The Salomon Brothers
Fund Inc
Annual Report
DECEMBER 31, 1995
<PAGE>
<TABLE>
<S> <C>
Board of Directors
Charles F. Barber Consultant; formerly Chairman, ASARCO Incorporated
Member of the Audit Committee
Andrew L. Breech President, Dealer Operating Control Service Inc.
Member of the Proxy Committee
Thomas W. Brock Chairman and Chief Executive Officer, Salomon Brothers
Asset Management Inc, Managing Director, Salomon Brothers Inc
Carol L. Colman President, Colman Consulting Co., Inc.
Member of the Audit Committee
William R. Dill President, Anna Maria College; formerly Consultant
and Director of the Office of Global Enterprise,
University of Southern Maine
Member of the Nominating Committee
Michael S. Hyland Chairman and President, President, Salomon Brothers
Asset Management Inc,
Managing Director, Salomon Brothers Inc
Clifford M. Kirtland, Jr. Formerly Chairman, Cox Communications, Inc.
Member of the Proxy Committee
Robert W. Lawless President and Chief Executive Officer, Texas Tech University
Member of the Proxy Committee
Louis P. Mattis Formerly Chairman and President, Sterling Winthrop Inc.
Member of the Nominating Committee
Thomas F. Schlafly Of counsel to law firm of Peper, Martin, Jensen, Maichel &
Hetlage; President, The Saint Louis Brewery, Inc.
Member of the Audit and Nominating Committees
Honorary Directors
Edwin A. Gee Formerly Chairman, International Paper Company
</TABLE>
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
To Our Shareholders
The Salomon Brothers Fund Inc
7 World Trade Center
New York, NY 10048
February 14, 1996
The net asset value of each of your shares at December 31, 1995 was $15.43,
equivalent to $17.47 assuming the income and capital gains distributions made in
1995 were reinvested in additional shares of the Fund. We are very pleased that
this represents a 35.8% increase in the value of your shares from $12.88 on
December 31, 1994, compared with an increase of 37.5% for the Standard & Poor's
Index of 500 stocks. Based on market price the value of your investment
appreciated 43.3% in 1995 assuming the income and capital gains distributions
made in 1995 were reinvested in additional shares of the Fund.
The annual meeting of shareholders of The Salomon Brothers Fund will be held at
1:00 P.M. on April 23, 1996 at Salomon Brothers headquarters, Seven World Trade
Center, in New York City. We hope those of you for whom the time and place of
the meeting is convenient will attend.
On the following pages, you will find audited financial statements for the year
ended December 31, 1995, the related report of independent accountants,
unaudited major portfolio changes for the final quarter and other information
about the Fund.
The year was marked by several positive changes for Fund shareholders. Allan R.
White, who previously shared primary responsibility for day-to-day portfolio
management with another senior portfolio manager, has assumed sole
responsibility for these matters. He is aided by Michael Kagan as junior
portfolio manager. A Vice-President with the Fund's investment advisor, Salomon
Brothers Asset Management Inc, Mr. Kagan brings 10 years of experience to the
Fund including prior portfolio management responsibilities at Fidelity
Investments. He received his B.A. in Economics from Harvard College. Mr. Kagan's
appointment reflects the strength of the commitment of Salomon Brothers Asset
Management Inc to the success of the Fund.
The Fund's discount to net asset value, 17.51% on December 31, 1994 narrowed to
13.32% on December 31, 1995. We believe that this reduction in the discount may
be attributed in part to a two-part program initiated by the Board of Directors
in October of 1995. At that time, the Board announced a share repurchase program
and amendments to the Dividend Reinvestment Plan which were aimed at, among
other things, reducing the discount to net asset value by making the Fund a more
attractive and valuable investment opportunity.
The share repurchase program, authorized by the Board of Directors, allows the
Fund to repurchase up to one million shares of stock in the open market. Share
repurchases are made periodically out of the Fund's existing cash assets.
Between October 20, 1995 and December 31, 1995, 750,000 shares were repurchased
at an average price of $13.566 for a net total of $10,174,413. The Fund intends
to repurchase additional shares of its stock at such times and prices and in
such amounts as is deemed advisable, however, the Fund will discontinue share
repurchases if the Board determines that the program is no longer in the best
interests of the Fund and its shareholders. We will report all repurchases to
shareholders semi-annually.
The Automatic Dividend Reinvestment and Cash Payment Plan remains a popular
service for many shareholders seeking to build their holdings in the Fund. Under
the terms of the Plan, you may arrange to reinvest your dividends automatically
in additional shares. As revised by the Board last fall, the Plan provides that,
when the Fund's shares are trading at a discount to net asset value, dividends
and distributions will be initially payable in the form of shares purchased by
the Plan Agent, The Bank of New York, in the open market. Between December 26,
1995 and February 6, 1996, the Plan Agent purchased 2,833,169 shares on behalf
of participants in the Dividend Reinvestment Plan at an average price of
$13.8387 for a net total of $39,207,371.
1
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
A discussion of the benefits of participation in the Plan is included on page 5
and I encourage you to consider the information carefully. Please bear in mind
that shareholders will no longer receive a separate election with respect to the
year-end distribution. In order to receive shares of the Fund in connection with
the year-end or any other distributions, shareholders must participate in the
Plan. For your convenience the Plan brochure and an authorization card are also
contained at the end of this report. If you became a shareholder of SBF on or
after November 20, 1995, you are automatically enrolled in the Plan, unless your
shares are held in the name of a broker or nominee. All other shareholders may
enroll by simply completing the attached Authorization Card. If your shares are
held in the name of a broker or nominee, you should contact your broker or
nominee for more information about your ability to participate in the Plan.
Shareholders of the Fund may call 1-800-SALOMON (1-800-725-6666), Monday through
Friday from 8:30 A.M. to 6:30 P.M. EST to obtain a current monthly update about
the Fund, including top holdings, net asset value, performance and other
information. For information concerning your Salomon Brothers Fund stock
account, please call the Bank of New York at 1-800-524-4458.
All of us at Salomon Brothers Asset Management Inc appreciate the confidence you
have demonstrated in the past and hope to continue to serve you in future years.
Cordially,
Michael S. Hyland
Chairman and President
- --------------------------------------------------------------------------------
Important Message to Shareholders
Any shareholders who are holding old certificates of The Lehman Corporation
should exchange those certificates for new ones bearing The Salomon Brothers
Fund Inc name. The New York Stock Exchange has informed us that the old
certificates may create settlement problems in the future if you decide to sell
your shares. Please note that you are not required to exchange the certificates,
but we recommend that you do so. Shareholders who wish to exchange their
certificates should send them via registered mail with a letter requesting
exchange for new certificates to:
The Bank of New York
Receive and Deliver Department
Church Street Station
P.O. Box 11002
New York, New York 10286-1002
- --------------------------------------------------------------------------------
2
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Annual Review and Outlook
(Left Column)
The stock market enjoyed a banner year in 1995. The Standard and Poor's Stock
Index of 500 stocks rose by 37.8% and the upward pattern was relatively stable,
with no interim correction exceeding 4%. Moderate economic growth, low
inflation, declining interest rates and strong growth in corporate profits
created ideal conditions for the market. In the U.S., large capitalization
stocks led the advance, and technology, health care and financial service
companies were among the best performing groups.
The U.S. economy is showing some signs of deceleration. Several factors explain
the weakness. First, a lagged effect of monetary tightening by the Federal
Reserve in 1994 appears to be occurring. Second, our European trade partners are
experiencing weak economic conditions. Third, governments are exercising fiscal
restraint globally. Finally, sluggish retail sales and an increase in the rates
of credit card delinquencies suggest a slowdown in consumer activity in the U.S.
