705 11302 11188 11395 11672 10303 10987
12/96 11894 12498 12389 12724 13035 10811 11923
6/97 13040 13644 13534 13970 15720 11142 13431
12/97 14159 14766 14633 15181 17383 11852 14618
6/98 15059 15634 15503 16168 20464 12323 16393
12/98 15059 15276 15433 16178 22355 12886 17620
- --------------------------------------------------------------------------------------------------------
</TABLE>
Past performance is not predictive of future performance.
Performance above reflects returns after deduction of applicable maximum sales
charge.
- ---------------------------------------
Portfolio Highlights/#/
- ---------------------------------------
Composition of portfolio as of
December 31,1998
[PIE CHART APPEARS HERE]
- ---------------------------------------
Stocks 49%
Investment Grade Debt 30%
Convertible Securities 10%
High Yield Securities 9%
Cash/Cash Equivalents 2%
- ---------------------------------------
- ------------------------
Top Stock Holdings/#/
- ------------------------
Canadian National
Railway
........................
Union Pacific
........................
Avon Products
........................
BCE
........................
USEC
........................
Suncor Energy
........................
SBC Communications
........................
Pitney Bowes
........................
American Home
Products
........................
CIGNA
========================
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1998
- ----------------------------------------------------------------------------------
Class A Net Asset Value(*) Public Offering Price(**)
..................................................................................
<S> <C> <C>
Since Inception (9/11/95) 15.21% 13.17%
3 year 14.37% 12.16%
1 year 6.36% 0.25%
..................................................................................
Class B Return If Not Redeemed(*) Return If Redeemed(**)
..................................................................................
Since Inception (9/11/95) 14.33% 13.66%
3 year 13.48% 12.70%
1 year 5.49% 0.49%
..................................................................................
Class 2++ Return If Not Redeemed(*) Return If Redeemed(**)
..................................................................................
Since Inception (9/11/95) 14.35% 14.01%
3 year 13.48% 13.09%
1 year 5.47% 3.45%
..................................................................................
Class O Return If Not Redeemed(*) Return If Redeemed(**)
..................................................................................
Since Inception (9/11/95) 15.64% 15.64%
3 year 14.76% 14.76%
1 year 6.57% 6.57%
==================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------
Lipper Comparative Performance+
Salomon Brothers Total Return Fund
- ----------------------------------------------------------------------------------------------
Lipper Category: Balanced Funds
..............................................................................................
1 Year & Since Inception Total Return as of 12/31/98
Class A Shares Lipper Average Fund Return(*) Ranking
..............................................................................................
<C> <C> <C> <C> <S>
Since Inception (9/11/95) 15.52% 15.21% 3rd Quartile - Top 55% #149 of 271 Funds
1 year 13.48% 6.36% 4th Quartile - Top 91% #371 of 411 Funds
..............................................................................................
Class B Shares Ranking
..............................................................................................
Since Inception (9/11/95) 14.33% 3rd Quartile - Top 71% #190
1 year 5.49% 4th Quartile - Top 93% #381
..............................................................................................
Class 2 Shares++ Ranking
..............................................................................................
Since Inception (9/11/95) 14.35% 3rd Quartile - Top 70% #188
1 year 5.47% 4th Quartile - Top 93% #382
..............................................................................................
Class O Shares Ranking
..............................................................................................
Since Inception (9/11/95) 15.64% 2nd Quartile - Top 49% #140
1 year 6.57% 4th Quartile - Top 90% #368
==============================================================================================
</TABLE>
See pages 28 and 29 for all footnotes.
Portfolio holdings may vary.
16
<PAGE>
[GRAPHIC] THE SALOMON BROTHERS
High Yield Bond Fund
INVESTMENT OBJECTIVE
AND STRATEGY
The Salomon Brothers High Yield Bond Fund seeks to maximize current income by
investing primarily in a diversified portfolio of high-yield bonds rated in
medium of lower categories. As a secondary objective, the Fund seeks capital
appreciation.
Under normal market conditions, the Fund intends to invest at least 65% of its
assets in securities rated Baa or lower by Moody's Investors Services Inc., or
those rated BBB or lower by Standard & Poor's. (Moody's and S&P are two major
credit reporting and bond rating agencies.) A key component of the Fund's
overall investment strategy is to determine the optimal asset allocation between
domestic high-yield bonds and international U.S. dollar-denominated bonds such
as Brady Bonds and lower-rated sovereign debt.
THE FUND MANAGER
[PHOTO] Peter J. Wilby, CFA, Managing Director and Senior Portfolio Manager at
Salomon Brothers Asset Management Inc, has 16 years of investment industry
experience principally in the high-yield and emerging debt markets. Mr. Wilby is
primarily responsible for the day-to-day management of the High Yield Bond Fund.
PERFORMANCE UPDATE
The High Yield Bond Fund's Class A shares posted a return of -7.05% for 1998.
This compares with a 3.60% total return for the high-yield bond market, as
measured by the Salomon Smith Barney High-Yield Market Index, and a -0.44%
return for the Lipper Analytical Services, Inc. High Current Yield Funds peer
group average. In addition, this compares to a -14.35% return for the J.P.
Morgan Emerging Market Bond Index Plus ("EMBI+"), a standard benchmark for the
emerging debt market. During the reporting period, the Fund's performance was
hurt by its allocation in emerging markets debt, which accounted for
approximately 26% of the Fund's total assets.
MARKET REVIEW AND PORTFOLIO HIGHLIGHTS
The global financial markets experienced one of the most turbulent years in
recent history. The year proved to be particularly difficult for most
fixed-income products, with the exception of Treasuries, as investors
demonstrated a declining tolerance for credit risk. The U.S. economy, however,
pleasantly surprised the world by exceeding growth expectations at an impressive
4% annual rate with inflation at its lowest level since 1965.
During the first seven months of the year, the high yield market returned 5.99%,
as measured by the Salomon Smith Barney High-Yield Market Index, and was
characterized by relative calm in both underlying credit quality and market
conditions. During this time period, as a result of the continued Asian malaise,
the emerging markets debt market was down slightly and was more volatile.
In August, as a result of the significant capital flight and an inability to
refinance existing domestic debt, Russia devalued its currency and undertook a
forced restructuring of its local currency debt. This unusual event caused a
significant panic in the global credit markets as hedge funds and other leverage
investors were forced to liquidate bond positions to meet margin calls on their
Russian positions. This, in turn, caused significant selling pressure in other
credit sensitive assets including U.S. high yield debt and caused a massive
credit crunch which forced additional margin calls and further selling.
As investors fled from risky investments, spreads (yield premiums) of high yield
and emerging market debt securities, relative to Treasuries, widened to near
historical index levels. The high yield market, represented by the Salomon Smith
Barney High Yield Market Index, declined 6.70% in August, while the emerging
markets debt market, as measured by the EMBI+, was down 28.71%. Trading
conditions in U.S. high yield securities were difficult and, in many cases,
price declines were unrelated to underlying fundamentals. The bond sell-off was
exacerbated by the near collapse of the giant hedge fund Long-Term Capital
Management LP. As demand for these securities dramatically weakened, high yield
new-issuance came to a halt for several months.
During this time period, to lower the volatility of the Fund in response to this
panic, we lowered the Fund's allocation to emerging markets debt and increased
the credit quality of the U.S. high yield portion of the portfolio. While the
allocation shift proved to be correct, the indiscriminate selling that took
place across all credit quality sectors caused a significant decline in all high
yield funds.
17
<PAGE>
In the latter part of 1998, the Federal Reserve lowered its short-term lending
rate by 25 basis points on three separate occasions. The Fed's intervention
successfully restored liquidity and confidence in the markets. The shift in
market sentiment brought investors back to high yielding assets, pouring over $5
billion back into high yield mutual funds during November - an all time record
monthly inflow. Mutual fund inflows for all of 1998 approached historic highs at
$20 billion. Despite the volatility in 1998, the high yield universe continued
to grow as represented by an all time record of $141 billion of new issues. At
year end, the high yield universe was represented by approximately 2,000 issuers
and over $480 billion in outstanding debt - having more than doubled from ten
years ago.
During November, high yield and emerging debt markets rebounded significantly
posting returns of 3.50% and 9.92% respectively. Both markets were positively
impacted by a decline in credit spreads brought about by an abatement in selling
pressure.
Within the Fund's high yield allocation, we continued to focus on high yield
companies with steady cash-flow-generating abilities and improving credit
characteristics. The Fund's portfolio was helped by its overweightings in
Broadcasting and Media, Publishing and Services, Food Products and its
underweightings in Energy and Oil Services, Financial Services, Paper and Forest
Products and Metals and Mining sectors.
Within the emerging markets sector, we continue to emphasize credits that do not
have a need for significant financing over the next 18-24 months. Specifically,
these countries include Mexico, Panama and Peru.
MARKET OUTLOOK
In 1999 we expect slower, yet still robust economic growth in the U.S., while
emerging markets will face diminishing yet continuing fundamental challenges. We
believe the Fed will continue to be cautiously proactive in addressing the
market's liquidity and stability. We will continue to carefully evaluate and
select investments consistent with our research intensive philosophy. We remain
confident that the Fund is well-positioned and generously diversified among
sectors and issuers. While we expect volatility to continue in the global high
yield markets, one should not lose sight of the opportunities offered by current
spread levels and the dynamic environment.
18
<PAGE>
The following graph depicts the performance of the High Yield Bond Fund versus
the Salomon Smith Barney High-Yield Market Index(2). It is important to note
that the High Yield Bond Fund is a professionally managed mutual fund while the
index is not available for investment and is unmanaged. The comparison is shown
for illustrative purposes only.
- --------------------------------------------------------------------------------
HIGH YIELD FUND--CLASS A, B, 2 AND O SHARES
Comparison of $10,000 Investment in the Fund with Salomon Smith Barney
High-Yield Market Index
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Date CLASS A CLASS B CLASS 2 CLASS O Yield Mkt Index
- ---- ------- ------- ------- ------- ---------------
2/22/95 9525 10000 9900 10000 10000
6/95 10441 10798 10693 10837 10725
12/95 11101 11573 11461 11676 11421
6/96 12150 12626 12492 12755 11753
12/96 13535 14023 13874 14248 12710
6/97 14540 14994 14849 15332 13468
12/97 15298 15731 15565 16157 14386
6/98 15570 15950 15782 16464 15126
12/98 14219 14215 14356 15042 14903
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- ---------------------------------------
Portfolio Highlights/#/
- ---------------------------------------
Composition of portfolio as of
December 31,1998
[PIE CHART APPEARS HERE]
- ---------------------------------------
High Yield Securities 72%
Emerging Markets Debt 26%
Cash/Cash Equivalents 2%
- ---------------------------------------
- ------------------------
Top Five Industries/#/
- ------------------------
Consumer Non-Cyclicals
........................
Manufacturing
........................
Basic Industries
........................
Media
........................
Consumer Cyclicals
========================
Each of the sectors represents various industries. Media includes cable,
publishing and printing, and telecommunications. Consumer Non-Cyclicals:
consumer products, food products, bottling, gaming, healthcare,
supermarkets/drugstores, tobacco. Manufacturing: aerospace and defense,
automotive, capital goods, building products. Basic Industries: chemicals,
containers/packaging, paper and forest products, steel/metal. Consumer
Cyclicals:lodging/leisure, restaurants, retail, textiles/apparel.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1998
- -----------------------------------------------------------------------------------
Class A Net Asset Value(*) Public Offering Price(***)
...................................................................................
<S> <C> <C> <C>
Since Inception (2/22/95) 10.94% 9.55%
3 year 8.57% 6.82%
1 year -7.05% -11.50%
....................................................................................
Class B Return If Not Redeemed(*) Return If Redeemed(***)
....................................................................................
Since Inception (2/22/95) 10.13% 9.54%
3 year 7.80% 6.99%
1 year -7.76% -11.97%
....................................................................................
Class 2++ Return If Not Redeemed(*) Return If Redeemed(***)
....................................................................................
Since Inception (2/22/95) 10.10% 9.82%
3 year 7.77% 7.40%
1 year -7.77% -9.54%
....................................................................................
Class O Return If Not Redeemed(*) Return If Redeemed(***)
....................................................................................
Since Inception (2/22/95) 11.16% 11.16%
3 year 8.78% 8.78%
1 year -6.90% -6.90%
====================================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------
Lipper Comparative Performance+
Salomon Brothers High Yield Bond Fund
- ---------------------------------------------------------------------------------------------
Lipper Category: High Current Yield Funds
.............................................................................................
1 Year & Since Inception Total Return as of 12/31/98
Class A Shares Lipper Average Fund Return(*) Ranking
.............................................................................................
<C> <C> <C> <C> <C> <S>
Since Inception (2/22/95) 9.73% 10.94% 1st Quartile - Top 20% #24 of 122 Funds
1 year -0.44% -7.05% 4th Quartile - Top 92% #226 of 246 Funds
.............................................................................................
Class B Shares Ranking
.............................................................................................
Since Inception (2/22/95) 10.13% 2nd Quartile - Top 39% #47
1 year -7.76% 4th Quartile - Top 93% #228
.............................................................................................
Class 2 Shares++ Ranking
.............................................................................................
Since Inception (2/22/95) 10.10% 2nd Quartile - Top 40% #48
1 year -7.77% 4th Quartile - Top 93% #228
.............................................................................................
Class O Shares Ranking
.............................................................................................
Since Inception (2/22/95) 11.16% 1st Quartile - Top 14% #17
1 year -6.90% 4th Quartile - Top 92% #224
=============================================================================================
</TABLE>
Portfolio holdings may vary. See pages 28 and 29 for all footnotes. 19
<PAGE>
[GRAPHIC] THE SALOMON BROTHERS
Strategic Bond Fund
INVESTMENT OBJECTIVE AND STRATEGY
The Salomon Brothers Strategic Bond Fund seeks a high level of current income.
The Fund seeks to achieve its objective by investing in a globally diverse
portfolio of fixed income instruments. As a secondary objective, the Fund seeks
capital appreciation. Assets of the Fund may be deployed among various sectors
of the global fixed income market, depending on portfolio managers' analysis of
current economic and market conditions and the relative risks and opportunities
presented in various market segments.
THE FUND MANAGERS
[PHOTO] Peter J. Wilby, CFA, Managing Director and Senior Portfolio Manager at
Salomon Brothers Asset Management Inc, has 16 years of investment industry
experience principally in the high-yield and emerging debt markets. Mr. Wilby is
primarily responsible for day-to-day Fund management of the high-yield and
foreign sovereign bond portions of the Fund.
[PHOTO] David J. Scott, Director and Portfolio Manager at Salomon Brothers
Asset Management LTD, has 16 years of investment industry experience. SBAM Ltd
provides certain advisory services to SBAM Inc relating to currency transactions
and investments in non-dollar denominated securities.
[PHOTO] Roger Lavan, Director and Portfolio Manager at Salomon Brothers Asset
Management Inc, has 14 years of investment industry experience in fixed income
markets. Mr. Lavan is responsible for day-to-day Fund management.
PERFORMANCE UPDATE
The Strategic Bond Fund's Class A shares returned 1.05% in 1998. This compares
with the 8.72% return for the Salomon Smith Barney Broad Investment-Grade Bond
Index and 1.30% for the Lipper Analytical Services, Inc. Multi-Sector Income
Funds peer group average.
MARKET REVIEW AND PORTFOLIO HIGHLIGHTS
1998 will be remembered as one of the most volatile and challenging years for
fixed income products, with the exception of U.S. Treasuries. Throughout the
year, there were extreme shifts in financial market sentiment. While the rest of
the world suffered from political and economic upheaval, the U.S. economy
managed to exceed expectations and grew at a strong pace. Meanwhile, inflation
(as measured by the Core Consumer Price Index) -- the enemy of fixed income
investors -- was surprisingly low at 1.6% for 1998, the lowest level since 1965.
During the first half of the year, all major credit-sensitive bond sectors
experienced heightened volatility as concerns over the Asian contagion caused
global investors to flock to the safe haven of U.S. Treasuries. Shortly
thereafter, market players shifted their attention to the healthy domestic
economy. The U.S. high yield market benefited from the healthy economy and
strong technicals (supply/demand). The Fund strategically reaped profits from
lower quality bonds which outperformed the upper tier during this period. In the
investment grade sector, we added to the overweighting in mortgage-backed
securities. Discount coupon mortgages and seasoned pass-through mortgages
continued to be selected as they offered a more attractive profile than higher
coupon securities.
Towards the end of the second quarter, fear of an increase in inflation and
interest rate hikes generated uneasiness in the domestic fixed-income markets.
Events in Russia, India and Pakistan added to difficulties in Southeast Asia,
while Japan fell deeper into recession. In the emerging markets debt sector, the
Fund decreased its Russian exposure and added to holdings in Bulgaria, Mexico,
Peru and Argentina.
20
<PAGE>
Over the summer, the near collapse of the Russian financial markets, sent the
capital markets tumbling as panicked investors flocked to U.S. Treasuries as a
safe haven. In this environment, any bond that was not a Treasury suffered
significant price declines. During the third quarter, heightened global market
volatility caused the Fund to commit to a more defensive stance in its high
yield sector and lower its allocations to the emerging markets debt sector. We
continued to decrease the Fund's exposure to Russia and increase its position in
Argentina and Mexico as fundamentals appeared more favorable. The Fund continued
to favor discount and coupon mortgage-backed securities in the investment grade
portion of the portfolio.
As investors fled from high-yielding securities, spreads (yield premium over
near default-risk free Treasuries) of high yield and emerging market debt
securities, relative to Treasuries, widened to near historical levels. As demand
for these securities dramatically weakened, high yield new-issuance came to a
halt for a few months. Nonetheless, new-issue volume set an all time record of
$141 billion. At the end of 1998, the high yield universe consisted of
approximately 2,000 issuers representing $480 billion in outstanding debt.
In the latter part of 1998, the Federal Reserve lowered its short-term lending
rate by 25 basis points on three separate occasions. The Fed's intervention
successfully restored liquidity and confidence in the markets. The shift in
market sentiment brought investors back to high-yielding assets, out of
Treasuries. High yield mutual funds experienced record inflows in November --
over five billion -- as spread levels reached extremely attractive levels.
Mutual fund in-flows for 1998 approached all time highs at $20 billion, second
to 1997.
During November, high yield and emerging debt markets rebounded. We maintained
our stance in the high yield sector of the portfolio as credit spreads had room
to improve in the low interest rate environment. We continued to focus on high
yield companies with steady cash-flow-generating abilities and improving credit
characteristics.
We have increased our allocations in the emerging markets debt sector as the
markets have recovered from their lows in early September. Emerging market
countries that fared the best were those that did not require heavy financing,
such as Mexico, Panama, Peru and Argentina. As of December 31, 1998, the Fund's
portfolio consisted of 39% investment-grade debt, 20% emerging markets, 28% high
yield, 9% non-U.S. investment grade and 4% cash.
MARKET OUTLOOK
The Fund is designed to help investors tap the potential of the world's bond
markets while minimizing risk. While we expect volatility to continue in the
global financial markets, we believe the Fed and international central banks
will continue to be cautiously proactive in addressing the market's liquidity
and stability. We believe the current dynamic environment offers attractive
buying opportunities for the patient investor.
21
<PAGE>
The following graph depicts the performance of the Strategic Bond Fund versus
the Salomon Smith Barney Broad Investment-Grade Bond Index(3). It is important
to note that the Strategic Bond Fund is a professionally managed mutual fund
while the index is not available for investment and is unmanaged. The comparison
is shown for illustrative purposes only.
- ---------------------------------------
Portfolio Highlights/#/
- ---------------------------------------
Composition of portfolio as of
December 31, 1998
[PIE CHART APPEARS HERE]
- ---------------------------------------
U.S. Investment Grade Debt 39%
High Yield Securities 28%
Emerging Markets Debt 20%
Non U.S. Investment Grade 9%
Cash/Cash Equivalents 4%
- ---------------------------------------
- --------------------------------------------------------------------------------
STRATEGIC BOND FUND--CLASS A, B, 2 AND O SHARES
Comparison of $10,000 Investment in the Fund with Salomon Smith Barney Broad
Investment-Grade Bond Index
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Date CLASS A CLASS B CLASS 2 CLASS O Bond Index
- ---- ------- ------- ------- ------- ----------
2/22/95 9525 10000 9900 10000 10000
6/95 10279 10765 10659 10803 10675
12/95 11125 11614 11492 11704 11350
6/96 11745 12190 12074 12359 11207
12/96 12688 13119 12995 13367 11760
6/97 13368 13782 13650 14112 12120
12/97 14113 14482 14357 14902 12892
6/98 14441 14764 14636 15268 13404
12/98 14261 14221 14382 15098 14017
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1998
- --------------------------------------------------------------------------------
Class A Net Asset Value* Public Offering Price***
................................................................................
Since Inception (2/22/95) 11.03% 9.63%
3 year 8.60% 6.84%
1 year 1.05% -3.79%
................................................................................
Class B Return If Not Redeemed* Return If Redeemed***
................................................................................
Since Inception (2/22/95) 10.15% 9.55%
3 year 7.70% 6.87%
1 year 0.27% -4.39%
................................................................................
Class 2++ Return If Not Redeemed* Return If Redeemed***
................................................................................
Since Inception (2/22/95) 10.16% 9.87%
3 year 7.74% 7.36%
1 year 0.17% -1.75%
................................................................................
Class O Return If Not Redeemed* Return If Redeemed***
................................................................................
Since Inception (2/22/95) 11.26% 11.26%
3 year 8.83% 8.83%
1 year 1.31% 1.31%
================================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Lipper Comparative Performance+
Salomon Brothers Strategic Bond Fund
- ---------------------------------------------------------------------------------------------
Lipper Category: Multi-Sector Income Funds
.............................................................................................
1 Year & Since Inception Total Return as of 12/31/98
Class A Shares Lipper Average Fund Return* Ranking
.............................................................................................
<C> <C> <C> <S>
Since Inception (2/22/95) 9.23% 11.03% 1st Quartile - Top 15% #7 of 49 Funds
1 year 1.30% 1.05% 3rd Quartile - Top 64% #59 of 93 Funds
.............................................................................................
Class B Shares Ranking
.............................................................................................
Since Inception (2/22/95) 10.15% 2nd Quartile - Top 29% #14
1 year 0.27% 3rd Quartile - Top 73% #67
.............................................................................................
Class 2 Shares++ Ranking
.............................................................................................
Since Inception (2/22/95) 10.16% 2nd Quartile - Top 27% #13
1 year 0.17% 2nd Quartile - Top 74% #68
.............................................................................................
Class O Shares Ranking
.............................................................................................
Since Inception (2/22/95) 11.26% 1st Quartile - Top 11% #5
1 year 1.31% 3rd Quartile - Top 61% #56
=============================================================================================
</TABLE>
Portfolio holdings may vary. See pages 28 and 29 for all footnotes.
22
<PAGE>
[GRAPHIC] THE SALOMON BROTHERS
National Intermediate
Municipal Fund
INVESTMENT OBJECTIVE AND STRATEGY
The Salomon Brothers National Intermediate Municipal Fund seeks to achieve a
high level of current income exempt from regular federal income taxes. Under
normal circumstances, at least 80% of the Fund's net assets will be invested in
municipal obligations, the interest on which is exempt from regular federal
income tax. Please note that all or a portion of the Fund's income may be
subject to the federal alternative minimum tax.
THE FUND MANAGERS
[PHOTO] Robert E. Amodeo, CFA Director and Co-Portfolio Manager at Salomon
Brothers Asset Management Inc, has 12 years of investment industry experience.
Mr. Amodeo shares responsibility for day-to-day Fund Management.
[PHOTO] Thomas A.Croak, Vice President and Co-Portfolio Manager at Salomon
Brothers Asset Management Inc, has 15 years of investment industry experience in
the municipal securities market. Mr. Croak shares responsibility for day-to-day
Fund Management.
PERFORMANCE UPDATE
The National Intermediate Municipal Fund's Class A shares returned 4.52% in
1998. This compares with the 5.95% return for the weighted average of the Lehman
Brothers 1-10 Year Municipal Bond Index and 5.35% for the Lipper Analytical
Services, Inc. Intermediate Municipal Debt Funds peer group average.
MARKET REVIEW AND PORTFOLIO HIGHLIGHTS
In 1998, the U.S. stood out as an island of economic prosperity in a world of
political and financial turmoil. Despite downward pressures from overseas, the
growth of the domestic economy was steady throughout the year. Meanwhile,
inflation (as measured by the Core Consumer Price Index) -- the enemy of fixed
income investors -- was surprisingly tame at 1.6% for 1998, the lowest level
since 1965.
Early in the year, concerns over the Asian contagion caused global investors to
flock to U.S. Treasuries as a safe-haven. Treasury yields fell as demand for
these securities increased. Shortly thereafter, market players shifted their
attention to the strong domestic economy. Technical factors (e.g. a tight labor
market and accelerated economic growth) generated uneasiness in the fixed-income
markets for fear of an increase in inflation and interest rate hikes. As a
result of the general sentiment, bonds reversed course and yields rose. Over the
summer, escalating concerns over struggling Asian economies, developing problems
in Latin America and, finally, the collapse of the Russian financial markets,
sent the capital markets tumbling. A flight to quality arose sending panicked
investors to the safe-haven of Treasuries causing government bond yields to fall
to historic lows. In the latter part of 1998, the Federal Reserve lowered its
short-term lending rate by 25 basis points, on three separate occasions. The
Fed's intervention successfully restored liquidity and confidence in the market.
23
<PAGE>
The municipal market was not significantly impacted by the heightened volatility
resulting from economic turmoil overseas. In fact, municipal bonds benefited
from low interest rates, benign inflation and stable U.S. economic growth.
Municipal securities performed well throughout the year versus other fixed
income asset classes.
State and local governments issued approximately $284 billion of debt during
1998, which is just shy of 1993's record pace of $292 billion. A notable
difference between 1993 and 1998, was the type of debt issued during the
respective years. Most of the debt issued during the former year was for
refunding purposes while the majority of debt issued in 1998 was for new project
funding. Strong demand from property and casualty insurance companies, mutual
funds and corporations helped absorb the abundant supply. Additionally, generous
municipal yields versus U.S. Treasuries sparked demand from non-traditional
buyers of municipal bonds.
Throughout the year, municipal bond issuers benefited from a strong national
economy, which facilitated capital funding. Standard & Poor's, a municipal debt
credit rating agency, reported that the number of improving credits outpaced
weakening issues.
As of December 31, 1998, the Fund's long-term holdings consisted of 36 issues in
17 different states. The portfolio's credit quality remains high with an average
rating of AA. The industry sector weightings are well-diversified, with the
greatest emphasis in Transportation, Healthcare and Education. For the year
ended December 31, 1998, the Fund underperformed its benchmark primarily due to
the relative weakness of two holdings in the Healthcare sector. We have since
liquidated these positions and reduced our exposure to the sector.
MARKET OUTLOOK
We expect technical factors to improve in 1999 via a reduction in new issue
volume. In response to the relatively tight risk premium levels of lower quality
bonds, we will continue to invest in the higher quality spectrum of the
municipal market.
Our philosophy of focusing on long-term fundamentals, rigorous credit analysis
and sector selection remains the credo for managing the Fund. We believe the
asset class is attractive for its portfolio diversification benefits, current
yield ratios and low correlation to Treasuries and other investment categories.
24
<PAGE>
The following graph depicts the performance of the National Intermediate
Municipal Fund versus the Lehman Brothers 1-10 Year Municipal Bond Index(4). It
is important to note that the National Intermediate Municipal Fund is a
professionally managed mutual fund while the index is not available for
investment and is unmanaged.The comparison is shown for illustrative purposes
only.
- -------------------------------
Portfolio Highlights/++/
- -------------------------------
Quality Breakdown as of
December 31, 1998
[PIE CHART APPEARS HERE]
AAA 51%
A 17%
BBB 14%
AA 11%
- -------------------------------
Cash and cash equivalents represent 7% of the Fund's net assets.
- -----------------------------
Comparative of portfolio as
of December 31, 1998/#/
- -----------------------------
New York 25%
.............................
Illinois 10%
.............................
Indiana 10%
.............................
Pennsylvania 8%
.............................
South Carolina 7%
.............................
Virginia 7%
.............................
California 4%
.............................
Texas 4%
.............................
Ohio 3%
.............................
District of Columbia 3%
.............................
New Jersey 3%
.............................
Massachusetts 3%
.............................
Mississippi 2%
.............................
Louisiana 2%
.............................
Michigan 2%
.............................
Hawaii 2%
.............................
Florida 1%
=============================
- --------------------------------------------------------------------------------
NATIONAL INTERMEDIATE MINICIPAL FUND--CLASS A, B, 2 AND O SHARES Comparison of
$10,000 Investment in the Fund with Lehman Brothers Muni 1-10 Year (Mkt Wtd)
Index
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Date CLASS A CLASS B CLASS 2 CLASS O Weight Index
- ---- ------- ------- ------- ------- ------------
2/22/95 9525 10000 9900 10000 10000
6/95 9841 10274 10173 10310 10369
12/95 10388 10797 10690 10896 10913
6/96 10368 10738 10632 10887 10952
12/96 10822 11159 11049 11367 11392
6/97 11117 11413 11311 11690 11699
12/97 11635 11907 11789 12250 12218
6/98 11868 12093 11973 12509 12504
12/98 12162 12051 12229 12833 12944
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31,1998
- --------------------------------------------------------------------------------
Class A Net Asset Value(*) Public Offering Price(***)
................................................................................
Since Inception (2/22/95) 6.54% 5.20%
3 year 5.38% 3.69%
1 year 4.52% -0.44%
................................................................................
Class B Return If Not Redeemed(*) Return If Redeemed(***)
................................................................................
Since Inception (2/22/95) 5.62% 4.95%
3 year 4.57% 3.65%
1 year 3.73% -1.26%
................................................................................
Class 2++ Return If Not Redeemed(*) Return If Redeemed(***)
................................................................................
Since Inception (2/22/95) 5.62% 5.35%
3 year 4.57% 4.20%
1 year 3.73% 1.68%
................................................................................
Class O Return If Not Redeemed(*) Return If Redeemed(***)
................................................................................
Since Inception (2/22/95) 6.68% 6.68%
3 year 5.59% 5.59%
1 year 4.76% 4.76%
================================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Lipper Comparative Performance+
Salomon Brothers National Inter. Muni. Fund
- ---------------------------------------------------------------------------------------------
Lipper Category: Intermediate Municipal Debt Funds
.............................................................................................
1 Year & Since Inception Total Return as of 12/31/98
Class A Shares Lipper Average Fund Return(*) Ranking
.............................................................................................
<C> <C> <C> <C> <C> <S>
Since Inception (2/22/95) 6.48% 6.54% 3rd Quartile - Top 54% #62 of 116 Funds
1 year 5.35% 4.52% 4th Quartile - 91% #134 of 148 Funds
.............................................................................................
Class B Shares Ranking
.............................................................................................
Since Inception (2/22/95) 5.62% 4th Quartile - 89% #103
1 year 3.73% 4th Quartile - Top 98% #145
.............................................................................................
Class 2 Shares++ Ranking
.............................................................................................
Since Inception (2/22/95) 5.62% 4th Quartile - Top 90% #104
1 year 3.73% 4th Quartile - Top 100% #148
.............................................................................................
Class O Shares Ranking
.............................................................................................
Since Inception (2/22/95) 6.68% 2nd Quartile - Top 37% #42
1 year 4.76% 4th Quartile - Top 83% #122
=============================================================================================
</TABLE>
Portfolio holdings may vary. See pages 28 and 29 for all footnotes. 25
<PAGE>
[GRAPHIC] THE SALOMON BROTHERS
U.S. Government
Income Fund
INVESTMENT OBJECTIVE AND STRATEGY
The Salomon Brothers U.S. Government Income Fund seeks to obtain a high level of
current income. Under normal conditions the Fund invests 100% of its net assets
in debt obligations and mortgage-backed securities issued by or guaranteed by
the U.S. government, its agencies or instrumentalities. The Fund expects
maintain an average portfolio duration of two to four years. (Duration is a
rough measure of a Fund's sensitivity to interest rates.)
THE FUND MANAGER
[PHOTO] Roger Lavan, Director and Portfolio Manager at Salomon Brothers Asset
Management Inc,has 14 years of investment industry experience in the fixed-
income markets.Mr.Lavan is responsible for day-to-day Fund management.
PERFORMANCE UPDATE
The U.S. Government Income Fund's Class A shares returned 7.62% in 1998. This
compares with the 9.63% return for the Salomon Smith Barney 1-5 Year Treasury
Bond Index and 6.58% for the Lipper Analytical Services, Inc. Short/Intermediate
U.S. Government Funds peer group average.
MARKET REVIEW AND PORTFOLIO HIGHLIGHTS
The Salomon Brothers U.S. Government Income Fund outperformed its Lipper Peer
Group by 1.04% in 1998. The Fund's strong performance resulted from its shift
into longer duration bonds and a sizable allocation to Treasuries.
For the first time since 1990, safe bonds outperformed risky bonds. In 1998,
interest rates fell approximately 1% pushing Treasury bond prices significantly
higher. While low inflation did contribute to lower bond yields, exogenous
factors such as equity market concerns, default fears and expectations of
spreading global economic weakness gave investors sufficient reason to seek the
safety and liquidity of the Treasury sector. In 1998, investment grade assets
underperfomed Treasuries for the first time in a non-recessionary year and in
recent financial history.
Early in the year, we believed Asia's economic woes would slow economic growth
in the U.S and push inflation lower. This would enable interest rates, in
particular long term rates, to move modestly lower and push bond prices higher.
The Fund overweighted long-term bonds and discount mortgage securities, to take
advantage of expectations for lower interest rates.
We held this position until mid-August when it became apparent that the global
economy would slow down more than was previously expected and the Federal
Reserve would ease monetary policy. We strategically reduced the Fund's
long-term bond holdings by swapping long maturity Treasuries and mortgages into
5-year Treasuries. These securities generally perform well prior to a Federal
Reserve easing cycle and this time was no exception. To maximize the benefits of
falling interest rates, we sold mortgage securities trading above par and bought
discount pass-throughs.
In the latter part of 1998, the Federal Reserve lowered its short-term lending
rate by 25 basis points, on three separate occasions. The Fed's intervention
successfully restored liquidity and confidence in the market. In this
environment, the main strategy change in the Fund was a reallocation to mortgage
pass-throughs from Treasuries.
MARKET OUTLOOK
After seven years of uninterrupted growth, the U.S. economy faces a period of
slowing expansion. Although key areas of economic activity remain buoyant,
gradual slowing remains a likely scenario for 1999. The Federal Reserve will
probably intervene with additional rate cuts, in an effort to reduce the impact
of weakness in consumer spending, manufacturing and corporate profits.
We expect interest rates to generally move lower in the first few months of the
year, followed by a gradual rise through the end of 1999. In this environment,
mortgage-backed securities may outperform Treasuries.
26
<PAGE>
The following graph depicts the performance of the U.S. Government Income Fund
versus the Salomon Smith Barney 1-5 Year Treasury Bond Index(5). It is important
to note that the U.S. Government Income Fund is a professionally managed mutual
fund while the index is not available for investment and is unmanaged.The
comparison is shown for illustrative purposes only.