In this environment, the Federal Reserve will remain under pressure to ease
monetary policy. Lower interest rates have bolstered the housing market and
contributed to favorable operating conditions in the auto manufacturing sector.
In light of this stimulus, we feel it is unlikely that a recession is imminent
at this time. Even without a recession, however, we feel that corporate profits
may be under pressure in the near term.
(Right Column)
We believe that prospects for the stock market in 1996 will be driven by a
tug-of-war between slowing corporate profits and the Federal Reserve's
determined effort to stimulate the economy through lower interest rates. Our
position is that the Federal Reserve will ultimately prevail and that the U.S.
economy will receive a boost from this monetary policy. If the Federal Reserve
is successful, we believe that stocks will continue to perform well.
Our approach to the stock market reflects our economic viewpoint. While we do
not expect a significant pull-back in broad equity market prices, we feel that
stock selectivity will be very important in the near term. At this time, we are
emphasizing companies with less cyclical exposure and more predictable earnings
growth. SmithKline Beecham-ADR, First Data and the Bank of New York are among
the Fund's top ten holdings. Companies that are undertaking restructuring
programs, including Ball, Federated Department Stores and Sears, Roebuck, are
also attractive investments at this time when economic growth is slowing. These
firms may benefit from cost cutting and internal reorganization measures;
profitability is not solely dependent on revenue growth. We are also focusing on
energy, financial and late-cycle cyclical stocks and have reduced our
allocations to technology and utility companies.
3
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Investment Policy
(Left Column)
The Salomon Brothers Fund's investment policy has been to concentrate a large
portion of its investments in common stocks. Companies whose stocks are selected
generally have strong positions in industries with the potential to grow faster
than the economy as a whole. Investments are monitored carefully and are changed
from time to time into holdings we believe offer more favorable opportunities in
the light of changing economic, social and political conditions. The common
thread of the Fund's policy has been to seek out and to hold common stocks of
well-managed, favorably situated companies we expect will produce above-average
earnings and dividend growth over time. At the same time, we also look for
opportunities in turnaround situations and in securities that appear to be
priced substantially lower than their intrinsic value. While current income is
not a primary consideration, we are mindful of the income needs of our
shareholders.
For the core of our holdings, we look for companies we believe are able to
increase earnings and dividends at an above-average rate and still retain enough
cash to finance future growth in their businesses.
The experience of investors generally shows the great difficulty of consistently
predicting turns in the stock market. There is often the risk that the investor
will become too pessimistic about
(Right Column)
stocks when their prices are depressed and sell near the bottom or become overly
optimistic when their prices are high and buy near the top. In our opinion, this
natural propensity often accounts for poor long-term investment results of many
individuals and institutions. For this reason, the Fund has generally maintained
a rather fully invested position in equities rather than attempting to switch
back and forth between equities and large reserves of cash, short-term
instruments and bonds.
From time to time, the Fund may invest in public utility common stocks when it
believes their prices are particularly depressed and total return (price
appreciation plus dividends) from such investments is likely to sufficiently
exceed the yield available from money market instruments to warrant the
investments.
As a general rule, the Fund invests for the longer term. We do not trade in and
out of individual securities on the basis of intermediate price fluctuations,
nor do we attempt to guess the direction of market cycles by continually
shifting from a fully invested to a partially invested position. Even so, we
reappraise our holdings, take profits or losses from time to time and raise cash
to reinvest in newly emerging areas of interest, within the scope of investment
policy.
4
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Automatic Dividend Reinvestment
and Cash Payment Plans
Dividend Reinvestment
The Automatic Dividend Reinvestment Plan ("DR Plan"), administered by The Bank
of New York as DR Plan Agent for shareholders of The Salomon Brothers Fund Inc
("SBF"), offers you a prompt, simple and inexpensive way to put your dividends
and distributions to work through reinvestment in additional full and fractional
shares of capital stock of the Fund.
Shareholders may enroll by simply completing the enclosed Authorization Card
with the exception of those shares that are held in the name of a broker or
nominee.
Money from dividends and distributions can lie idle for months at a time;
however, with the DR Plan your dividends and distributions are promptly invested
for you, automatically by The Bank of New York, Agent for the DR Plan, and you
will receive statements from the Agent to simplify your personal records.
The Cash Payment Plan
The Cash Payment Plan allows you to purchase shares of SBF conveniently and
inexpensively, without committing large dollar amounts. Under the Cash Payment
Plan, you have the option to send a check or money order of at least $25.00 to
the Agent which will be used to buy more shares of SBF. You may make these
payments regularly or from time to time. You may also vary the amount of each
optional payment as long as it is at least $25.00.
Cost to you
Except as specifically noted, you will not bear any costs of administering the
Plan. You pay only your proportionate share of the commissions paid on all
open-market purchases. Dividends and distributions, even though automatically
reinvested, continue to be taxable.
To Enroll
The complete Dividend Reinvestment and Cash Payment Plan brochure and
authorization card can be found at the back of this report. You must complete
the Authorization Card and return it in the envelope provided in order to
participate. If you have any questions, contact the Plan agent at
1-800-432-8244. Generally, shareholders who initially invested on or after
November 20, 1995 are automatically enrolled in the DR Plan. However, if your
shares are held in the name of a broker or nominee, you should contact your
broker or nominee for more information about your ability to participate in the
Plan.
<TABLE>
<CAPTION>
Summary (unaudited)
- --------------------------------------------------------------------------------------------
For the Year Ended December 31
-------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Assets (in millions) $1,291 $1,087 $1,176 $1,109 $1,115
Shares Outstanding (000's) 83,657 84,407 79,031 73,161 71,230
Net Assets Per Share $15.43 $12.88 $14.88 $15.16 $15.66
Distributions $61.84 $61.725 $62.06 $11.00 $61.61
Market Price Per Share $13.375 $10.625 $12.750 $13.750 $13.875
Discount from NAV at Year End (13.32)% (17.51)% (14.31)% (9.30)% (11.40)%
Market Price Range (NYSE, symbol SBF):
High $14.125 $13.875 $14.375 $14.375 $14.250
Low $10.625 $10.50 $12.625 $13.000 $10.375
</TABLE>
<TABLE>
<CAPTION>
1995 Distributions Declared
- -------------------------------------------------------------------------------------------------------
Net Short Term Long Term Total Payment
Payment Date Record Date Investment Income Capital Gains Capital Gains Per Share
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
February February - - $ .044 $ .04
May May $ .08 - - .08
August July .09 - - .09
November October .09 - - .09
December December .09 $ .575 .875 1.54
----- ------ ------ -----
Total $ .35 $ .575 $ .915 $1.84
===== ====== ====== =====
</TABLE>
5
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
25-Year Record of an Investment in
The Salomon Brothers Fund Inc (unaudited)
This chart shows the 25-year record of a $10,000 investment in stock of The
Salomon Brothers Fund Inc at net asset value at the beginning of 1971, assuming
all income dividends and capital gain distributions were reinvested at net asset
value. During the period, the market price of the stock was sometimes above net
asset value and sometimes below; accordingly, the chart should not be construed
as an indication of the record of a shareholder's investment in the Fund based
on market prices. Nor should it be construed as a representation of future
performance of the Fund's net asset value.
Cumulative Net Asset Value of
-----------------------------
Net Asset Value Capital Gain Income
End of of Initial Distributions Dividends Total Total
Year Investment Reinvested Reinvested Net Asset Value Market Value
- --------------------------------------------------------------------------------
1971 $ 11,890 $ 547 $ 207 $ 12,644 $ 11,586
1972 13,619 1,545 460 15,624 13,548
1973 10,978 1,913 582 13,473 10,819
1974 7,166 1,611 595 9,372 7,287
1975 8,749 2,570 955 12,274 9,801
1976 10,033 2,947 1,311 14,291 11,728
1977 8,729 3,509 1,402 13,640 10,916
1978 9,188 4,242 1,865 15,295 10,937
1979 10,925 6,277 2,792 19,994 15,982
1980 12,562 8,974 4,061 25,597 21,692
1981 10,353 10,089 4,390 24,832 23,938
1982 11,071 15,083 6,296 32,450 33,883
1983 12,142 19,766 8,302 40,210 41,037
1984 9,760 21,067 8,112 38,939 39,815
1985 11,164 27,411 10,881 49,456 47,157
1986 10,259 34,941 11,525 56,725 55,640
1987 8,822 36,922 11,419 57,163 47,420
1988 9,561 42,290 14,629 66,480 53,781
1989 10,366 53,440 18,001 81,807 68,260
1990 8,869 49,672 17,835 76,376 63,026
1991 10,419 65,800 23,766 99,985 88,589
1992 10,086 67,806 25,585 103,477 93,853
1993 9,900 78,737 27,404 116,041 99,430
1994 8,563 78,712 26,196 113,471 93,678
1995 10,266 108,213 34,606 153,085 132,696
6
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
(Chart Material)
GROWTH OF $10,000
$160,000
150,000
140,000
130,000
120,000
110,000
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
1971 1972 1973 1974 1975 1976 1977 1978 1979
1980 1981 1982 1983 1984 1985 1986 1987 1988
1989 1990 1991 1992 1993 1994 1995 12/31/95
Initial Market
Value
$11,394
Total Market
Value
$132,696
Total Net
Asset Value
$153,085
Net Asset
Value of Initial
Investment
Cumulative
Net Asset
Value of
Capital Gain
Distributions
Reinvested
Cumulative
Net Asset Value
of Income
Dividends
Reinvested
Cumulative
Net
Asset Value of
Income
Dividends
Reinvested
$34,606
Cumulative
Net
Asset Value of
Capital Gains
Distributions
Reinvested
$108,213
Net Asset
Value of
Initial
Investment
$10,266
12/31/95
7
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Reocord of a Share of Stock (unaudited)
<TABLE>
<CAPTION>
Net Asset
Distributions Declared From Capital Gain Value plus
--------------------------- Net Asset Value Distributions Capital Gain
Year Income Capital Gain End of Year (Cumulative) Distributions
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1929 $3.81 $3.81
1930 $.094 3.08 3.08
1931 .119 2.36 2.36
1932 .10 2.43 2.43
1933 .10 3.35 3.35
1934 .10 3.68 3.68
1935 .117 4.64 4.64
1936 .125 $.146 5.72 $.146 5.866
1937 .125 .396 3.66 .542 4.202
1938 .106 4.25 .542 4.792
1939 .10 4.09 .542 4.632
1940 .106 3.70 .542 4.242
1941 .15 3.34 .542 3.882
1942 .156 3.69 .542 4.232
1943 .156 4.71 .542 5.252
1944 .181 5.54 .542 6.082
1945 .174 .301 7.21 .843 8.053
1946 .169 .625 6.55 1.468 8.018
1947 .192 .376 6.13 1.844 7.974
1948 .245 .192 5.82 2.036 7.856
1949 .279 .202 6.60 2.238 8.838
1950 .335 .402 7.21 2.640 9.850
1951 .276 .36 8.67 3.000 11.670
1952 .21 .254 9.15 3.254 12.404
1953 .245 .26 8.59 3.514 12.104
1954 .25 .312 11.31 3.826 15.136
1955 .285 .517 12.56 4.343 16.903
1956 .31 .712 12.63 5.055 17.685
1957 .275 .65 10.38 5.705 16.085
1958 .265 .545 13.84 6.250 20.090
1959 .27 .67 14.04 6.920 20.960
1960 .265 .59 13.53 7.510 21.040
1961 .252 .665 15.80 8.175 23.975
1962 .255 .54 12.74 8.715 21.455
1963 .255 .605 14.91 9.320 24.230
1964 .30 .645 16.01 9.965 25.975
1965 .312 .665 18.07 10.630 28.700
1966 .337 .735 16.54 11.365 27.905
1967 .355 .84 19.97 12.205 32.175
1968 .365 1.25 19.69 13.455 33.145
1969 .35 1.35 17.62 14.805 32.425
1970 .305 1.02 15.03 15.825 30.855
1971 .305 .81 17.87 16.635 34.505
1972 .305 1.27 20.47 17.905 38.375
1973 .295 .84 16.50 18.745 35.245
1974 .305 .42 10.77 19.165 29.935
1975 .27 .67 13.15 19.835 32.985
1976 .225+ + 15.08 19.835 34.915
1977 .245 1.01 13.12 20.845 33.965
1978 .34 .45 13.81 21.295 35.105
1979 .42 .91 16.42 22.205 38.625
1980 .55 1.18 18.88 23.385 42.265
1981 .72 2.04 15.56 25.425 40.985
1982 .71 2.01 16.64 27.435 44.075
1983 .625 1.365 18.25 28.800 47.050
1984 .545 2.44 14.67 31.240 45.910
1985 .495 1.085 16.78 32.325 49.105
1986 .515 3.085 15.42 35.410 50.830
1987 .49 1.88 13.26 37.290 50.550
1988 .505 .49 14.37 37.780 52.150
1989 .59 1.515 15.58 39.295 54.875
1990 .485 .71 13.33 40.005 53.335
1991 .47 1.14 15.66 41.145 56.805
1992 .40 .60 15.16 41.745 56.905
1993 .34 1.72 14.88 43.465 58.345
1994 .335 1.39 12.88 44.855 57.735
1995 .35 1.49 15.43 46.345 61.775
------- -------
Totals $19.801 $46.345
======= =======
<FN>
+A capital gain dividend of $1.01 per share and an income dividend of $.02 per
share for 1976 were declared in January 1977.
</FN>
</TABLE>
8
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Largest Investments (unaudited)
The ten largest investments in the Fund's portfolio at December 31, 1995 are
listed below. The total market value of these securities approximates 27% of the
Fund's net assets at that date and the same percentage of the aggregate net
asset value of each stockholder's Fund shares. For example, an investment in
1,000 shares of The Salomon Brothers Fund stock at December 31, 1995 had an
aggregate net asset value of $15,430, of which 27%, or $4,166, was invested in
these ten securities.
Shares Value
--------------------------------
SmithKline Beecham -- ADR......................... 705,000 $ 39,127,500
Praxair........................................... 1,155,000 38,836,875
Royal Dutch Petroleum, 5 Guilder.................. 274,500 38,738,813
Mobil............................................. 325,000 36,400,000
First Data........................................ 543,500 36,346,562
Columbia/HCA Healthcare........................... 690,000 35,017,500
Stop & Shop Companies............................. 1,465,700 33,894,313
Raytheon.......................................... 704,000 33,264,000
Tyco International................................ 902,500 32,151,562
Bank of New York.................................. 631,700 30,795,375
------------
Total....................................... $354,572,500
============
- --------------------------------------------------------------------------------
Federal Tax Status of Distributions (unaudited)
For corporate taxpayers, approximately 19% of the ordinary dividends paid in
1995 qualify for the corporate dividends received deduction.
- --------------------------------------------------------------------------------
9
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Major Portfolio Changes (unaudited)
Listed below are the Fund's major portfolio changes during the three months
ended December 31, 1995. Excluded from the list are changes resulting entirely
from stock dividends and stock splits.