- ---------------------------------------
Portfolio Highlights/#/
- ---------------------------------------
Composition of portfolio as of
December 31,1998
[PIE CHART APPEARS HERE]
Agency Pass Throughs 46%
Treasury & Agency Debentures 37%
Agency CMOs 13%
Cash/Cash Equivalents 4%
- ---------------------------------------
- --------------------------------------------------------------------------------
U.S. GOVERNMENT INCOME FUND--CLASS A, B, 2 AND O SHARES
Comparison of $10,000 Investment in the Fund with Salomon Smith Barney 1-5 years
Treasury Bond Index
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
Date CLASS A CLASS B CLASS 2 CLASS O Treas. Bond Ind
- ---- ------- ------- ------- ------- ---------------
2/22/95 9525 10000 9900 10000 10000
6/95 9958 10429 10325 10465 10450
12/95 10427 10879 10771 10971 10912
6/96 10361 10758 10651 10903 10996
12/96 10801 11172 11061 11381 11412
6/97 11099 11447 11333 11708 11731
12/97 11651 11970 11840 12305 12225
6/98 12037 12320 12198 12740 12612
12/98 12539 12499 12660 13300 13172
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1998
- --------------------------------------------------------------------------------
Class A Net Asset Value(*) Public Offering Price(***)
................................................................................
Since Inception (2/22/95) 7.39% 6.04%
3 year 6.32% 4.63%
1 year 7.62% 2.50%
................................................................................
Class B Return If Not Redeemed(*) Return If Redeemed(***)
................................................................................
Since Inception (2/22/95) 6.60% 5.95%
3 year 5.55% 4.65%
1 year 6.92% 1.92%
................................................................................
Class 2++ Return If Not Redeemed(*) Return If Redeemed(***)
................................................................................
Since Inception (2/22/95) 6.57% 6.30%
3 year 5.51% 5.17%
1 year 6.92% 4.88%
................................................................................
Class O Return If Not Redeemed(*) Return If Redeemed(***)
................................................................................
Since Inception (2/22/95) 7.67% 7.67%
3 year 6.60% 6.60%
1 year 8.08% 8.08%
================================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Lipper Comparative Performance++
Salomon Brothers U.S. Government Income Fund
- ---------------------------------------------------------------------------------------------
Lipper Category: Short/Intermediate U.S. Government Funds
.............................................................................................
1 Year & Since Inception Total Return as of 12/31/98
Class A Shares Lipper Average Fund Return(*) Ranking
.............................................................................................
<C> <C> <C> <C> <C> <S>
Since Inception (2/22/95) 6.83% 7.39% 1st Quartile - Top 19% #13 of 71 Funds
1 year 6.58% 7.62% 1st Quartile - Top 16% #15 of 99 Funds
.............................................................................................
Class B Shares Ranking
.............................................................................................
Since Inception (2/22/95) 6.60% 2nd Quartile - Top 67% #47
1 year 6.92% 2nd Quartile - Top 39% #38
.............................................................................................
Class 2 Shares++ Ranking
.............................................................................................
Since Inception (2/22/95) 6.57% 2nd Quartile - Top 70% #49
1 year 6.92% 3rd Quartile - Top 38% #37
.............................................................................................
Class O Shares Ranking
.............................................................................................
Since Inception (2/22/95) 7.67% 1st Quartile - Top 12% #8
1 year 8.08% 3rd Quartile - Top 51% #5
=============================================================================================
</TABLE>
Portfolio holdings may vary. See pages 28 and 29 for all footnotes.
27
<PAGE>
FOOTNOTES
1 The Salomon Smith Barney Broad Investment-Grade Bond Index is valued at month
end only. As a result, while the Fund's total return calculations used in
this comparison are for the period September 11, 1995 through December 31,
1998, the combined Index returns are for the period October 1, 1995 through
December 31, 1998.
2 The Salomon Smith Barney High-Yield Market Index is valued at month end only.
As a result, while the Fund's total return calculations used in this
comparison are for the period February 22, 1995 through December 31, 1998,
the Index returns are for the period March 1, 1995 through December 31, 1998.
3 The Salomon Smith Barney Broad Investment-Grade Bond Index is valued at month
end only. As a result, while the Fund's total return calculations used in
this comparison are for the period February 22, 1995 through December 31,
1998, the Index returns are for the period March 1, 1995 through December 31,
1998.
4 The Lehman Brothers 1-10 Year Municipal Bond Index is valued at month end
only. As a result, while the Fund's total return calculations used in this
comparison are for the period February 22, 1995 through December 31, 1998,
the Index returns are for the period March 1, 1995 through December 31, 1998.
5 The Salomon Smith Barney 1-5 Year Treasury Bond Index is valued at month end
only. As a result, while the Fund's total return calculations used in this
comparison are for the period February 22, 1995 through December 31, 1998,
the Index returns are for the period March 1, 1995 through December 31, 1998.
* Return does not reflect the deduction of sales charge.
** Class A & 2 shares reflect the deduction of the maximum 5.75% and
1.00% sales charges respectively. Class B & 2 shares reflect the maximum
contingent deferred sales charge of 5% and 1%, respectively. Class O shares
have no initial or contingent deferred sales charge.
*** Class A & 2 shares reflect the deduction of the maximum 4.75% and 1.00%
sales charges respectively. Class B & 2 shares reflect the maximum
contingent deferred sales charge of 5% and 1%, respectively. Class O shares
have no initial or contingent deferred sales charge.
+ Lipper Analytical Services, an industry recognized analysis company,
calculates rankings based on total return performance of funds within
each category. Lipper rankings change monthly and do not reflect the
effect of sales charges. Accordingly, the result in this table for the
Class A, Class B and Class 2 shares of each Fund do not reflect the effects
of the sales charges applicable to each Class. Lipper performance results
represent changes in net asset value, adjusted to reflect reinvestment of
dividends and capital gains.
++ As a % of long-term holdings.
+++ Effective September 14, 1998, Class C shares of the Fund were redesignated
as Class 2 shares.
# As a % of net assets.
N/A Not Available.
28
<PAGE>
GENERAL PERFORMANCE AND RANKING NOTES
Average annual total returns are based on changes in net asset value and assume
the reinvestment of all dividends, and/or capital gains distributions in
additional shares with and without the effect of the maximum sales charge
(Class A and 2) and the contingent deferred sales charge (Class B and 2).
Class A shares reflect the deduction of an annual 0.25% 12b-1 fee. Class B and 2
shares are subject to an annual 12b-1 service and distribution fee of 1.00%.
Class O shares are not subject to an annual 12b-1 fee. Class O shares are only
available to existing Class O shareholders. Past performance does not guarantee
future results. Investment return and principal value fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Returns for certain Funds reflect a voluntary expense cap imposed by SBAM
to limit total Fund operating expenses. Absent this expense cap, Fund returns
would be lower. Expense caps may be revised or terminated at any time.
29
<PAGE>
Portfolio of Investments
December 31, 1998
Salomon Brothers Asia Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
- --------------------------------------------------------------------------------
Common Stocks -- 82.7%
China -- 1.8%
296,250 Heilongjiang Electric Power, Class B*................... $ 94,800
304,800 Shenzhen Fangda, Class B................................ 148,721
----------
243,521
----------
Hong Kong -- 26.4%
53,000 Cheung Kong............................................. 381,406
140,000 China Telecom*.......................................... 242,158
190,000 Guangdong Kelon Electronics............................. 169,227
360,000 Guoco Group............................................. 606,428
28,000 HSBC Holdings........................................... 697,560
79,000 Johnson Electric Holdings............................... 202,930
116,000 Li & Fung............................................... 240,325
68,000 New World Development................................... 171,163
1,600,000 Paliburg Holdings*...................................... 173,487
698,000 Sino Land............................................... 373,912
56,000 Swire Pacific, Class A.................................. 250,833
----------
3,509,429
----------
India -- 5.3%
21,000 Mahanagar Telephone Nigam -- GDR........................ 259,875
30,500 Reliance Industries -- GDR.............................. 177,663
63,500 Tata Engineering & Locomotive -- GDR.................... 266,700
----------
704,238
----------
Indonesia -- 1.5%
142,000 PT Daya Guna Samudera................................... 91,856
152,000 PT HM Sampoerna*........................................ 100,225
----------
192,081
----------
Malaysia -- 2.0%
139,000 Malaysian International Shipping (a)(d)................. 166,117
60,000 Malaysian Oxygen (d).................................... 103,256
----------
269,373
----------
Philippines -- 2.0%
50,000 Philippine National Bank*............................... 77,121
920,000 SM Prime Holdings....................................... 175,013
----------
252,134
----------
Singapore -- 14.1%
106,000 Cerebos Pacific......................................... 145,742
400,000 Eastern Asia Technology................................. 106,000
40,000 Elec & Eltek International.............................. 216,000
42,000 Haw Par................................................. 47,062
112,000 Hong Leong Finance (a).................................. 214,367
240,000 Keppel Tatlee Bank...................................... 418,655
99,000 Keppel.................................................. 265,039
1,211,000 KLW Holdings*........................................... 139,364
145,000 Lindeteves-Jacoberg..................................... 122,078
18,001 Singapore Press Holdings (a)............................ 196,256
----------
1,870,563
----------
</TABLE>
See accompanying notes to financial statements
30
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Asia Growth Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
<C> <S> <C>
- -------------------------------------------------------------------------------
South Korea -- 9.1%
9,500 Hansol Paper........................................... $ 108,188
22,946 Medison................................................ 267,036
5,338 Pohang Iron & Steel.................................... 343,882
5,000 Samsung Display & Devices.............................. 246,467
9,050 Youngone............................................... 242,988
----------
1,208,561
----------
Taiwan -- 12.8%
254,800 BES Engineering*....................................... 109,132
64,000 Cathay Life Insurance*................................. 206,580
90,000 Compal Electronics*.................................... 293,296
170,840 Everest Textile*....................................... 152,706
81,000 Nien Hsing Textile*.................................... 192,318
90,000 Phoenixtec Power*...................................... 177,374
75,800 President Chain Store*................................. 238,786
152,000 Taiwan Semiconductor*.................................. 334,947
----------
1,705,139
----------
Thailand -- 7.7%
100,000 Bangkok Bank (a)*...................................... 206,327
87,000 Banpu Public Company*.................................. 97,531
29,000 BEC World Public Company (a)........................... 159,560
97,000 Electricity Generating Public Company*................. 169,450
214,352 National Finance & Securities*......................... 63,392
318,648 National Finance & Securities (a)*..................... 100,810
15,000 Siam Cement*........................................... 231,087
----------
1,028,157
----------
Total Common Stocks
(cost -- $10,416,770)................................. 10,983,196
----------
<CAPTION>
Principal
Amount
---------
<C> <S> <C>
Convertible Corporate Bonds -- 7.1%
Hong Kong -- 7.1%
$585,000 China Resources Beijing Land, 2.000%, due 04/30/04..... 481,163
550,000 Shanghai Industrial, 1.000%, due 02/24/03.............. 466,125
----------
Total Convertible Corporate Bonds
(cost -- $637,067).................................... 947,288
----------
Equity-Linked Notes -- 3.8%
India -- 0.4%
100,000 Reliance Industries Index Note due 11/06/00 (b)........ 54,379
----------
Singapore -- 3.4%
449,358 OUB Equity Linked Note due 01/06/02 (c)................ 449,540
----------
Total Equity-Linked Notes
(cost -- $563,335).................................... 503,919
----------
<CAPTION>
Warrants
--------
<C> <S> <C>
Warrants -- 0.3%
Hong Kong -- 0.3%
4,000,000 Merrill Lynch S&P 500 Index Put Warrants, expiring
03/18/99*.............................................. 16,523
2,500,000 Societe Generale Dow Jones Index Put Warrants, expiring
03/18/99*.............................................. 18,394
----------
Total Warrants
(cost -- $126,808).................................... 34,917
----------
</TABLE>
See accompanying notes to financial statements
31
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Asia Growth Fund (concluded)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Description Value
<C> <S> <C>
- -------------------------------------------------------------------------------
Rights -- 0.0%
Taiwan -- 0.0%
130 Compal Electronics Rights (cost -- $0)*.............. $ 101
-----------
<CAPTION>
Contracts
---------
<C> <S> <C>
Purchased Options -- 3.5%
Hong Kong -- 0.2%
14 Hang Seng OTC Index Put (expiring 01/29/99, exercise
price 9,600 HKD)*................................... 21,324
-----------
South Korea -- 3.3%
S.K. Telecom Lepo Call (expiring 06/17/99, exercise
800 price $.001)*........................................ 445,328
-----------
Total Purchased Options
(cost -- $420,248)................................... 466,652
-----------
Total Investments -- 97.4%
(cost -- $12,164,228)................................ 12,936,073
-----------
Written Options -- 0.0%
Hong Kong -- 0.0%
(1) Hang Seng OTC Index Put (expiring 01/29/99, exercise
price 9,000 HKD) (premium received -- $760)*........ (768)
-----------
Other assets in excess of liabilities -- 2.6%........ 350,050
-----------
Net Assets -- 100.0%................................. $13,285,355
===========
</TABLE>
Forward Foreign Currency Contracts
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Unrealized
Maturity Contracts to In Exchange Contracts at Appreciation
Dates Receive/Deliver for Value (Depreciation)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Purchases
01/04/1999 HKD 380,016 $ 49,057 $ 49,052 $ (5)
01/05/1999 HKD 445,485 57,500 57,504 4
Sales
10/26/1999 HKD 20,028,750 2,500,000 2,557,682 (57,682)
02/26/1999 NTD 19,263,750 596,419 596,087 332
01/06/1999 SGD 63,982 38,560 38,770 (210)
02/26/1999 SGD 1,420,560 863,143 863,904 (761)
--------
$(58,322)
========
</TABLE>
* Non-income producing security.
(a) Foreign Shares.
(b) Each $100,000 note is equivalent to 19,526 shares of Reliance Industries
Ltd. Redemption proceeds will be determined at date of redemption based on
the change in (1) the value of the shares of Reliance Industries Ltd. and
(2) the exchange rate between the U.S. Dollar and Indian Rupee. Interest on
the notes is equal to the amount of dividends paid on the underlying shares
of Reliance Industries Ltd.
(c) The current principal amount of these notes is equivalent to 182,000 shares
of Overseas Union Bank. Redemption proceeds will be determined at date of
redemption based on change in (1) the value of the shares of Overseas Union
Bank and (2) the exchange rate between the U.S. Dollar and Singapore Dol-
lar. Interest on the notes is equal to the amount of dividends paid on the
underlying shares of Overseas Union Bank.
(d) Fair valued at December 31, 1998.
Abbreviations used in this statement:
GDR Global Depository Receipt.
HKD Hong Kong Dollar.
NTD New Taiwan Dollar.
OTC Over The Counter.
SGD Singapore Dollar.
See accompanying notes to financial statements
32
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Small Cap Growth Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
<C> <S> <C>
- --------------------------------------------------------------------------------
Common Stocks -- 97.2%
Basic Industries -- 1.3%
5,000 Geon................................................. $ 115,000
------------
Capital Goods -- 3.4%
9,200 Matthews International............................... 289,800
------------
Communications -- 2.6%
9,000 Rogers Cantel Mobile Communications.................. 109,688
3,000 Winstar Communications*.............................. 117,000
------------
226,688
------------
Consumer -- 25.4%
2,000 Abacus Direct*....................................... 91,000
4,000 Cost Plus*........................................... 125,500
9,500 DeVry*............................................... 290,938
5,000 Dollar Tree Stores*.................................. 218,438
3,000 Dura Automotive Systems*............................. 102,375
2,000 Earthgrains.......................................... 61,875
7,000 Fossil*.............................................. 201,250
6,000 Insight Enterprises*................................. 305,250
2,500 Lason*............................................... 145,469
4,000 Michael Foods........................................ 120,000
3,000 O'Reilly Automotive*................................. 141,750
6,000 Profit Recovery Group International*................. 224,625
12,600 Ryan's Family Steak Houses*.......................... 155,925
------------
2,184,395
------------
Financial Services -- 26.5%
3,000 Alliance Bancorp..................................... 58,688
4,500 American Heritage Life Investment.................... 109,969
3,500 Andover Bancorp...................................... 121,188
2,500 CMAC Investment...................................... 114,844
7,000 Dime Bancorp......................................... 185,063
9,000 Enstar Group*........................................ 118,125
4,500 Flagstar Bancorp..................................... 117,563
4,200 Haven Bancorp........................................ 63,000
4,000 Independence Community Bancorp....................... 63,750
5,000 Legg Mason........................................... 157,813
4,900 Peoples Heritage Financial Group..................... 98,000
8,500 Protective Life...................................... 338,406
4,500 Reinsurance Group of America......................... 315,000
3,000 ReliaStar Financial.................................. 138,375
7,000 UICI*................................................ 171,500
6,600 Willis Lease Finance*................................ 103,950
------------
2,275,234
------------
Health Care -- 16.0%
3,500 Idexx Laboratories*.................................. 94,172
2,000 IDEC Pharmaceuticals*................................ 94,000
9,000 MedQuist*............................................ 355,500
4,000 Novoste*............................................. 113,500
7,000 ResMed*.............................................. 317,625
3,000 Safeskin*............................................ 72,375
</TABLE>
See accompanying notes to financial statements
33
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Small Cap Growth Fund (concluded)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
<C> <S> <C>
- -------------------------------------------------------------------------------
Health Care -- (continued)
5,000 Serologicals*....................................... $ 150,000
3,500 Universal Health Services*.......................... 181,563
------------
1,378,735
------------
Technology -- 22.0%
3,000 Affiliated Computer Services........................ 135,000
4,500 Bindview Development*............................... 123,750
3,000 Carrier Access*..................................... 103,312
1,500 CMGI*............................................... 159,750
2,500 Concord Communications*............................. 141,875
5,000 Genesys Telecommunications Laboratories*............ 111,250
3,000 Keane*.............................................. 119,813
2,500 Legato Systems*..................................... 164,844
3,000 Level One Communications*........................... 106,500
4,000 Manhattan Associates*............................... 109,000
2,500 New Era of Networks*................................ 110,000
7,000 Polycom*............................................ 155,750
4,000 Siebel Systems*..................................... 135,750
2,500 Ticketmaster Online-CitySearch*..................... 142,500
1,000 Uniphase*........................................... 69,370
------------
1,888,464
------------
Total Common Stocks
(cost -- $6,776,336)............................... 8,358,316
------------
<CAPTION>
Principal
Amount
----------
<C> <S> <C>
Repurchase Agreements -- 6.3%
$130,000 Repurchase Agreement, 4.680%, due 01/04/99, dated
12/31/98, with J.P. Morgan Securities,
collateralized by $92,000 U.S. Treasury Bonds,
8.875%, due 2/15/19 valued at $133,745; proceeds:
$130,068........................................... 130,000
412,000 Repurchase Agreement, 4.750%, due 01/04/99, dated
12/31/98, with Warburg Dillion Read, collateralized
by $416,000 U.S. Treasury Bonds, 5.625%, due
11/30/99 valued at $421,200; proceeds: $412,217.... 412,000
------------
Total Repurchase Agreements
(cost -- $542,000)................................. 542,000
------------
Liabilities in excess of other assets -- (3.5%)..... (306,786)
------------
Net Assets -- 100.0%................................ $ 8,593,530
============
</TABLE>
* Non-income producing security.
See accompanying notes to financial statements
34
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Capital Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
<C> <S> <C>
- --------------------------------------------------------------------------------
Common Stocks -- 85.7%
Basic Industries -- 5.9%
150,000 Geon................................................. $ 3,450,000
50,000 Martin Marietta Materials............................ 3,109,375
135,000 OM Group............................................. 4,927,500
17,500 Vulcan Materials..................................... 2,302,344
------------
13,789,219
------------
Communications -- 7.9%
100,000 Bell Atlantic........................................ 5,300,000
40,000 Frontier............................................. 1,360,000
35,000 MCI WorldCom*........................................ 2,511,250
75,000 NTL*................................................. 4,232,813
420,000 Rogers Cantel Mobile Communications, Class B*........ 5,118,750
------------
18,522,813
------------
Consumer Cyclicals -- 8.8%
75,000 Breed Technologies*.................................. 614,063
125,000 Costco Companies*.................................... 9,023,438
75,000 Federated Department Stores*......................... 3,267,184
250,000 Hollinger International.............................. 3,484,375
170,000 Tower Automotive*.................................... 4,239,375
------------
20,628,435
------------
Consumer Non-Cyclicals -- 28.6%
825,000 Food Lion, Class B................................... 8,301,563
275,000 Hormel Foods......................................... 9,006,250
240,000 John B. Sanfilippo & Sons*........................... 1,020,000
125,000 Michael Foods........................................ 3,750,000
150,000 News Corporation -- ADR.............................. 3,703,125
180,000 Philip Morris Companies.............................. 9,630,000
425,000 RJR Nabisco Holdings................................. 12,617,188
175,000 Tele-Communications, TCI Ventures Group, Class A*.... 4,123,438
175,000 Tyson Foods, Class A................................. 3,718,750
100,000 UST.................................................. 3,487,500
300,000 U.S. Satellite Broadcasting*......................... 4,125,000
50,000 Viacom, Class B*..................................... 3,700,000
------------
67,182,814
------------
Energy -- 5.8%
150,000 Conoco, Class A*..................................... 3,131,250
100,000 Enron Oil & Gas...................................... 1,725,000
300,000 Paradigm Geophysical*................................ 1,537,500
100,000 Suncor Energy........................................ 2,987,500
100,000 Tosco................................................ 2,587,500
85,000 Valero Energy........................................ 1,806,250
------------
13,775,000
------------
Financial Services -- 7.7%
150,000 Bank of New York..................................... 6,037,500
100,000 Fleet Financial Group................................ 4,468,750
100,000 Haven Bancorp........................................ 1,500,000
200,000 Independence Community Bancorp....................... 3,187,500
75,000 Mercantile Bankshares................................ 2,887,500
------------
18,081,250
------------
</TABLE>
See accompanying notes to financial statements
35
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Capital Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
<C> <S> <C>
- -------------------------------------------------------------------------------
Health Care -- 2.3%
100,000 Centocor*.......................................... $ 4,512,500
200,000 CombiChem*......................................... 862,500
------------
5,375,000
------------
Technology -- 17.0%
200,000 Adaptec*........................................... 3,512,500
100,000 Applied Materials*................................. 4,268,750
140,000 Aspect Telecommunications*......................... 2,415,000
35,000 Comverse Technology*............................... 2,485,000
250,000 Integrated Process Equipment*...................... 2,687,500
15,000 International Business Machines.................... 2,771,250
100,000 Level One Communications*.......................... 3,550,000
92,500 Plantronics*....................................... 7,955,000
150,000 Quantum*........................................... 3,187,500
150,000 Seagate Technology*................................ 4,537,500
30,000 Texas Instruments.................................. 2,566,875
------------
39,936,875
------------
Utilities -- 1.7%
45,000 K N Energy......................................... 1,636,875
75,000 Williams Companies................................. 2,339,063
------------
3,975,938
------------
Total Common Stocks
(cost -- $150,420,993)............................ 201,267,344
------------
Convertible Preferred Stocks -- 1.5%
Consumer Cyclicals -- 1.5%
150,000 BTI Capital Trust, 6.500% (cost -- $7,208,000)..... 3,525,000
------------
<CAPTION>
Principal
Amount
-----------
<C> <S> <C>
Convertible Corporate Bonds -- 4.0%
Consumer Cyclicals -- 3.7%
$ 8,500,000 Fine Host, 5.000%, due 11/01/04.................... 6,417,500
20,000,000 Sunbeam, Zero Coupon, due 03/25/18................. 2,350,000
------------
8,767,500
------------
Technology -- 0.3%
Integrated Process Equipment, 6.250%, due
1,000,000 09/15/04........................................... 728,750
------------
Total Convertible Corporate Bonds
(cost -- $10,870,268)............................. 9,496,250
------------
<CAPTION>
Contracts
-----------
<C> <S> <C>
Purchased Options -- 0.0%
200 Interactive Week Internet Index Put
(expiring February 1999, exercise price $400)*
(cost -- $148,100)................................. 85,000
------------
Total Investments -- 91.2%
(cost -- $168,647,361)............................ 214,373,594
------------
</TABLE>
See accompanying notes to financial statements
36
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Capital Fund (concluded)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
<C> <S> <C>
- -------------------------------------------------------------------------------
Repurchase Agreements -- 7.8%
$ 6,625,000 Repurchase Agreement, 4.680%, due 01/04/99, dated
12/31/98, with J.P. Morgan Securities,
collateralized by $5,557,000 U.S. Treasury Bonds,
7.250%, due 05/15/16 valued at $6,758,701;
proceeds: $6,628,445.............................. $ 6,625,000
11,650,000 Repurchase Agreement, 4.750%, due 01/04/99, dated
12/31/98, with Warburg Dillon Read, collateralized
by $11,737,000 U.S. Treasury Notes, 5.625%, due
11/30/99 valued at $11,883,713; proceeds:
$11,656,149....................................... 11,650,000
------------
Total Repurchase Agreements
(cost -- $18,275,000)............................. 18,275,000
------------
Other assets in excess of liabilities -- 1.0%..... 2,412,603
------------
Net Assets -- 100.0%............................... $235,061,197
============
</TABLE>
* Non-income producing security.
Abbreviation used in this statement:
ADR American Depository Receipt.
See accompanying notes to financial statements
37
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Investors Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
<C> <S> <C>
- --------------------------------------------------------------------------------
Common Stocks -- 86.7%
Basic Industries -- 4.8%
200,000 Martin Marietta Materials............................. $ 12,437,500
420,000 OM Group.............................................. 15,330,000
76,800 Vulcan Materials...................................... 10,104,000
------------
37,871,500
------------
Capital Goods -- 1.7%
183,000 Tyco International.................................... 13,805,063
------------
Communications -- 7.0%
258,000 Bell Atlantic......................................... 13,674,000
370,700 Frontier.............................................. 12,603,800
115,000 GTE................................................... 7,755,313
186,000 MCI WorldCom*......................................... 13,345,500
150,000 SBC Communications.................................... 8,043,750
------------
55,422,363
------------
Consumer Cyclicals -- 9.4%
350,000 Costco Companies*..................................... 25,265,625
220,000 Dayton-Hudson......................................... 11,935,000
225,000 Federated Department Stores*.......................... 9,801,563
190,000 Lear*................................................. 7,315,000
611,300 Tower Automotive*..................................... 15,244,294
270,000 U.S. Industries....................................... 5,028,750
------------
74,590,232
------------
Consumer Non-Cyclicals -- 16.5%
890,000 Food Lion, Class A.................................... 9,456,250
100,000 Food Lion, Class B.................................... 1,006,250
260,000 Hormel Foods.......................................... 8,515,000
375,000 Interstate Bakeries................................... 9,914,063
435,700 Philip Morris Companies............................... 23,309,950
925,000 RJR Nabisco Holdings.................................. 27,460,938
57,000 Tele-Communications, Liberty Media Group, Class A*.... 2,625,563
712,070 Tele-Communications, TCI Ventures Group, Class A*..... 16,778,149
643,500 Tyson Foods, Class A.................................. 13,674,375
148,900 UST................................................... 5,192,881
175,000 Viacom, Class B*...................................... 12,950,000
------------
130,883,419
------------
Energy -- 8.1%
150,000 Amerada Hess.......................................... 7,462,500
190,500 Burlington Resources.................................. 6,822,281
350,000 Conoco, Class A*...................................... 7,306,250
240,000 Royal Dutch Petroleum, 5 Guilder...................... 11,490,000
400,000 Suncor Energy......................................... 11,950,000
75,000 Sunoco................................................ 2,704,688
150,000 TOTAL -- ADR.......................................... 7,462,500
300,000 USX-Marathon Group.................................... 9,037,500
------------
64,235,719
------------
Financial Services -- 15.5%
85,600 American Express...................................... 8,752,600
191,600 Associates First Capital.............................. 8,119,050
</TABLE>
See accompanying notes to financial statements
38
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Investors Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
<C> <S> <C>
- -------------------------------------------------------------------------------
Financial Services -- (continued)
728,800 Bank of New York..................................... $ 29,334,200
215,000 BankBoston........................................... 8,371,563
136,800 Dime Bancorp......................................... 3,616,650
294,000 Federal Home Loan Mortgage........................... 18,944,625
195,000 Fleet Financial Group................................ 8,714,063
133,000 Morgan Stanley Dean Witter........................... 9,443,000
245,100 Nationwide Financial Services, Class A............... 12,668,606
375,000 Provident Companies.................................. 15,562,500
------------
123,526,857
------------
Health Care -- 5.3%
220,000 Abbott Laboratories.................................. 10,780,000
185,000 American Home Products............................... 10,417,813
120,000 Johnson & Johnson.................................... 10,065,000
194,000 Pharmacia & Upjohn................................... 10,985,250
------------
42,248,063
------------
Real Estate Investment Trusts -- 3.6%
343,000 Arden Realty Group................................... 7,953,313
340,000 Equity Office Properties Trust....................... 8,160,000
234,800 Glenborough Realty Trust............................. 4,784,050
345,000 New Plan Excel Realty Trust.......................... 7,654,688
------------
28,552,051
------------
Technology -- 11.9%
210,000 Adaptec*............................................. 3,688,125
259,000 Applied Materials*................................... 11,056,063
327,300 Aspect Telecommunications*........................... 5,645,925
168,000 Hewlett-Packard...................................... 11,476,500
90,000 Intel................................................ 10,670,625
120,000 International Business Machines...................... 22,170,000
101,000 Plantronics*......................................... 8,686,000
350,000 Seagate Technology*.................................. 10,587,500
120,000 Texas Instruments.................................... 10,267,500
------------
94,248,238
------------
Transportation -- 1.6%
164,500 Canadian National Railway............................ 8,533,438
86,000 Union Pacific........................................ 3,875,375
------------
12,408,813
------------
Utilities -- 1.3%
336,400 Williams Companies................................... 10,491,475
------------
Total Common Stocks
(cost -- $461,554,298).............................. 688,283,793
------------
Preferred Stocks -- 1.9%
Consumer Non-Cyclicals -- 1.9%
630,000 News Corporation -- ADR (cost $13,719,980)........... 15,553,125
------------
Convertible Preferred Stocks -- 0.7%
Transportation -- 0.7%
Union Pacific Capital Trust, 6.250% (cost
125,100 $6,434,325).......................................... 5,817,150
------------
</TABLE>
See accompanying notes to financial statements
39
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Investors Fund (concluded)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- -------------------------------------------------------------------------------
<C> <S> <C>
Convertible Corporate Bonds -- 2.9%
Health Care -- 1.3%
$10,000,000 Centocor, 4.750%, due 02/15/05..................... $ 10,587,500
------------
Technology -- 1.0%
7,500,000 Micron Technology, 7.000%, due 07/01/04............ 8,034,375
------------
Telecommunications & Utilities -- 0.6%
4,000,000 NTL, 7.000%, due 12/15/08.......................... 4,330,000
------------
Total Convertible Corporate Bonds
(cost -- $21,975,684)............................. 22,951,875
------------
Rights Rights -- 0.0%
Real Estate Investment Trusts -- 0.0%
234,800 Glenborough Realty Trust Rights, expiring
07/20/08.......................................... 0
------------
Technology -- 0.0%
180,000 Texas Instruments Rights, expiring 06/18/08........ 0
------------
Total Rights
(cost $0)......................................... 0
------------
Total Investments -- 92.2%
(cost -- $503,684,287)............................ 732,605,943
------------
Repurchase Agreements -- 6.6%
13,597,000 Repurchase Agreement, 4.680%, due 01/04/99, dated
12/31/98 with J.P. Morgan Securities,
collateralized by $11,404,000 U.S. Treasury Bonds,
7.250%, due 05/15/16, valued at $13,870,115;
proceeds: $13,604,070............................. 13,597,000
39,000,000 Repurchase Agreement, 4.750%, due 01/04/99, dated
12/31/98 with Warburg Dillon Read, collateralized
by $39,289,000 U.S. Treasury Notes, 5.625%, due
11/30/99, valued at $39,780,113; proceeds:
$39,020,583....................................... 39,000,000
------------
Total Repurchase Agreements
(cost -- $52,597,000)............................. 52,597,000
------------
Other assets in excess of liabilities -- 1.2%..... 9,534,902
------------
Net Assets -- 100.0%............................... $794,737,845
============
</TABLE>
* Non-income producing security.
Abbreviation used in this statement:
ADR American Depository Receipt.