Additions
- --------------------------------------------------------------------------------
Shares
Increased
----------------
Ball .......................................................... 239,400
BayBanks ...................................................... 107,500(1)
Browning-Ferris Industries .................................... 670,000(1)
Canadian National Railway ..................................... 561,000(1)
Hanna (M.A.) .................................................. 245,800(1)
Hercules ...................................................... 81,000
Hormel Foods .................................................. 214,900
Kimberly-Clark ................................................ 180,000(1)
Philip Morris Companies ....................................... 75,000
Prudential Reinsurance Holdings ............................... 492,100(1)
Royal Dutch Petroleum, 5 GuiIder .............................. 42,000
SmithKline Beecham -- ADR ..................................... 405,000
Texaco ........................................................ 234,000(1)
U.S. HealthCare ............................................... 300,000(1)
Union Pacific ................................................. 90,000
Union Pacific Resources Group ................................. 154,400(1)
Williams Companies ............................................ 165,000
Reductions
- --------------------------------------------------------------------------------
Shares/
Principal Amount
Decreased
----------------
AirTouch Communications ....................................... 307,000
Albertson's ................................................... 770,000(2)
Avery Dennison ................................................ 190,000
Broken Hill Proprietary -- ADS ................................ 165,000(2)
Centex ........................................................ 170,000
Chevron ....................................................... 441,500
Federated Department Stores ................................... 190,000
Genentech ..................................................... 162,500
Healthsouth ................................................... 258,000(2)
Kroger ........................................................ 259,500
Liberty Property Trust 8% due, 7/1/01 ......................... $12,000,000(2)
MascoTech 4.50%, due 12/15/03 ................................. $10,250,000(2)
Nokia, Class A -- ADR ......................................... 457,500
Norfolk Southern .............................................. 74,000
Praxair ....................................................... 130,000
Rayonier ...................................................... 186,800(2)
St Paul Companies ............................................. 268,500
Tyco International ............................................ 297,500
(1) New Addition (2) Elimination
10
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Statement of Investments December 31, 1995
Common Stocks -- 86.4% of Net Assets
- --------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- --------------------------------------------------------------------------------
Basic Industries -- 7.6%
118,000 Avery Dennison ........................ $ 4,152,691 $ 5,914,750
330,000 Du Pont (E.I.) de Nemours ............. 22,145,259 23,058,750
245,800 Hanna (M.A.) .......................... 6,256,038 6,882,400
401,000 Hercules .............................. 16,948,704 22,606,375
1,155,000 Praxair ............................... 26,236,404 38,836,875
------------ ------------
75,739,096 97,299,150
------------ ------------
Capital Goods -- 12.2%
463,000 AlliedSignal .......................... 11,032,874 21,992,500
670,000 Browning-Ferris Industries ............ 20,505,980 19,765,000
856,500 Deere ................................. 21,009,985 30,191,625
283,750 General Electric ...................... 2,692,207 20,430,000
704,000 Raytheon .............................. 20,962,400 33,264,000
902,500 Tyco International .................... 21,271,691 32,151,562
------------ ------------
97,475,137 157,794,687
------------ ------------
Consumer Cyclicals -- 11.9%
440,000 Ball .................................. 12,845,628 12,100,000
50,000 Centex ................................ 1,188,894 1,737,500
135,000 Chrysler .............................. 6,594,527 7,475,625
330,000 Eastman Kodak ......................... 12,859,127 22,110,000
755,000 Federated Department Stores* .......... 14,491,633 20,762,500
430,000 Ford Motor ............................ 12,133,300 12,470,000
1,026,000 Host Marriot* ......................... 11,944,243 13,594,500
85,000 Lennar ................................ 1,397,406 2,135,625
412,500 Mascotech ............................. 5,204,476 4,485,938
627,500 Sears, Roebuck ........................ 15,741,072 24,472,500
470,700 Sherwin-Williams ...................... 15,782,184 19,181,025
734,000 US Industries* ........................ 10,889,046 13,487,250
------------ ------------
121,071,536 154,012,463
------------ ------------
Consumer Staples -- 11.3%
1,000 Black & Decker ........................ 34,060 35,250
615,000 Conagra ............................... 20,150,529 25,368,750
434,500 Hormel Foods .......................... 10,490,236 10,699,563
180,000 Kimberly-Clark ........................ 14,663,310 14,895,000
640,500 Kroger* ............................... 15,512,934 24,018,750
301,000 Penn Traffic* ......................... 11,851,288 4,515,000
255,000 Philip Morris Companies ............... 19,310,403 23,077,500
1,465,700 Stop & Shop Companies* ................ 27,703,886 33,894,313
300,000 Sysco ................................. 8,047,698 9,750,000
------------ ------------
127,764,344 146,254,126
------------ ------------
Energy-- 14.1%
335,300 Amoco ................................. 19,098,473 24,099,688
211,000 Chevron ............................... 9,195,555 11,077,500
400 Gas Properties (100% owned) ........... 40,000 771,000(a)
325,000 Mobil ................................. 24,832,372 36,400,000
274,500 Royal Dutch Petroleum, 5 Guilder ...... 23,210,068 38,738,813
234,000 Texaco ................................ 17,371,210 18,369,000
392,401 TOTAL -- ADR .......................... 11,029,643 13,341,634
154,400 Union Pacific Resources Group ......... 3,541,311 3,917,900
225,000 Union Texas Peteroleum ................ 4,994,900 4,359,375
690,000 Williams Companies .................... 26,307,863 30,273,750
Royalty Interests ..................... -- 626,200(a)
------------ ------------
139,621,395 181,974,860
------------ ------------
11
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Statement of Investments December 31, 1995 (continued)
Common Stocks continued
- --------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- --------------------------------------------------------------------------------
Financial Services -- 14.0%
457,500 American Express ...................... $ 8,592,327 $ 18,929,062
631,700 Bank of New York ...................... 18,380,844 30,795,375
107,500 BayBanks .............................. 8,785,624 10,561,875
225,000 Beacon Properties ..................... 4,840,875 5,175,000
220,600 Federal Home Loan Mortgage ............ 14,276,815 18,420,100
77,500 Federal National Mortgage Assosciation. 1,719,105 9,619,687
225,000 Highwoods Properties .................. 5,517,300 6,356,250