See accompanying notes to financial statements
40
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
<C> <S> <C>
- --------------------------------------------------------------------------------
Common Stocks -- 48.4%
Basic Industries -- 6.7%
22,000 Aluminum Company of America......................... $ 1,640,375
67,700 Geon................................................ 1,557,100
60,000 Lyondell Chemical................................... 1,080,000
10,000 Monsanto............................................ 475,000
16,000 Nalco Chemical...................................... 496,000
20,000 Union Camp.......................................... 1,350,000
218,600 USEC................................................ 3,033,075
15,800 Vulcan Materials.................................... 2,078,680
20,000 Weyerhauser ........................................ 1,016,250
26,000 Willamette Industries............................... 871,000
------------
13,597,480
------------
Capital Goods -- 1.0%
15,000 Fluor............................................... 638,438
43,000 Stone & Webster..................................... 1,429,750
------------
2,068,188
------------
Communications -- 7.0%
80,000 BCE................................................. 3,035,000
40,000 Bell Atlantic....................................... 2,120,000
40,000 Edison International................................ 1,115,000
60,000 Frontier............................................ 2,040,000
28,000 GTE................................................. 1,888,250
45,000 Houston Industries.................................. 1,445,625
50,000 SBC Communications.................................. 2,681,250
------------
14,325,125
------------
Consumer Cyclicals -- 4.0%
20,726 Cooper Industries................................... 988,371
18,705 Daimlerchrysler .................................... 1,796,849
19,500 Eastman Kodak....................................... 1,404,000
20,240 Hollinger International............................. 282,095
8,000 J.C. Penney......................................... 375,000
22,100 May Department Stores............................... 1,334,288
48,000 Sears, Roebuck...................................... 2,040,000
------------
8,220,603
------------
Consumer Non-Cyclicals -- 5.6%
23,000 Anheuser-Busch...................................... 1,509,375
70,000 Avon Products....................................... 3,097,500
150,000 Food Lion, Class B.................................. 1,509,375
50,000 Hormel Foods........................................ 1,637,500
3,000 McDonalds........................................... 229,875
8,000 PepsiCo............................................. 327,500
30,000 Philip Morris Companies ............................ 1,605,000
45,000 Ralston-Purina Group................................ 1,456,875
------------
11,373,000
------------
Energy -- 6.0%
25,000 Amerada Hess........................................ 1,243,750
23,000 Amoco............................................... 1,388,625
23,000 Exxon............................................... 1,681,875
50,000 Halliburton......................................... 1,481,250
</TABLE>
See accompanying notes to financial statements
41
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
<C> <S> <C>
- --------------------------------------------------------------------------------
Energy -- (continued)
14,000 Mobil............................................... $ 1,219,750
16,000 Royal Dutch Petroleum, 5 Guilder.................... 766,000
20,000 Schlumberger........................................ 922,500
95,000 Suncor Energy....................................... 2,838,125
12,000 Texaco.............................................. 634,500
------------
12,176,375
------------
Financial Services -- 4.0%
30,000 Allstate............................................ 1,158,750
9,000 BankAmerica......................................... 541,125
18,000 Chubb............................................... 1,167,750
30,000 CIGNA............................................... 2,319,375
30,000 Fleet Financial Group............................... 1,340,625
23,000 Marsh & McLennan Companies.......................... 1,344,063
5,700 Nationwide Financial Services, Class A.............. 294,619
------------
8,166,307
------------
Health Care -- 2.4%
42,000 American Home Products.............................. 2,365,125
26,000 Bausch & Lomb....................................... 1,560,000
4,000 Johnson & Johnson................................... 335,500
10,000 Pharmacia & Upjohn.................................. 566,250
------------
4,826,875
------------
Real Estate Investment Trusts -- 5.9%
67,500 Arden Realty Group.................................. 1,565,156
35,000 Bedford Property Investors.......................... 590,625
55,000 Brandywine Realty Trust............................. 983,125
45,000 Duke Realty Investments............................. 1,046,250
65,000 Glenborough Realty Trust............................ 1,324,375
46,950 JDN Realty.......................................... 1,012,359
75,000 Mid Atlantic Realty Trust........................... 923,438
84,000 New Plan Excel Realty Trust......................... 1,863,750
30,000 Patriot American Hospitality........................ 180,000
18,000 Prentiss Properties Trust........................... 401,625
35,000 Reckson Associates Realty........................... 776,563
35,000 Sun Communities..................................... 1,218,438
------------
11,885,704
------------
Technology -- 1.2%
36,000 Pitney Bowes........................................ 2,378,250
329 Sensomatic Electronics.............................. 2,282
------------
2,380,532
------------
Transportation -- 3.7%
70,000 Canadian National Railway........................... 3,631,250
25,000 Canadian Pacific.................................... 471,875
75,000 Union Pacific....................................... 3,379,688
------------
7,482,813
------------
Utilities -- 0.9%
58,000 Williams Companies.................................. 1,808,875
------------
Total Common Stocks
(cost -- $85,955,737).............................. 98,311,877
------------
</TABLE>
See accompanying notes to financial statements
42
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
Interest Maturity
Shares Description Rate Date Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------
Preferred Stocks -- 0.0%
Financial/Leasing -- 0.0%
321 TCR Holding, Class B*............................ $ 19
177 TCR Holding, Class C*............................ 10
466 TCR Holding, Class D*............................ 25
964 TCR Holding, Class E*............................ 61
-----------
Total Preferred Stocks
(cost -- $115).................................. 115
-----------
Convertible Preferred
Stocks -- 1.8%
Basic Industries -- 0.3%
10,000 International Paper Capital Trust 5.250%......... 483,750
-----------
Consumer Cyclicals -- 0.2%
20,000 BTI Capital Trust 6.500%......................... 470,000
-----------
Consumer Non-Cyclicals --
0.3%
12,500 Ralston Purina 7.000%............................ 653,125
-----------
Energy -- 0.2%
15,000 Chesapeake Energy 7.000%......................... 157,500
6,000 El Paso Energy Capital Trust 4.750%.............. 287,250
-----------
444,750
-----------
Financial Services -- 0.5%
10,000 Finova Finance Trust 5.500%...................... 743,125
7,500 Morgan Stanley Dean Witter, Medium Term Notes,
Series C, Reset PERQS 6.000% due 5/15/00 (d).... 309,375
-----------
1,052,500
-----------
Telecommunications & Utilities -- 0.3%
20,000 Skytel Communications $2.25...................... 622,500
-----------
Total Convertible Preferred Stocks
(cost -- $4,361,726)............................ 3,726,625
-----------
<CAPTION>
Principal
Amount
---------
<C> <S> <C> <C> <C>
Corporate Bonds -- 20.2%
Basic Industries -- 2.4%
$ 200,000 Berry Plastics............ 12.250% 04/15/04 209,500
100,000 Doman Industries Limited.. 8.750 03/15/04 79,000
200,000 Envirosource.............. 9.750 06/15/03 180,000
125,000 Huntsman.................. 9.500 07/01/07 125,000
125,000 Indesco International..... 9.750 04/15/08 118,125
250,000 ISP Holdings.............. 9.000 10/15/03 263,750
250,000 Millar Western Forest..... 9.875 05/15/08 188,750
175,000 Monsanto.................. 5.875 12/01/08 173,383
575,000 Pohang Iron & Steel....... 7.500 08/01/02 529,558
1,200,000 Praxair................... 6.150 04/15/03 1,197,180
250,000 P&L Coal Holdings......... 9.625 05/15/08 253,750
200,000 Radnor Holdings........... 10.000 12/01/03 202,000
1,000,000 Raytheon.................. 6.150 11/01/08 1,018,370
100,000 Renco Metals.............. 11.500 07/01/03 104,000
150,000 Tekni-Plex................ 11.250 04/01/07 167,250
-----------
4,809,616
-----------
</TABLE>
See accompanying notes to financial statements
43
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Consumer Cyclicals -- 1.0%
$ 250,000 Cole National Group.......... 8.625% 08/15/07 $ 245,000
100,000 Collins & Aikman Flooring.... 10.000 01/15/07 104,000
250,000 HMH Properties............... 7.875 08/01/08 243,125
250,000 Prime Hospitality............ 9.750 04/01/07 251,250
1,200,000 Staples...................... 7.125 08/15/07 1,217,208
-----------
2,060,583
-----------
Consumer Non-Cyclicals --
2.5%
350,000 American Safety Razor........ 9.875 08/01/05 360,500
250,000 Ameriserv Food............... 10.125 07/15/07 223,750
250,000 B&G Foods.................... 9.625 08/01/07 245,000
100,000 Carr-Gottstein Foods......... 12.000 11/15/05 114,000
200,000 CFP Holdings................. 11.625 01/15/04 167,000
250,000 Dade International........... 11.125 05/01/06 275,000
250,000 Delta Beverage Group......... 9.750 12/15/03 261,250
250,000 Ekco Group................... 9.250 04/01/06 250,000
125,000 Fisher Scientific
International............... 9.000 02/01/08 123,750
125,000 French Fragrances............ 10.375 05/15/07 123,438
100,000 Fresenius Medical Care....... 9.000 12/01/06 99,000
250,000 Grand Casinos................ 9.000 10/15/04 281,250
250,000 Harrahs Operating............ 7.875 12/15/05 250,000
130,000 Hines Horticulture........... 11.750 10/15/05 139,425
150,000 Integrated Health Services... 9.500 09/15/07 142,500
250,000 Jitney-Jungle Stores of
America..................... 12.000 03/01/06 277,500
200,000 NBTY......................... 8.625 09/15/07 196,000
250,000 North Atlantic Trading....... 11.000 06/15/04 252,500
250,000 Park Place Entertainment..... 7.875 12/15/05 251,563
300,000 Revlon Worldwide (a)......... 10.906-11.591 03/15/01 172,500
250,000 SC International Services.... 9.250 09/01/07 251,250
250,000 Shop Vac..................... 10.625 09/01/03 275,000
200,000 Stroh Brewery................ 11.100 07/01/06 151,000
250,000 Vencor....................... 9.875 05/01/05 216,250
-----------
5,099,426
-----------
Data Technology/Information
Services -- 1.1%
250,000 Decisionone.................. 9.750 08/01/07 116,250
1,900,000 First Data................... 6.375 12/15/07 1,968,647
250,000 Unisys....................... 7.875 04/01/08 265,000
-----------
2,349,897
-----------
Energy -- 1.4%
250,000 Bellwether Exploration....... 10.875 04/01/07 252,500
200,000 Benton Oil & Gas............. 11.625 05/01/03 116,000
150,000 Clark Refining & Marketing... 8.875 11/15/07 134,250
250,000 Dailey International......... 9.500 02/15/08 111,250
850,000 Empresa Electric............. 7.300 05/01/03 755,395
1,350,000 Norsk Hydro.................. 6.700 01/15/18 1,341,495
200,000 Transamerican Energy (Zero
Coupon until 06/15/99,
13.000% thereafter) (a)..... 13.000 06/15/02 65,000
-----------
2,775,890
-----------
</TABLE>
See accompanying notes to financial statements
44
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Financial/Leasing -- 4.4%
$ 952,243 Bank One Auto Grantor Trust.. 6.290% 07/20/04 $ 962,658
325,000 DVI.......................... 9.875 02/01/04 313,219
2,275,000 Ford Credit Auto Owner
Trust....................... 5.850 10/15/01 2,289,219
774,379 Green Tree Financial......... 7.070 01/15/29 802,450
780,000 Merrill Lynch................ 6.000 11/15/04 782,753
1,100,000 Nationsbank Credit Card
Master Trust................ 6.450 04/15/03 1,118,898
1,250,000 Sears Roebuck Acceptance..... 7.000 06/15/07 1,341,263
1,000,000 U.S. Bank.................... 5.700 12/15/08 996,240
250,000 Williams Scotsman............ 9.875 06/01/07 255,000
-----------
8,861,700
-----------
Housing Related -- 0.1%
250,000 CB Richard Ellis Services.... 8.875 06/01/06 245,000
-----------
Manufacturing -- 1.4%
125,000 Alvey Systems................ 11.375 01/31/03 126,250
250,000 Axiohm Transaction Solution.. 9.750 10/01/07 237,500
250,000 BE Aerospace................. 8.000 03/01/08 245,000
250,000 Burke Industries............. 10.000 08/15/07 243,750
125,000 Furon........................ 8.125 03/01/08 124,375
250,000 Hayes Lemmerz International.. 8.250 12/15/08 250,000
250,000 High Voltage Engineering..... 10.500 08/15/04 237,500
250,000 International Knife & Saw.... 11.375 11/15/06 257,500
125,000 L-3 Communications........... 8.000 08/01/08 125,938
250,000 Navistar International....... 8.000 02/01/08 255,625
200,000 Packard Bioscience........... 9.375 03/01/07 190,000
250,000 Polymer Group................ 9.000 07/01/07 248,750
250,000 Venture Holdings Trust....... 9.500 07/01/05 250,000
-----------
2,792,188
-----------
Media--3.4%
200,000 Adelphia Communications...... 10.500 07/15/04 219,000
200,000 American Media Operation..... 11.625 11/15/04 205,000
1,725,000 Belo (A.H.).................. 7.250 09/15/27 1,736,799
250,000 Big Flower Press Holdings.... 8.625 12/01/08 253,750
250,000 Centennial Cellular.......... 10.750 12/15/08 251,875
500,000 Century Communications (a)... 8.592-8.878 01/15/08 256,250
250,000 Comcast Cellular............. 9.500 05/01/07 265,625
200,000 CSC Holdings................. 10.500 05/15/16 235,000
250,000 Diamond Cable (Zero Coupon
until 12/15/00, 11.750%
thereafter) (a)............. 10.594-11.750 12/15/05 205,625
250,000 Falcon Holding Group......... 8.375 04/15/10 251,250
850,000 GTE.......................... 6.940 04/15/28 923,143
250,000 Granite Broadcasting......... 8.875 05/15/08 237,500
250,000 Hollinger International
Publishing.................. 9.250 03/15/07 262,500
125,000 ICG Holdings (Zero Coupon
until 09/15/00, 13.500%
thereafter) (a)............. 12.725 09/15/05 103,750
250,000 Intermedia Communication..... 8.600 06/01/08 238,750
400,000 International CableTel (Zero
Coupon until 02/01/01,
11.500% thereafter) (a)..... 9.866-11.804 02/01/06 324,000
375,000 LIN Holdings (Zero Coupon
until 03/01/03, 10.000%
thereafter) (a)............. 9.915 03/01/08 258,750
200,000 Marcus Cable (Zero Coupon
until 06/15/00, 14.250%
thereafter) (a)............. 12.642-12.921 12/15/05 191,000
300,000 Metronet Communications (Zero
Coupon until 06/15/03,
9.950% thereafter) (a)...... 10.391 06/15/08 180,000
250,000 Rogers Communications........ 8.875 07/15/07 257,500
135,000 SFX Broadcasting............. 10.750 05/15/06 149,850
-----------
7,006,917
-----------
</TABLE>
See accompanying notes to financial statements
45
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
<TABLE>
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Services/Other -- 2.2%
$ 250,000 Allied Waste.......................................... 7.875% 01/01/09 $ 253,125
1,920,000 Comdisco, Mandatory Par Put Remarketed Securities..... 6.130 08/01/01 1,905,254
250,000 Iron Mountain......................................... 10.125 10/01/06 271,250
250,000 Loomis Fargo.......................................... 10.000 01/15/04 230,000
250,000 Pierce Leahy.......................................... 11.125 07/15/06 273,750
250,000 Protection One........................................ 8.125 01/15/09 251,250
125,000 Safety-Kleen Services................................. 9.250 06/01/08 129,375
1,200,000 Service Corporation International..................... 6.000 12/15/05 1,188,576
-----------
4,502,580
-----------
Transportation -- 0.3%
250,000 Enterprises Shipholding............................... 8.875 05/01/08 206,250
200,000 Holt Group............................................ 9.750 01/15/06 139,000
150,000 Teekay Shipping....................................... 8.320 02/01/08 148,500
400,000 TFM (Zero Coupon until 06/15/02, 11.750% thereafter)
(a).................................................. 11.398 06/15/09 187,000
-----------
680,750
-----------
Total Corporate Bonds
(cost -- $42,163,569) 41,184,547
-----------
Convertible Corporate Bonds -- 8.5%
Consumer Cyclicals -- 0.6%
1,000,000 Costco Companies (a).................................. 1.414-3.500 08/19/17 832,500
500,000 Fine Host............................................. 5.000 11/01/04 377,500
-----------
1,210,000
-----------
Consumer Non-Cyclicals -- 0.8%
1,750,000 Credit Suisse First Boston (e)........................ 1.000 04/02/05 1,636,250
-----------
Financial/Leasing -- 0.5%
750,000 Xerox Credit.......................................... 2.875 07/01/02 967,500
-----------
Health Care -- 0.7%
750,000 Centocor.............................................. 4.750 02/15/05 794,063
750,000 HEALTHSOUTH........................................... 3.250 04/01/03 641,250
-----------
1,435,313
-----------
Manufacturing -- 0.3%
750,000 Mark IV Industries.................................... 4.750 11/01/04 600,938
-----------
Data Technology/Information Services -- 3.5%
1,000,000 Adaptec............................................... 4.750 02/01/04 772,500
750,000 Analog Devices........................................ 3.500 12/01/00 1,157,813
2,500,000 Aspect Telecommunications (a)......................... 6.000 08/10/18 578,125
750,000 Emcor Group........................................... 5.750 04/01/05 639,375
1,000,000 Integrated Process Equipment.......................... 6.250 09/15/04 731,750
750,000 Micron Technology..................................... 7.000 07/01/04 803,438
1,000,000 Quantum............................................... 7.000 08/01/04 916,250
600,000 VLSI Technology....................................... 8.250 10/01/05 524,202
750,000 Xilinx................................................ 5.250 11/01/02 976,875
-----------
7,100,328
-----------
</TABLE>
See accompanying notes to financial statements
46
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Telecommunications & Utilities --
1.8%
$ 750,000 Bell Atlantic..................... 5.750% 04/01/03 $ 778,125
1,250,000 NTL............................... 7.000 12/15/08 1,353,125
750,000 Synoptics Communications.......... 5.250 05/15/03 768,750
750,000 Tele-Communications............... 4.500 02/15/06 798,750
-----------
3,698,750
-----------
Transportation -- 0.3%
1,000,000 Halter Marine Group............... 4.500 09/15/04 565,000
-----------
Total Convertible Corporate Bonds
(cost -- $16,910,190)............ 17,214,079
-----------
U.S. Government & Agency -- 16.5%
965,965 Federal Home Loan Mortgage
Corporation...................... 8.000 07/01/20 1,012,602
241,416 Federal Home Loan Mortgage
Corporation...................... 6.500 03/01/26 243,297
242,665 Federal Home Loan Mortgage
Corporation...................... 6.500 03/01/26 244,485
344,451 Federal Home Loan Mortgage
Corporation...................... 6.500 05/01/26 347,135
2,500,000 Federal Home Loan Mortgage
Corporation Gold (b)............. 6.500 ** 2,516,406
32,419 Federal National Mortgage
Association...................... 6.500 10/01/10 32,907
219,704 Federal National Mortgage
Association...................... 6.500 10/01/11 222,931
420,885 Federal National Mortgage
Association...................... 6.500 04/01/13 426,954
280,660 Federal National Mortgage
Association...................... 6.500 05/01/13 284,707
542,146 Federal National Mortgage
Association...................... 6.500 07/01/13 549,964
1,089,132 Federal National Mortgage
Association...................... 9.000 01/01/24 1,159,577
614,447 Federal National Mortgage
Association...................... 7.174 11/01/24 625,777
70,448 Federal National Mortgage
Association...................... 7.000 09/01/25 71,894
71,995 Federal National Mortgage
Association...................... 6.500 12/01/25 72,511
224,288 Federal National Mortgage
Association...................... 7.000 03/01/26 228,914
419,050 Federal National Mortgage
Association...................... 6.500 06/01/26 422,051
373,982 Federal National Mortgage
Association...................... 7.000 03/01/27 381,696
3,260,000 Federal National Mortgage
Association (b).................. 6.500 ** 3,279,356
2,425,000 Federal National Mortgage
Association (b).................. 7.000 ** 2,471,984
2,475,000 Federal National Mortgage
Association (b).................. 8.000 ** 2,562,398
542,507 Government National Mortgage
Association...................... 6.625 09/20/22 550,899
2,700,000 U.S. Treasury Bonds (c)........... 6.125 11/15/27 3,022,299
750,000 U.S. Treasury Bonds............... 5.500 08/15/28 785,040
910,000 U.S. Treasury Notes............... 6.375 03/31/01 943,270
3,830,000 U.S. Treasury Notes (c)........... 5.250 08/15/03 3,927,550
800,000 U.S. Treasury Notes............... 6.500 10/15/06 887,376
5,025,000 U.S. Treasury Notes (c)........... 6.125 08/15/07 5,488,255
700,000 U.S. Treasury Notes............... 4.750 11/15/08 705,467
-----------
Total U.S. Government & Agency
(cost -- $32,786,073)............ 33,467,702
-----------
Mortgaged-Backed Securities --
1.3%
Financial/Leasing -- 1.3%
2,500,000 Contimortgage Home Equity Loan
Trust (cost--$2,499,640)......... 6.130 03/15/13 2,513,281
-----------
Asset-Backed Securities -- 0.9%
Financial/Leasing -- 0.9%
1,868,549 DLJ Commercial Mortgage
Corporation (cost--$1,862,782)... 6.110 06/10/28 1,896,577
-----------
Total Investments--97.6%
(cost -- $186,539,832)........... 198,314,803
-----------
</TABLE>
See accompanying notes to financial statements
47
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (concluded)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Repurchase Agreements -- 7.5%
$5,341,000 Repurchase Agreement dated
12/31/98, with J.P Morgan
Securities, collateralized by
$4,480,000 U.S. Treasury Bonds,
7.250%, due 05/15/16 valued at
$5,448,800; proceeds:
$5,343,777...................... 4.680% 01/04/99 $ 5,341,000
10,000,000 Repurchase Agreement dated
12/31/98, with Warburg Dillon
Read, collateralized by
$8,756,000 U.S. Treasury Bonds,
6.500%, due 11/15/16, valued at
$10,200,740; proceeds:
$10,005,278..................... 4.750 01/04/99 10,000,000
------------
Total Repurchase Agreements
(cost -- $15,341,000)........... 15,341,000
------------
Liabilities in excess of other
assets -- (5.1%)................ (10,415,970)
------------
Net Assets -- 100.0%............. $203,239,833
============
</TABLE>
* Non-income producing security.
** To be announced.
(a) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(b) Mortgage dollar roll. See Note 1.
(c) All or part of the security is segregated as collateral for mortgage dollar
rolls.
(d) Reset Performance Equity-linked Redemption Quarterly-pay Securities ("Reset
PERQS"), which entitles the holder to convert the preferred stock to shares
of common stock of Applied Materials on May 15, 2000 at a specified ex-
change ratio.
(e) Convertible into shares of RJR Nabisco Holding Common Stock at a specified
exchange ratio.
See accompanying notes to financial statements
48
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Corporate Bonds -- 71.6%
Basic Industries -- 9.0%
$ 1,500,000 AEI Resources................ 10.500% 12/15/05 $ 1,470,000
500,000 Asia Pulp & Paper
International Finance....... 11.750 10/01/05 330,000
3,000,000 Asia Pulp & Paper*........... 12.000 12/29/49 1,800,000
3,250,000 Berry Plastics............... 12.250 04/15/04 3,404,375
1,000,000 Doman Industries Limited..... 8.750 03/15/04 790,000
3,250,000 Envirosource................. 9.750 06/15/03 2,925,000
2,000,000 Glencore Nickel Property..... 9.000 12/01/14 1,600,000
2,000,000 Huntsman Packaging........... 9.125 10/01/07 2,000,000
5,000,000 Indesco International........ 9.750 04/15/08 4,725,000
3,000,000 Murrin Murrin Holdings....... 9.375 08/31/07 2,640,000
6,000,000 PCI Chemicals................ 9.250 10/15/07 4,680,000
3,000,000 Pindo Deli Fin Mauritius..... 10.750 10/01/07 1,638,750
5,000,000 Plastic Containers........... 10.000 12/15/06 5,225,000
1,875,713 PT Polytama International
Finance (b)................. 11.250 06/15/07 417,346
2,000,000 P&L Coal Holdings............ 8.875 05/15/08 2,050,000
2,000,000 P&L Coal Holdings............ 9.625 05/15/08 2,030,000
4,000,000 Radnor Holdings.............. 10.000 12/01/03 4,040,000
1,000,000 Renco Metals................. 11.500 07/01/03 1,040,000
4,000,000 Tekni-Plex................... 11.250 04/01/07 4,460,000
5,000,000 Tjiwi Kimia Financial
International Finance....... 10.000 08/01/04 2,637,500
1,500,000 Wheeling-Pittsburgh.......... 9.250 11/15/07 1,410,000
------------
51,312,971
------------
Consumer Cyclicals -- 6.4%
3,800,000 Advance Holdings, Series B
(Zero Coupon until 04/15/03,
12.875% thereafter) (a)..... 12.875 04/15/09 2,223,000
3,300,000 Cole National Group.......... 9.875 12/31/06 3,415,500
1,000,000 Cole National Group.......... 8.625 08/15/07 980,000
5,000,000 Collins & Aikman Flooring.... 10.000 01/15/07 5,200,000
2,000,000 Finlay Fine Jewelry.......... 8.375 05/01/08 1,760,000
2,000,000 Hills Stores................. 12.500 07/01/03 1,360,000
5,000,000 HMH Properties............... 8.450 12/01/08 5,000,000
2,500,000 Leslie's Poolmart............ 10.375 07/15/04 2,587,500
2,000,000 Maxim Group.................. 9.250 10/15/07 1,960,000
5,000,000 Musicland Group.............. 9.875 03/15/08 4,900,000
3,000,000 Prime Hospitality............ 9.750 04/01/07 3,015,000
32,500,000 Sunbeam (a).................. 7.355-7.613 03/25/18 3,818,750
------------
36,219,750
------------
Consumer Non-Cyclicals --
12.7%
4,000,000 Anchor Advanced Products..... 11.750 04/01/04 4,360,000
3,250,000 B&G Foods.................... 9.625 08/01/07 3,185,000
1,000,000 Carr-Gottstein Foods......... 12.000 11/15/05 1,140,000
2,000,000 CFP Holdings................. 11.625 01/15/04 1,670,000
1,000,000 Dade International........... 11.125 05/01/06 1,100,000
1,000,000 Fresenius Medical Care....... 9.000 12/01/06 990,000
1,500,000 Graham-Field Health
Products.................... 9.750 08/15/07 982,500
3,000,000 Grand Casinos................ 9.000 10/15/04 3,375,000
1,298,000 Hines Horticulture........... 11.750 10/15/05 1,392,105
1,300,000 Alaris Medical Systems....... 9.750 12/01/06 1,332,500
4,000,000 Imperial Holly............... 9.750 12/15/07 3,980,000
</TABLE>
See accompanying notes to financial statements
49
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Consumer Non-Cyclicals --
(continued)
$ 3,000,000 Integrated Health
Services.................. 9.500% 09/15/07 $ 2,850,000
2,000,000 Iowa Select Farms.......... 10.750 12/01/05 1,630,000
3,500,000 Jafra Cosmetics
International ............ 11.750 05/01/08 3,202,500
2,500,000 Jitney-Jungle Stores of
America................... 12.000 03/01/06 2,775,000
4,000,000 Kinetic Concepts........... 9.625 11/01/07 3,850,000
500,000 Moll Industries............ 10.500 07/01/08 492,500
7,000,000 Nebco Evans Holding (Zero
Coupon until 07/15/02,
12.375% thereafter) (a)... 10.875-11.041 07/15/07 3,360,000
4,000,000 North Altlantic Trading.... 11.000 06/15/04 4,040,000
1,000,000 Packaged Ice............... 9.750 02/01/05 1,005,000
6,000,000 Park Place Entertainment... 7.875 12/15/05 6,037,500
2,000,000 Pueblo Xtra International.. 9.500 08/01/03 1,920,000
4,500,000 Revlon Worldwide (a)....... 10.750-11.591 03/15/01 2,587,500
2,000,000 SC International Services.. 9.250 09/01/07 2,010,000
2,500,000 Sealy Mattress............. 9.875 12/15/07 2,425,000
2,000,000 Stroh Brewery.............. 11.100 07/01/06 1,510,000
3,000,000 Sun International Hotels... 8.625 12/15/07 3,075,000
4,000,000 Universal Hospital
Services.................. 10.250 03/01/08 3,410,000
3,000,000 Vencor..................... 9.875 05/01/05 2,595,000
------------
72,282,105
------------
Data Technology/Information
Services -- 1.1%
1,500,000 Decisionone................ 9.750 08/01/07 697,500
4,000,000 Decisionone (Zero Coupon
until 08/01/05, 11.500%
thereafter) (a)........... 10.092-11.500 08/01/08 940,000
5,750,000 Jordan Telecom Products
(Zero Coupon until
08/01/00, 11.750%
thereafter) (a)........... 11.750 08/01/07 4,456,250
------------
6,093,750
------------
Energy -- 4.1%
3,000,000 Bellwether Exploration..... 10.875 04/01/07 3,030,000
3,000,000 Benton Oil & Gas........... 11.625 05/01/03 1,740,000
1,500,000 Clark Refining &
Marketing................. 8.875 11/15/07 1,342,500
3,000,000 Companhia Energetica De Sao
Paulo*.................... 9.125 06/26/07 2,445,000
5,000,000 Costilla Energy............ 10.250 10/01/06 3,525,000
3,000,000 Dailey International....... 9.500 02/15/08 1,335,000
1,000,000 DI Industries.............. 8.875 07/01/07 725,000
3,000,000 Lomak Petroleum............ 8.750 01/15/07 2,850,000
1,000,000 Magnum Hunter Resources.... 10.000 06/01/07 850,000
2,000,000 Northern Offshore Asia..... 10.000 05/15/05 1,050,000
1,000,000 Transamerican Energy....... 11.500 06/15/02 340,000
5,000,000 Transamerican Energy (Zero
Coupon until 06/15/99,
13.000% thereafter) (a)... 13.000-13.880 06/15/02 1,625,000
3,500,000 United Refining............ 10.750 06/15/07 2,415,000
------------
23,272,500
------------
Financial/Leasing -- 2.8%
2,000,000 Airplanes Pass-Through
Trust..................... 10.875 03/15/19 2,110,000
1,000,000 ATC Group Services......... 12.000 01/15/08 90,000
2,500,000 Contifinancial............. 8.125 04/01/08 1,750,000
1,000,000 Contifinancial............. 8.375 08/15/03 730,000
1,500,000 Contifinancial............. 7.500 03/15/02 1,026,585
1,500,000 DVI........................ 9.875 02/01/04 1,440,000
1,000,000 Imperial Credit
Industries................ 9.875 01/15/07 770,000
3,000,000 Morgan Stanley Aircraft
Finance................... 8.700 03/15/23 2,820,000
1,250,000 Nationwide Credit.......... 10.250 01/15/08 1,043,750
4,000,000 Williams Scotsman.......... 9.875 06/01/07 4,080,000
------------
15,860,335
------------
</TABLE>
See accompanying notes to financial statements
50
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Housing Related -- 0.1%
$ 1,000,000 American Architecture...... 11.750% 12/01/07 $ 875,000
------------
Manufacturing -- 9.4%
1,000,000 Alvey Systems.............. 11.375 01/31/03 1,010,000
5,000,000 Axiohm Transaction
Solution.................. 9.750 10/01/07 4,750,000
3,500,000 BE Aerospace............... 9.500 11/01/08 3,692,500
4,000,000 Breed Technologies......... 9.250 04/15/08 3,520,000
4,000,000 Burke Industries........... 10.000 08/15/07 3,900,000
3,250,000 Foamex..................... 9.875 06/15/07 3,510,000
2,500,000 Hayes Lemmerz
International............. 8.250 12/15/08 2,500,000
5,000,000 High Voltage Engineering... 10.500 08/15/04 4,750,000
2,250,000 International Knife & Saw.. 11.375 11/15/06 2,317,500
1,750,000 International Utility
Structures................ 10.750 02/01/08 1,653,750
2,000,000 JH Heafner................. 10.000 05/15/08 2,020,000
2,010,483 Jordan Industries (Zero
Coupon until 04/01/02,
11.750% thereafter) (a)... 11.750 04/01/09 1,296,762
2,000,000 L-3 Communications......... 10.375 05/01/07 2,205,000
1,000,000 Neenah..................... 11.125 05/01/07 1,032,500
2,000,000 Packard Bioscience......... 9.375 03/01/07 1,900,000
4,000,000 Polymer Group.............. 9.000 07/01/07 3,980,000
3,500,000 Stellex Industries......... 9.500 11/01/07 3,036,250
3,000,000 Trident Automotive......... 10.000 12/15/05 2,985,000
3,250,000 Venture Holdings Trust..... 9.500 07/01/05 3,250,000
------------
53,309,262
------------
Media -- 17.6%
2,000,000 Adelphia Communications.... 10.500 07/15/04 2,190,000
1,750,000 Adelphia Communications,
Series B.................. 9.875 03/01/07 1,935,937
2,250,000 Advanstar Communications... 9.250 05/01/08 2,272,500
2,500,000 American Media Operation... 11.625 11/15/04 2,562,500
8,000,000 Avalon Cable Holdings (Zero
Coupon until 12/01/03,
11.875% thereafter) (a)... 11.875 12/01/08 4,480,000
1,000,000 Big Flower Press........... 8.875 07/01/07 1,007,500
1,000,000 Big Flower Press........... 8.625 12/01/08 1,015,000
2,250,000 Centennial Cellular........ 10.750 12/15/08 2,266,875
2,500,000 Century Communications..... 8.750 10/01/07 2,750,000
1,750,000 Century Communications..... 8.375 12/15/07 1,872,500
2,000,000 Century Communications
(a)....................... 8.793 01/15/08 1,025,000
1,500,000 Chancellor Media........... 9.375 10/01/04 1,575,000
2,000,000 Citadel Broadcasting....... 10.250 07/01/07 2,185,000
1,000,000 Citadel Broadcasting....... 9.250 11/15/08 1,047,500
2,000,000 Comcast Cellular........... 9.500 05/01/07 2,125,000
1,450,000 Crown Castle International
(Zero Coupon until
11/15/02, 10.625%
thereafter) (a)........... 10.625 11/15/07 1,022,250
5,000,000 CSC Holdings............... 10.500 05/15/16 5,875,000
2,000,000 Diamond Cable (Zero Coupon
until 12/15/00, 11.750%
thereafter) (a)........... 11.150 12/15/05 1,645,000
3,250,000 Facilicom International.... 10.500 01/15/08 2,616,250
3,000,000 Garden State Newspapers.... 8.750 10/01/09 3,015,000
4,000,000 Hollinger International
Publishing................ 9.250 03/15/07 4,200,000
1,000,000 Hollinger International
Publishing................ 9.250 02/01/06 1,050,000
2,250,000 ICG Holdings (Zero Coupon
until 05/01/01, 12.500%
thereafter) (a)........... 11.334 05/01/06 1,620,000
2,500,000 ICG Holdings (Zero Coupon
until 09/15/00, 13.500%
thereafter) (a)........... 11.459-12.725 09/15/05 2,075,000
4,250,000 Intermedia Commission of
Florida (Zero Coupon until
05/15/01, 12.500%
thereafter) (a)........... 9.984-12.271 05/15/06 3,315,000
3,000,000 International CableTel
(Zero Coupon until
02/01/01, 11.500%
thereafter) (a)........... 10.420-12.111 02/01/06 2,430,000
</TABLE>
See accompanying notes to financial statements
51
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Media -- (continued)
$ 1,810,000 Jacor Communications....... 9.750% 12/15/06 $ 2,000,050
1,750,000 Liberty Group (Zero Coupon
until 02/01/03, 11.625%
thereafter) (a)........... 11.625 02/01/09 971,250
5,000,000 Lin Holdings (Zero Coupon
until 03/01/03, 10.000%
thereafter) (a)........... 9.892-9.915 03/01/08 3,450,000
2,000,000 Lin Television............. 8.375 03/01/08 1,980,000
2,000,000 Marcus Cable (Zero Coupon
until 06/15/00, 14.250%
thereafter) (a)........... 12.813-12.938 12/15/05 1,910,000
8,000,000 Metronet Communications
(Zero Coupon until
06/15/03, 9.950%
thereafter) (a)........... 9.778-9.950 06/15/08 4,800,000
4,900,000 Nextel Communications (Zero
Coupon until 02/15/99,
9.750% thereafter) (a).... 9.874-10.430 08/15/04 4,753,000
2,000,000 Nextel Communications (Zero
Coupon until 10/31/02,
9.750% thereafter) (a).... 9.429 10/31/07 1,220,000
1,000,000 Perry-Judd................. 10.625 12/15/07 1,055,000
2,500,000 Price Communications Wire.. 9.125 12/15/06 2,537,500
1,000,000 Rogers Cable Systems....... 10.000 03/15/05 1,120,000
1,250,000 Rogers Communications...... 8.875 07/15/07 1,287,500
3,975,000 SFX Broadcasting........... 10.750 05/15/06 4,412,250
1,949,000 Sun Media.................. 9.500 02/15/07 2,163,390
4,500,000 Telewest Communications
(Zero Coupon until
10/01/00, 11.000%
thereafter) (a)........... 10.624-11.662 10/01/07 3,746,250
1,000,000 Transwestern Publishing.... 9.625 11/15/07 1,045,000
5,000,000 United International
Holdings (Zero Coupon
until 02/15/03, 10.750%
thereafter) (a)........... 10.369 02/15/08 2,650,000
------------
100,275,002
------------
Services/Other -- 6.4%
5,000,000 Allied Waste............... 7.875 01/01/09 5,062,500
2,500,000 Comforce Operations........ 12.000 12/01/07 2,512,500
3,200,000 Dyncorp.................... 9.500 03/01/07 3,216,000
3,000,000 Employee Solutions......... 10.000 10/15/04 2,265,000
3,250,000 Federal Data............... 10.125 08/01/05 3,233,750
2,000,000 Intertek Finance........... 10.250 11/01/06 1,810,000
1,000,000 Iron Mountain.............. 10.125 10/01/06 1,085,000
1,000,000 Kinder-Care Learning
Centers................... 9.500 02/15/09 995,000
3,000,000 Loomis Fargo............... 10.000 01/15/04 2,760,000
4,000,000 Pierce Leahy............... 11.125 07/15/06 4,380,000
5,000,000 Protection One............. 8.125 01/15/09 5,025,000
4,000,000 Safety-Kleen Services...... 9.250 06/01/08 4,140,000
------------
36,484,750
------------
Transportation -- 2.0%
2,000,000 Atlantic Express
Transportation............ 10.750 02/01/04 2,030,000
1,500,000 Holt Group................. 9.750 01/15/06 1,042,500
1,000,000 Teekay Shipping............ 8.320 02/01/08 990,000
6,500,000 TFM (Zero Coupon until
06/15/02, 11.750%
thereafter) (a)........... 11.499-11.767 06/15/09 3,038,750
5,357,220 Viacao Aerea Riograndens... 9.600 02/10/05 4,151,846
------------
11,253,096
------------
Total Corporate Bonds
(cost -- $447,538,974).... 407,238,521
------------
Sovereign Bonds -- 22.4%
Argentina -- 3.6%
19,950,000 Republic of Argentina,
Global.................... 11.000 12/04/05 19,900,125
700,000 Republic of Argentina,
Global.................... 11.375 01/30/17 699,125
------------
20,599,250
------------
</TABLE>
See accompanying notes to financial statements
52
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Brazil -- 0.1%
$ 480,000 Federal Republic of Brazil, EI
Bond, Series L*................ 6.125% 04/15/06 $ 310,200
------------
Bulgaria -- 1.6%
15,750,000 Republic of Bulgaria, FLIRB,
Series A*...................... 2.500 07/28/12 9,085,781
------------
Colombia -- 0.7%
4,000,000 Republic of Colombia*........... 12.243 08/13/05 3,700,000
------------
Croatia -- 1.9%
4,500,000 Republic of Croatia, FRN, Series
A*............................. 6.563 07/31/10 3,577,500
9,047,789 Republic of Croatia FRN, Series
B*............................. 6.563 07/31/06 7,328,709
------------
10,906,209
------------
Ecuador -- 0.7%
8,826,767 Republic of Ecuador, PDI* (b)... 6.625 02/27/15 3,607,941
1,131,663 Republic of Ecuador, Registered
PDI* (b)....................... 6.625 02/27/15 462,567
------------
4,070,508
------------
Ivory Coast -- 1.4%
30,000,000 Republic of Ivory Coast,
FLIRB*......................... 2.000 03/29/18 7,912,500
------------
Mexico -- 1.7%
3,400,000 United Mexico States, Global.... 11.375 09/15/16 3,533,875
7,750,000 United Mexico States, Series B
(including 7,750,000 rights)... 6.250 12/31/19 6,049,844
------------
9,583,719
------------
Panama -- 1.5%
4,500,000 Government of Panama, Global.... 8.250 04/22/08 4,252,500
5,750,000 Government of Panama, IRB*...... 4.000 07/17/14 4,341,250
------------
8,593,750
------------
Peru -- 1.7%
1,000,000 Republic of Peru, FLIRB* ....... 3.250 03/07/17 565,630
14,200,000 Republic of Peru, PDI*.......... 4.000 03/07/17 8,981,500
------------
9,547,130
------------
Philippines -- 1.7%
6,250,000 Republic of the Philippines,
Treasury....................... 8.875 04/15/08 6,265,625
3,500,000 Republic of the Philippines..... 8.750 10/07/16 3,412,500
------------
9,678,125
------------
Russia -- 1.4%
1,725,000 Russian Government, Global...... 11.750 06/10/03 629,625
1,983,250 Russian Government, IAN*........ 5.969 12/15/15 210,721
23,825,000 Russian Government, Ministry of
Finance........................ 11.000 07/24/18 6,015,813
4,200,000 Russian Government, Ministry of
Finance........................ 12.750 06/24/28 1,323,000
------------
8,179,159
------------
South Korea -- 0.8%
2,275,000 Export-Import Bank of Korea,
Global......................... 7.250 06/25/01 2,154,994
1,000,000 Export-Import Bank of Korea,
Global......................... 6.500 02/10/02 916,350
1,750,000 Korea Development Bank, Global.. 7.900 02/01/02 1,677,375
------------
4,748,719
------------
</TABLE>
See accompanying notes to financial statements
53
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Venezuela -- 3.6%
$ 9,642,825 Republic of Venezuela, DCB,
Series DL*..................... 5.937% 12/18/07 $ 6,159,354
8,499,960 Republic of Venezuela, FLIRB,
Series A*...................... 6.125 03/31/07 5,307,163
3,845,220 Republic of Venezuela, FLIRB,
Series B*...................... 6.125 03/31/07 2,400,859
5,375,000 Republic of Venezuela, Global... 13.625 08/15/18 4,273,125
3,592,000 Republic of Venezuela, Global... 9.250 09/15/27 2,200,100
------------
20,340,601
------------
Total Sovereign Bonds
(cost -- $133,068,854)......... 127,255,651
------------
Loan Participations(c) -- 3.5%
Algeria -- 1.2%
2,938,636 The People's Democratic Republic
of Algeria, Tranche A* (Chase
Manhattan Bank)................ 7.187 03/04/00 2,439,068
5,877,273 The People's Democratic Republic
of Algeria, Tranche 1* (Chase
Manhattan Bank)................ 6.375 09/04/06 2,615,386
3,500,000 The People's Democratic Republic
of Algeria, Tranche 3* (J.P.