180,000 MGIC Investment ....................... 4,814,942 9,765,000
492,100 Prudential Reinsurance Holdings ....... 9,106,944 11,502,838
339,000 St Paul Companies ..................... 16,734,801 18,856,875
360,000 SunAmerica ............................ 8,427,758 17,100,000
368,166 Travelers Group ....................... 12,625,892 23,148,437
------------ -------------
113,823,227 180,230,499
------------ -------------
Health Care -- 6.8%
690,000 Columbia/Hca Healthcare ............... 27,615,082 35,017,500
705,000 Smithkline Beecham -- Adr ............. 34,084,447 39,127,500
300,000 U.S. Healthcare ....................... 12,263,239 13,950,000
------------ -------------
73,962,768 88,095,000
------------ -------------
Technology-- 3.2%
91,000 DST Systems* .......................... 1,911,000 2,593,500
543,500 First Data ............................ 20,453,428 36,346,562
5,000 Genentech* (b) ........................ 240,250 265,000
90,000 National Data ......................... 2,089,643 2,227,500
------------ -------------
24,694,321 41,432,562
------------ -------------
Telecommunications & Utilities -- 1.4%
632,500 Airtouch Communications* .............. 14,436,273 17,868,125
------------ -------------
Transportation-- 3.9%
561,000 Canadian National Railway ............. 7,866,909 8,415,000
176,400 Norfolk Southern ...................... 10,361,840 14,001,750
600,000 Pittston Services Group ............... 14,663,448 18,825,000
135,000 Union Pacific ......................... 8,864,730 8,910,000
41,756,927 50,151,750
------------ -------------
Total Common Stocks ................... 830,345,024 1,115,113,222
------------ -------------
Preferred Stocks -- 1.8% of Net Assets
- --------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- --------------------------------------------------------------------------------
Consumer Cyclicals -- 0.2%
225,000 Mascotech $1.20 Convertible ........... 3,139,260 2,812,500
------------ -------------
Financial Services -- 0.3%
70,000 Merrill Lynch 6.5% Convertible ........ 3,360,000 3,631,250
------------ -------------
Technology -- 1.3%
187,500 Ceridian 5.5% Convertible ............. 9,934,718 17,343,750
------------ -------------
Total Preferred Stock ................. 16,433,978 23,787,500
------------ -------------
12
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Statement of Investments December 31, 1995 (continued)
Corporate Bonds and Notes -- 3.3% of Net Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Principal
Amount Value
(Thousands) Cost (Note 1a)
- --------------------------------------------------------------------------------------------------
Basic Industries -- 0.2%
<S> <C> <C> <C>
$ 1,000 Selmer 11% due 5/15/05 ................................ $ 980,000 $ 995,000
2,500 United International Holding Zero Coupon
due 11/15/99 ........................................ 1,525,294 1,562,500
------------ ------------
2,505,294 2,557,500
------------ ------------
Capital Goods -- 1.4%
1,871 Imo Industries 12.25% due 8/15/97 ..................... 1,897,815 1,885,032
4,000 Silgan Holdings 13.25% due 12/15/02 ................... 3,902,310 3,830,000
12,000 Walter Industries 12.19% due 3/15/00 .................. 12,166,200 12,150,000
------------ ------------
17,966,325 17,865,032
------------ ------------
Consumer Cyclical -- 0.9%
2,000 Ballys Grand 10.375% due 12/15/03 ..................... 2,028,750 2,040,000
6,000 Federated Department Stores 5% Convertible due 10/1/03. 6,000,000 6,067,500
2,000 Finlay Fine Jewelry 10.625% due 5/1/03 ................ 1,915,625 1,960,000
2,000 Samsonite 11.125% due 7/15/05 ......................... 1,950,000 1,970,000
------------ ------------
11,894,375 12,037,500
------------ ------------
Consumer Staples -- 0.5%
6,000 Fleming Companies 8.125% Floating Rate due 12/15/01+ 6,000,000 5,163,714
1,500 Pathmark Stores 9.625% due 5/1/03 ..................... 1,440,000 1,451,250
------------ ------------
7,440,000 6,614,964
------------ ------------
Transportation -- 0.2%
1,500 Borg Warner 8% due 4/1/96 ............................. 1,494,375 1,503,750
1,000 Borg Warner 9.125% due 5/1/03 ......................... 917,500 915,000
------------ ------------
2,411,875 2,418,750
------------ ------------
Telecommunications & Utilities -- 0.1%
2,500 Diamond Cable zero coupon to 12/15/00,
11.75% thereafter, due 12/15/05 ..................... 1,455,997 1,487,500
------------ ------------
Total Corporate Bonds and Notes ....................... 43,673,866 42,981,246
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Purchased Options -- 0.9% of Net Assets
- --------------------------------------------------------------------------------------------------
Premium
Contracts Paid
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
500 Fleming Companies Put
(expiring 2/17/96, exercise price $20) .............. 26,000 50,000
220 Fleming Companies Put
(expiring 5/18/96, exercise price $20) .............. 13,440 30,250
600 S&P 500 Index Call
(expiring 3/16/96, exercise price $500) ............. 7,578,000 7,035,000
500 S&P 500 Index Call
(expiring 1/20/96, exercise price $530) ............. 4,540,000 4,246,875
------------ --------------
Total Purchased Options ............................... 12,157,440 11,362,125
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury Security-- 1.0% of Net Assets
- --------------------------------------------------------------------------------------------------
Principal
Amount Value
(Thousands) Cost (Note 1a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 12,887 U.S. Treasury Bill 6.81% due 1/11/96 .................. 12,862,622 12,862,622
------------ --------------
Total Investments ..................................... $915,472,930 $1,206,106,715
============ ==============
</TABLE>
13
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Statement of Investments December 31, 1995 (continued)
Written Options -- 0.0% of Net Assets
- --------------------------------------------------------------------------------
Premium Value
Contracts (Received) (Note 1a)
- --------------------------------------------------------------------------------
(50) Genentech Call (expiring 1/26/96,
exercise price $50) (b) .............. $ (4,850) $ (15,000)
=========== ============
Repurchase Agreements -- 8.5% of Net Assets
- --------------------------------------------------------------------------------
Principal
Amount
(Thousands)
- --------------------------------------------------------------------------------
55,000 J.P. Morgan Securities, 5.75%, cost $55,000,000,
dated 12/29/95, $55,035,139 due 1/2/96,
collateralized by $46,140,000 U.S Treasury Bonds,
7.125% and 7.875%, valued at $56,101,200, due
2/15/21 and 2/15/23 ............................... $ 55,000,000
55,000 Merrill Lynch, 5.60%, cost $55,000,000,
dated 12/29/95, $55,034,222 due 1/2/96,
collateralized by $55,205,000 U.S. Treasury Notes,
5.625%, valued at $56,102,081 due 10/31/97 ........ 55,000,000
------------
$110,000,000
============
- -------------
* Non-income producing security.
+ Floating rate resets quarterly. Rate in effect on December 31, 1995.
(a) Fair value in the opinion of the Board of Directors.
(b) 5,000 shares of Genentech are held by the Fund's custodian in a segregated
account in connection with written call options outstanding at December 31,
1995.
ADR -- American Depository Receipt
See accompanying notes to financial statements
14
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Statement of Operations
Year Ended December 31,
1995 1994
- --------------------------------------------------------------------------------
Investment Income
Income
Dividends (net of foreign withholding tax of
$263,858 for 1995) ............................$ 19,911,642 $ 20,995,991
Interest ........................................ 14,709,245 10,554,453
Royalties ....................................... 369,988 420,177
------------ ------------
34,990,875 31,970,621
------------ ------------
Expenses
Management fee .................................. 3,919,282 4,215,654
Shareholder meeting and reports ................. 352,360 502,078
Shareholder services ............................ 232,200 247,954
Legal and auditing fees ......................... 204,315 171,993
Custodian ....................................... 122,525 104,373
Directors' fees ................................. 88,500 90,750
Stock certificates and listing fees ............. 79,955 78,531
Other ........................................... 78,605 103,227
------------ ------------
5,077,742 5,514,560
------------ ------------
Net investment income ........................... 29,913,133 26,456,061
------------ ------------
Net Realized and Unrealized Gain on Investments
Net realized gain on investments and options .... 163,275,979 86,044,729
Net Unrealized Appreciation of Investments
Beginning of year (note 1d) ..................... 115,194,593 238,645,991
End of year ..................................... 290,623,635 115,194,593
------------ ------------
Change in net unrealized appreciation ........... 175,429,042 (123,451,398)
------------ ------------
Net realized gain and change in net unrealized
appreciation .................................. 338,705,021 (37,406,669)
------------ ------------
Net change in net assets from operations ........$368,618,154 $(10,950,608)
============ ============
See accompanying notes to financial statements
15
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments (cost 1995-- $915,472,930;
1994-- $906,667,775) (note 1d) ............................... $1,206,106,715 $1,021,891,725
Repurchase agreements .......................................... 110,000,000 55,000,000
Cash ........................................................... 3,418,022 7,772,088
Receivable for securities sold ................................. 6,917,621 14,491,882
Dividends and interest receivable .............................. 2,417,707 3,561,783
-------------- --------------
Total assets ............................................... 1,328,860,065 1,102,717,478
============== ==============
Liabilities
Payable for dividends declared ................................. 36,588,614 --
Payable for securities purchased ............................... 34,060 13,234,204
Written options at value (premium received 1995-- $4,850;
1994-- $1,291,111) ........................................... 15,000 1,320,469
Management fee payable ......................................... 970,114 1,123,183
Accrued expenses ............................................... 243,373 212,907
-------------- --------------
Total liabilities .......................................... 37,851,161 15,890,763
============== ==============
Net Assets
Capital stock .................................................. 83,656,970 84,406,970
Additional paid-in capital (note 3)............................. 874,755,815 884,180,229
Undistributed net investment income (note 3) ................... 600,852 163,956
Undistributed net realized gains (notes 1d and 3) .............. 41,371,632 2,880,968
Net unrealized appreciation .................................... 290,623,635 115,194,592
-------------- --------------
Net assets ................................................. $1,291,008,904 $1,086,826,715
============== ==============
Shares of capital stock, $1.00 par value,
authorized 100,000,000; outstanding .......................... 83,656,970 84,406,970
Net Asset Value Per Share ...................................... $15.43 $12.88
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income .......................................... $ 229,913,133 $ 26,456,061
Net realized gain on investments and options ................... 163,275,979 86,044,729
Change in net unrealized appreciation .......................... 175,429,042 (123,451,398)
-------------- --------------
Change in net assets from operations ........................... 368,618,154 (10,950,608)
-------------- --------------
Distributions to Shareholders from
Net investment income .......................................... (29,476,237) (26,475,227)
Net realized gain on investments ............................... (124,785,315) (109,852,435)
-------------- --------------
(154,261,552) (136,327,662)
-------------- --------------
Capital Share Transactions
Value of shares issued in payment of dividends ................. -- 58,119,328
Repurchase of capital stock .................................... (10,174,413) --
-------------- --------------
Change in net assets resulting from capital share transactions . (10,174,413) 58,119,328
-------------- --------------
Total change in net assets ..................................... 204,182,189 (89,158,942)
Net Assets
Beginning of year .............................................. 1,086,826,715 1,175,985,657
-------------- --------------
End of year .................................................... $1,291,008,904 $1,086,826,715
============== ==============
</TABLE>
See accompanying notes to financial statements
16
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Notes to Financial Statements
1. Significant Accounting Policies
The Fund is registered as a diversified, closed-end, management investment
company under the Investment Company Act of 1940, as amended. The Fund's primary
investment objectives are growth and conservation of capital. Income receives
secondary consideration. Following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles (GAAP). The preparation of financial statements in accordance with
GAAP requires management to make estimates and assumptions that effect the
reported amounts and disclosure in the financial statements. Actual amounts
could differ from those estimates.
(a) Securities Valuation. Portfolio securities listed or traded on
national securities exchanges, or reported by the NASDAQ national market
system, are valued at the last sale price, or, if there have been no sales
on that day, at the mean of the current bid and ask price which represents
the current value of the security. Over-the-counter securities are valued at
the mean of the current bid and ask price. If no quotations are readily
available (as may be the case for securities of limited marketability), or
if "restricted" securities are being valued, such portfolio securities and
other assets are valued at fair value determined pursuant to procedures
established by the Board of Directors.
(b) Written Option Contracts. When the Fund writes a call option or a
put option, an amount equal to the premium received is recorded as a
liability, the value of which is marked-to-market daily to reflect the
current market value of the written option. When a written option expires,
the Fund realizes a gain equal to the amount of the premium received. When
the Fund enters into a closing purchase transaction, it realizes a gain (or
loss if the cost of the closing purchase transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
eliminated. When a 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 put option is
exercised, the amount of the premium received reduces the cost of the
security that the Fund purchases upon exercise.
(c) Federal Income Taxes. The Fund has complied and intends to continue
to comply with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies, and to distribute all
of its taxable income to its shareholders. Therefore, no Federal income tax
or excise tax provision is required.
(d) Realized Gain and Unrealized Appreciation. Effective January 1,
1994, the Fund changed from the average cost method to the specific
identification method of accounting for the cost of its investments used to
determine realized gains/losses. The cumulative effect of this change was to
decrease the cost of investments and undistributed net realized gains, each
by $12,732,900 and to increase net unrealized appreciation by the same
amount. Net investment income, the net change in net assets from operations
and net assets were not affected by this change.
17
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Notes to Financial Statements (continued)
(e) Repurchase Agreements. When entering into repurchase agreements, it
is the Fund's policy to take possession, through its custodian, of the
underlying collateral and to monitor its value at the time the arrangement
is entered into and at all times during the term of the repurchase agreement
to ensure that it always equals or exceeds the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or retention
of the collateral may be subject to legal proceedings.
(f) Other. Securities transactions are recorded as of the trade date.
Dividend income and dividends payable are recorded on the ex-dividend date.
Interest is recognized as interest income when earned. Original issue
discount on securities purchased is accreted on an effective yield basis
over the life of the security.
2. Capital Stock
Capital stock transactions were as follows:
1995 1994
---- ----
Shares issued in payment of dividends ............ -- 5,376,441
Shares repurchased
(weighted average discount 15.6%) ............. (750,000) --
--------- ---------
Net change ............................. (750,000) 5,376,441
========= =========
To report undistributed net investment income and undistributed net realized
gains as the amounts available for distribution for federal income tax purposes,
the Fund reclassified certain amounts in accordance with the AICPA's Accounting
Statement of Position 93-2. As a result, undistributed net investment income
decreased $10,117,767 and undistributed net realized gains increased $38,332,183
at January 1, 1994. The cumulative effect of these reclassifications amounting
to $28,214,416 was charged to paid in capital. Net investment income, net
realized gains on investments, the change in net unrealized appreciation of
investments and net assets were not affected by these reclassifications.
3. Management Fee and Other Transactions with Affiliates
The Fund retains Salomon Brothers Asset Management Inc ("SBAM"), an indirect,
wholly owned subsidiary of Salomon Inc, to act as investment manager of the Fund
subject to supervision by the Board of Directors of the Fund. SBAM furnishes the
Fund with office space and pays the compensation of its officers. For the period
January 1, 1994 through April 30, 1994 the management fee for these services was
payable quarterly and was based on the following annual percentages of the
Fund's average daily net assets: first $25 million -- none; next $325 million --
.50%; next $150 million -- .30%; next $250 million -- .25%; excess over $750
million -- .20%.
18
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Notes to Financial Statements (continued)
At its annual meeting on April 26, 1994, the shareholders of the Fund approved
an amendment to the Management Agreement between the Fund and SBAM to change the
structure of the management fee to a performance based fee arrangement effective
May 1, 1994.
Under this fee arrangement, the Fund pays SBAM a base fee subject to an increase
or decrease depending on the extent, if any, to which the investment performance
of the Fund exceeds or is exceeded by the investment record of the Standard &
Poor's 500 Index of Composite Stocks ("S&P 500 Index") over a rolling one-year
period. The base fee is paid quarterly based on the following annual rates:
Average Daily Net Assets Annual Fee Rate
------------------------ ---------------
First $350 million .500%
Next $150 million .400%
Next $250 million .375%
Next $250 million .350%
Over $1 billion .300%
For each percentage point by which the investment performance of the 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). A performance
adjustment will only be taken after the investment performance of the Fund
exceeds or is exceeded by the investment record of the S&P 500 Index by at least
one percentage point. The maximum annual adjustment is .10% which would occur if
the Fund's performance exceeds or is exceeded by the S&P 500 Index by ten or
more percentage points. For this purpose, the performance fee calculation is
based on the total return value of the S&P 500 Index versus the Fund's total
return calculated based on net asset value and assuming all distributions are
reinvested at net asset value on the record date of the distribution. Beginning
with the year ended June 30, 1995, the Fund started accruing quarterly
performance fees. Commencing with fiscal quarters ending thereafter, the
performance adjustment will be paid quarterly based on a rolling one-year
period. For the first performance adjustment for the year ended June 30, 1995,
the S&P 500 Index exceeded the Fund's performance by 6.15% and it exceeded the
Fund's performance for each of the rolling one years ended September 30, 1995
and December 31, 1995 by 6.89% and 2.94%, respectively. In 1995, this resulted
in a total reduction of the base management fee of $1,004,626 covering the
eighteen month period July 1, 1994 through December 31, 1995.