Morgan Securities)............. 6.375 03/04/10 1,522,500
------------
6,576,954
------------
Jamaica -- 0.2%
1,312,500 Republic of Jamaica, Tranche B*
(Chase Manhattan Bank)......... 6.250 11/15/04 1,076,250
------------
Morocco -- 1.6%
11,700,000 Kingdom of Morocco, Tranche A*
(Chase Manhattan Bank and
Morgan Guaranty Trust
Company)....................... 6.063 01/01/09 9,360,000
------------
Russia -- 0.5%
42,650,000 Russian Government, Principal
Loan* (d) (Chase Manhattan
Bank, Goldman Sachs, ING
Barings)....................... 5.969 12/15/20 2,772,250
------------
Total Loan Participations
(cost -- $38,818,301).......... 19,785,454
------------
<CAPTION>
Shares
------
<C> <S> <C> <C> <C>
Preferred Stocks -- 0.3%
Financial/Leasing -- 0.3%
80,000 California Federal Capital,
Series A, 9.125%............... 2,025,000
9,787 TCR Holding, Series B+.......... 587
5,383 TCR Holding, Series C+.......... 301
14,191 TCR Holding, Series D+.......... 752
29,362 TCR Holding, Series E+.......... 1,850
------------
Total Preferred Stocks
(cost -- $2,003,490)........... 2,028,490
------------
<CAPTION>
Warrants
--------
<C> <S> <C> <C> <C>
Warrants -- 0.2%
4,000 Glasstech Warrants, expiring
06/30/04+...................... 0
900 In Flight Phone Warrants,
expiring 08/31/02+............. 0
18,950 Republic of Argentina Warrants,
expiring 12/03/99+............. 909,600
750 Wireless One Warrants, expiring
10/19/00+...................... 0
------------
Total Warrants
(cost -- $707,327)............. 909,600
------------
</TABLE>
See accompanying notes to financial statements
54
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (concluded)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Interest Maturity
Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Rights -- 0.0%
2,000 Terex Stock Appreciation Rights,
expiring 05/15/02 (cost --
$0)+.......................... $ 24,000
------------
Total Investments -- 98.0%
(cost -- $622,136,946)......... 557,241,716
------------
<CAPTION>
Principal
Amount
---------
<C> <S> <C> <C> <C>
Repurchase Agreements -- 0.6%
$ 1,230,000 Repurchase Agreement dated
12/31/98, with J.P. Morgan
Securities, collateralized by
$864,000 U.S. Treasury Bonds,
8.875%, due 02/15/19 valued at
$1,256,040; proceeds:
$1,230,640..................... 4.680% 01/04/99 1,230,000
2,445,000 Repurchase Agreement dated
12/31/98, with Warburg Dillon
Read, collateralized by
$2,464,000 U.S. Treasury Notes,
5.625%, due 11/30/99, valued at
$2,494,800; proceeds:
$2,446,290..................... 4.750 01/04/99 2,445,000
------------
Total Repurchase Agreements
(cost -- $3,675,000)........... 3,675,000
------------
Other assets in excess of
liabilities -- 1.4%............ 8,007,252
------------
Net Assets -- 100.0%............ $568,923,968
============
</TABLE>
* Interest rate shown reflects current rate on instrument with variable
rate or step coupon rate.
+ Non-income producing security.
(a) Zero or step coupon bond. Interest rate shown reflects yield to maturity
on date of purchase.
(b) Payment-in-kind security for which all or 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) Currently, all interest earned is capitalized as Russian Government In-
terest in Arrears Notes.
Abbreviations used in this statement:
DCB Debt Conversion Bonds.
EI Eligible Interest.
FLIRB Front-Loaded Interest Reduction Bonds.
FRN Floating Rate Notes.
IAN Interest Arrears Notes.
IRB Interest Reduction Bonds.
PDI Past Due Interest.
See accompanying notes to financial statements
55
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount (a) Description Rate Date Value
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
Corporate Bonds -- 38.5%
Basic Industries -- 4.5%
250,000 Berry Plastics...................... 12.250% 04/15/04 $ 261,875
185,000 Envirosource........................ 9.750 06/15/03 166,500
250,000 Huntsman............................ 9.500 07/01/07 250,000
250,000 Huntsman Packaging.................. 9.125 10/01/07 250,000
1,000,000 Hylsa S.A. de C.V................... 9.250 09/15/07 772,500
250,000 Indesco International............... 9.750 04/15/08 236,250
250,000 Millar Western Forest............... 9.875 05/15/08 188,750
350,000 Monsanto............................ 5.875 12/01/08 346,766
250,000 Murrin Murrin Holdings.............. 9.375 08/31/07 220,000
250,000 Philipp Brothers Chemicals.......... 9.875 06/01/08 246,250
600,000 Praxair............................. 6.150 04/15/03 598,590
225,000 P&L Coal Holdings................... 9.625 05/15/08 228,375
250,000 Radnor Holdings..................... 10.000 12/01/03 252,500
300,000 Raytheon............................ 6.150 11/01/08 305,511
250,000 Renco Metals........................ 11.500 07/01/03 260,000
250,000 Tekni-Plex.......................... 11.250 04/01/07 278,750
500,000 Wheeling-Pittsburgh................. 9.250 11/15/07 470,000
-----------
5,332,617
-----------
Consumer Cyclicals -- 2.8%
250,000 Advance Stores, Series B............ 10.250 04/15/08 252,500
250,000 Cole National Group................. 8.625 08/15/07 245,000
250,000 Collins & Aikman Flooring........... 10.000 01/15/07 260,000
250,000 HMH Properties...................... 7.875 08/01/08 243,125
500,000 Maxim Group......................... 9.250 10/15/07 490,000
500,000 Musicland Group..................... 9.875 03/15/08 490,000
250,000 Prime Hospitality................... 9.750 04/01/07 251,250
550,000 Staples............................. 7.125 08/15/07 557,887
500,000 Worldtex............................ 9.625 12/15/07 447,500
-----------
3,237,262
-----------
Consumer Non-Cyclicals -- 6.7%
500,000 Aetna Services...................... 7.625 08/15/26 508,115
250,000 Ameriserv Food...................... 10.125 07/15/07 223,750
250,000 CFP Holdings........................ 11.625 01/15/04 208,750
250,000 Dade International.................. 11.125 05/01/06 275,000
250,000 Delta Beverage...................... 9.750 12/15/03 261,250
200,000 Dole Foods.......................... 6.750 07/15/00 200,328
300,000 Ekco Group.......................... 9.250 04/01/06 300,000
250,000 French Fragrances................... 10.375 05/15/07 246,875
250,000 Graham-Field Health Products........ 9.750 08/15/07 163,750
250,000 Grand Casinos....................... 9.000 10/15/04 281,250
250,000 Harrahs Operating................... 7.875 12/15/05 250,000
163,000 Hines Horticulture.................. 11.750 10/15/05 174,818
375,000 Imperial Holly...................... 9.750 12/15/07 373,125
250,000 Integrated Health Services.......... 9.500 09/15/07 237,500
500,000 Iowa Select Farms................... 10.750 12/01/05 407,500
250,000 Jitney-Jungle Stores................ 12.000 03/01/06 277,500
250,000 Mail-Well........................... 8.750 12/15/08 251,250
250,000 NBTY................................ 8.625 09/15/07 245,000
</TABLE>
See accompanying notes to financial statements
56
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount (a) Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Consumer Non-Cyclicals --
(continued)
375,000 Nebco Evans Holding
(Zero Coupon until 07/15/02,
12.375% thereafter) (b)....... 10.773 07/15/07 $ 180,000
250,000 North Atlantic Trading......... 11.000 06/15/04 252,500
250,000 Park Place Entertainment....... 7.875 12/15/05 251,563
250,000 Prime Medical Services......... 8.750 04/01/08 240,625
190,000 Pueblo Xtra International...... 9.500 08/01/03 182,400
300,000 Revlon Worldwide (b)........... 10.750 03/15/01 172,500
250,000 SC International Services...... 9.250 09/01/07 251,250
205,000 Shop Vac....................... 10.625 09/01/03 225,500
250,000 Stroh Brewery.................. 11.100 07/01/06 188,750
250,000 Sun International Hotels....... 8.625 12/15/07 256,250
250,000 True Temper Sports............. 10.875 12/01/08 250,000
375,000 Universal Hospital Services.... 10.250 03/01/08 319,688
250,000 Vencor......................... 9.875 05/01/05 216,250
-----------
7,873,037
-----------
Data Technology/Information
Services -- 1.7%
250,000 Amphenol....................... 9.875 05/15/07 255,000
250,000 Decisionone.................... 9.750 08/01/07 116,250
600,000 First Data..................... 6.375 12/15/07 621,678
500,000 Jordan Telecom Products........ 9.875 08/01/07 497,500
500,000 Unisys......................... 7.875 04/01/08 530,000
-----------
2,020,428
-----------
Energy -- 1.7%
200,000 Benton Oil & Gas............... 11.625 05/01/03 116,000
250,000 Clark USA...................... 10.875 12/01/05 232,500
500,000 Costilla Energy................ 10.250 10/01/06 352,500
250,000 Dailey International........... 9.500 02/15/08 111,250
250,000 Frontier Oil................... 9.125 02/15/06 234,375
300,000 Norsk Hydro.................... 6.700 01/15/18 298,110
400,000 Occidental Petroleum........... 9.250 08/01/19 459,264
250,000 Transamerican Energy........... 11.500 06/15/02 85,000
250,000 Transamerican Energy
(Zero Coupon until 06/15/99,
13.000% thereafter) (b)....... 13.000 06/15/02 81,250
-----------
1,970,249
-----------
Financial/Leasing -- 4.6%
600,000 U.S. Bank...................... 5.700 12/15/08 597,744
250,000 Airplanes Pass-Through Trust... 10.875 03/15/19 263,750
500,000 Contifinancial................. 8.375 08/15/03 365,000
500,000 DVI............................ 9.875 02/01/04 481,875
1,064,771 Green Tree Financial........... 7.070 01/15/29 1,103,369
210,000 Merrill Lynch.................. 6.000 11/15/04 210,741
1,429,553 Mid States Trust............... 7.340 07/01/35 1,471,539
PLN 190,000 Nordic Investment Bank......... 17.750 04/15/02 61,939
150,000 Paine Webber Group............. 7.000 03/01/00 151,404
PLN 660,000 Sudwest Land................... 17.500 05/05/03 222,792
200,000 U.S. Leasing International..... 8.450 01/25/05 226,918
250,000 Williams Scotsman.............. 9.875 06/01/07 255,000
-----------
5,412,071
-----------
</TABLE>
See accompanying notes to financial statements
57
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount (a) Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Housing Related -- 0.4%
250,000 CB Richard Ellis................... 8.875% 06/01/06 $ 245,000
250,000 Forest City Enterprises............ 8.500 03/15/08 250,000
-----------
495,000
-----------
Manufacturing -- 4.3%
250,000 Alvey Systems...................... 11.375 01/31/03 252,500
300,000 Axiohm Transaction Solution........ 9.750 10/01/07 285,000
500,000 BE Aerospace....................... 8.000 03/01/08 490,000
500,000 Breed Technologies................. 9.250 04/15/08 440,000
200,000 Foamex............................. 9.875 06/15/07 216,000
250,000 International Knife & Saw.......... 11.375 11/15/06 257,500
250,000 Jordan Industries.................. 10.375 08/01/07 256,250
402,096 Jordan Industries
(Zero Coupon until 04/01/02,
11.750% thereafter) (b)........... 11.750 04/01/09 259,352
250,000 Key Plastics....................... 10.250 03/15/07 233,750
250,000 L-3 Communications................. 8.000 08/01/08 251,875
335,000 Motors and Gears................... 10.750 11/15/06 342,538
250,000 Neenah............................. 11.125 05/01/07 256,875
250,000 Packard Bioscience................. 9.375 03/01/07 237,500
250,000 Polymer Group...................... 9.000 07/01/07 248,750
125,000 Polymer Group...................... 8.750 03/01/08 123,438
250,000 Stellex Industries................. 9.500 11/01/07 216,875
500,000 Trident Automotive................. 10.000 12/15/05 497,500
250,000 Venture Holdings Trust............. 9.500 07/01/05 250,000
-----------
5,115,703
-----------
Media -- 7.4%
150,000 Adelphia Communications............ 10.500 07/15/04 164,250
100,000 Adelphia Communications, Series B
(c)............................... 9.500 02/15/04 106,000
250,000 American Media Operation........... 11.625 11/15/04 256,250
750,000 Avalon Cable Holdings
(Zero Coupon until 12/01/03,
11.875% thereafter) (b)........... 11.875 12/01/08 420,000
500,000 Big Flower Press Holdings.......... 8.625 12/01/08 507,500
860,000 British Telecom.................... 7.000 05/23/07 936,481
500,000 Capstar Broadcasting............... 9.250 07/01/07 520,000
500,000 Century Communications............. 8.375 12/15/07 535,000
1,000,000 Century Communications (b)......... 8.878 01/15/08 512,500
250,000 Comcast Cellular................... 9.500 05/01/07 265,625
750,000 Crown Castle International
(Zero Coupon until 11/15/02,
10.625% thereafter) (b)........... 10.625 11/15/07 528,750
250,000 Diamond Cable
(Zero Coupon until 12/15/00,
11.750% thereafter) (b)........... 11.087 12/15/05 205,625
375,000 Falcon Holding Group............... 8.375 04/15/10 376,875
250,000 Garden State Newspapers ........... 8.750 10/01/09 251,250
275,000 Hollinger International
Publishing........................ 9.250 02/01/06 288,750
350,000 ICG Holdings
(Zero Coupon until 09/15/00,
13.500% thereafter) (b)........... 11.459 09/15/05 290,500
250,000 Intermedia Communication........... 8.600 06/01/08 238,750
325,000 International CableTel
(Zero Coupon until 02/01/01,
11.500% thereafter) (b)........... 11.029 02/01/06 263,250
500,000 LIN Holdings (b)
(Zero Coupon until 03/01/03,
10.000% thereafter) (b)........... 9.915 03/01/08 345,000
</TABLE>
See accompanying notes to financial statements
58
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount (a) Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Media -- (continued)
500,000 Mediacom Capital............. 8.500% 04/15/08 $ 512,500
250,000 Nextel Communications
(Zero Coupon until 02/15/03,
9.950% thereafter) (b)...... 8.876 02/15/08 150,000
250,000 Nextel Communications
(Zero Coupon until 02/15/99,
9.750% thereafter) (b)...... 9.874-9.900 08/15/04 242,500
165,000 SFX Broadcasting............. 10.750 05/15/06 183,150
450,000 Telewest Communications
(Zero Coupon until 10/01/00,
11.000% thereafter) (b)..... 10.624 10/01/07 374,625
400,000 United International Holdings
(Zero Coupon until 02/15/03,
10.750% thereafter) (b)..... 10.400 02/15/08 212,000
-----------
8,687,131
-----------
Services/Other -- 3.2%
375,000 Allied Waste................. 7.875 01/01/09 379,688
600,000 Comdisco, Mandatory Par Put
Remarketed Securities....... 6.130 08/01/01 595,392
250,000 Dyncorp...................... 9.500 03/01/07 251,250
250,000 Iron Mountain................ 10.125 10/01/06 271,250
500,000 Kinder-Care Learning
Centers..................... 9.500 02/15/09 497,500
500,000 Loomis Fargo................. 10.000 01/15/04 460,000
250,000 Marsulex..................... 9.625 07/01/08 255,625
250,000 Primark...................... 9.250 12/15/08 252,500
375,000 Protection One............... 8.125 01/15/09 376,875
450,000 Service Corporation
International............... 6.000 12/15/05 445,716
-----------
3,785,796
-----------
Transportation -- 1.0%
250,000 Coach USA.................... 9.375 07/01/07 256,250
250,000 Enterprise Shipholding....... 8.875 05/01/08 206,250
250,000 Holt Group................... 9.750 01/15/06 173,750
400,000 TFM (Zero Coupon until
06/15/02, 11.750%
thereafter) (b)............. 11.398 06/15/09 187,000
446,435 Viacao Aerea Riograndens..... 9.600 02/10/05 345,987
-----------
1,169,237
-----------
Utilities -- 0.2%
250,000 GTE.......................... 6.940 04/15/28 271,513
-----------
Total Corporate Bonds
(cost -- $47,787,590)....... 45,370,044
-----------
Sovereign Bonds -- 22.4%
Argentina -- 3.2%
1,200,000 Republic of Argentina,
Global...................... 11.000 12/04/05 1,197,000
2,600,000 Republic of Argentina,
Global...................... 11.375 01/30/17 2,596,750
-----------
3,793,750
-----------
Australia -- 0.1%
AUD 110,000 New South Wales Treasury..... 7.375 02/21/07 75,016
-----------
Brazil -- 1.3%
2,525,000 Federal Republic of Brazil,
Discount*................... 6.125 04/15/24 1,508,688
-----------
Bulgaria -- 1.8%
2,500,000 Republic of Bulgaria, FLIRB,
Series A*................... 2.500 07/28/12 1,442,188
1,000,000 Republic of Bulgaria, IAB*... 6.688 07/28/11 676,250
-----------
2,118,438
-----------
</TABLE>
See accompanying notes to financial statements
59
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount (a) Description Rate Date Value
<C> <C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Denmark -- 0.8%
DKK 5,040,000 Kingdom of Denmark......... 8.000% 05/15/03 $ 918,869
-----------
Ecuador -- 1.1%
200,000 Republic of Ecuador, IE*... 6.000 12/21/04 125,000
2,829,147 Republic of Ecuador, PDI
(c)*...................... 6.625 02/28/15 1,156,414
-----------
1,281,414
-----------
Finland -- 0.2%
FIM 1,000,000 Government of Finland...... 6.000 04/25/08 225,850
-----------
Germany -- 0.5%
DEM 300,000 Government of Germany...... 4.125 07/04/08 183,798
DEM 630,000 Government of Germany...... 5.625 01/04/28 426,215
-----------
610,013
-----------
Greece -- 1.4%
GRD 102,000,000 Hellenic Republic.......... 11.000 02/25/00 367,758
GRD 321,500,000 Hellenic Republic.......... 8.900 04/01/03 1,203,837
GRD 35,000,000 Hellenic Republic.......... 8.700 04/08/05 134,808
-----------
1,706,403
-----------
Mexico -- 2.8%
United Mexico States,
1,000,000 Discount, Series D*........ 6.098 12/31/19 816,250
United Mexico States,
250,000 Global..................... 11.375 09/15/16 259,844
United Mexico States,
1,950,000 Global..................... 11.500 05/15/26 2,079,188
United Mexico States,
Series A (including 250,000
250,000 rights).................... 6.250 12/31/19 195,156
-----------
3,350,438
-----------
Panama -- 1.1%
Government of Panama,
1,750,000 IRB*....................... 4.000 07/17/14 1,321,250
-----------
Peru -- 1.9%
3,500,000 Republic of Peru, PDI*..... 4.000 03/07/17 2,213,750
-----------
Russia -- 0.0%
117,869 Russian Government, IAN*... 5.969 12/15/15 12,524
-----------
Slovenia -- 0.4%
XEU 440,000 Republic of Slovenia....... 5.375 05/27/05 524,462
-----------
South Korea -- 1.8%
Export-Import Bank of
150,000 Korea, Global.............. 6.500 02/10/02 137,453
Korea Development Bank,
400,000 Global..................... 9.600 12/01/00 400,080
Korea Development Bank,
250,000 Global..................... 7.900 02/01/02 239,625
1,300,000 Republic of Korea, Global.. 8.875 04/15/08 1,340,040
-----------
2,117,198
-----------
Sweden -- 0.9%
SEK 6,700,000 Kingdom of Sweden.......... 11.000 01/21/99 827,032
SEK 1,500,000 Kingdom of Sweden.......... 6.500 05/05/08 217,244
-----------
1,044,276
-----------
Venezuela -- 3.1%
Republic of Venezuela, DCB,
3,857,130 Series DL*................. 5.938 12/18/07 2,463,742
Republic of Venezuela,
1,619,040 FLIRB, Series A*........... 6.125 03/31/07 1,010,888
Republic of Venezuela,
202,380 FLIRB, Series B*........... 6.125 03/31/07 126,361
-----------
3,600,991
-----------
Total Sovereign Bonds
(cost -- $26,979,911)..... 26,423,330
-----------
</TABLE>
See accompanying notes to financial statements
60
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (continued)
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount (a) Description Rate Date Value
<C> <C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
Loan Participations (d) -- 2.2%
Morocco -- 2.2%
3,200,000 Kingdom of Morocco, Tranche A*
(Chase Manhattan Bank, J.P.
Morgan Securities
and Morgan Guaranty Trust
Company)
(cost -- $2,617,079)......... 6.063% 01/01/09 $ 2,560,000
-----------
U.S. Government & Agency --
27.0%
13,849 Federal Home Loan Mortgage
Corporation Gold............. 6.000 10/01/10 13,938
384,532 Federal Home Loan Mortgage
Corporation.................. 7.000 07/01/11 392,842
152,658 Federal Home Loan Mortgage
Corporation.................. 10.000 05/15/20 165,776
2,897 Federal Home Loan Mortgage
Corporation -- Interest
only......................... 1157.000 06/15/21 60,842
17,410 Federal National Mortgage
Association.................. 13.000 11/15/15 20,761
544,000 Federal National Mortgage
Association.................. 7.000 11/18/15 545,360
65,841 Federal National Mortgage
Association.................. 10.400 04/25/19 72,549
84,911 Federal National Mortgage
Association.................. 6.500 02/01/26 85,519
855,897 Federal National Mortgage
Association.................. 6.500 03/01/26 862,026
5,902,735 Federal National Mortgage
Association -- Interest
only......................... 1.641 02/25/35 463,365
3,000,000 Federal National Mortgage
Association (e).............. 6.000 ** 2,957,813
21,400,000 Federal National Mortgage
Association (e).............. 6.500 ** 21,527,063
3,711,611 Federal National Mortgage
Association -- Interest
only......................... 0.605 03/17/20 95,388
8,482,350 Federal National Mortgage
Association -- Interest
only......................... 0.546 10/17/36 235,809
250,000 U.S. Treasury Bonds........... 6.125 11/15/27 279,843
120,000 U.S. Treasury Inflation Index
Bonds........................ 3.625 04/15/28 118,017
1,000,000 U.S. Treasury Bonds........... 5.500 08/15/28 1,046,720
2,000,000 U.S. Treasury Bonds........... 5.250 11/15/28 2,047,500
200,000 U.S. Treasury Notes .......... 6.375 03/31/01 207,312
200,000 U.S. Treasury Notes .......... 5.250 08/15/03 205,094
350,000 U.S. Treasury Notes .......... 4.750 11/15/08 352,734
-----------
Total U.S. Government & Agency
(cost -- $31,403,183)........ 31,756,271
-----------
Mortgage-Backed Securities --
4.0%
297,375 First Union Residential
Securitization Trust......... 7.000 08/25/28 292,171
1,304,327 GE Capital Mortgage Services.. 6.750 11/25/28 1,251,339
1,248,015 PNC Mortgage Securities
Corporation.................. 6.500 12/25/28 1,174,695
624,490 PNC Mortgage Securities
Corporation.................. 6.250 12/26/28 580,190
571,352 PNC Mortgage Securities
Corporation.................. 6.838 05/25/28 516,716
521,488 PNC Mortgage Securities
Corporation.................. 6.735 07/25/28 476,673
397,520 PNC Mortgage Securities
Corporation.................. 6.750 05/25/28 363,731
-----------
Total Mortgage-Backed
Securities
(cost -- $4,806,094)......... 4,655,515
-----------
Asset-Backed Securities -- 1.0%
11,000,000 DLJ Commercial Mortgage
Corporation -- Interest
only......................... 0.851 11/12/31 618,750
11,835,079 DLJ Commercial Mortgage
Corporation -- Interest
only......................... 0.707 05/10/23 547,372
-----------
Total Asset-Backed Securities
(cost -- $1,181,371)......... 1,166,122
-----------
</TABLE>
See accompanying notes to financial statements
61
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Interest Maturity
Shares Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Preferred Stock -- 0.0%
841 TCR Holding, Series B+........... $ 50
462 TCR Holding, Series C+........... 26
1,218 TCR Holding, Series D+........... 65
2,521 TCR Holding, Series E+........... 159
------------
Total Preferred Stocks
(cost -- $300).................. 300
------------
<CAPTION>
Warrants Warrants -- 0.0%
<C> <S> <C> <C> <C>
1,200 Republic of Argentina Warrants,
expiring 12/03/99+............... 57,600
400 In Flight Phone Warrants,
expiring 08/31/02+............... 0
------------
Total Warrants
(cost -- $63,907)............... 57,600
------------
Total Investments -- 95.1%
(cost -- $114,839,435).......... 111,989,182
------------
<CAPTION>
Principal
Amount (a) Repurchase Agreement -- 24.1%
<C> <S> <C> <C> <C>
28,419,000 Repurchase Agreement dated
12/31/98, with State Street Bank
and Trust Company, collateralized
by $21,575,000 U.S. Treasury
Bonds, 8.000%, due 11/15/21
valued at $28,991,406; proceeds:
$28,434,315 (cost -- $28,419,000)
(f).............................. 4.850% 01/04/99 28,419,000
------------
Liabilities in excess of other
assets -- (19.2%)................ (22,660,576)
------------
Net Assets -- 100.0%............. $117,747,606
============
</TABLE>
Forward Foreign Currency Contracts
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Unrealized
Maturity Contracts to In Exchange Contracts at Appreciation
Dates Receive/Deliver for Value (Depreciation)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases
02/16/99 DEM 498,032 $298,464 $299,594 $ 1,130
02/16/99 DEM 762,203 448,883 458,507 9,624
02/16/99 DEM 950,000 568,607 571,477 2,870
02/16/99 DKK 2,893,867 457,890 455,151 (2,739)
02/04/99 ITL 1,290,000,000 776,977 780,053 3,076
Sales
02/16/99 DEM 1,013,692 607,001 609,792 (2,791)
02/16/99 DEM 1,191,024 720,000 716,466 3,534
02/16/99 DKK 2,893,867 454,739 455,151 (412)
02/16/99 XEU 253,323 298,464 297,842 622
02/16/99 XEU 202,589 239,258 238,193 1,065
02/16/99 FIM 1,133,727 223,394 222,757 637
02/04/99 ITL 1,266,706,800 765,845 765,968 (123)
02/16/99 SEK 4,632,580 568,607 570,987 (2,380)
------------
$ 14,113
============
</TABLE>
See accompanying notes to financial statements
62
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (concluded)
- --------------------------------------------------------------------------------
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
** To be announced.
+ Non-income producing security.
(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 in-
dicated parenthetically.
(e) Mortgage dollar roll. See Note 1.
(f) All or part of the security is segregated as collateral for mortgage dol-
lar rolls.
Abbreviations used in this statement:
AUD Australian Dollar.
DCB Debt Conversion Bonds.
DEM German Mark.
DKK Danish Krone.
FIM Finnish Markka.
FLIRB Front-Loaded Interest Reduction Bonds.
GRD Greek Drachma.
IAB Interest Arrears Bonds.
IAN Interest Arrears Notes.
IE Interest Equalization.
IRB Interest Reduction Bonds.
ITL Italian Lira.
PDI Past Due Interest.
PLN Polish Zloty.
SEK Swedish Krona.
XEU European Currency Unit.
See accompanying notes to financial statements
63
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers National Intermediate Municipal Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Long-Term Investments -- 92.4%
California -- 3.7%
$285,000 Los Angeles, California AMBAC.... 6.000% 08/01/03 $ 310,268
250,000 Oakland, California Port
Authority MBIA.................. 6.000 11/01/05 278,090
------------
588,358
------------
District of Columbia -- 3.3%
500,000 District of Columbia GO MBIA..... 5.000 06/01/06 522,395
------------
Florida -- 1.2%
175,000 Florida Housing Finance Agency... 6.150 07/01/06 184,716
------------
Hawaii -- 1.7%
250,000 Hawaii State Department of Budget
& Finance....................... 5.600 07/01/06 271,148
------------
Illinois -- 10.0%
300,000 Chicago, Illinois Metropolitan
Water GO........................ 5.900 12/01/06 335,793
250,000 Chicago, Illinois O'Hare
International Airport AMBAC..... 5.000 01/01/02 258,215
400,000 Illinois Student Assistance
Commission...................... 6.400 03/01/04 431,424
500,000 Springfield, Illinois Electric
MBIA............................ 6.000 03/01/06 555,070
------------
1,580,502
------------
Indiana -- 9.9%
500,000 Indiana Health Facilities Finance
Authority....................... 5.800 08/15/06 532,820
300,000 Indiana Secondary Market for
Education AMBAC................. 5.550 12/01/05 321,867
650,000 Indiana Transportation Finance
Authority....................... 6.250 11/01/03 710,021
------------
1,564,708
------------
Louisiana -- 2.3%
350,000 Louisiana Public Facilities
Authority....................... 6.750 09/01/06 366,857
------------
Massachusetts -- 2.9%
400,000 Commonwealth of Massachusetts
Health & Educational Facilities
Authority....................... 6.500 12/01/05 454,764
------------
Michigan -- 1.8%
250,000 Detroit, Michigan Water Supply
MBIA............................ 6.000 07/01/07 281,510
------------
Mississippi -- 2.4%
360,000 Mississippi Higher Education..... 6.050 09/01/07 376,798
------------
New Jersey -- 3.1%
450,000 Passaic Valley, New Jersey Sewer
Commission AMBAC................ 5.750 12/01/07 488,030
------------
New York -- 25.2%
250,000 Long Island, New York Power
Authority MBIA.................. 5.000 04/01/04 262,140
250,000 Municipal Assistance Corporation,
New York City, New York......... 5.500 07/01/02 264,225
320,000 New York City, New York GO....... 6.500 02/01/02 344,672
130,000 New York City, New York GO....... 6.500 02/01/02 140,561
500,000 New York State Dormitory
Authority....................... 6.000 07/01/06 556,710
700,000 New York State Dormitory
Authority MBIA.................. 5.600 07/01/06 745,850
400,000 New York State Dormitory
Authority (State University of
New York)....................... 6.625 07/01/04 454,548
500,000 New York State Mortgage Agency... 5.900 10/01/06 521,980
250,000 New York State Urban
Development..................... 5.000 01/01/06 262,330
400,000 New York State, Thruway Authority
MBIA............................ 6.000 01/01/04 437,256
------------
3,990,272
------------
</TABLE>
See accompanying notes to financial statements
64
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers National Intermediate Municipal Fund (concluded)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Ohio -- 3.4%
$250,000 Cleveland, Ohio Airport Systems
FSA............................. 5.500% 01/01/08 $ 270,643
250,000 Miami County, Ohio Hospital
Facilities...................... 5.600 05/15/02 258,745
------------
529,388
------------
Pennsylvania -- 7.6%
500,000 Allegheny County, Pennsylvania
Airport MBIA.................... 5.500 01/01/03 528,795
400,000 Geisinger Authority, Pennsylvania
Health System................... 6.000 07/01/01 421,484
250,000 Pennsylvania Housing Finance
Authority....................... 4.850 10/01/07 252,828
------------
1,203,107
------------
South Carolina -- 7.1%
250,000 Piedmont Municipal Power Agency
FGIC............................ 6.000 01/01/07 278,870
750,000 South Carolina State Public
Service Authority FGIC.......... 6.500 01/01/05 847,440
------------
1,126,310
------------
Texas -- 3.6%
500,000 Austin, Texas Airport Systems
MBIA............................ 6.500 11/15/05 568,095
------------
Virginia -- 3.2%
500,000 Pocahontas Parkway Association,
Virginia........................ 5.000 08/15/06 509,490
------------
Total Long-Term Investments
(cost -- $13,828,988)........... 14,606,448
------------
Short-Term Investments -- 3.9%
Pennsylvania -- 0.6%
100,000 Philadelphia, Pennsylvania
Hospitals & Higher Education
Facilities Authority VR......... 4.450 01/04/99 100,000
------------
Virginia -- 3.3%
215,000 Alexandria, Virginia
Redevelopment & Housing
Authority VR.................... 5.050 01/04/99 215,000
200,000 King George County, Virginia
Industrial Development Authority
VR.............................. 5.150 01/04/99 200,000
100,000 Petersburg, Virginia Hospital
Authority VR.................... 5.050 01/04/99 100,000
------------
515,000
------------
Total Short-Term Investments
(cost -- $615,000).............. 615,000
------------
Total Investments -- 96.3%
(cost -- $14,443,988)........... 15,221,448
------------
Other assets in excess of
liabilities -- 3.7%............. 587,140
------------
Net Assets -- 100.0%............. $ 15,808,588
============
</TABLE>
Abbreviations used in this statement:
AMBAC Insured as to principal and interest by the American Municipal Bond As-
surance Corporation.
FGIC Insured as to principal and interest by the Financial Guaranty Insurance
Corporation.
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 MBIA Insurance Corporation.
VR Variable Rate Demand Note. Maturity date shown is the date of next in-
terest rate change.
See accompanying notes to financial statements
65
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers U.S. Government Income Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
U.S. Treasury Notes & Bonds --
34.8%
$1,000,000 U.S. Treasury Bond................. 5.250% 11/15/28 $ 1,023,750
5,000,000 U.S. Treasury Note (a)................ 4.500 09/30/00 4,989,050
100,000 U.S. Treasury Note................. 5.875 09/30/02 103,937
150,000 U.S. Treasury Note................. 5.625 12/31/02 154,992
700,000 U.S. Treasury Note................. 5.750 04/30/03 728,658
450,000 U.S. Treasury Note................. 6.625 05/15/07 506,039
1,500,000 U.S. Treasury Note................. 6.125 08/15/07 1,638,285
500,000 U.S. Treasury Note................. 5.500 02/15/08 529,845
750,000 U.S. Treasury Note................. 5.625 05/15/08 800,273
-----------
Total U.S. Treasury Notes & Bonds
(cost -- $10,262,719)................ 10,474,829
-----------
U.S. Government Agency -- 58.5%
100,000 Federal Home Loan Bank............. 5.940 06/13/00 101,312
500,000 Federal Home Loan Bank............. 5.800 09/02/08 517,500
255,813 Federal Home Loan Mortgage
Corporation Gold.................. 7.500 05/01/07 263,548
25,605 Federal Home Loan Mortgage
Corporation Gold.................. 6.000 07/01/10 25,785
14,009 Federal Home Loan Mortgage
Corporation....................... 11.750 01/01/11 15,460
134,749 Federal Home Loan Mortgage
Corporation....................... 7.000 05/01/11 137,661
347,256 Federal Home Loan Mortgage
Corporation....................... 7.000 07/01/11 354,760
545,494 Federal Home Loan Mortgage
Corporation....................... 7.000 07/01/11 557,283
261,249 Federal Home Loan Mortgage
Corporation....................... 7.000 08/01/11 266,894
841 Federal Home Loan Mortgage
Corporation....................... 11.750 06/01/14 934
11,021 Federal Home Loan Mortgage
Corporation....................... 11.750 12/01/14 12,368
26,510 Federal Home Loan Mortgage
Corporation....................... 11.750 07/01/15 29,872
700,000 Federal Home Loan Mortgage
Corporation....................... 10.000 03/01/16 761,250
172,395 Federal Home Loan Mortgage
Corporation....................... 8.250 04/01/17 180,619
246,597 Federal Home Loan Mortgage
Corporation Gold.................. 8.000 12/01/19 257,033
482,983 Federal Home Loan Mortgage
Corporation....................... 8.000 07/01/20 506,301
172,230 Federal Home Loan Mortgage
Corporation....................... 7.000 04/15/21 174,112
750,000 Federal Home Loan Mortgage
Corporation....................... 8.500 03/15/24 797,907
3,534,994 Federal Home Loan Mortgage
Corporation....................... 6.000 10/01/28 3,492,680
1,500,000 Federal Home Loan Mortgage
Corporation....................... 6.000 * 1,478,437
724,921 Federal National Mortgage
Association....................... 6.783 01/17/03 740,325
169,325 Federal National Mortgage
Association....................... 6.500 12/01/03 170,644
800,000 Federal National Mortgage
Association....................... 6.527 05/25/30 830,000
22,847 Federal National Mortgage
Association....................... 14.500 11/01/14 27,631
60,139 Federal National Mortgage
Association....................... 12.500 09/01/15 70,362
69,638 Federal National Mortgage
Association....................... 13.000 11/15/15 83,044
22,115 Federal National Mortgage
Association....................... 12.000 01/01/16 25,764
358,512 Federal National Mortgage
Association....................... 12.000 01/01/16 405,911
236,274 Federal National Mortgage
Association....................... 12.500 01/15/16 276,441
19,371 Federal National Mortgage
Association....................... 11.500 04/01/19 21,661
141,769 Federal National Mortgage
Association....................... 10.500 08/01/20 155,060
675,000 Federal National Mortgage
Association Project Loan.......... 6.247 03/17/21 694,686
285,005 Federal National Mortgage
Association....................... 8.500 11/01/23 299,816
160,213 Federal National Mortgage
Association....................... 9.000 08/01/26 169,499
600,000 Federal National Mortgage
Association (b)................... 6.500 * 603,563
3,000,000 Federal National Mortgage
Association (b)................... 6.000 * 2,957,813
142,042 Government National Mortgage
Association....................... 8.500 01/15/18 151,638
-----------
Total U.S. Government Agency
(cost -- $17,465,707)............. 17,615,574
-----------
</TABLE>
See accompanying notes to financial statements
66
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers U.S. Government Income Fund (concluded)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Description Rate Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Mortgage-Backed Securities -- 2.7%
$ 693,927 Fanniemae Grantor Trust........... 6.911% 12/28/28 $ 678,314
119,018 Vendee Mortgage Trust............. 7.250 10/15/10 119,092
-----------
Total Mortgage-Backed Securities
(cost -- $822,940)............... 797,406
-----------
Total Investments -- 96.0%
(cost -- $28,551,366)............ 28,887,809
-----------
Repurchase Agreements -- 19.9%
3,004,000 Repurchase Agreement dated
12/31/98, with State Street Bank
& Trust Company, collateralized
by $2,285,000 U.S. Treasury
Bonds, 8.000%, due 11/15/21,
valued at $3,070,469; proceeds:
$3,005,619....................... 4.850 01/04/99 3,004,000
3,000,000 Repurchase Agreement dated
12/31/98, with Warburg Dillon
Read, collateralized by
$2,093,000 U.S. Treasury Bonds,
12.750%, due 11/15/10, valued at
$3,061,013; proceeds:
$3,001,583....................... 4.750 01/04/99 3,000,000
-----------
Total Repurchase Agreements
(cost -- $6,004,000)............. 6,004,000
-----------
Liabilities in excess of other
assets -- (15.9%)................ (4,788,121)
-----------
Net Assets -- 100.0%.............. $30,103,688
===========
</TABLE>
*To be announced.
(a) All or part of the security is segregated as collateral for mortgage dollar
rolls.
(b) Mortgage dollar roll. See Note 1.
See accompanying notes to financial statements
67
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers New York Municipal Money Market Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Yield to
Principal Maturity on Date Maturity
Amount Description of Purchase* Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Municipal Securities --
100.0%
New York -- 99.6%
$ 655,000 Albany County, New York
Industrial Development
Agency VR............... 4.200% 01/07/99 $ 655,000
1,355,000 Amherst, New York
Industrial Development
Agency VR............... 4.350 01/07/99 1,355,000
1,550,000 Auburn, New York
Industrial Development
Agency VR............... 4.450 01/06/99 1,550,000
1,050,000 Broome County, New York
Industrial Development
Agency VR............... 4.200 01/07/99 1,050,000
1,425,000 Cattaraugus County, New
York Industrial
Development Agency VR... 4.350 01/07/99 1,425,000
900,000 Cattaraugus County, New
York Industrial
Development Agency VR... 4.350 01/07/99 900,000
1,400,000 Chautauqua County, New
York Industrial
Development Agency VR... 4.450 01/06/99 1,400,000
1,740,000 Chemung County, New York
Industrial Development
Agency VR............... 4.200 01/07/99 1,740,000
4,300,000 Chenango, New York
Industrial Development
Agency VR............... 4.350 01/07/99 4,300,000
670,000 Colonie, New York Housing
Development Corporation
VR...................... 3.200 01/06/99 670,000
450,000 Colonie, New York
Industrial Development
Agency VR............... 4.200 01/07/99 450,000
900,000 Dutchess County, New York
Industrial Development
Agency VR............... 4.200 01/07/99 900,000
2,125,000 Erie County, New York
Industrial Development
Agency VR............... 4.200 01/07/99 2,125,000
550,000 Erie County, New York
Industrial Development
Agency VR............... 4.200 01/07/99 550,000
405,000 Erie County, New York
Industrial Development
Agency VR............... 4.200 01/07/99 405,000
201,200 Erie County, New York
Industrial Development
Agency VR............... 4.350 01/07/99 201,200
200,000 Erie County, New York
Industrial Development
Agency VR............... 4.350 01/07/99 200,000
2,100,000 Islip, New York
Industrial Development
Authority VR............ 4.200 01/07/99 2,100,000
5,000,000 Long Island, New York
Power Authority VR...... 4.150 01/06/99 5,000,000
3,000,000 Metropolitan Transit
Authority, New York
TECP.................... 3.200 01/11/99 3,000,000
1,430,000 Monroe County, New York
Industrial Development
Agency PUT.............. 3.200 06/01/99 1,430,000
700,000 Monroe County, New York
Industrial Development
Agency PUT.............. 4.500 06/15/99 700,000
6,500,000 Monroe County, New York
Industrial Development
Agency VR............... 4.350 01/06/99 6,500,000
3,325,000 Monroe County, New York
Industrial Development
Agency VR............... 4.050 01/07/99 3,325,000
3,005,000 Monroe County, New York
Industrial Development
Agency VR............... 4.050 01/07/99 3,005,000
765,000 Monroe County, New York
Industrial Development
Agency VR............... 4.050 01/07/99 765,000
2,490,000 Monroe County, New York
Industrial Development
Agency VR............... 4.150 01/07/99 2,490,000
3,000,000 Monroe County, New York
Industrial Development
Agency VR............... 4.200 01/07/99 3,000,000
2,350,000 Monroe County, New York
Industrial Development
Agency VR............... 4.200 01/07/99 2,350,000
1,810,000 Monroe County, New York
Industrial Development
Agency VR............... 4.350 01/07/99 1,810,000
1,430,000 Monroe County, New York
Industrial Development
Agency VR............... 4.350 01/07/99 1,430,000
780,000 Monroe County, New York
Industrial Development
Agency VR............... 4.350 01/07/99 780,000
850,000 Municipal Assistance
Corporation New York
City, New York.......... 3.100 07/01/99 857,844
300,000 Nassau County, New York
Industrial Development
Agency VR............... 5.000 01/04/99 300,000
750,000 Nassau County, New York
Industrial Development
Agency VR............... 4.200 01/07/99 750,000
2,200,000 New York City, New York
Housing Development
Corporation VR.......... 3.750 01/06/99 2,200,000
2,000,000 New York City, New York
Housing Development
Corporation VR.......... 4.250 01/06/99 2,000,000
2,500,000 New York City, New York
Housing Development
Corporation VR.......... 4.300 01/06/99 2,500,000
2,200,000 New York City, New York
Housing Development
Corporation VR.......... 4.300 01/06/99 2,200,000
1,700,000 New York City, New York
Housing Development
Corporation VR.......... 4.300 01/06/99 1,700,000
900,000 New York City, New York
Housing Development
Corporation VR.......... 4.300 01/06/99 900,000
1,800,000 New York City, New York
Housing Development
Corporation VR.......... 4.350 01/06/99 1,800,000
6,800,000 New York City, New York
Housing Development
Corporation VR.......... 3.700 01/07/99 6,800,000
2,800,000 New York City, New York
Housing Development
Corporation VR.......... 4.300 01/07/99 2,800,000
1,300,000 New York City, New York
Housing Development
Corporation VR.......... 4.300 01/07/99 1,300,000
1,600,000 New York City, New York
Industrial Development
Agency VR............... 4.000 01/06/99 1,600,000
1,590,000 New York City, New York
Industrial Development
Agency VR............... 4.000 01/06/99 1,590,000
950,000 New York City, New York
Industrial Development
Agency VR............... 4.000 01/06/99 950,000
725,000 New York City, New York
Industrial Development
Agency VR............... 4.200 01/07/99 725,000
300,000 New York City, New York
Industrial Development
Agency VR............... 4.350 01/07/99 300,000
</TABLE>
See accompanying notes to financial statements
68
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers New York Municipal Money Market Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Yield to
Principal Maturity on Date Maturity
Amount Description of Purchase* Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
New York--(continued)
$ 175,000 New York City, New York
Industrial Development
Agency VR.............. 4.350% 01/07/99 $ 175,000
4,000,000 New York City, New York
Transportation Finance
Authority VR........... 3.900 01/06/99 4,000,000
1,000,000 New York State,
Dormitory Authority
FGIC................... 3.600 07/01/99 1,018,611
2,800,000 New York State,
Dormitory Authority
VR..................... 4.900 01/04/99 2,800,000
250,000 New York State,
Environmental
Facilities
Corporation............ 3.610 06/15/99 250,149
5,000,000 New York State,
Environmental
Facilities Corporation
TECP................... 3.100 01/14/99 5,000,000
5,000,000 New York State, Housing
Finance Agency VR...... 4.000 01/06/99 5,000,000
4,500,000 New York State, Housing
Finance Agency VR...... 4.200 01/06/99 4,500,000
1,615,000 New York State, Job
Development Authority
VR..................... 3.150 01/04/99 1,615,000
790,000 New York State, Job
Development Authority
VR..................... 3.150 01/04/99 790,000
350,000 New York State, Job
Development Authority
VR..................... 3.150 01/04/99 350,000
215,000 New York State, Job
Development Authority
VR..................... 3.150 01/04/99 215,000
60,000 New York State, Job
Development Authority
VR..................... 3.150 01/04/99 60,000
1,655,000 New York State, Job
Development Authority
VR..................... 3.250 01/04/99 1,655,000
535,000 New York State, Job
Development Authority
VR..................... 3.250 01/04/99 535,000
150,000 New York State, Job
Development Authority
VR..................... 3.250 01/04/99 150,000
135,000 New York State, Job
Development Authority
VR..................... 3.250 01/04/99 135,000
400,000 Niagara County, New York
Industrial Development
Agency VR.............. 4.050 01/06/99 400,000
15,495,000 Niagara County, New York
Industrial Development
Agency VR.............. 4.100 01/06/99 15,495,000
765,000 Niagara County, New York
Industrial Development
Agency VR.............. 4.350 01/07/99 765,000
270,000 Oneida County, New York
Industrial Development
Agency VR.............. 4.250 01/07/99 270,000
5,000,000 Oneida County, New York
Industrial Development
Agency VR.............. 4.350 01/07/99 5,000,000
20,000,000 Onondaga County, New
York Industrial
Development Agency
PUT.................... 4.250 01/07/99 20,000,000
3,800,000 Onondaga County, New
York Industrial
Development Agency VR.. 4.150 01/06/99 3,800,000
1,300,000 Onondaga County, New
York Industrial
Development Agency VR.. 4.150 01/06/99 1,300,000
100,000 Onondaga County, New
York Industrial
Development Agency VR.. 4.150 01/06/99 100,000
100,000 Onondaga County, New
York Industrial
Development Agency VR.. 4.150 01/06/99 100,000
4,400,000 Ontario County, New York
Industrial Development
Agency VR.............. 5.350 01/04/99 4,400,000
2,680,000 Otsego County, New York
Industrial Development
Agency VR.............. 3.850 01/07/99 2,680,000
1,100,000 Rockland County, New
York Industrial
Development Agency VR.. 4.350 01/07/99 1,100,000
90,000 Schoharie County, New
York Industrial
Development Agency VR.. 4.250 01/07/99 90,000
4,000,000 South Huntington, New
York Union Free School
District TAN........... 3.600 06/30/99 4,005,711
4,270,000 Suffolk County, New York
Industrial Development
Agency VR.............. 4.200 01/07/99 4,270,000
3,800,000 Syracuse, New York
Industrial Development
Agency VR.............. 4.450 01/06/99 3,800,000
2,510,000 Triborough Bridge &
Tunnel Authority, New
York................... 3.550 01/01/99 2,510,000
1,000,000 Triborough Bridge &
Tunnel Authority, New
York................... 3.600 01/01/99 1,000,000
4,235,000 Ulster County, New York
Industrial Development
Agency VR.............. 4.050 01/06/99 4,235,000
2,210,000 Warren & Washington
Counties, New York
Industrial Development
Agency VR.............. 4.000 01/07/99 2,210,000
300,000 Wyoming County, New York
Industrial Development
Agency VR.............. 4.200 01/07/99 300,000
5,460,000 Wyoming County, New York
Industrial Development
Agency VR.............. 4.350 01/07/99 5,460,000
------------
200,373,515
------------
Puerto Rico -- 0.4%
285,000 Commonwealth of Puerto
Rico, Electric Power
Authority MBIA......... 3.630 07/01/99 285,850
500,000 Commonwealth of Puerto
Rico, Telephone
Authority MBIA......... 3.520 01/01/99 500,001
------------
785,851
------------
Total Investments --
100.0%
(cost --
$201,159,366)......... 201,159,366
------------
Liabilities in excess of
other assets --
(0.0%)................ (25,528)
------------
Net Assets -- 100.0%.... $201,133,838
============
</TABLE>
See accompanying notes to financial statements
69
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers New York Municipal Money Market Fund (concluded)
- --------------------------------------------------------------------------------
* 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, ma-
turity date shown is the date of next interest rate change.
Abbreviations used in this statement:
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.
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.
See accompanying notes to financial statements
70
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Cash Management Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Yield to
Principal Maturity on Date Maturity
Amount Description of Purchase* Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Asset-Backed Securities --
5.1%
Financial Services -- 5.1%
$ 603,041 Arcadia Automobile
Receivable Trust.......... 5.470% 09/15/99 $ 603,041
738,882 Chrysler Financial......... 5.140 07/08/99 738,649
61,885 Contimortgage Home Equity
Loan Trust................ 5.649 06/15/99 61,885
1,000,000 SMM Trust.................. 5.320 12/15/99 1,000,000
387,847 Union Acceptance
Corporation............... 5.527 10/08/99 387,847
-----------
Total Asset-Backed
Securities
(cost -- $2,791,422)...... 2,791,422
-----------
Certificates of Deposit --
26.4%
Banks -- 26.4%
1,000,000 American Express Centurian
Bank...................... 5.460 01/12/99 1,000,000
1,500,000 Bank Austria............... 5.720 04/19/99 1,501,535
1,000,000 Bayerishche................ 5.700 01/07/99 1,000,038
1,000,000 Chase Manhattan Bank....... 5.220 03/22/99 1,000,224
1,000,000 Commerzbank................ 5.670 03/05/99 999,859
1,500,000 Credit Agricole Indosuez... 5.730 04/16/99 1,502,259
1,500,000 Crestar Bank............... 5.420 01/07/99 1,500,005
1,500,000 Harris Trust and Savings
Bank...................... 5.090 03/16/99 1,500,000
1,000,000 Michigan National Bank..... 4.950 09/10/99 1,000,067
1,000,000 Rabobank................... 5.750 05/14/99 999,981
1,500,000 Toronto Dominion Bank...... 5.110 03/29/99 1,500,071
1,000,000 West Deutsche Bank......... 5.630 01/14/99 1,000,003
-----------
Total Certificates of
Deposit
(cost -- $14,504,042)..... 14,504,042
-----------
Commercial Paper -- 44.0%
Banks -- 1.8%
1,000,000 Svenska Handelsbanken...... 4.830 06/11/99 978,399
-----------
Beverages, Food &
Tobacco -- 2.7%
1,500,000 General Mills.............. 5.000 01/04/99 1,499,375
-----------
Chemicals -- 3.6%
2,000,000 Dow Chemical............... 5.000 01/04/99 1,999,167
-----------
Communications -- 2.2%
1,200,000 Lucent Technologies........ 5.400 01/06/99 1,199,100
-----------
Computers -- 2.7%
1,500,000 IBM Credit................. 5.300 01/05/99 1,499,117
-----------
Electric Products -- 4.6%
2,500,000 Emerson Electric........... 5.050 01/04/99 2,498,948
-----------
Electric Utilities -- 2.7%
1,500,000 Southern Company........... 5.250 02/12/99 1,490,813
-----------
</TABLE>
See accompanying notes to financial statements
71
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Cash Management Fund (continued)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Yield to
Principal Maturity on Date Maturity
Amount Description of Purchase* Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Financial Services -- 7.7%
$1,250,000 Block Financial............ 5.350% 01/29/99 $ 1,244,798
1,000,000 Dresdner U.S. Finance...... 5.450 01/05/99 999,394
2,000,000 Merrill Lynch.............. 5.020 01/05/99 1,998,884
-----------
4,243,076
-----------
Household Products -- 1.8%
1,000,000 Guardian Industries........ 5.100 01/04/99 999,575
-----------
Insurance-Life -- 4.4%
2,404,000 Pacific Life Insurance..... 5.000 01/04/99 2,402,998
-----------
Municipal -- 4.6%
1,000,000 Emory University, Georgia.. 5.150 03/09/99 1,000,000
600,000 Tennessee State School
Board..................... 5.400 02/16/99 600,000
500,000 Tennessee State School
Board..................... 5.170 03/30/99 500,000
400,000 Tennessee State School
Board..................... 5.290 01/19/99 400,000
-----------
2,500,000
-----------
Paper Products -- 2.7%
1,500,000 Westvaco................... 5.250 01/21/99 1,495,625
-----------
Real Estate -- 2.5%
1,406,000 Weyerhauser Real Estate.... 5.180 02/01/99 1,399,729
-----------
Total Commercial Paper
(cost -- $24,205,922)..... 24,205,922
-----------
Floating Rate Notes --
26.9%
California -- 1.8%
1,000,000 Sacramento County,
California VR............. 5.630 01/06/99 1,000,000
-----------
Florida -- 4.9%
1,200,000 Baptist Health Systems VR
MBIA...................... 5.700 01/06/99 1,200,000
1,000,000 Dade County, Florida
Expressway Authority VR
FGIC...................... 5.650 01/07/99 1,000,000
500,000 Florida Housing Finance
Agency VR................. 5.500 01/06/99 500,000
-----------
2,700,000
-----------
Georgia -- 1.3%
700,000 De Kalb Development
Authority VR.............. 5.700 01/06/99 700,000
-----------
Illinois -- 3.7%
340,000 Aurora Kane & Du Page
County, Illinois
Industrial Development
Authority VR.............. 5.150 01/07/99 340,000
1,500,000 Edwards Hospital Group VR.. 5.520 01/06/99 1,500,000
200,000 Illinois Student Assistance
Commission VR............. 5.520 01/06/99 200,000
-----------
2,040,000
-----------
Indiana -- 0.9%
500,000 Indiana State, Development
Finance Authority VR...... 5.520 01/06/99 500,000
-----------
Louisiana -- 0.6%
300,000 Calcasieu Parish, Louisiana
Industrial Development
Agency VR................. 5.250 01/06/99 300,000
-----------
</TABLE>
See accompanying notes to financial statements
72
<PAGE>
Portfolio of Investments
(concluded)
Salomon Brothers Cash Management Fund (concluded)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Yield to
Principal Maturity on Date Maturity
Amount Description of Purchase* Date Value
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
Michigan -- 1.3%
$ 700,000 Genesys Health Systems
VR....................... 5.570% 01/06/99 $ 700,000
-----------
Minnesota -- 1.8%
1,000,000 Catholic Health
Initiatives VR........... 5.700 01/06/99 1,000,000
-----------
New Jersey -- 0.5%
255,000 New Jersey Economic
Development Authority
VR....................... 5.800 01/04/99 255,000
-----------
New York -- 3.5%
925,000 Clinton County, New York
Industrial Development
Agency VR................ 5.250 01/07/99 925,000
100,000 New York City, New York
Industrial Development
Agency VR................ 5.620 01/06/99 100,000
900,000 New York State, Housing
Finance Agency VR........ 5.700 01/06/99 900,000
-----------
1,925,000
-----------
North Carolina -- 0.7%
400,000 Community Health Systems
VR....................... 6.050 01/06/99 400,000
-----------
Pennsylvania -- 2.5%
395,000 Moon, Pennsylvania
Industrial Development
Authority VR............. 5.150 01/07/99 395,000
1,000,000 Pennsylvania Economic
Development Authority
VR....................... 5.350 01/04/99 1,000,000
-----------
1,395,000
-----------
Texas -- 1.6%
875,000 Texas State GO VR......... 5.500 01/06/99 875,000
-----------
Virginia -- 1.8%
1,000,000 Virginia State, Housing
Development Authority
VR....................... 6.000 01/06/99 1,000,000
-----------
Total Floating Rate Notes
(cost -- $14,790,000).... 14,790,000
-----------
Total Investments --
102.4%
(cost -- $56,291,386).... 56,291,386
-----------
Liabilities in excess of
other assets -- (2.4%)... (1,318,097)
-----------
Net Assets -- 100.0%...... $54,973,289
===========
</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.
Abbreviations used in this statement:
FGIC Insured as to principal and interest by the Financial Guaranty Insurance
Corporation.
GO General Obligation.
MBIA Insured as to principal and interest by the MBIA Insurance Corporation.
See accompanying notes to financial statements
73
<PAGE>
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Asia Small Cap Capital Investors
Growth Fund Growth Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value
(Note A)................. $12,936,073 $8,358,316 $214,373,594 $732,605,943
Repurchase agreements, at
value and cost........... -- 542,000 18,275,000 52,597,000
Cash (including foreign
currency)+............... 445,327 1,721 3,873 579
Receivable for securities
sold..................... 440,636 153,158 7,414,923 9,513,785
Receivable for Fund shares
sold..................... 27,104 21,827 406,991 491,070
Interest and dividends
receivable............... 16,002 1,130 486,521 1,778,705
Receivable from investment
advisor.................. 259,926 -- -- --
Deferred organization
expense.................. 52,755 -- -- --
Net unrealized
appreciation of forward
foreign currency
contracts................ -- -- -- --
Other assets.............. 8,801 -- 21,751 21,760
----------- ---------- ------------ ------------
Total assets.............. 14,186,624 9,078,152 240,982,653 797,008,842
----------- ---------- ------------ ------------
LIABILITIES:
Payable for:
Securities purchased..... 688,042 445,372 5,528,940 --
Written options.......... 768 -- -- --
Fund shares redeemed..... 115,520 12,086 107,892 1,103,945
Dividends and
distributions declared.. -- -- -- --
Affiliate transactions:
Management fees.......... -- -- 149,497 849,036
Service and distribution
fees.................... 7,336 8,738 23,736 85,727
Payable to Custodian...... -- -- -- --
Net unrealized
depreciation of forward
foreign currency
contracts................ 58,322 -- -- --
Accrued expenses and other
liabilities.............. 31,281 18,426 111,391 232,289
----------- ---------- ------------ ------------
Total liabilities......... 901,269 484,622 5,921,456 2,270,997
----------- ---------- ------------ ------------
Net assets................ $13,285,355 $8,593,530 $235,061,197 $794,737,845
=========== ========== ============ ============
Net assets consist of:
Paid-in capital........... $22,481,744 $7,331,511 $184,464,514 $519,456,916
Undistributed net
investment income (or
distributions in excess
of net investment
income).................. (48,614) -- 25,504 122,469
Accumulated net realized
gain (loss) on
investments, options and
foreign currency
transactions............. (9,858,211) (319,961) 4,844,946 46,236,804
Net unrealized
appreciation
(depreciation) on
investments, foreign
currency transactions and
other assets............. 710,436 1,581,980 45,726,233 228,921,656
----------- ---------- ------------ ------------
Net assets:............... $13,285,355 $8,593,530 $235,061,197 $794,737,845
=========== ========== ============ ============
Class A................... $ 4,384,818 $3,205,393 $ 11,424,639 $ 50,952,870
=========== ========== ============ ============
Class B................... $ 5,255,857 $3,850,279 $ 22,294,249 $ 75,188,732
=========== ========== ============ ============
Class 2**................. $ 2,291,097 $1,471,101 $ 6,369,346 $ 17,679,866
=========== ========== ============ ============
Class O................... $ 1,353,583 $ 66,757 $194,972,963 $650,916,377
=========== ========== ============ ============
Shares outstanding:
Class A................... 674,096 276,591 498,421 2,312,353
=========== ========== ============ ============
Class B................... 818,688 333,347 985,167 3,437,269
=========== ========== ============ ============
Class 2**................. 356,916 127,254 280,736 807,895
=========== ========== ============ ============
Class O................... 206,929 5,754 8,481,894 29,517,944
=========== ========== ============ ============
Net asset value:
Class A shares
Net asset value*.......... $ 6.50 $ 11.59 $ 22.92 $ 22.04
=========== ========== ============ ============
Maximum offering price per
share (based on maximum
sales charge of 5.75%,
except Cash Management
Fund and New York
Municipal Money Fund).... $ 6.90 $ 12.30 $ 24.32 $ 23.38
=========== ========== ============ ============
Maximum offering price per
share (based on maximum
sales charge of 4.75%,
except Cash Management
Fund and New York
Municipal Money Fund).... N/A N/A N/A N/A
=========== ========== ============ ============
Class B shares
Net asset value and
offering price per share
*........................ $ 6.42 $ 11.55 $ 22.63 $ 21.87
=========== ========== ============ ============
Class 2 shares**
Net asset value*.......... $ 6.42 $ 11.56 $ 22.69 $ 21.88
=========== ========== ============ ============
Maximum offering price per
share (based on maximum
sales charge of 1.00%,
except Cash Management
Fund and New York
Municipal Money Fund).... $ 6.48 $ 11.68 $ 22.92 $ 22.10
=========== ========== ============ ============
Class O shares
Net asset value, offering
price and redemption
price per share.......... $ 6.54 $ 11.60 $ 22.99 $ 22.05
=========== ========== ============ ============
Note A: Cost of
investments.............. $12,164,228 $6,776,336 $168,647,361 $503,684,287
=========== ========== ============ ============
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
** Effective September 14, 1998, Class C shares of each Fund were redesignated
as Class 2 shares.
+ Asia Growth Fund's foreign currency is equivalent to $444,544.