Brokerage commissions of $252,914 were paid to Salomon Brothers Inc for
investment transactions executed on behalf of the Fund during the year ended
December 31, 1995.
4. Portfolio Activity
The cost of securities purchased and proceeds from securities sold (other than
short-term investments and written options) during the year ended December 31,
1995 aggregated $914,389,525 and $1,066,463,637, respectively
19
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Notes to Financial Statements (continued)
Cost of securities held (excluding short-term investments and written options)
on December 31, 1995 for Federal income tax purposes is $914,636,805. As of
December 31, 1995, total unrealized appreciation and depreciation was
$302,913,708 and $11,453,948, respectively, resulting in net unrealized
appreciation of $291,459,760.
Transactions in options written during the years ended December 31, 1994 and
1995 were as follows:
Number of Premiums
Contracts Received
--------- --------
Options outstanding at December 31, 1993 ..... (2,750) $ (540,107)
Options written .............................. (249,147) (2,986,974)
Options terminated in closing purchase
transactions ............................... 167,605 1,496,890
Options expired .............................. 78,017 628,359
Options exercised ............................ 800 110,721
Options outstanding at December 31, 1994 ..... (5,475) (1,291,111)
Options written .............................. (5,195) (1,070,787)
Options terminated in closing purchase
transactions ............................... 8,895 2,098,714
Options expired .............................. -- --
Options exercised ............................ 1,725 258,334
Options outstanding at December 31, 1995 ..... (50) $ (4,850)
During the year ended December 31, 1994 realized gain from written option
transactions amounted to $1,452,986. During the year ended December 31, 1994 net
realized loss from purchased option transactions amounted to $3,202,472, for a
net realized loss on all option transactions of $1,749,486. During the year
ended December 31, 1995 realized loss from written option transactions amounted
to $538,390. During the year ended December 31, 1995 net realized gain from
purchased option transactions amounted to $20,900,729, for a net realized gain
on all option transactions of $20,362,340.
The risk in writing a covered call option is that the Fund may forego the
opportunity of profit if the market price of the underlying security increases
and the option is exercised. The risk in writing a put option is that the Fund
may incur a loss if the market price of the underlying security decreases and
the option is exercised. In addition, there is the risk that the Fund may not be
able to enter a closing transaction because of an illiquid secondary market.
20
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Per share operating performance:
Net asset value
beginning of year ................ $12.88 $14.88 $15.16 $15.66 $13.33
------ ------ ------ ------ ------
Net investment income .............. .35 .33 .34 .40 .45
Net gains (losses) on securities
(both realized and unrealized)(a). 4.04 (.605) 1.44 .10 3.49
------ ------ ------ ------ ------
Total from investment
operations ................... 4.39 (.275) 1.78 .50 3.94
------ ------ ------ ------ ------
Less dividends and distributions:
Dividends from net investment
income ........................... (.35) (.335) (.34) (.40) (.47)
Distributions from net realized gain
on investments ................... (1.49) (1.39) (1.72) (.60) (1.14)
------ ------ ------ ------ ------
Total dividends and
distributions ................ (1.84) (1.725) (2.06) (1.00) (1.61)
------ ------ ------ ------ ------
Net asset value end of year ........ $15.43 $12.88 $14.88 $15.16 $15.66
====== ====== ====== ====== ======
Market price end of year ........... $13.375 $10.625 $12.750 $13.750 $13.875
Total investment return based on
market price per share excluding
broker commissions................ +43.3% -3.70% +7.86% +6.44% +42.50%
Ratios/Supplemental Data:
Net assets end of year
(millions) ....................... $1,291 $1,087 $1,176 $1,109 $1,115
Ratio of expenses to average
net assets ....................... .41% .49% .41% .43% .43%
Ratio of net investment income to
average net assets ............... 2.42% 2.33% 2.19% 2.62% 3.01%
Portfolio turnover rate ............ 82% 69% 80% 42% 14%
- ------------
(a) For 1995 includes $.02 attributable to the increase in net asset value from
shares repurchased at a discount.
See accompanying notes to financial statements
21
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Quarterly Financial Information
Summary of quarterly results of operations (unaudited):
<TABLE>
<CAPTION>
Amounts in Thousands and Per Share
Three Months Ended
--------------------------------------------------------------------
March 31, 1995 June 30, 1995 Sept. 30, 1995 Dec. 31, 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income ........... $ 6,864 $ (.08) $ 8,335 $.10 $ 7,288 $ .08 $ 7,426 $ .09
Net realized gain &
change in net unrealized
appreciation .................. $92,095 $1.09 $79,332 $.94 $91,516 $1.09 $ 75,762 $ .90
--------------------------------------------------------------------
March 31, 1994 June 30, 1994 Sept. 30, 1994 Dec. 31, 1994
--------------------------------------------------------------------
Net investment
income ....................... $ 5,315 $ .07 $ 7,192 $ .09 $ 6,889 $.08 $ 7,060 $ .09
Net realized gain &
change in net unrealized
appreciation .................. $(50,113) $(.63) $(9,071) $(.12) $51,494 $.65 $(29,717) $(.37)
</TABLE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
The Salomon Brothers Fund Inc
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments at December 31, 1995, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of The Salomon Brothers
Fund Inc (the "Fund") at December 31, 1995 and 1994, the results of its
operations and the changes in its net assets for the years then ended and the
financial highlights for each of the five years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1995 and 1994 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, NY
February 15, 1996
22
<PAGE>
Page 23
S A L O M O N B R O T H E R S F U N D I N C
Supplemental June 30, 1995 Information
Statement of Net Assets June 30, 1995 (unaudited)
Common Stocks -- 77.6% of Net Assets
- --------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- --------------------------------------------------------------------------------
Basic Industries -- 9.1%
450,000 Avery Dennison ...................... $ 16,077,215 $ 18,000,000
165,000 Broken Hill Proprietary -- ADR ...... 6,365,250 8,146,875
27,500 Crown Cork & Seal* .................. 940,713 1,378,437
129,500 Du Pont (E.I.) de Nemours ........... 8,010,413 8,903,125
306,900 Hercules ............................ 12,000,685 14,961,375
782,500 Lubrizol ............................ 27,828,671 27,680,938
1,205,950 Praxair ............................. 26,936,743 30,148,750
168,000 Rayonier ............................ 4,021,730 5,964,000
------------ ------------
102,181,420 115,183,500
------------ ------------
Capital Goods -- 10.5%
430,000 Albany International, Class A ....... 7,307,898 10,266,250
526,000 AlliedSignal ........................ 13,688,003 23,407,000
265,500 Deere ............................... 19,364,845 22,733,438
283,750 General Electric .................... 2,692,207 15,996,406
352,000 Raytheon ............................ 20,962,401 27,324,000
600,000 Tyco International .................. 28,465,070 32,400,000
------------ ------------
92,480,424 132,127,094
------------ ------------
Consumer Cyclicals -- 10.6%
247,500 Centex .............................. 6,281,430 6,991,875
275,000 Eastman Kodak ....................... 9,616,247 16,671,875
1,170,000 Federated Department Stores* ........ 22,948,911 30,127,500
561,000 Ford Motor .......................... 16,081,860 16,689,750