See accompanying notes to financial statements
74
<PAGE>
<TABLE>
<CAPTION>
National U.S. New York Cash
Total High Yield Strategic Intermediate Government Municipal Management
Return Fund Bond Fund Bond Fund Municipal Fund Income Fund Money Fund Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$198,314,803 $557,241,716 $111,989,182 $15,221,448 $28,887,809 $201,159,366 $56,291,386
15,341,000 3,675,000 28,419,000 -- 6,004,000 -- --
309 66 -- 80,712 287 711,845 268
20,106 -- 1,516,864 -- -- -- --
288,162 1,349,708 797,803 163,709 136,685 345,898 59,559
1,583,261 12,807,219 1,888,000 279,219 241,208 849,576 408,863
-- -- -- 64,152 36,218 -- --
32,435 33,718 33,843 26,740 27,684 -- --
-- -- 14,113 -- -- -- --
12,077 27,188 33,999 24,760 27,660 6,632 20,739
------------ ------------ ------------ ----------- ----------- ------------ -----------
215,592,153 575,134,615 144,692,804 15,860,740 35,361,551 203,073,317 56,780,815
------------ ------------ ------------ ----------- ----------- ------------ -----------
10,842,839 -- 26,026,751 -- 5,041,783 -- --
-- -- -- -- -- -- --
1,022,774 2,405,401 378,260 34 131,280 1,717,827 1,602,978
209,384 2,811,443 351,944 36,623 57,404 14,121 152,905
33,709 297,949 53,991 -- -- 33,556 34,098
137,678 383,191 83,309 4,475 17,867 -- --
-- -- 152 -- -- -- --
-- -- -- -- -- -- --
105,936 312,663 50,791 11,020 9,529 173,975 17,545
------------ ------------ ------------ ----------- ----------- ------------ -----------
12,352,320 6,210,647 26,945,198 52,152 5,257,863 1,939,479 1,807,526
------------ ------------ ------------ ----------- ----------- ------------ -----------
$203,239,833 $568,923,968 $117,747,606 $15,808,588 $30,103,688 $201,133,838 $54,973,289
============ ============ ============ =========== =========== ============ ===========
$191,509,258 $669,665,722 $124,059,480 $15,099,196 $29,819,297 $201,368,482 $54,976,021
150,615 (813,886) (925,830) (31,431) (50,677) -- --
(195,011) (34,909,310) (2,542,836) (36,637) (1,375) (234,644) (2,732)
11,774,971 (65,018,558) (2,843,208) 777,460 336,443 -- --
------------ ------------ ------------ ----------- ----------- ------------ -----------
$203,239,833 $568,923,968 $117,747,606 $15,808,588 $30,103,688 $201,133,838 $54,973,289
============ ============ ============ =========== =========== ============ ===========
$ 51,442,511 $145,730,321 $ 21,994,912 $ 2,544,669 $ 6,743,966 $ 5,371,775 $26,792,720
============ ============ ============ =========== =========== ============ ===========
$120,816,261 $327,661,340 $ 67,927,791 $ 2,762,533 $15,314,693 $ 25,000 $17,373,535
============ ============ ============ =========== =========== ============ ===========
$ 29,458,195 $ 86,596,070 $ 27,326,669 $ 2,290,502 $ 4,714,667 $ 152,812 $ 2,740,545
============ ============ ============ =========== =========== ============ ===========
$ 1,522,866 $ 8,936,237 $ 498,234 $ 8,210,884 $ 3,330,362 $195,584,251 $ 8,066,489
============ ============ ============ =========== =========== ============ ===========
3,925,358 14,739,278 2,159,481 239,835 655,867 5,371,796 26,792,976
============ ============ ============ =========== =========== ============ ===========
9,239,410 33,212,397 6,675,362 261,355 1,488,893 25,000 17,373,626
============ ============ ============ =========== =========== ============ ===========
2,246,860 8,781,482 2,684,036 216,665 458,725 152,810 2,740,572
============ ============ ============ =========== =========== ============ ===========
115,566 903,143 48,945 774,358 323,740 195,819,733 8,068,847
============ ============ ============ =========== =========== ============ ===========
$ 13.11 $ 9.89 $ 10.19 $ 10.61 $ 10.28 $ 1.00 $ 1.00
============ ============ ============ =========== =========== ============ ===========
$ 13.91 N/A N/A N/A N/A N/A N/A
============ ============ ============ =========== =========== ============ ===========
N/A $ 10.38 $ 10.70 $ 11.14 $ 10.79 N/A N/A
============ ============ ============ =========== =========== ============ ===========
$ 13.08 $ 9.87 $ 10.18 $ 10.57 $ 10.29 $ 1.00 $ 1.00
============ ============ ============ =========== =========== ============ ===========
$ 13.11 $ 9.86 $ 10.18 $ 10.57 $ 10.28 $ 1.00 $ 1.00
============ ============ ============ =========== =========== ============ ===========
$ 13.24 $ 9.96 $ 10.28 $ 10.68 $ 10.38 N/A N/A
============ ============ ============ =========== =========== ============ ===========
$ 13.18 $ 9.89 $ 10.18 $ 10.60 $ 10.29 $ 1.00 $ 1.00
============ ============ ============ =========== =========== ============ ===========
$186,539,832 $622,136,946 $114,839,435 $14,443,988 $28,551,366 $201,159,366 $56,291,386
============ ============ ============ =========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements
75
<PAGE>
Statements of Operations
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Asia Small Cap Capital Investors
Growth Fund Growth Fund* Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Interest................. $ 87,938 $ 13,924 $ 1,581,015 $ 2,952,190
Dividends (Note A)....... 320,868 14,844 2,726,910 10,662,006
----------- ---------- ----------- ------------
408,806 28,768 4,307,925 13,614,196
Expenses:
Management fee........... 118,451 22,970 1,802,144 3,800,265
Custody and
administration fees..... 243,709 7,066 72,653 71,329
Shareholder services..... 74,868 3,000 96,870 565,490
Registration and filing
fees.................... 39,157 12,315 37,165 50,560
Amortization of
organization expenses... 22,495 -- -- --
Legal.................... 10,220 1,923 47,450 52,480
Directors' fees and
expenses................ 2,920 1,650 95,890 106,110
Printing................. 1,825 2,500 18,835 64,120
Audit and tax return
preparation fees........ 1,825 5,000 55,145 46,845
Other.................... 9,490 2,435 35,040 62,050
----------- ---------- ----------- ------------
524,960 58,859 2,261,192 4,819,249
Management fee waived and
expenses absorbed by
investment advisor...... (378,377) (22,970) -- --
Credits earned from
custodian on cash
balances................ -- -- (370) (193)
----------- ---------- ----------- ------------
146,583 35,889 2,260,822 4,819,056
Distribution and service
fees:
Class A Shares........... 14,135 2,654 18,162 136,461
Class B Shares........... 57,239 14,057 105,947 646,361
Class 2 Shares**......... 21,556 3,769 40,820 152,441
----------- ---------- ----------- ------------
Net expenses............. 239,513 56,369 2,425,751 5,754,319
----------- ---------- ----------- ------------
Net investment income
(loss).................. 169,293 (27,601) 1,882,174 7,859,877
----------- ---------- ----------- ------------
Realized and unrealized
gain (loss):
Net realized gain (loss)
on:
Investments (Note B)..... (5,819,144) (319,961) 23,367,317 95,415,065
Options written.......... 17,458 -- (247,441) 872,161
Futures transactions..... (348,122) -- -- --
Foreign currency
transactions............ (426,692) -- (5,190) (6,043)
----------- ---------- ----------- ------------
(6,576,500) (319,961) 23,114,686 96,281,183
----------- ---------- ----------- ------------
Net change in unrealized
appreciation
(depreciation) on:
Investments.............. 2,838,494 1,581,980 19,906,306 2,173,744
Options written.......... (8) -- -- --
Foreign currency
transactions and other
assets.................. (20,382) -- -- (170)
----------- ---------- ----------- ------------
2,818,104 1,581,980 19,906,306 2,173,574
----------- ---------- ----------- ------------
Net realized and
unrealized gain (loss).. (3,758,396) 1,262,019 43,020,992 98,454,757
----------- ---------- ----------- ------------
Net increase (decrease)
in net asset from
operations.............. $(3,589,103) $1,234,418 $44,903,166 $106,314,634
=========== ========== =========== ============
Note A: Net of foreign
withholding tax of:..... $ 14,540 $ -- $ 7,721 $ 168,811
=========== ========== =========== ============
Note B: Net of foreign
withholding tax of:..... $ 70,975 $ -- $ -- $ --
=========== ========== =========== ============
</TABLE>
* Fund's commencement of investment operations was July 1, 1998.
** Effective September 14, 1998, Class C shares of each fund were redesignated
as Class 2 shares.
See accompanying notes to financial statements
76
<PAGE>
<TABLE>
<CAPTION>
National U.S. New York Cash
Total High Yield Strategic Intermediate Government Municipal Management
Return Fund Bond Fund Bond Fund Municipal Fund Income Fund Money Fund Fund
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 6,865,466 $ 66,139,950 $ 8,705,213 $ 774,990 $1,166,029 $8,958,578 $2,320,668
2,985,587 182,498 -- -- -- -- --
- ----------- ------------- ----------- --------- ---------- ---------- ----------
9,851,053 66,322,448 8,705,213 774,990 1,166,029 8,958,578 2,320,668
1,082,153 4,580,614 781,161 76,542 117,976 500,852 83,335
258,454 698,767 167,748 24,178 36,091 293,171 66,339
283,778 746,573 144,628 49,640 50,370 81,920 61,685
65,240 190,935 52,206 32,722 31,875 18,966 45,731
19,122 29,448 29,550 23,349 24,170 -- --
15,330 17,155 2,555 365 365 26,205 1,095
4,015 2,920 2,920 2,920 2,920 2,920 2,920
29,200 92,345 14,965 2,190 1,825 31,025 4,015
45,480 148,096 22,995 3,285 2,920 120,480 7,665
13,140 26,645 10,950 4,015 4,015 11,125 5,840
- ----------- ------------- ----------- --------- ---------- ---------- ----------
1,815,912 6,533,498 1,229,678 219,206 272,527 1,086,664 278,625
(642,186) (486,909) (198,435) (140,694) (154,193) -- (49,237)
(379) (179) (110) (1,934) (369) (712) (216)
- ----------- ------------- ----------- --------- ---------- ---------- ----------
1,173,347 6,046,410 1,031,133 76,578 117,965 1,085,952 229,172
139,633 423,035 52,094 4,519 8,468 -- --
1,107,781 3,480,135 585,671 18,736 67,261 -- --
285,523 888,087 242,479 13,730 20,779 -- --
- ----------- ------------- ----------- --------- ---------- ---------- ----------
2,706,284 10,837,667 1,911,377 113,563 214,473 1,085,952 229,172
- ----------- ------------- ----------- --------- ---------- ---------- ----------
7,144,769 55,484,781 6,793,836 661,427 951,556 7,872,626 2,091,496
- ----------- ------------- ----------- --------- ---------- ---------- ----------
3,664,680 (35,163,319) (2,217,941) (34,108) 333,975 3,684 (532)
-- -- -- -- -- -- --
-- -- -- -- -- -- --
(1,241) -- (299,948) -- -- -- --
- ----------- ------------- ----------- --------- ---------- ---------- ----------
3,663,439 (35,163,319) (2,517,889) (34,108) 333,975 3,684 (532)
- ----------- ------------- ----------- --------- ---------- ---------- ----------
(1,563,045) (73,196,608) (4,132,261) 59,675 106,877 -- --
-- -- -- -- -- -- --
19 (36,801) (48,129) -- -- -- --
- ----------- ------------- ----------- --------- ---------- ---------- ----------
(1,563,026) (73,233,409) (4,180,390) 59,675 106,877 -- --
- ----------- ------------- ----------- --------- ---------- ---------- ----------
2,100,413 (108,396,728) (6,698,279) 25,567 440,852 3,684 (532)
- ----------- ------------- ----------- --------- ---------- ---------- ----------
$ 9,245,182 $ (52,911,947) $ 95,557 $ 686,994 $1,392,408 $7,876,310 $2,090,964
=========== ============= =========== ========= ========== ========== ==========
$ 29,645 $ -- $ -- $ -- $ -- $ -- $ --
=========== ============= =========== ========= ========== ========== ==========
$ -- $ -- $ -- $ -- $ -- $ -- $ --
=========== ============= =========== ========= ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
77
<PAGE>
Statements of Changes in Net Assets
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Asia Small Cap
Growth Growth Capital Investors
Fund Fund* Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income
(loss)................... $ 169,293 $ (27,601) $ 1,882,174 $ 7,859,877
Net realized gain (loss)
on investments, options,
and foreign currency
transactions............. (6,576,500) (319,961) 23,114,686 96,281,183
Net change in unrealized
appreciation
(depreciation) on
investments, options,
foreign currency
transactions and other
assets................... 2,818,104 1,581,980 19,906,306 2,173,574
----------- ---------- ------------ ------------
Net increase (decrease) in
net assets from
operations............... (3,589,103) 1,234,418 44,903,166 106,314,634
----------- ---------- ------------ ------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income:
Class A.................. -- -- (82,363) (413,310)
Class B.................. -- -- (81,122) (71,629)
Class 2**................ -- -- (11,323) (16,584)
Class O.................. -- -- (2,060,387) (6,464,870)
----------- ---------- ------------ ------------
-- -- (2,235,195) (6,966,393)
----------- ---------- ------------ ------------
Distributions from net
realized gains:
Class A.................. -- -- (1,159,784) (4,688,397)
Class B.................. -- -- (1,699,286) (6,167,024)
Class 2**................ -- -- (593,655) (1,474,663)
Class O.................. -- -- (22,878,630) (56,285,327)
----------- ---------- ------------ ------------
-- -- (26,331,355) (68,615,411)
----------- ---------- ------------ ------------
Net Fund capital share
transactions:
Class A.................. (691,859) 2,727,368 5,270,456 (7,968,512)
Class B.................. 1,041,682 3,333,455 17,756,211 23,919,289
Class 2**................ 1,012,676 1,240,779 3,733,533 5,567,065
Class O.................. 1,229,074 57,510 4,700,584 15,494,322
----------- ---------- ------------ ------------
Net increase (decrease)
in net assets from share
transactions............ 2,591,573 7,359,112 31,460,784 37,012,164
----------- ---------- ------------ ------------
Net increase (decrease) in
net assets............... (997,530) 8,593,530 47,797,400 67,744,994
Net assets:
Beginning of period...... 14,282,885 -- 187,263,797 726,992,851
----------- ---------- ------------ ------------
End of period (a)........ $13,285,355 $8,593,530 $235,061,197 $794,737,845
=========== ========== ============ ============
(a)Including undistributed
net investment income
(or distributions in
excess of net investment
income) of:............. $ (48,614) $ -- $ 25,504 $ 122,469
=========== ========== ============ ============
</TABLE>
*Fund's commencement of investment operations was July 1, 1998.
**Effective September 14, 1998, Class C shares of each Fund were redesignated
as Class 2 shares.
See accompanying notes to financial statements
78
<PAGE>
<TABLE>
<CAPTION>
National U.S. New York Cash
Total High Yield Strategic Intermediate Government Municipal Management
Return Fund Bond Fund Bond Fund Municipal Fund Income Fund Money Fund Fund
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 7,144,769 $ 55,484,781 $ 6,793,836 $ 661,427 $ 951,556 $ 7,872,626 $ 2,091,496
3,663,439 (35,163,319) (2,517,889) (34,108) 333,975 3,684 (532)
(1,563,026) (73,233,409) (4,180,390) 59,675 106,877 -- --
------------ ------------ ------------ ----------- ----------- ------------- ------------
9,245,182 (52,911,947) 95,557 686,994 1,392,408 7,876,310 2,090,964
------------ ------------ ------------ ----------- ----------- ------------- ------------
(2,275,911) (16,414,857) (1,663,221) (81,014) (183,191) (158,399) (953,200)
(3,820,560) (31,056,649) (4,237,201) (72,058) (315,221) (832) (412,425)
(976,934) (7,941,020) (1,751,086) (52,570) (97,938) (2,495) (91,461)
(67,601) (510,835) (41,281) (487,216) (426,102) (7,710,900) (634,410)
------------ ------------ ------------ ----------- ----------- ------------- ------------
(7,141,006) (55,923,361) (7,692,789) (692,858) (1,022,452) (7,872,626) (2,091,496)
------------ ------------ ------------ ----------- ----------- ------------- ------------
(1,142,996) -- (29,978) -- (61,928) -- --
(2,588,259) -- (86,653) -- (142,879) -- --
(666,092) -- (35,465) -- (42,559) -- --
(33,012) -- (578) -- (63,299) -- --
------------ ------------ ------------ ----------- ----------- ------------- ------------
(4,430,359) -- (152,674) -- (310,665) -- --
------------ ------------ ------------ ----------- ----------- ------------- ------------
(1,261,116) 6,251,166 6,383,755 1,481,363 5,430,493 1,563,762 8,546,598
34,663,618 59,400,952 24,350,095 1,467,124 12,828,790 -- 13,222,289
8,949,932 27,003,294 8,947,616 1,776,244 3,980,309 127,810 934,395
327,879 7,283,473 (123,980) (3,068,566) (6,350,060) (109,838,271) (11,805,149)
------------ ------------ ------------ ----------- ----------- ------------- ------------
42,680,313 99,938,885 39,557,486 1,656,165 15,889,532 (108,146,699) 10,898,133
------------ ------------ ------------ ----------- ----------- ------------- ------------
40,354,130 (8,896,423) 31,807,580 1,650,301 15,948,823 (108,143,015) 10,897,601
162,885,703 577,820,391 85,940,026 14,158,287 14,154,865 309,276,853 44,075,688
------------ ------------ ------------ ----------- ----------- ------------- ------------
$203,239,833 $568,923,968 $117,747,606 $15,808,588 $30,103,688 $ 201,133,838 $ 54,973,289
============ ============ ============ =========== =========== ============= ============
$ 150,615 $ (813,886) $ (925,830) $ (31,431) $ (50,677) $ -- $ --
============ ============ ============ =========== =========== ============= ============
</TABLE>
See accompanying notes to financial statements
79
<PAGE>
Statements of Changes in Net Assets
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Asia Capital Investors
Growth Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss)......... $ (12,780) $ 387,192 $ 6,928,901
Net realized gain (loss) on
investments, options, and foreign
currency transactions............... (3,746,816) 34,136,203 86,488,758
Net change in unrealized appreciation
(depreciation) on investments,
foreign currency transactions and
other assets........................ (2,160,805) 4,077,726 55,513,413
----------- ------------ ------------
Net increase (decrease) in net assets
from operations..................... (5,920,401) 38,601,121 148,931,072
----------- ------------ ------------
Dividends and distributions to
shareholders:
Dividends from net investment income:
Class A............................. (11,004) -- (394,641)
Class B............................. (924) -- (127,662)
Class 2**........................... (213) -- (31,038)
Class O............................. (478) -- (6,411,465)
----------- ------------ ------------
(12,619) -- (6,964,806)
----------- ------------ ------------
Dividends in excess of net investment
income:
Class A............................. -- -- --
Class B............................. -- -- --
Class 2**........................... -- -- --
Class O............................. -- -- --
----------- ------------ ------------
-- -- --
----------- ------------ ------------
Distributions from net realized
gains:
Class A............................. (104,353) (718,602) (5,343,337)
Class B............................. (89,299) (465,526) (4,567,031)
Class 2**........................... (11,184) (273,465) (1,068,601)
Class O............................. (4,097) (27,201,307) (63,545,388)
----------- ------------ ------------
(208,933) (28,658,900) (74,524,357)
----------- ------------ ------------
Net Fund capital share transactions:
Class A............................. 5,542,052 5,435,106 44,549,064
Class B............................. 5,069,723 3,847,103 38,690,707
Class 2**........................... 2,131,854 2,353,927 9,264,215
Class O............................. 455,841 29,050,070 26,389,130
----------- ------------ ------------
Net increase in net assets from
share transactions................. 13,199,470 40,686,206 118,893,116
----------- ------------ ------------
Net increase in net assets........... 7,057,517 50,628,427 186,335,025
Net assets:
Beginning of year................... 7,225,368 136,635,370 540,657,826
----------- ------------ ------------
End of year (a)..................... $14,282,885 $187,263,797 $726,992,851
=========== ============ ============
(a) Including undistributed net
investment income (or distributions
in excess of net investment income
of): .............................. $ 191 $ 385,558 $ 164,292
=========== ============ ============
</TABLE>
** Effective September 14, 1998, Class C shares of each Fund were redesignated
as Class 2 shares.
See accompanying notes to financial statements
80
<PAGE>
<TABLE>
<CAPTION>
National U.S. New York Cash
Total High Yield Strategic Intermediate Government Municipal Management
Return Fund Bond Fund Bond Fund Municipal Fund Income Fund Money Fund Fund
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,062,152 $ 31,253,132 $ 3,650,788 $ 601,238 $ 748,817 $ 8,313,827 $ 1,548,291
4,262,532 8,465,196 1,712,925 (2,529) 63,896 (13,552) (76)
8,999,845 969,040 373,007 371,912 181,947 -- --
------------ ------------ ----------- ----------- ----------- ------------ -----------
17,324,529 40,687,368 5,736,720 970,621 994,660 8,300,275 1,548,215
------------ ------------ ----------- ----------- ----------- ------------ -----------
(1,558,218) (10,420,856) (1,143,614) (37,285) (71,481) (79,283) (569,373)
(1,977,475) (17,332,825) (2,042,725) (38,708) (75,368) (1,701) (189,375)
(392,855) (3,341,225) (771,855) (19,762) (20,511) (849) (66,693)
(40,279) (158,226) (42,923) (507,057) (522,724) (8,231,994) (722,850)
------------ ------------ ----------- ----------- ----------- ------------ -----------
(3,968,827) (31,253,132) (4,001,117) (602,812) (690,084) (8,313,827) (1,548,291)
------------ ------------ ----------- ----------- ----------- ------------ -----------
-- (48,331) -- (417) -- -- --
-- (80,388) -- (432) -- -- --
-- (15,496) -- (221) -- -- --
-- (734) -- (5,664) -- -- --
------------ ------------ ----------- ----------- ----------- ------------ -----------
-- (144,949) -- (6,734) -- -- --
------------ ------------ ----------- ----------- ----------- ------------ -----------
(1,198,304) (2,590,594) (271,871) (526) (13,129) -- --
(2,114,495) (4,997,854) (720,497) (603) (22,138) -- --
(465,720) (1,121,874) (300,522) (380) (6,321) -- --
(31,374) (35,848) (9,827) (7,141) (91,288) -- --
------------ ------------ ----------- ----------- ----------- ------------ -----------
(3,809,893) (8,746,170) (1,302,717) (8,650) (132,876) -- --
------------ ------------ ----------- ----------- ----------- ------------ -----------
28,181,302 103,283,278 8,671,695 340,899 115,262 3,448,121 10,071,260
54,654,942 222,507,647 33,410,343 567,070 1,240,773 -- 231,259
16,777,707 62,616,274 15,575,013 33,963 324,948 -- 1,371,294
917,192 1,971,786 (3,177,357) 1,211,479 51,765 31,698,249 5,646,570
------------ ------------ ----------- ----------- ----------- ------------ -----------
100,531,143 390,378,985 54,479,694 2,153,411 1,732,748 35,146,370 17,320,383
------------ ------------ ----------- ----------- ----------- ------------ -----------
110,076,952 390,922,102 54,912,580 2,505,836 1,904,448 35,132,818 17,320,307
52,808,751 186,898,289 31,027,446 11,652,451 12,250,417 274,144,035 26,755,381
------------ ------------ ----------- ----------- ----------- ------------ -----------
$162,885,703 $577,820,391 $85,940,026 $14,158,287 $14,154,865 $309,276,853 $44,075,688
============ ============ =========== =========== =========== ============ ===========
$ 127,947 $ -- $ (57,860) $ -- $ -- $ -- $ --
============ ============ =========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements
81
<PAGE>
Statements of Cash Flows
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
U.S.
Strategic Government
Bond Fund Income Fund
- --------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows Used by Operating Activities:
Net Purchase of short-term portfolio
investments..................................... $ (7,968,000) $ (2,903,000)
Purchases of long-term portfolio investments..... (147,586,773) (44,467,701)
Proceeds from disposition of long-term portfolio
investments and principal paydowns.............. 118,388,749 31,984,854
------------- ------------
(37,166,024) (15,385,847)
Net investment income............................ 6,793,836 951,556
Net amortization of premium/discount on
investments..................................... (697,408) 15,308
Amortization of organization expenses............ 29,550 24,170
Net change is receivables/payables related to
operations...................................... (1,093,767) (91,855)
------------- ------------
Net cash flows used by operating activities...... (32,133,813) (14,486,668)
------------- ------------
Cash flows Provided by Financing Activities:
Proceeds from shares sold........................ 62,891,335 29,728,690
Payments on shares redeemed...................... (26,945,274) (14,422,758)
Cash dividends and distributions paid............ (3,812,719) (819,823)
------------- ------------
Net cash flows provided by financing activities.. 32,133,342 14,486,109
------------- ------------
Net decrease in cash.............................. (471) (559)
Cash at beginning of year......................... 319 846
------------- ------------
Cash (Payable to custodian) at end of year........ $ (152) $ 287
============= ============
</TABLE>
See accompanying notes to financial statements
82
<PAGE>
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, the Salomon Brothers Investors Fund Inc (the
"Investors Fund") and the Salomon Brothers Capital Fund Inc (the "Capital
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 Asia Growth Fund (the
"Asia Growth Fund"), Salomon Brothers Small Cap Growth Fund (the "Small Cap
Growth Fund"), Salomon Brothers Total Return Fund (the "Total Return Fund"),
Salomon Brothers High Yield Bond Fund (the "High Yield Bond Fund"), Salomon
Brothers Strategic Bond Fund (the "Strategic 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 New York Municipal Money Market Fund (the "New
York Municipal Money Fund"), Salomon Brothers Cash Management Fund (the "Cash
Management Fund"), and Salomon Brothers Institutional Money Market Fund (the
"Institutional Money Market Fund"). Separate financial statements are prepared
for the Institutional Money Market Fund which is 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 and
the Capital Fund, a non-diversified open-end management investment company
incorporated in Maryland on August 23, 1976. 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 2, 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 Money Fund's objective is to seek as high a
level of current income exempt from Federal income taxes, New York State and
New York City personal income taxes consistent with liquidity and the stability
of principal; 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 objective is to seek long-term capital
appreciation; the Small Cap Growth Fund seeks to obtain long-term growth of
capital; the Investors Fund's primary objective is to seek long-term growth of
capital; the Capital Fund's objective is to seek capital appreciation through
investments primarily in common stock, or securities convertible into common
stocks, which are believed to have above average price appreciation potential.
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 commenced investment operations. A summary of those expenditures that
remain as of December 31, 1998 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Expiration of Amortization Amount
- -------------------------------------------------------------------------------
<S> <C> <C>
Asia Growth Fund............................ May 2001 $52,755
Total Return Fund........................... September 2000 $32,435
High Yield Bond Fund........................ February 2000 $33,718
Strategic Bond Fund......................... February 2000 $33,843
National Intermediate Municipal Fund........ February 2000 $26,740
U.S. Government Income Fund................. February 2000 $27,684
</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.
83
<PAGE>
Notes to Financial Statements
(continued)
(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 are valued at amortized cost
which approximates market value. If a Fund, other than the New York Municipal
Money Fund and Cash Management Fund, acquires such securities with more than 60
days remaining to maturity, they are valued at current market value, until the
60th day prior to maturity, and are then valued on an amortized cost basis.
Portfolio securities for the New York Municipal Money Fund and 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.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging market countries, and the extent of
foreign investment in domestic companies may be subject to limitation in other
emerging market countries. Foreign ownership limitations also may be imposed by
the charters of individual companies in emerging market 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.
Foreign securities quoted in a foreign currency are translated into U.S.
dollars using exchange rates at approximately 2:30 p.m. Eastern time (and at
approximately 12:30 p.m. for the Asia Growth Fund), 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 Asia Growth Fund, Small Cap Growth Fund, Capital
Fund, Investors Fund, Total Return Fund, High Yield Bond Fund, Strategic Bond
Fund, and National Intermediate Municipal 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 is recognized. Outstanding
contracts may 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 Total Return Fund, Strategic Bond Fund, and U.S.
Government Income 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
84
<PAGE>
Notes to Financial Statements
(continued)
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 year ended December 31, 1998 was approximately
$10,989,000, $24,904,000, and $2,670,000 for the Total Return Fund, Strategic
Bond Fund, and U.S. Government Income 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 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) Reverse Repurchase Agreements. Certain Funds may enter into reverse
repurchase agreements in which a Fund sells portfolio securities and agrees to
repurchase them from the buyer at a particular date and price. Whenever a Fund
enters into a reverse repurchase agreement, the custodian delivers liquid
assets in an amount at least equal to the repurchase price marked-to-market
daily (including accrued interest), and subsequently monitors 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. Transactions in reverse
repurchase agreements for the Funds during the year ended December 31, 1998
were as follows:
<TABLE>
<CAPTION>
Average Weighted Maximum
Daily Average Amount
Fund Balance Interest Rate Outstanding
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return Fund.......................... $3,295,758 4.15% $6,281,063
Strategic Bond Fund........................ 1,783,301 2.62% 5,302,500
U.S. Government Income Fund................ 2,787,901 3.50% 5,431,250
</TABLE>
(g) Foreign Currency Translation. The accounting records of each Fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities of the Asia Growth Fund, Small Cap Growth Fund, Capital Fund,
Investors Fund, Total Return Fund, High Yield Bond Fund, and Strategic Bond
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.
(h) Forward Foreign Currency Contracts. The Asia Growth Fund, Small Cap Growth
Fund, Capital Fund, Investors Fund, Total Return Fund, High Yield Bond Fund,
and Strategic Bond Fund may enter into forward foreign currency contracts. 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.
(i) Loan Participations. The Total Return Fund, High Yield Bond Fund, and
Strategic Bond 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, 1998
were $19,785,454 and $2,560,000, respectively.
85
<PAGE>
Notes to Financial Statements
(continued)
(j) Federal Income Taxes. Each Fund has complied with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
distributed all of its income, including any net realized gains, to
shareholders. Therefore, no Federal income tax or excise tax provision is
required for such Funds.
(k) Dividends and Distributions to Shareholders. Dividends from net investment
income on the shares of each of the Funds (except the Asia Growth Fund, Small
Cap Growth Fund, Capital 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,
Small Cap Growth Fund, and the Capital Fund are 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.
(l) 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.
(m) 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.
(n) Other. Investment transactions are recorded as of the trade date. Dividend
income is recorded on the ex-dividend date (except for the Asia Growth Fund,
where certain dividends may be recorded as soon as the Fund is informed of such
dividends). 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), unrealized and realized 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.
(o) 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 Total Return Fund, Strategic Bond Fund, and U.S. Government Income 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, a wholly owned subsidiary of Salomon Brothers Holding
Company, Inc., which in turn is wholly owned by Salomon Smith Barney Holdings,
Inc. ("SSBH"), to act as investment manager of each Fund, subject to the super-
vision by the Board of Directors of each Fund. Each management agreement with
SBAM was most recently approved by shareholders at a special meeting held on
January 14, 1998. Approval of the agreements was necessary due to the merger of
Salomon Inc, which had been the ultimate parent company of the investment man-
ager, with and into SSBH, which occurred on November 28, 1997. SBAM furnishes
the Investment Series with office space and certain services and facilities re-
quired
86
<PAGE>
Notes to Financial Statements
(continued)
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 Capital Fund and Investors Fund) is payable monthly and is based on the
following annual percentages of each Fund's average daily net assets: .80% for
the Asia Growth Fund and Small Cap Growth Fund, .55% for the Total Return Fund,
.75% for the High Yield Bond Fund and Strategic Bond Fund, .50% for the Na-
tional Intermediate Municipal Fund, .60% for the U.S. Government Income Fund,
.20% for the New York Municipal Money Fund and Cash Management Fund. The man-
agement fee for the Capital Fund is payable monthly and is based on the follow-
ing annual percentages of the Fund's average daily net assets: first $100 mil-
lion-1%; next $100 million-.75%; next $200 million-.625%; excess over $400 mil-
lion-.50%. SBAM Limited, an affiliate of SBAM, provides certain advisory serv-
ices to SBAM for the benefit of the Strategic Bond Fund, as well as, certain
administrative services for the Asia Growth Fund. SBAM Limited is compensated
by SBAM at no additional expense to the Strategic Bond Fund and Asia Growth
Fund. SBAM has retained Salomon Brothers Asia Pacific Limited ("SBAM AP"), an
affiliate of SBAM, 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.
The Investors Fund pays SBAM a base fee subject to an increase or decrease de-
pending on the extent, if any, to which the investment performance of the In-
vestors 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............................................. .650%
Next $150 million.............................................. .550%
Next $250 million.............................................. .525%
Next $250 million.............................................. .500%
Over $1 billion................................................ .450%
</TABLE>
The performance adjustment is paid quarterly based on a rolling one year peri-
od. 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. For the rolling one year
periods ended March 31, 1998, June 30, 1998, September 30, 1998, and December
31, 1998, the S&P 500 Index exceeded the Investors Fund's performance by ap-
proximately 9%, 8%, 11%, and 14%, respectively. As a result, base management
fees were decreased, in aggregate, by $688,885 for the year ended December 31,
1998.
For the year ended December 31, 1998, SBAM waived management fees of $118,451,
$22,970, $642,186, $486,909, $198,435, $76,542, $117,976, and $49,237 for the
Asia Growth Fund, Small Cap Growth Fund, Total Return Fund, High Yield Bond
Fund, Strategic Bond Fund, National Intermediate Municipal Fund, U.S. Govern-
ment Income Fund, and Cash Management Fund, respectively, and voluntarily ab-
sorbed expenses of $259,926, $64,152, and $36,217 for the Asia Growth Fund, Na-
tional Intermediate Municipal Fund, and U.S. Government Income Fund, respec-
tively.
Investors Bank & Trust Company served as custodian and administrator for each
Fund until December 31, 1998, which included performing certain administrative
services in connection with the operation of each Fund. Effective January 1,
1999, SBAM assumed the responsibilities of administrator for each Fund and del-
egated that responsibility to Mutual Management Corp., an affiliate of SBAM.
Also effective January 1, 1999, PNC Bank assumed responsibilities of custodian
for each Fund, except the Asia Growth Fund, for which Chase Manhattan Bank,
N.A. serves as custodian.
Each Fund has an agreement with CFBDS, Inc. to distribute its shares pursuant
to a multiple pricing system. Prior to September 1, 1998, each Fund had an
agreement with Salomon Smith Barney Inc ("SSB"), an affiliate of the Investment
Advisor, to distribute its shares. Each class (except for Class O) of each Fund
(except for the New York Municipal Money Fund and Cash
87
<PAGE>
Notes to Financial Statements
(continued)
Management Fund) is authorized pursuant to a services and distribution plan ap-
plicable to that class of shares (the "Class A Plan," the "Class B Plan," and
the "Class 2 Plan," collectively, the "Plans") adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "1940 Act"), to pay
the distributor an annual service fee with respect to Class A, Class B, and
Class 2 shares of the applicable Funds at the rate of .25% of the value of the
average daily net assets of the respective class. The distributor is also paid
an annual distribution fee with respect to Class B and Class 2 shares of each
Fund (except for the New York Municipal Money Fund and Cash Management Fund) at
the rate of .75% of the value of the average daily net assets of the respective
class of the Asia Growth Fund, Small Cap Growth Fund, Capital Fund, Investors
Fund, and Total Return Fund and .50% for the High Yield Bond Fund, Strategic
Bond Fund, National Intermediate Municipal Fund, and U.S. Government Income
Fund. Class O shares are not subject to a services and distribution plan fee.
Effective September 14, 1998, Class C shares of each Fund have been renamed
Class 2 shares.
Brokerage commissions of $2,074, $28,068, $90,618, and $4,080 were paid by the
Small Cap Growth Fund, Capital Fund, Investors Fund, and Total Return Fund, re-
spectively, to SSB. Brokerage commissions of $141 were paid by the Asia Growth
Fund to Salomon Brothers International.
SSB received $360,728 as its portion of the front-end sales charge on sales of
Class A and Class 2 shares of the Funds during the year ended December 31,
1998. In addition, contingent deferred sales charges of $2,515,100 were paid to
SSB in connection with redemptions of certain Class B and Class 2 shares of the
Funds during the year ended December 31, 1998.
3. Capital Stock
At December 31, 1998, the Series Funds had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share, of which the Small Cap Growth Fund,
High Yield Bond Fund, Strategic Bond Fund, National Intermediate Municipal
Fund, U.S. Government Income Fund, New York Municipal Money Fund, and Cash Man-
agement Fund, each had 1,000,000,000 shares authorized. The Asia Growth Fund
and Total Return Fund had 1,000,000,008 and 999,999,992 shares authorized, re-
spectively. The Investors Fund had 50,000,000 shares of authorized capital
stock, par value $1.00 per share. The Capital Fund had 25,000,000 shares of au-
thorized capital stock, par value $.001 per share. Transactions in Fund shares
for the periods indicated were as follows:
88
<PAGE>
[This page intentionally left blank]
89
<PAGE>
Notes to Financial Statements
(continued)
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 31, 1998 December 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Amount Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asia Growth Fund
Sold............ 644,747 $ 4,589,532 784,262 $ 8,043,748 551,800 $ 3,774,829 587,102 $ 6,015,329
Issued as
reinvestment... -- -- 4,663 47,952 -- -- 2,762 28,865
Redeemed........ (838,184) (5,281,391) (279,337) (2,549,648) (504,342) (2,733,147) (125,319) (974,471)
------------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Net increase
(decrease)..... (193,437) $ (691,859) 509,588 $ 5,542,052 47,458 $ 1,041,682 464,545 $ 5,069,723
============ ============ =========== ============ =========== ============ ========== ============
Small Cap Growth
Fund *
Sold............ 329,207 $ 3,219,491 -- -- 362,365 $ 3,593,593 -- --
Issued as
reinvestment... -- -- -- -- -- -- -- --
Redeemed........ (52,616) (492,123) -- -- (29,018) (260,138) -- --
------------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Net increase.... 276,591 $ 2,727,368 -- -- 333,347 $ 3,333,455 -- --
============ ============ =========== ============ =========== ============ ========== ============
Capital Fund
Sold............ 1,503,276 $ 33,851,010 244,014 $ 5,395,246 793,021 $ 17,537,460 170,314 $ 3,845,395
Issued as
reinvestment... 52,857 1,157,551 32,960 686,354 73,532 1,587,598 20,010 414,792
Redeemed........ (1,321,984) (29,738,105) (29,990) (646,494) (63,204) (1,368,847) (19,507) (413,084)
------------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Net increase.... 234,149 $ 5,270,456 246,984 $ 5,435,106 803,349 $ 17,756,211 170,817 $ 3,847,103
============ ============ =========== ============ =========== ============ ========== ============
Investors Fund
Sold............ 3,918,021 $ 86,842,842 2,135,627 $ 44,955,334 1,420,194 $ 31,363,902 1,807,337 $ 37,583,157
Issued as
reinvestment... 221,667 4,765,235 270,764 5,490,289 257,589 5,451,926 210,840 4,248,456
Redeemed........ (4,532,732) (99,576,589) (278,167) (5,896,559) (611,446) (12,896,539) (147,459) (3,140,906)
------------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Net increase
(decrease)..... (393,044) $ (7,968,512) 2,128,224 $ 44,549,064 1,066,337 $ 23,919,289 1,870,718 $ 38,690,707
============ ============ =========== ============ =========== ============ ========== ============
Total Return Fund
Sold............ 1,507,893 $ 20,207,179 2,997,984 $ 37,786,536 3,408,556 $ 45,832,192 4,353,173 $ 55,268,487
Issued as
reinvestment... 220,181 2,903,310 186,260 2,398,523 415,586 5,451,096 278,060 3,583,557
Redeemed........ (1,840,113) (24,371,605) (932,424) (12,003,757) (1,259,486) (16,619,670) (329,620) (4,197,102)
------------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Net increase
(decrease)..... (112,039) $ (1,261,116) 2,251,820 $ 28,181,302 2,564,656 $ 34,663,618 4,301,613 $ 54,654,942
============ ============ =========== ============ =========== ============ ========== ============
High Yield Bond
Fund
Sold............ 5,453,828 $ 60,936,254 10,472,612 $123,618,211 10,284,730 $114,127,638 19,202,042 $226,221,650
Issued as
reinvestment... 734,112 7,956,369 649,010 7,635,569 1,090,461 11,729,053 858,730 10,077,323
Redeemed........ (5,901,066) (62,641,457) (2,381,823) (27,970,502) (6,318,633) (66,455,739) (1,171,254) (13,791,326)
------------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Net increase.... 286,874 $ 6,251,166 8,739,799 $103,283,278 5,056,558 $ 59,400,952 18,889,518 $222,507,647
============ ============ =========== ============ =========== ============ ========== ============
Strategic Bond
Fund
Sold............ 1,594,029 $ 17,125,194 1,926,700 $ 21,016,666 2,937,984 $ 31,093,340 3,148,600 $ 34,351,577
Issued as
reinvestment... 98,183 1,033,922 96,880 1,053,971 176,786 1,857,031 121,076 1,318,901
Redeemed........ (1,099,747) (11,775,361) (1,227,233) (13,398,942) (823,217) (8,600,276) (206,869) (2,260,135)
------------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Net increase
(decrease)..... 592,465 $ 6,383,755 796,347 $ 8,671,695 2,291,553 $ 24,350,095 3,062,807 $ 33,410,343
============ ============ =========== ============ =========== ============ ========== ============
National
Intermediate
Municipal Fund
Sold............ 188,013 $ 1,990,996 38,594 $ 401,849 195,942 $ 2,067,496 58,555 $ 610,666
Issued as
reinvestment... 4,426 46,941 1,526 15,575 2,464 26,046 1,136 11,852
Redeemed........ (52,697) (556,574) (7,300) (76,525) (59,428) (626,418) (5,312) (55,448)
------------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Net increase
(decrease)..... 139,742 $ 1,481,363 32,820 $ 340,899 138,978 $ 1,467,124 54,379 $ 567,070
============ ============ =========== ============ =========== ============ ========== ============
U.S. Government
Income Fund
Sold............ 673,099 $ 6,949,956 103,116 $ 1,042,851 1,646,527 $ 17,017,347 186,691 $ 1,894,446
Issued as
reinvestment... 19,256 198,504 4,667 46,772 25,167 259,639 3,100 31,486
Redeemed........ (165,930) (1,717,967) (96,345) (974,361) (431,004) (4,448,196) (67,468) (685,159)
------------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Net increase
(decrease)..... 526,425 $ 5,430,493 11,438 $ 115,262 1,240,690 $ 12,828,790 122,323 $ 1,240,773
============ ============ =========== ============ =========== ============ ========== ============
New York
Municipal Money
Fund
Sold............ 2,564,333 $ 2,564,333 4,315,593 $ 4,315,593 17,300 $ 17,300 171,196 $ 171,196
Issued as
reinvestment... 157,513 157,513 78,317 78,317 -- -- 823 823
Redeemed........ (1,158,084) (1,158,084) (945,789) (945,789) (17,300) (17,300) (172,019) (172,019)
------------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Net increase
(decrease)..... 1,563,762 $ 1,563,762 3,448,121 $ 3,448,121 -- $ -- -- $ --
============ ============ =========== ============ =========== ============ ========== ============
Cash Management
Fund
Sold............ 281,743,858 $281,743,858 49,364,779 $ 49,364,779 27,061,219 $ 27,061,219 7,072,814 $ 7,072,814
Issued as
reinvestment... 170,004 170,004 107,866 107,866 87,138 87,138 3,490 3,490
Redeemed........ (273,367,264) (273,367,264) (39,401,385) (39,401,385) (13,926,068) (13,926,068) (6,845,045) (6,845,045)
------------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Net increase
(decrease)..... 8,546,598 $ 8,546,598 10,071,260 $ 10,071,260 13,222,289 $ 13,222,289 231,259 $ 231,259
============ ============ =========== ============ =========== ============ ========== ============
</TABLE>
* Fund's commencement of investment operations was July 1, 1998.
** Effective September 14, 1998, Class C shares of each Fund were redesignated
as Class 2 shares.
90
<PAGE>
<TABLE>
<CAPTION>
Class 2** Class O
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 31, 1998 December 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Amount Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
401,276 $ 2,652,216 217,343 $ 2,305,240 181,197 $ 1,408,335 52,094 $ 522,908
-- -- 922 9,436 -- -- 126 1,288
(265,260) (1,639,540) (21,244) (182,822) (29,140) (179,261) (9,331) (68,355)
- ----------- ----------- ----------- ----------- ------------ ------------- ------------ ------------
136,016 $ 1,012,676 197,021 $ 2,131,854 152,057 $ 1,229,074 42,889 $ 455,841
=========== =========== =========== =========== ============ ============= ============ ============
148,804 $ 1,458,618 -- -- 5,754 $ 57,510 -- --
-- -- -- -- -- -- -- --
(21,550) (217,839) -- -- -- -- -- --
- ----------- ----------- ----------- ----------- ------------ ------------- ------------ ------------
127,254 $ 1,240,779 -- -- 5,754 $ 57,510 -- --
=========== =========== =========== =========== ============ ============= ============ ============
171,556 $ 3,829,304 109,650 $ 2,436,155 990,632 $ 22,168,730 1,515,840 $ 32,432,466
24,764 534,936 11,358 235,649 1,080,852 23,882,788 1,233,042 25,695,916
(29,054) (630,707) (14,069) (317,877) (1,853,841) (41,350,934) (1,324,112) (29,078,312)
- ----------- ----------- ----------- ----------- ------------ ------------- ------------ ------------
167,266 $ 3,733,533 106,939 $ 2,353,927 217,643 $ 4,700,584 1,424,770 $ 29,050,070
=========== =========== =========== =========== ============ ============= ============ ============
330,038 $ 7,292,396 439,633 $ 9,018,876 307,780 $ 6,679,710 327,714 $ 6,684,983
65,256 1,380,833 52,227 1,051,559 2,267,226 48,705,092 2,676,551 54,132,073
(144,455) (3,106,164) (38,639) (806,220) (1,843,864) (39,890,480) (1,648,238) (34,427,926)
- ----------- ----------- ----------- ----------- ------------ ------------- ------------ ------------
250,839 $ 5,567,065 453,221 $ 9,264,215 731,142 $ 15,494,322 1,356,027 $ 26,389,130
=========== =========== =========== =========== ============ ============= ============ ============
1,074,705 $14,613,070 1,375,162 $17,585,566 43,871 $ 599,177 71,228 $ 868,205
105,246 1,384,093 57,799 748,828 7,575 100,024 5,513 71,451
(536,707) (7,047,231) (120,112) (1,556,687) (28,787) (371,322) (1,766) (22,464)
- ----------- ----------- ----------- ----------- ------------ ------------- ------------ ------------
643,244 $ 8,949,932 1,312,849 $16,777,707 22,659 $ 327,879 74,975 $ 917,192
=========== =========== =========== =========== ============ ============= ============ ============
4,546,686 $50,429,921 5,448,642 $64,363,903 934,122 $ 9,580,636 154,852 $ 1,805,306
370,671 3,977,004 239,406 2,811,246 40,734 416,226 16,452 193,506
(2,632,675) (27,403,631) (386,476) (4,558,875) (274,809) (2,713,389) (2,315) (27,026)
- ----------- ----------- ----------- ----------- ------------ ------------- ------------ ------------
2,284,682 $27,003,294 5,301,572 $62,616,274 700,047 $ 7,283,473 168,989 $ 1,971,786
=========== =========== =========== =========== ============ ============= ============ ============
1,340,214 $14,176,621 1,482,086 $16,180,280 13,223 $ 137,666 28,853 $ 314,650
110,406 1,160,601 70,686 770,915 3,136 33,030 807 9,043
(615,411) (6,389,606) (126,672) (1,376,182) (26,791) (294,676) (323,232) (3,501,050)
- ----------- ----------- ----------- ----------- ------------ ------------- ------------ ------------
835,209 $ 8,947,616 1,426,100 $15,575,013 (10,432) $ (123,980) (293,572) $ (3,177,357)
=========== =========== =========== =========== ============ ============= ============ ============
253,512 $ 2,680,859 7,578 $ 79,000 15,321 $ 162,308 116,992 $ 1,204,429
3,398 35,947 948 9,844 6,105 64,696 3,593 37,613
(88,826) (940,562) (5,227) (54,881) (310,943) (3,295,570) (2,962) (30,563)
- ----------- ----------- ----------- ----------- ------------ ------------- ------------ ------------
168,084 $ 1,776,244 3,299 $ 33,963 (289,517) $ (3,068,566) 117,623 $ 1,211,479
=========== =========== =========== =========== ============ ============= ============ ============
543,986 $ 5,615,027 54,593 $ 553,880 23,812 $ 246,448 4,476 $ 45,019
8,609 88,646 815 8,233 986 10,158 674 6,756
(167,603) (1,723,364) (23,641) (237,165) (638,311) (6,606,666) (1) (10)
- ----------- ----------- ----------- ----------- ------------ ------------- ------------ ------------
384,992 $ 3,980,309 31,767 $ 324,948 (613,513) $ (6,350,060) 5,149 $ 51,765
=========== =========== =========== =========== ============ ============= ============ ============
127,765 $ 127,765 -- -- 161,711,975 $ 161,711,975 305,993,355 $305,993,355
45 45 -- -- 7,475,219 7,475,219 8,071,455 8,071,455
-- -- -- -- (279,025,465) (279,025,465) (282,366,561) (282,366,561)
- ----------- ----------- ----------- ----------- ------------ ------------- ------------ ------------
127,810 $ 127,810 -- -- (109,838,271) $(109,838,271) 31,698,249 $ 31,698,249
=========== =========== =========== =========== ============ ============= ============ ============
24,803,143 $24,803,143 18,049,799 $18,049,799 34,908,151 $ 34,908,151 84,489,946 $ 84,489,946
28,384 28,384 9,406 9,406 339,651 339,651 471,121 471,121
(23,897,132) (23,897,132) (16,687,911) (16,687,911) (47,052,951) (47,052,951) (79,314,497) (79,314,497)
- ----------- ----------- ----------- ----------- ------------ ------------- ------------ ------------
934,395 $ 934,395 1,371,294 $ 1,371,294 (11,805,149) $ (11,805,149) 5,646,570 $ 5,646,570
=========== =========== =========== =========== ============ ============= ============ ============
</TABLE>
91
<PAGE>
Notes to Financial Statements
(continued)
At December 31, 1998, Salomon Brothers Holding Company Inc owned approximately
the following percentages of total shares outstanding of the following Funds:
<TABLE>
<S> <C>
Small Cap Growth Fund....................................................... 37%
National Intermediate Municipal Fund........................................ 42%
U.S. Government Income Fund................................................. 10%
</TABLE>
4. Portfolio Activity
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, for the year ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Asia Growth Fund..................................... $ 60,011,986 $ 58,453,229
============ ============
Small Cap Growth Fund ............................... $ 12,765,988 $ 5,669,691
============ ============
Capital Fund......................................... $280,902,248 $274,507,360
============ ============
Investors Fund....................................... $529,266,612 $574,508,206
============ ============
Total Return Fund:
U.S. Government Securities.......................... $ 49,183,389 $ 42,507,986
Other Investments................................... 110,477,181 73,623,633
------------ ------------
$159,660,570 $116,131,619
============ ============
High Yield Bond Fund................................. $528,829,971 $381,315,561
============ ============
Strategic Bond Fund:
U.S. Government Securities.......................... $ 41,833,642 $ 35,482,369
Other Investments................................... 105,422,662 73,296,069
------------ ------------
$147,256,304 $108,778,438
============ ============
National Intermediate Municipal Fund................. $ 2,177,872 $ 1,174,632
============ ============
U.S. Government Income Fund:
U.S. Government Securities.......................... $ 46,024,922 $ 31,827,922
Other Investments................................... 612,604 --
------------ ------------
$ 46,637,526 $ 31,827,922
============ ============
</TABLE>
Transactions in options written for the Funds during the year ended December
31, 1998 were as follows:
<TABLE>
<CAPTION>
Asia Growth Fund Capital Fund Investors Fund
------------------ --------------------- -------------------
Number Number Number
of Premiums of Premiums of Premiums
Contracts Received Contracts Received Contracts Received
--------- -------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
December 31, 1997...... -- -- -- -- -- --
Options written......... (43) $(50,396) (1,500) $(1,145,283) (520) $(872,161)
Options terminated in
closing purchase
transactions........... 8 27,312 1,150 1,041,337 -- --
Options expired......... 34 22,324 -- -- 520 872,161
Options exercised....... -- -- 350 103,946 -- --
--- -------- ------ ----------- ---- ---------
Options outstanding at
December 31, 1998...... (1) $ (760) -- $ -- -- $ --
=== ======== ====== =========== ==== =========
</TABLE>
92
<PAGE>
Notes to Financial Statements
(continued)
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 New York Municipal Money Fund and Cash Management Fund invest in money
market instruments maturing in thirteen months or less whose short-term credit
ratings are within the 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 Money Fund pursues its investment
objective by investing at least 80% of its net assets in obligations that are
exempt from 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 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.
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.
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 regulation of foreign securities markets
and the possibility of political or economic instability.
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, certain Funds 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. 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 into a closing transaction because of an illiquid secondary market.
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.
93
<PAGE>
Notes to Financial Statements
(concluded)
6. Tax Information
At December 31, 1998, the Asia Growth Fund, Small Cap Growth Fund, High Yield
Bond Fund, Strategic Bond Fund, National Intermediate Municipal Fund, New York
Municipal Money Fund, and Cash Management Fund had net capital loss carry-
forwards available to offset future capital gains as follows:
<TABLE>
<CAPTION>
High National New York
Asia Yield Strategic Intermediate Municipal Cash
Year of Growth Small Cap Bond Bond Municipal Money Management
Expiration Fund Growth Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999.................... -- -- -- -- -- $ 60,993 $ 894
2000.................... -- -- -- -- -- 94,778 396
2001.................... -- -- -- -- -- -- 409
2002.................... -- -- -- -- -- 65,321 415
2003.................... -- -- -- -- -- -- --
2004.................... -- -- -- -- -- -- 10
2005.................... $2,724,760 -- -- -- $ 2,529 13,552 42
2006.................... 6,954,569 $ 177,054 $20,062,569 $ 96,615 34,108 -- 566
---------- ---------- ----------- ---------- ---------- ---------- ----------
$9,679,329 $ 177,054 $20,062,569 $ 96,615 $ 36,637 $ 234,644 $ 2,732
========== ========== =========== ========== ========== ========== ==========
</TABLE>
During the year ended December 31, 1998, as permitted under Federal income tax
regulations, the Total Return Fund, High Yield Bond Fund, Strategic Bond Fund,
and U.S. Government Income Fund have elected to defer $162,721, $14,829,600,
$2,342,957, and $1,027, respectively, of Post-October net capital losses to the
next taxable year. The Asia Growth Fund, Capital Fund, Investors Fund, Total
Return Fund, and Strategic Bond Fund have also elected to defer $25,496, $15,
$521, $45, and $108,250, respectively, of Post-October net foreign currency
losses to the next taxable year.
At December 31, 1998, paid-in capital, undistributed net investment income
(distributions in excess of net investment income) and accumulated net realized
gain (loss) have been adjusted for current period book/tax differences which
arose principally from differing book/tax treatment of foreign currency
transactions, distributions from REITS, net investment loss incurred during the
year and gains on certain securities designated as "passive foreign investment
companies." The U.S. Government Income Fund, Investors Fund, High Yield Bond
Fund and Total Return Fund had net reclassifications of $(20,219), $935,307,
$375,306 and $(18,905), respectively, from undistributed net investment income
to accumulated net realized gain (loss). The Capital Fund, Asia Growth Fund and
Strategic Bond Fund had net reclassifications of $(7,032), $(478,831) and
$(8,871), respectively, from accumulated net realized gain (loss) to
undistributed net investment income. Net investment loss incurred for the Small
Cap Growth Fund and Asia Growth Fund of $(27,601) and $(260,733), respectively,
were reclassified to paid-in capital. Net investment income (loss), net
realized gain (loss) and net assets for the year ended December 31, 1998 were
not affected by these reclassifications.
At December 31, 1998, 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>
Asia Growth Fund........ $ 12,366,268 $ 1,393,808 $ (824,003) $ 569,805
Small Cap Growth Fund... 6,919,243 1,596,889 (157,816) 1,439,073
Capital Fund............ 169,926,530 53,279,442 (8,832,378) 44,447,064
Investors Fund.......... 503,902,340 236,360,678 (7,657,075) 228,703,603
Total Return Fund....... 186,540,313 19,743,736 (7,969,246) 11,774,490
High Yield Bond Fund.... 622,154,087 11,808,509 (76,720,880) (64,912,371)
Strategic Bond Fund..... 114,942,699 1,448,522 (4,402,039) (2,953,517)
National Intermediate
Municipal Fund......... 14,443,988 777,460 -- 777,460
U.S. Government Income
Fund................... 28,551,715 440,603 (104,509) 336,094
</TABLE>
94
<PAGE>
[This page intentionally left blank]
95
<PAGE>
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
Asia Growth Fund
<TABLE>
- -----------------------------------------------------------------------------------
<CAPTION>
Class A Class B
---------------------------------------------------
Year Ended Period Year Ended Period
December 31, Ended December 31, Ended
-------------- December 31, -------------- December 31,
1998 1997 1996(a) 1998 1997 1996(a)
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 7.48 $10.32 $10.00 $ 7.44 $10.31 $10.00
------ ------ ------ ------ ------ ------
Net investment income
(loss)(S).............. 0.10 0.03 0.05 0.05 (0.05) 0.01
Net gain (loss) on
investments (both
realized and
unrealized)............ (1.08) (2.59) 0.47 (1.07) (2.57) 0.46
------ ------ ------ ------ ------ ------
Total from investment
operations............ (0.98) (2.56) 0.52 (1.02) (2.62) 0.47
------ ------ ------ ------ ------ ------
Dividends from net
investment income...... -- (0.03) (0.05) -- -- (0.01)
Distributions from net
realized gain on
investments............ -- (0.25) (0.15) -- (0.25) (0.15)
------ ------ ------ ------ ------ ------
Total dividends and
distributions......... -- (0.28) (0.20) -- (0.25) (0.16)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $ 6.50 $ 7.48 $10.32 $ 6.42 $ 7.44 $10.31
====== ====== ====== ====== ====== ======
Net assets, end of
period (thousands)..... $4,385 $6,491 $3,693 $5,256 $5,738 $3,163
Total return *.......... -13.1% -25.6% +5.2% -13.7% -26.1% +4.7%
Ratios to average net
assets:
Expenses............... 1.24% 1.24% 1.24%** 1.99% 1.99% 1.99%**
Net investment income
(loss)................ 1.48% 0.27% 0.90%** 0.77% -0.48% 0.20%**
Portfolio turnover
rate................... 436% 294% 119% 436% 294% 119%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net
investment loss per
share and expense
ratios would have been:
Net investment loss per
share................. $(0.07) $(0.23) $(0.18) $(0.11) $(0.30) $(0.23)
Expense ratio.......... 3.79% 3.81% 5.50%** 4.55% 4.56% 6.25%**
</TABLE>
Small Cap Growth Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Class A Class B Class 2+ Class O
-----------------------------------------------
Period Period Period Period
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1998(b) 1998(b) 1998(b) 1998(b)
-----------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................ $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Net investment loss....... (0.02) (0.06) (0.06) (0.01)
Net gain (loss) on
investments (both
realized and
unrealized).............. 1.61 1.61 1.62 1.61
------ ------ ------ ------
Total from investment
operations.............. 1.59 1.55 1.56 1.60
------ ------ ------ ------
Dividends from net
investment income........ -- -- -- --
Distributions from net
realized gain on
investments.............. -- -- -- --
------ ------ ------ ------
Total dividends and
distributions........... -- -- -- --
------ ------ ------ ------
Net asset value, end of
period................... $11.59 $11.55 $11.56 $11.60
====== ====== ====== ======
Net assets, end of period
(thousands).............. $3,205 $3,850 $1,471 $ 67
Total return *............ +15.9% +15.5% +15.6% +16.0%
Ratios to average net
assets:
Expenses................. 1.50%** 2.25%** 2.25%** 1.25%**
Net investment loss...... -0.51%** -1.21%** -1.35%** -0.18%**
Portfolio turnover rate... 96% 96% 96% 96%
Before applicable waiver
of management fee,
expenses absorbed by SBAM
and credits earned on
custodian cash balances,
net investment loss per
share and expense ratios
would have been:
Net investment loss per
share................... $(0.06) $(0.10) $(0.10) $(0.05)
Expense ratio............ 2.30%** 3.05%** 3.05%** 2.05%**
</TABLE>
(a) May 6, 1996, commencement of investment operations, through December 31,
1996.
(b) July 1, 1998, commencement of investment operations, through December 31,
1998.
(S) Per share information calculated using the average shares outstanding
method, which more accurately represents 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.
+ Effective September 14, 1998, Class C shares of each Fund were
redesignated as Class 2 shares.
See accompanying notes to financial statements
96
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Class 2+ Class O
- --------------------------------------------------------------------------------
Year Ended Period Year Ended Period
December 31, Ended December 31, Ended
------------------ December 31, -------------------- December 31,
1998 1997 1996(a) 1998 1997 1996(a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 7.44 $10.30 $10.00 $ 7.50 $10.32 $10.00
------ ------ ------ ------ ------ ------
0.05 (0.05) 0.01 0.12 0.05 0.07
(1.07) (2.56) 0.45 (1.08) (2.59) 0.46
------ ------ ------ ------ ------ ------
(1.02) (2.61) 0.46 (0.96) (2.54) 0.53
------ ------ ------ ------ ------ ------
-- 0.00 (0.01) -- (0.03) (0.06)
-- (0.25) (0.15) -- (0.25) (0.15)
------ ------ ------ ------ ------ ------
-- (0.25) (0.16) -- (0.28) (0.21)
------ ------ ------ ------ ------ ------
$ 6.42 $ 7.44 $10.30 $ 6.54 $ 7.50 $10.32
====== ====== ====== ====== ====== ======
$2,291 $1,643 $ 246 $1,354 $ 412 $ 124
-13.7% -26.0% +4.6% -12.8% -25.3% +5.3%
1.99% 1.99% 2.00%** 0.99% 0.99% 0.99%**
0.80% -0.47% 0.08%** 1.90% 0.51% 1.21%**
436% 294% 119% 436% 294% 119%
$(0.11) $(0.30) $(0.20) $(0.04) $(0.20) $(0.18)
4.55% 4.56% 6.26%** 3.55% 3.56% 5.25%**
</TABLE>
See accompanying notes to financial statements
97
<PAGE>
Financial Highlights
(continued)
Selected data per share of capital stock outstanding throughout each period:
Capital Fund
<TABLE>
- --------------------------------------------------------------------------------------
<CAPTION>
Class A Class B
------------------------------------------------------
Year Ended Year Ended
December 31, Period Ended December 31, Period Ended
--------------- December 31, --------------- December 31,
1998 1997 1996(a) 1998 1997 1996(a)
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 21.15 $19.88 $21.98 $ 21.01 $19.90 $21.98
------- ------ ------ ------- ------ ------
Net investment income
(loss)................. 0.14 -- 0.01(S) 0.09 (0.07) (0.02)(S)
Net gain (loss) on
investments (both
realized and
unrealized)............ 4.64 5.10 1.54 4.45 5.01 1.56
------- ------ ------ ------- ------ ------
Total from investment
operations............ 4.78 5.10 1.55 4.54 4.94 1.54
------- ------ ------ ------- ------ ------
Dividends from net
investment income...... (0.18) -- (0.15) (0.09) -- (0.12)
Distributions from net
realized gain on
investments............ (2.83) (3.83) (3.50) (2.83) (3.83) (3.50)
Distributions in excess
of net realized gains.. -- -- -- -- -- --
------- ------ ------ ------- ------ ------
Total dividends and
distributions......... (3.01) (3.83) (3.65) (2.92) (3.83) (3.62)
------- ------ ------ ------- ------ ------
Net asset value, end of
period................. $ 22.92 $21.15 $19.88 $ 22.63 $21.01 $19.90
======= ====== ====== ======= ====== ======
Net assets, end of
period (thousands)..... $11,425 $5,589 $ 344 $22,294 $3,820 $ 219
Total return*........... +23.7% +26.4% +7.7% +22.6% +25.6% +7.6%
Ratios to average net
assets:
Expenses............... 1.34% 1.46% 1.88%** 2.09% 2.20% 2.73%**
Net investment income
(loss)................ 0.81% -0.10% 0.18%** 0.17% -0.94% -0.66%**
Portfolio turnover
rate................... 141% 159% 191% 141% 159% 191%
</TABLE>
Investors Fund
<TABLE>
- ---------------------------------------------------------------------------------------------
<CAPTION>
Class A Class B
----------------------------------------------------------------
Year Ended December 31, Year Ended December 31,
--------------------------------- --------------------------------
1998 1997 1996 1995 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 21.11 $ 18.89 $ 16.62 $13.61 $ 21.00 $ 18.86 $16.61 $13.61
------- ------- ------- ------ ------- ------- ------ ------
Net investment income... 0.19 0.16 0.19 0.19 0.05 0.04 0.08 0.10
Net gain (loss) on
investments (both
realized and
unrealized)............ 2.91 4.64 4.63 4.55 2.85 4.58 4.60 4.54
------- ------- ------- ------ ------- ------- ------ ------
Total from investment
operations............ 3.10 4.80 4.82 4.74 2.90 4.62 4.68 4.64
------- ------- ------- ------ ------- ------- ------ ------
Dividends from net
investment income...... (0.17) (0.21) (0.22) (0.23) (0.03) (0.11) (0.10) (0.14)
Distributions from net
realized gain on
investments............ (2.00) (2.37) (2.33) (1.50) (2.00) (2.37) (2.33) (1.50)
------- ------- ------- ------ ------- ------- ------ ------
Total dividends and
distributions......... (2.17) (2.58) (2.55) (1.73) (2.03) (2.48) (2.43) (1.64)
------- ------- ------- ------ ------- ------- ------ ------
Net asset value, end of
period................. $ 22.04 $ 21.11 $ 18.89 $16.62 $ 21.87 $ 21.00 $18.86 $16.61
======= ======= ======= ====== ======= ======= ====== ======
Net assets, end of
period (thousands)..... $50,953 $57,105 $10,905 $ 441 $75,189 $49,786 $9,433 $ 716
Total return*........... +15.2% +26.2% +30.3% +35.3% +14.3% +25.3% +29.2% +34.5%
Ratios to average net
assets:
Expenses............... 0.88% 0.95% 1.06% 0.94% 1.63% 1.70% 1.82% 1.71%
Net investment income.. 0.87% 0.86% 0.94% 1.41% 0.18% 0.12% 0.21% 0.63%
Portfolio turnover
rate................... 74% 62% 58% 86% 74% 62% 58% 86%
</TABLE>
(a) November 1, 1996, commencement of investment operations, through Decem-
ber 31, 1996.
(S) Per share information calculated using the average shares outstanding
method, which more accurately represents 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.
+ Effective September 14, 1998, Class C shares of each Fund were
redesignated as Class 2 shares.
See accompanying notes to financial statements
98
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------
<CAPTION>
Class 2+ Class O
- -------------------------------------------------------------------------------------
Year Ended
December 31, Period Ended Year Ended December 31,
---------------- December 31, -------------------------------------------------
1998 1997 1996(a) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$21.02 $19.91 $21.98 $ 21.23 $ 19.88 $ 18.67 $ 15.62 $ 20.80
------ ------ ------ -------- -------- -------- -------- -------
0.07 (0.06) (0.02)(S) 0.21 0.05 0.13(S) 0.14 0.03
4.47 5.00 1.57 4.62 5.13 5.70 5.27 (2.87)
------ ------ ------ -------- -------- -------- -------- -------
4.54 4.94 1.55 4.83 5.18 5.83 5.41 (2.84)
------ ------ ------ -------- -------- -------- -------- -------
(0.04) -- (0.12) (0.24) -- (0.15) (0.14) (0.03)
(2.83) (3.83) (3.50) (2.83) (3.83) (4.47) (2.22) (1.51)
-- -- -- -- -- -- -- (0.80)
------ ------ ------ -------- -------- -------- -------- -------
(2.87) (3.83) (3.62) (3.07) (3.83) (4.62) (2.36) (2.34)
------ ------ ------ -------- -------- -------- -------- -------
$22.69 $21.02 $19.91 $ 22.99 $ 21.23 $ 19.88 $ 18.67 $ 15.62
====== ====== ====== ======== ======== ======== ======== =======
$6,369 $2,385 $ 130 $194,973 $175,470 $135,943 $102,429 $86,704
+22.6% +25.6% +7.7% +23.8% +26.8% +33.3% +34.9% -14.2%
2.09% 2.21% 2.45%** 1.08% 1.22% 1.38% 1.36% 1.30%
0.09% -0.91% -0.50%** 0.96% 0.26% 0.67% 0.74% 0.12%
141% 159% 191% 141% 159% 191% 217% 152%
</TABLE>
<TABLE>
- ----------------------------------------------------------------------------------------
<CAPTION>
Class 2+ Class O
- ----------------------------------------------------------------------------------------
Year Ended December 31, Year Ended December 31,
---------------------------------- ------------------------------------------------
1998 1997 1996 1995 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 21.01 $ 18.86 $16.61 $13.61 $ 21.13 $ 18.90 $ 16.61 $ 13.63 $ 15.60
------- ------- ------ ------ -------- -------- -------- -------- --------
0.05 0.04 0.07 0.09 0.25 0.24 0.25 0.27 0.27
2.84 4.59 4.60 4.55 2.90 4.60 4.62 4.48 (0.48)
------- ------- ------ ------ -------- -------- -------- -------- --------
2.89 4.63 4.67 4.64 3.15 4.84 4.87 4.75 (0.21)
------- ------- ------ ------ -------- -------- -------- -------- --------
(0.02) (0.11) (0.09) (0.14) (0.23) (0.24) (0.25) (0.27) (0.27)
(2.00) (2.37) (2.33) (1.50) (2.00) (2.37) (2.33) (1.50) (1.49)
------- ------- ------ ------ -------- -------- -------- -------- --------
(2.02) (2.48) (2.42) (1.64) (2.23) (2.61) (2.58) (1.77) (1.76)
------- ------- ------ ------ -------- -------- -------- -------- --------
$ 21.88 $ 21.01 $18.86 $16.61 $ 22.05 $ 21.13 $ 18.90 $ 16.61 $ 13.63
======= ======= ====== ====== ======== ======== ======== ======== ========
$17,680 $11,701 $1,959 $ 306 $650,916 $608,401 $518,361 $428,950 $348,214
+14.3% +25.2% +29.3% +34.5% +15.4% +26.5% +30.6% +35.4% -1.3%
1.63% 1.70% 1.80% 1.68% 0.63% 0.69% 0.76% 0.69% 0.69%
0.18% 0.13% 0.23% 0.66% 1.15% 1.15% 1.36% 1.67% 1.75%
74% 62% 58% 86% 74% 62% 58% 86% 66%
</TABLE>
See accompanying notes to financial statements
99
<PAGE>
Financial Highlights
(continued)
Selected data per share of capital stock outstanding throughout each period:
Total Return Fund
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A Class B
---------------------------------------------------------------------------------------
Period Period
Year Ended December 31, Ended Year Ended December 31, Ended
--------------------------- December 31, ---------------------------- December 31,
1998 1997 1996 1995(a) 1998 1997 1996 1995(a)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 13.13 $ 11.82 $ 10.55 $ 10.00 $ 13.12 $ 11.82 $ 10.54 $ 10.00
-------- -------- ------- ------- -------- -------- -------- -------
Net investment
income(S).............. 0.56 0.55 0.54 0.15 0.45 0.45 0.45 0.13
Net gain on investments
(both realized and
unrealized)............ 0.26 1.65 1.35 0.52 0.26 1.65 1.35 0.51
-------- -------- ------- ------- -------- -------- -------- -------
Total from investment
operations............ 0.82 2.20 1.89 0.67 0.71 2.10 1.80 0.64
-------- -------- ------- ------- -------- -------- -------- -------
Dividends from net
investment income...... (0.55) (0.53) (0.52) (0.11) (0.46) (0.44) (0.42) (0.09)
Distributions from net
realized gain on
investments............ (0.29) (0.36) (0.10) (0.01) (0.29) (0.36) (0.10) (0.01)
-------- -------- ------- ------- -------- -------- -------- -------
Total dividends and
distributions......... (0.84) (0.89) (0.62) (0.12) (0.75) (0.80) (0.52) (0.10)
-------- -------- ------- ------- -------- -------- -------- -------
Net asset value, end of
period................. $ 13.11 $ 13.13 $ 11.82 $ 10.55 $ 13.08 $ 13.12 $ 11.82 $ 10.54
======== ======== ======= ======= ======== ======== ======== =======
Net assets, end of
period (thousands)..... $ 51,443 $ 53,024 $21,109 $ 3,658 $120,816 $ 87,549 $ 28,043 $ 5,378
Total return *.......... +6.4% +19.1% +18.3% +6.7% +5.5% +18.2% +17.4% +6.4%
Ratios to average net
assets:
Expenses............... 0.85% 0.77% 0.75% 0.74%** 1.60% 1.52% 1.50% 1.49%**
Net investment income.. 4.17% 4.29% 4.81% 4.82%** 3.41% 3.54% 4.06% 4.06%**
Portfolio turnover
rate................... 63% 70% 76% 16% 63% 70% 76% 16%
Before applicable 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............. $ 0.51 $ 0.49 $ 0.44 $ 0.13 $ 0.41 $ 0.39 $ 0.36 $ 0.11
Expense ratio.......... 1.17% 1.24% 1.61% 1.45%** 1.92% 1.99% 2.36% 2.19%**
<CAPTION>
Class A Class B
---------------------------------------------------------------------------------------
Period Period
Year Ended December 31, Ended Year Ended December 31, Ended
--------------------------- December 31, ---------------------------- December 31,
1998 1997 1996 1995(b) 1998 1997 1996 1995(b)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.74 $ 11.54 $ 10.53 $ 10.00 $ 11.71 $ 11.53 $ 10.53 $ 10.00
-------- -------- ------- ------- -------- -------- -------- -------
Net investment income... 1.05 1.06 1.10 0.92 0.97 0.98 1.02 0.85
Net gain (loss) on
investments (both
realized and
unrealized)............ (1.84) 0.38 1.11 0.67 (1.84) 0.37 1.11 0.68
-------- -------- ------- ------- -------- -------- -------- -------
Total from investment
operations............ (0.79) 1.44 2.21 1.59 (0.87) 1.35 2.13 1.53
-------- -------- ------- ------- -------- -------- -------- -------
Dividends from net
investment income...... (1.06) (1.05) (1.10) (0.91) (0.97) (0.98) (1.03) (0.85)
Distributions from net
realized gain on
investments............ -- (0.19) (0.10) (0.15) -- (0.19) (0.10) (0.15)
-------- -------- ------- ------- -------- -------- -------- -------
Total dividends and
distributions......... (1.06) (1.24) (1.20) (1.06) (0.97) (1.17) (1.13) (1.00)
-------- -------- ------- ------- -------- -------- -------- -------
Net asset value, end of
period................. $ 9.89 $ 11.74 $ 11.54 $ 10.53 $ 9.87 $ 11.71 $ 11.53 $ 10.53
======== ======== ======= ======= ======== ======== ======== =======
Net assets, end of
period (thousands)..... $145,730 $169,721 $65,935 $10,789 $327,661 $329,672 $106,797 $10,108
Total return *.......... -7.1% +13.0% +21.9% +16.6% -7.8% +12.2% +21.2% +15.7%
Ratios to average net
assets:
Expenses............... 1.24% 1.24% 1.24% 1.24%** 1.99% 1.99% 1.99% 1.96%**
Net investment income.. 9.58% 8.66% 9.38% 10.58%** 8.87% 7.90% 8.49% 9.53%**
Portfolio turnover
rate................... 66% 79% 85% 109% 66% 79% 85% 109%
Before applicable 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............. $ 1.04 $ 1.04 $ 1.09 $ 0.87 $ 0.96 $ 0.97 $ 1.01 $ 0.80
Expense ratio.......... 1.32% 1.34% 1.50% 1.80%** 2.07% 2.09% 2.24% 2.51%**
</TABLE>
High Yield Bond Fund
- --------------------------------------------------------------------------------
(a) September 11, 1995, commencement of investment operations, through Decem-
ber 31, 1995.
(b) February 22, 1995, commencement of operations, through December 31, 1995.
(S) Per share information calculated using the average shares outstanding
method, which more accurately represents 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.
+ Effective September 14, 1998, Class C shares of each Fund were
redesignated as Class 2 shares.
See accompanying notes to financial statements
100
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------
<CAPTION>
Class 2+ Class O
- ---------------------------------------------------------------------------------
Year Ended Period Year Ended Period
December 31, Ended December 31, Ended
--------------------------- December 31, ---------------------- December 31,
1998 1997 1996 1995(a) 1998 1997 1996 1995(a)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 13.15 $ 11.85 $ 10.56 $10.00 $13.20 $11.88 $10.57 $10.00
------- ------- ------- ------ ------ ------ ------ ------
0.45 0.45 0.46 0.14 0.59 0.59 0.57 0.17
0.26 1.65 1.35 0.51 0.26 1.65 1.39 0.52
------- ------- ------- ------ ------ ------ ------ ------
0.71 2.10 1.81 0.65 0.85 2.24 1.96 0.69
------- ------- ------- ------ ------ ------ ------ ------
(0.46) (0.44) (0.42) (0.08) (0.58) (0.56) (0.55) (0.11)
(0.29) (0.36) (0.10) (0.01) (0.29) (0.36) (0.10) (0.01)
------- ------- ------- ------ ------ ------ ------ ------
(0.75) (0.80) (0.52) (0.09) (0.87) (0.92) (0.65) (0.12)
------- ------- ------- ------ ------ ------ ------ ------
$ 13.11 $ 13.15 $ 11.85 $10.56 $13.18 $13.20 $11.88 $10.57
======= ======= ======= ====== ====== ====== ====== ======
$29,458 $21,085 $ 3,445 $ 445 $1,523 $1,227 $ 213 $4,494
+5.5% +18.1% +17.5% +6.5% +6.6% +19.3% +19.0% +6.9%
1.60% 1.52% 1.50% 1.51%** 0.60% 0.52% 0.50% 0.51%**
3.41% 3.52% 4.07% 4.26%** 4.41% 4.60% 5.13% 5.30%**
63% 70% 76% 16% 63% 70% 76% 16%
$ 0.41 $ 0.39 $ 0.36 $ 0.11 $ 0.55 $ 0.53 $ 0.47 $ 0.15
1.92% 1.99% 2.36% 2.22%** 0.92% 1.00% 1.36% 1.22%**
- ---------------------------------------------------------------------------------
<CAPTION>
Class 2+ Class O
- ---------------------------------------------------------------------------------
Year Ended Period Year Ended Period
December 31, Ended December 31, Ended
--------------------------- December 31, ---------------------- December 31,
1998 1997 1996 1995(b) 1998 1997 1996 1995(b)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 11.70 $ 11.52 $ 10.53 $10.00 $11.75 $11.53 $10.54 $10.00
------- ------- ------- ------ ------ ------ ------ ------
0.97 0.99 1.02 0.85 1.09 1.08 1.16 0.95
(1.84) 0.36 1.10 0.68 (1.86) 0.40 1.05 0.67
------- ------- ------- ------ ------ ------ ------ ------
(0.87) 1.35 2.12 1.53 (0.77) 1.48 2.21 1.62
------- ------- ------- ------ ------ ------ ------ ------
(0.97) (0.98) (1.03) (0.85) (1.09) (1.07) (1.12) (0.93)
-- (0.19) (0.10) (0.15) -- (0.19) (0.10) (0.15)
------- ------- ------- ------ ------ ------ ------ ------
(0.97) (1.17) (1.13) (1.00) (1.09) (1.26) (1.22) (1.08)
------- ------- ------- ------ ------ ------ ------ ------
$ 9.86 $ 11.70 $ 11.52 $10.53 $ 9.89 $11.75 $11.53 $10.54
======= ======= ======= ====== ====== ====== ====== ======
$86,596 $76,042 $13,773 $1,274 $8,936 $2,386 $ 393 $7,854
-7.8% +12.2% +21.1% +15.8% -6.9% +13.4% +22.0% +16.8%
1.99% 1.99% 1.99% 1.98%** 1.01% 0.99% 0.99% 1.00%**
8.89% 7.87% 8.43% 9.61%** 10.85% 8.93% 10.64% 10.59%**
66% 79% 85% 109% 66% 79% 85% 109%
$ 0.96 $ 0.98 $ 1.01 $ 0.80 $ 1.08 $ 1.07 $ 1.13 $ 0.90
2.07% 2.08% 2.24% 2.54%** 1.09% 1.09% 1.24% 1.55%**
</TABLE>
See accompanying notes to financial statements
101
<PAGE>
Financial Highlights
(continued)
Selected data per share of capital stock outstanding throughout each period:
Strategic Bond Fund
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A Class B
- -----------------------------------------------------------------------------------------------------------------
Year Ended Period Year Ended Period
December 31, Ended December 31, Ended
-------------------------- December 31, --------------------------- December 31,
1998 1997 1996 1995(a) 1998 1997 1996 1995(a)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 10.94 $ 10.83 $10.53 $10.00 $ 10.93 $ 10.82 $ 10.53 $10.00
------- ------- ------ ------ ------- ------- ------- ------
Net investment income.... 0.76 0.76(S) 0.87(S) 0.84 0.69 0.67(S) 0.79(S) 0.76
Net gain (loss) on
investments (both
realized and
unrealized)............. (0.65) 0.41 0.55 0.78 (0.66) 0.41 0.53 0.79
------- ------- ------ ------ ------- ------- ------- ------
Total from investment
operations............. 0.11 1.17 1.42 1.62 0.03 1.08 1.32 1.55
------- ------- ------ ------ ------- ------- ------- ------
Dividends from net
investment income....... (0.85) (0.89) (0.94) (0.85) (0.77) (0.80) (0.85) (0.78)
Dividends in excess of
net investment income... -- -- (0.01) -- -- -- (0.01) --
Distributions from net
realized gain on
investments............. (0.01) (0.17) (0.17) (0.24) (0.01) (0.17) (0.17) (0.24)
------- ------- ------ ------ ------- ------- ------- ------
Total dividends and
distributions.......... (0.86) (1.06) (1.12) (1.09) (0.78) (0.97) (1.03) (1.02)
------- ------- ------ ------ ------- ------- ------- ------
Net asset value, end of
period.................. $ 10.19 $ 10.94 $10.83 $10.53 $ 10.18 $ 10.93 $ 10.82 $10.53
======= ======= ====== ====== ======= ======= ======= ======
Net assets, end of period
(thousands)............. $21,995 $17,150 $8,345 $ 513 $67,928 $47,921 $14,291 $1,879
Total return *........... +1.1% +11.2% +14.1% +16.8% +0.3% +10.4% +13.0% +16.1%
Ratios to average net
assets:
Expenses................ 1.24% 1.24% 1.24% 1.23%** 1.99% 1.99% 1.98% 1.97%**
Net investment income... 7.11% 6.99% 8.09% 9.51%** 6.37% 6.12% 7.34% 8.75%**
Portfolio turnover rate.. 109% 184% 122% 161% 109% 184% 122% 161%
Before applicable 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.............. $ 0.74 $ 0.73 $ 0.79 $ 0.76 $ 0.67 $ 0.64 $ 0.71 $ 0.69
Expense ratio........... 1.43% 1.53% 1.98% 2.11%** 2.18% 2.28% 2.73% 2.85%**
National Intermediate Municipal Fund
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A Class B
- -----------------------------------------------------------------------------------------------------------------
Year Ended Period Year Ended Period
December 31, Ended December 31, Ended
-------------------------- December 31, --------------------------- December 31,
1998 1997 1996 1995(a) 1998 1997 1996 1995(a)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 10.62 $ 10.35 $10.43 $10.00 $ 10.59 $ 10.33 $ 10.42 $10.00
------- ------- ------ ------ ------- ------- ------- ------
Net investment income.... 0.47 0.48 0.48 0.40 0.39 0.40 0.40 0.34
Net gain (loss) on
investments (both
realized and
unrealized)............. -- 0.28 (0.06) 0.46 -- 0.28 (0.06) 0.45
------- ------- ------ ------ ------- ------- ------- ------
Total from investment
operations............. 0.47 0.76 0.42 0.86 0.39 0.68 0.34 0.79
------- ------- ------ ------ ------- ------- ------- ------
Dividends from net
investment income....... (0.48) (0.48) (0.48) (0.40) (0.41) (0.40) (0.41) (0.34)
Distributions in excess
of net investment
income.................. -- -- -- -- -- (0.01) -- --
Distributions from net
realized gain on
investments............. -- (0.01) (0.02) (0.03) -- (0.01) (0.02) (0.03)
------- ------- ------ ------ ------- ------- ------- ------
Total dividends and
distributions.......... (0.48) (0.49) (0.50) (0.43) (0.41) (0.42) (0.43) (0.37)
------- ------- ------ ------ ------- ------- ------- ------
Net asset value, end of
period.................. $ 10.61 $ 10.62 $10.35 $10.43 $ 10.57 $ 10.59 $ 10.33 $10.42
======= ======= ====== ====== ======= ======= ======= ======
Net assets, end of period
(thousands)............. $ 2,545 $ 1,063 $ 696 $ 569 $ 2,763 $ 1,295 $ 702 $ 432
Total return *........... +4.5 +7.5% +4.2% +8.7% +3.7 +6.7% +3.4% +8.0%
Ratios to average net
assets:
Expenses................ 0.75% 0.75% 0.75% 0.75%** 1.50% 1.50% 1.50% 1.50%**
Net investment income... 4.28% 4.53% 4.62% 4.63%** 3.54% 3.75% 3.88% 3.85%**
Portfolio turnover rate.. 8% 1% 19% 29% 8% 1% 19% 29%
Before applicable 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.............. $ 0.37 $ 0.36 $ 0.35 $ 0.32 $ 0.29 $ 0.28 $ 0.27 $ 0.25
Expense ratio........... 1.67% 1.82% 2.02% 1.71%** 2.42% 2.57% 2.77% 2.45%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through Decem-
ber 31, 1995.
(S) Per share information calculated using the average shares outstanding
method, which more accurately represents 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.
+ Effective September 14, 1998, Class C shares of each Fund were redesignated
as Class 2 shares.
See accompanying notes to financial statements
102
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
<CAPTION>
Class 2+ Class O
- -----------------------------------------------------------------------------------------------
Year Ended Period Year Ended Period
December 31, Ended December 31, Ended
-------------------------------- December 31, ---------------------------- December 31,
1998 1997 1996 1995(a) 1998 1997 1996 1995(a)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.94 $ 10.82 $ 10.53 $10.00 $ 10.93 $ 10.82 $ 10.53 $10.00
-------- -------- ------- ------ ------- -------- ------- ------
0.69 0.66(S) 0.78(S) 0.77 0.77 0.78(S) 0.92(S) 0.87
(0.67) 0.43 0.54 0.78 (0.63) 0.41 0.51 0.77
-------- -------- ------- ------ ------- -------- ------- ------
0.02 1.09 1.32 1.55 0.14 1.19 1.43 1.64
-------- -------- ------- ------ ------- -------- ------- ------
(0.77) (0.80) (0.85) (0.78) (0.88) (0.91) (0.96) (0.87)
-- -- (0.01) -- -- -- (0.01) --
(0.01) (0.17) (0.17) (0.24) (0.01) (0.17) (0.17) (0.24)
-------- -------- ------- ------ ------- -------- ------- ------
(0.78) (0.97) (1.03) (1.02) (0.89) (1.08) (1.14) (1.11)
-------- -------- ------- ------ ------- -------- ------- ------
$ 10.18 $ 10.94 $ 10.82 $10.53 $ 10.18 $ 10.93 $ 10.82 $10.53
======== ======== ======= ====== ======= ======== ======= ======
$27,327 $ 20,220 $ 4,575 $ 411 $ 498 $ 649 $ 3,817 $9,763
+0.2% +10.5% +13.1% +16.1% +1.3% +11.5% +14.2% +17.0%
1.99% 1.99% 1.98% 1.99%** 0.99% 0.96% 1.00% 0.99%**
6.37% 6.09% 7.26% 8.77%** 7.37% 7.22% 8.65% 9.74%**
109% 184% 122% 161% 109% 184% 122% 161%
$ 0.67 $ 0.63 $ 0.70 $ 0.70 $ 0.75 $ 0.75 $ 0.84 $ 0.79
2.18% 2.28% 2.72% 2.87%** 1.18% 1.25% 1.74% 1.87%**
- -----------------------------------------------------------------------------------------------
<CAPTION>
Class 2+ Class O
- -----------------------------------------------------------------------------------------------
Period Period
Year Ended December 31, Ended Year Ended December 31, Ended
-------------------------------- December 31, ---------------------------- December 31,
1998 1997 1996 1995(a) 1998 1997 1996 1995(a)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.59 $ 10.33 $ 10.42 $10.00 $ 10.61 $ 10.34 $ 10.43 $10.00
-------- -------- ------- ------ ------- -------- ------- ------
0.39 0.40 0.40 0.34 0.48 0.50 0.50 0.42
-- 0.28 (0.06) 0.45 0.01 0.28 (0.07) 0.46
-------- -------- ------- ------ ------- -------- ------- ------
0.39 0.68 0.34 0.79 0.49 0.78 0.43 0.88
-------- -------- ------- ------ ------- -------- ------- ------
(0.41) (0.40) (0.41) (0.34) (0.50) (0.50) (0.50) (0.42)
-- (0.01) -- -- -- -- -- --
-- (0.01) (0.02) (0.03) -- (0.01) (0.02) (0.03)
-------- -------- ------- ------ ------- -------- ------- ------
(0.41) (0.42) (0.43) (0.37) (0.50) (0.51) (0.52) (0.45)
-------- -------- ------- ------ ------- -------- ------- ------
$ 10.57 $ 10.59 $ 10.33 $10.42 $ 10.60 $ 10.61 $ 10.34 $10.43
======== ======== ======= ====== ======= ======== ======= ======
$ 2,291 $ 514 $ 468 $ 271 $ 8,211 $ 11,286 $ 9,786 $9,675
+3.7 +6.7% +3.4% +8.0% +4.8 +7.8% +4.3% +9.0%
1.50% 1.50% 1.50% 1.50%** 0.50% 0.50% 0.50% 0.50%**
3.51% 3.81% 3.88% 3.85%** 4.58% 4.79% 4.88% 4.86%**
8% 1% 19% 29% 8% 1% 19% 29%
$ 0.29 $ 0.28 $ 0.27 $ 0.25 $ 0.38 $ 0.39 $ 0.37 $ 0.34
2.42% 2.57% 2.77% 2.46%** 1.42% 1.57% 1.77% 1.46%**
</TABLE>
See accompanying notes to financial statements
103
<PAGE>
Financial Highlights
(continued)
Selected data per share of capital stock outstanding throughout each period:
U.S. Government Income Fund
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Class A Class B
-----------------------------------------------------------------------------------
Period Period
Year Ended December 31, Ended Year Ended December 31, Ended
------------------------- December 31, -------------------------- December 31,
1998 1997 1996 1995(a) 1998 1997 1996 1995(a)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.20 $ 10.07 $ 10.32 $10.00 $ 10.20 $ 10.06 $ 10.32 $10.00
------- ------- ------- ------ -------- ------- ------- ------
Net investment income... 0.55 0.58 0.54 0.49 0.48 0.51 0.46 0.43
Net gain (loss) on
investments (both
realized and
unrealized)............ 0.21 0.19 (0.19) 0.43 0.21 0.19 (0.20) 0.43
------- ------- ------- ------ -------- ------- ------- ------
Total from investment
operations............ 0.76 0.77 0.35 0.92 0.69 0.70 0.26 0.86
------- ------- ------- ------ -------- ------- ------- ------
Dividends from net
investment income...... (0.57) (0.54) (0.54) (0.49) (0.49) (0.46) (0.46) (0.43)
Distributions from net
realized gain on
investments............ (0.11) (0.10) (0.06) (0.10) (0.11) (0.10) (0.06) (0.10)
Distributions in excess
of net realized gain on
investments............ -- -- -- (0.01) -- -- -- (0.01)
------- ------- ------- ------ -------- ------- ------- ------
Total dividends and
distributions......... (0.68) (0.64) (0.60) (0.60) (0.60) (0.56) (0.52) (0.54)
------- ------- ------- ------ -------- ------- ------- ------
Net asset value, end of
period................. $ 10.28 $ 10.20 $ 10.07 $10.32 $ 10.29 $ 10.20 $ 10.06 $10.32
======= ======= ======= ====== ======== ======= ======= ======
Net assets, end of
period (thousands)..... $ 6,744 $ 1,320 $ 1,188 $ 278 $ 15,315 $ 2,531 $ 1,266 $ 572
Total return *.......... +7.6% +7.9% +3.6% +9.5% +6.9% +7.2% +2.7% +8.8%
Ratios to average net
assets:
Expenses............... 0.85% 0.85% 0.84% 0.85%** 1.60% 1.60% 1.59% 1.60%**
Net investment income.. 4.98% 5.77% 5.22% 5.67%** 4.20% 4.96% 4.51% 4.85%**
Portfolio turnover
rate................... 173% 261% 365% 230% 173% 261% 365% 230%
Before applicable 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............. $ 0.47 $ 0.47 $ 0.38 $ 0.40 $ 0.39 $ 0.39 $ 0.30 $ 0.34
Expense ratio.......... 1.63% 2.02% 2.21% 1.90%** 2.39% 2.77% 2.96% 2.64%**
</TABLE>
New York Municipal Money Fund
<TABLE>
- -----------------------------------------------------------------------------------
<CAPTION>
Class A Class B
--------------------------------------------------------
Year Ended Period Year Ended Period
December 31, Ended December 31, Ended
-------------- December 31, -------------- December 31,
1998 1997 1996 (b) 1998 1997 1996 (b)
--------------------------------------------------------
<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... 0.031 0.034 0.006 0.031 0.034 0.006
Dividends from net
investment income...... (0.031) (0.034) (0.006) (0.031) (0.034) (0.006)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ======
Net assets, end of
period (thousands)..... $5,372 $3,808 $ 360 $ 25 $ 25 $ 25
Total return *.......... +3.2% +3.5% +0.6% +3.2% +3.5% +0.6%
Ratios to average net
assets:
Expenses............... 0.41% 0.50% 0.38%** 0.42% 0.43% 0.40%**
Net investment income.. 3.15% 3.39% 3.56%** 3.21% 3.32% 3.40%**
Before applicable 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............. -- -- $0.006 -- -- $0.006
Expense ratio.......... -- -- 0.39%** -- -- 0.41%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
(b) November 1, 1996, commencement of investment operations, through December
31, 1996.
(SPer)share information calculated using the average shares outstanding meth-
od, which more accurately represents 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, if applicable, is not reflected in the calculation of total re-
turn. Total return calculated for a period of less than one year is not
annualized.
** Annualized.
+ Effective September 14, 1998, Class C shares of each Fund were
redesignated as Class 2 shares.
See accompanying notes to financial statements
104
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------
<CAPTION>
Class 2+ Class O
- -----------------------------------------------------------------------------------------
Period Period
Year Ended December 31, Ended Year Ended December 31, Ended
------------------------------ December 31, --------------------------- December 31,
1998 1997 1996 1995(a) 1998 1997 1996 1995(a)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.19 $ 10.05 $ 10.32 $10.00 $ 10.19 $ 10.06 $ 10.32 $10.00
-------- -------- -------- ------ ------- ------- ------- ------
0.48 0.51 0.46 0.43 0.57(S) 0.61 0.56 0.52
0.21 0.19 (0.21) 0.43 0.23 0.18 (0.20) 0.42
-------- -------- -------- ------ ------- ------- ------- ------
0.69 0.70 0.25 0.86 0.80 0.79 0.36 0.94
-------- -------- -------- ------ ------- ------- ------- ------
(0.49) (0.46) (0.46) (0.43) (0.59) (0.56) (0.56) (0.52)
(0.11) (0.10) (0.06) (0.10) (0.11) (0.10) (0.06) (0.10)
-- -- -- (0.01) -- -- -- --
-------- -------- -------- ------ ------- ------- ------- ------
(0.60) (0.56) (0.52) (0.54) (0.70) (0.66) (0.62) (0.62)
-------- -------- -------- ------ ------- ------- ------- ------
$10.28 $ 10.19 $ 10.05 $10.32 $ 10.29 $ 10.19 $ 10.06 $10.32
======== ======== ======== ====== ======= ======= ======= ======
$4,715 $ 751 $ 422 $ 273 $ 3,330 $ 9,553 $ 9,375 $9,552
+6.9% +7.0% +2.7% +8.8% +8.1% +8.1% +3.7% +9.7%
1.60% 1.59% 1.60% 1.60%** 0.60% 0.60% 0.60% 0.60%**
4.25% 4.94% 4.51% 4.92%** 5.52% 6.01% 5.53% 5.92%**
173% 261% 365% 230% 173% 261% 365% 230%
$ 0.39 $ 0.39 $ 0.31 $ 0.34 $ 0.44 $ 0.49 $ 0.41 $ 0.42
2.39% 2.76% 2.97% 2.64%** 1.38% 1.77% 1.97% 1.64%**
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------
<CAPTION>
Class 2+ Class O
- -----------------------------------------------------------------------------------
Year Ended Period
December 31, Ended Year Ended December 31,
---------------- December 31, ------------------------------------------------
1998 1997 1996(b) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1.000 $1.000 $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------ ------ ------ -------- -------- -------- -------- --------
0.031 0.034 0.006 0.031 0.034 0.032 0.037 0.027
(0.031) (0.034) (0.006) (0.031) (0.034) (0.032) (0.037) (0.027)
------ ------ ------ -------- -------- -------- -------- --------
$1.000 $1.000 $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
====== ====== ====== ======== ======== ======== ======== ========
$153 $ 25 $ 25 $195,584 $305,419 $273,734 $226,549 $269,788
+3.2% +3.5% +0.6% +3.2% +3.5% +3.3% +3.7% +2.7%
0.34% 0.47% 0.40%** 0.43% 0.47% 0.53% 0.43% 0.41%
3.13% 3.40% 3.40%** 3.14% 3.39% 3.25% 3.67% 2.63%
-- -- $0.006 -- -- $ 0.032 $ 0.037 --
-- -- 0.41%** -- -- 0.53% 0.45% --
</TABLE>
See accompanying notes to financial statements
105
<PAGE>
Financial Highlights
(concluded)
Selected data per share of capital stock outstanding throughout each period:
Cash Management Fund
<TABLE>
- --------------------------------------------------------------------------------------------
<CAPTION>
Class A Class B
---------------------------------------------------------------------
Year Ended December 31, Year Ended December 31,
-------------------------------- -------------------------------
1998 1997 1996 1995 1998 1997 1996 1995
------- ------- ------ ------ ------- ------ ------ ------
<S> <C> <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 $1.000
------- ------- ------ ------ ------- ------ ------ ------
Net investment income... 0.050 0.051 0.050 0.044 0.050 0.051 0.050 0.043
Dividends from net
investment income...... (0.050) (0.051) (0.050) (0.044) (0.050) (0.051) (0.050) (0.043)
------- ------- ------ ------ ------- ------ ------ ------
Net asset value, end of
period................. $ 1.000 $ 1.000 $1.000 $1.000 $ 1.000 $1.000 $1.000 $1.000
======= ======= ====== ====== ======= ====== ====== ======
Net assets, end of
period (thousands)..... $26,793 $18,246 $8,175 $1,756 $17,374 $4,151 $3,920 $2,238
Total return *.......... +5.2% +5.2% +5.1% +4.5% +5.2% +5.2% +5.1% +4.4%
Ratios to average net
assets:
Expenses............... 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55%
Net investment income.. 5.02% 5.11% 4.95% 5.42% 4.95% 5.10% 4.95% 5.38%
Before applicable 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............. $ 0.049 $ 0.049 $0.047 $0.037 $ 0.049 $0.049 $0.047 $0.037
Expense ratio.......... 0.67% 0.70% 0.82% 1.35% 0.67% 0.70% 0.82% 1.34%
</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 payable date, and a sale at net asset value on the last day of each
period reported. Total return calculated for a period of less than one year
is not annualized.
+ Effective as of September 14, 1998, Class C shares of each Fund were
redesignated as Class 2 shares.
See accompanying notes to financial statements
106
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Class 2+ Class O
- -------------------------------------------------------------------------------
Year Ended December 31, Year Ended December 31,
-------------------------------- -----------------------------------------
1998 1997 1996 1995 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1.000 $1.000 $1.000 $1.000 $1.000 $ 1.000 $ 1.000 $1.000 $ 1.000
------ ------ ------ ------ ------ ------- ------- ------ -------
0.050 0.051 0.050 0.043 0.050 0.051 0.050 0.055 0.038
(0.050) (0.051) (0.050) (0.043) (0.050) (0.051) (0.050) (0.055) (0.038)
------ ------ ------ ------ ------ ------- ------- ------ -------
$1.000 $1.000 $1.000 $1.000 $1.000 $ 1.000 $ 1.000 $1.000 $ 1.000
====== ====== ====== ====== ====== ======= ======= ====== =======
$2,741 $1,806 $ 435 $ 183 $8,066 $19,872 $14,225 $6,684 $19,127
+5.2% +5.2% +5.1% +4.4% +5.2% +5.2% +5.1% +5.6% +3.9%
0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.61%
4.98% 5.16% 4.95% 5.40% 5.08% 5.10% 4.95% 5.46% 3.79%
$0.049 $0.049 $0.047 $0.036 $0.049 $ 0.049 $ 0.047 $0.047 $ 0.036
0.67% 0.70% 0.82% 1.34% 0.67% 0.70% 0.82% 1.34% 0.81%
</TABLE>
See accompanying notes to financial statements
107
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Salomon Brothers Cash Management Fund
Salomon Brothers New York Municipal Money Market 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 Asia Growth Fund
Salomon Brothers Small Cap Growth Fund
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
In our opinion, the accompanying statements of assets and liabilities, includ-
ing the portfolios of investments, and the related statements of operations, of
cash flows (for the Salomon Brothers U.S. Government Income Fund and Salomon
Brothers Strategic Bond 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
Money Market Fund, Salomon Brothers National Intermediate Municipal Fund, Salo-
mon Brothers U.S. Government Income Fund, Salomon Brothers High Yield Bond
Fund, Salomon Brothers Strategic Bond Fund, Salomon Brothers Total Return Fund,
Salomon Brothers Asia Growth Fund, Salomon Brothers Small Cap Growth Fund (nine
of the portfolios constituting Salomon Brothers Series Funds Inc), Salomon
Brothers Investors Fund Inc and Salomon Brothers Capital Fund Inc (hereafter
referred to as the "Funds") at December 31, 1998, the results of each of their
operations, the cash flows (for the Salomon Brothers U.S. Government Income
Fund and Salomon Brothers Strategic Bond Fund), the changes in each of their
net assets and the financial highlights for the periods indicated, in confor-
mity 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 au-
diting standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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, 1998 by cor-
respondence with the custodian and brokers, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 24, 1999
108
<PAGE>
Salomon Brothers Investment Series
Investment Manager
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
Custodians
PNC Bank, National Association
200 Stevens Drive
Suite 440
Lester, Pennsylvania 19113
Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
18th Floor
Brooklyn, New York 11245
Dividend Disbursing and Transfer Agent
First Data Investor Services Group, Inc.
53 State Street
Boston, Massachusetts 02109-2873
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
Directors
Charles F. Barber
Consultant; formerly Chairman; ASARCO Incorporated
Andrew L. Breech*,***
President, Dealer Operating Control Service Inc.
Carol L. Colman
President, Colman Consulting Co., Inc.
Daniel P. Cronin**
Vice President-General Counsel,
Pfizer International Inc.
William R. Dill*,***
Consultant; formerly President, Boston Architectural
Center; formerly President, Anna Maria College
Heath B. McLendon
Chairman and President, Managing Director,
Salomon Smith Barney Inc.; President and Director,
Mutual Management Corp. and Travelers
Investment Adviser, Inc.; Chairman of
Salomon Smith Barney Strategy Advisers Inc.
Clifford M. Kirtland, Jr.*,***
Member of the Advisory Committee, Nero-Moseley
Partners; formerly Director, Oxford Industries, Inc., Shaw
Industries Inc., Graphic Industries, Inc. and CSX Corp.;
formerly Chairman, Cox Communications, Inc.
Robert W. Lawless*,***
President and Chief Executive Officer, University of
Tulsa; formerly President and Chief Executive Officer,
Texas Tech University and Tech University Health
Sciences Center
Louis P. Mattis*,***
Consultant; formerly Chairman and President, Sterling
Winthrop Inc.
Thomas F. Schlafly*,***
Of counsel to Blackwell Sanders Peper Martin LLP (law firm), President, The
Saint Louis Brewery, Inc.
Officers
Heath B. McLendon
Chairman and President
Lewis E. Daidone
Executive Vice President
and Treasurer
James E. Craige**
Executive Vice President
John B. Cunningham*
Executive Vice President
Thomas K. Flanagan**
Executive Vice President
Giampaolo G. Guarnieri***
Executive Vice President
Ross S. Margolies***
Executive Vice President
Maureen O'Callaghan**
Executive Vice President
Beth A. Semmel**
Executive Vice President
Robert E. Amodeo**
Executive Vice President
Peter J. Wilby**
Executive Vice President
Pamela P. Milunovich**
Executive Vice President**
Robert Donahue***
Vice President
Nancy A. Noyes**
Vice President
Christina T. Sydor
Secretary
Anthony Pace
Assistant Controller
- --------------------------------------------------------------------------------
*Salomon Brothers Investors Fund Inc only
**Salomon Brothers Series Funds Inc only
***Salomon Brothers Capital Fund Inc only
<PAGE>
---------------------
Salomon Brothers
----------------------
Asset Management
Seven World Trade Center . New York, New York 10048