520,000 Host Marriot* ....................... 5,681,468 5,525,000
205,700 Lennar .............................. 3,499,995 3,856,875
264,000 Mascotech ........................... 3,229,066 3,267,000
615,000 Sears, Roebuck ...................... 28,551,495 36,823,125
400,000 Sherwin Williams .................... 13,207,691 14,250,000
------------ ------------
109,098,163 134,203,000
------------ ------------
Consumer Staples -- 11.7%
890,000 Albertson's ......................... 24,210,114 26,477,500
615,000 Conagra ............................. 20,150,529 21,448,125
88,371 Grand Union ......................... 1,876,875 1,193,009
1,015,000 Kroger* ............................. 24,990,942 27,278,125
350,000 Penn Traffic* ....................... 13,912,228 12,381,250
40,500 Philip Morris Companies ............. 2,301,858 3,012,188
1,650,000 Stop & Shop Companies* .............. 32,395,974 42,281,250
450,000 Sysco ............................... 12,109,854 13,275,000
------------ ------------
131,948,374 147,346,447
------------ ------------
Energy-- 11.0%
415,300 Amoco ............................... 24,034,144 27,669,362
652,500 Chevron ............................. 28,796,412 30,422,813
400 Gas Properties (100% owned) ......... 40,000 748,000(a)
325,000 Mobil ............................... 24,832,372 31,200,000
262,500 Royal Dutch Peteroleum, 5 Guilder ... 21,408,772 31,992,188
383,000 TOTAL-- ADR ......................... 11,029,642 11,585,750
225,000 Union Texas Petroleum ............... 4,994,900 4,753,125
Oil Royalty Interests ............... -- 900,700(a)
------------ ------------
115,136,242 139,271,938
------------ ------------
23
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Supplemental June 30, 1995 Information
Statement of Net Assets June 30, 1995 (continued)
<TABLE>
<CAPTION>
Common Stocks continued
- ---------------------------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial Services -- 10.6%
457,500 American Express ...................................... $ 8,592,327 $ 16,069,687
551,700 Bank of New York ...................................... 15,184,919 22,274,888
180,000 Federal Home Loan Mortgage ............................ 11,479,840 12,375,000
100,000 Federal National Mortgage Assosciation ................ 2,218,200 9,437,500
71,250 First USA ............................................. 2,471,306 3,161,719
243,000 MGIC Investment ....................................... 6,566,832 11,390,625
550,000 St. Paul Companies .................................... 27,328,133 27,087,500
240,000 SunAmerica ............................................ 8,427,758 12,240,000
448,166 Travelers ............................................. 15,471,996 19,607,262
------------ ------------
97,741,311 133,644,181
------------ ------------
Health Care -- 2.6%
690,000 Columbia/Hca Healthcare ............................... 27,615,082 29,842,500
69,000 United Healthcare ..................................... 2,510,703 2,854,875
------------ ------------
30,125,785 32,697,375
------------ ------------
Technology-- 5.4%
471,000 First Data ............................................ 16,326,231 26,788,125
140,000 Genentech* ............................................ 6,767,472 6,807,500
45,000 Hewlett-Packard ....................................... 1,187,752 3,352,500
45,000 National Data ......................................... 960,278 1,040,625
516,500 Nokia, Class A -- ADR ................................. 16,241,649 30,796,313
------------ ------------
41,483,382 68,785,063
------------ ------------
Telecommunications & Utilities -- 3.9%
424,250 AT&T .................................................. 19,922,769 22,538,281
939,500 Airtouch Communications* .............................. 22,738,567 26,775,750
------------ ------------
42,661,336 49,314,031
------------ ------------
Transportation -- 2.2%
250,400 Norfolk Southern ...................................... 14,366,508 16,870,700
480,000 Pittston Services Group ............................... 11,665,929 11,520,000
------------ ------------
26,032,437 28,390,700
------------ ------------
Total Common Stocks ................................... 788,888,874 980,963,329
------------ ------------
Preferred Stocks -- 3.2% of Net Assets
- ---------------------------------------------------------------------------------------------------
Capital Goods -- 0.6%
200,000 Browning Ferris Industries 7.25%, Convertible ......... 7,141,612 7,300,000
------------ ------------
Consumer Cyclicals -- 0.2%
225,000 Mascotech $1.20 Convertible ........................... 3,139,260 3,206,250
------------ ------------
Financial Services -- 0.4%
57,500 St. Paul Capital 6.0%, Monthly Income ................. 2,904,734 3,004,375
45,700 Sun America $2.78, Convertible Depository Shares
representing 1/50 share of Series D Pfd. ............ 2,070,256 2,102,200
------------ ------------
4,974,990 5,106,575
------------ ------------
Technology -- 2.0%
300,000 Ceridian 5.5%, Convertible ............................ 16,922,706 25,050,000
------------ ------------
Total Preferred Stocks ................................ 32,178,568 40,662,825
------------ ------------
</TABLE>
24
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Supplemental June 30, 1995 Information
Statement of Net Assets June 30, 1995 (continued)
<TABLE>
<CAPTION>
Corporate Bonds and Notes -- 6.3% of Net Assets
- ---------------------------------------------------------------------------------------------------
Principal
Amount Value
(thousands) Cost (Note 1a)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital Goods -- 1.8%
$ 2,925 Imo Industries 12.25% due 8/15/97 ...................... $ 2,967,625 $ 2,946,938
6,000 Jordan Industries 10.375% due 8/1/03 ................... 5,383,750 5,580,000
14,750 MascoTech 4.5% due 12/15/03 ............................ 9,903,220 10,749,062
4,000 Silgan Holdings 13.25% due 12/15/02 .................... 3,672,094 3,640,000
------------ --------------
21,926,689 22,916,000
------------ --------------
Consumer Cyclical -- 1.2%
3,000 Sullivan Graphics 15.0% due 2/1/00 ..................... 3,187,500 3,180,000
12,000 Walter Industries 12.19% due 3/15/00 ................... 12,166,200 12,090,000
------------ --------------
15,353,700 15,270,000
------------ --------------
Consumer Staples -- 1.6%
7,433 Astrum International 11.5% due 6/8/03 .................. 7,811,796 7,823,233
6,000 Casino America 11.5%, First Mortgage Notes,
due 11/15/01 ......................................... 5,857,500 6,120,000
6,000 Fleming Companies 8.3125% Floating Rate
due 12/15/01 +........................................ 6,000,000 5,997,714
------------ --------------
19,669,296 19,940,947
------------ --------------
Financial Services -- 0.9%
12,000 Liberty Property Trust 8.0% due 7/01/01 ................ 12,004,375 11,820,000
------------ --------------
Health Care-- 0.7%
21,000 Roche Holdings Zero Coupon due 4/20/10 ................. 7,583,717 8,347,500
------------ --------------
Transportation-- 0.1%
1,500 Borg Warner 8.0% due 4/1/96 ............................ 1,494,375 1,496,250
------------ --------------
Total Corporate Bonds and Notes ........................ 78,032,152 79,790,697
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
Purchased Options -- 1.2% of Net Assets
- ---------------------------------------------------------------------------------------------------
Premium
Contracts Paid
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1,650 Allstate Put (expiring July 1995, exercise price $30) .. 293,782 134,062
700 S&P Midcap 400 Index Call
(expiring September 1995, exercise price $180) ....... 1,451,625 1,391,250
1,000 S&P 500 Index Put
(expiring July 1995, exercise price $485) ............ 141,750 12,500
300 S&P 500 Index Put
(expiring July 1995, exercise price $500) ............ 55,275 5,625
300 S&P 500 Index Put
(expiring August 1995, exercise price $500) .......... 109,650 22,500
800 S&P 500 Index Call
(expiring September 1995, exercise price $475) ....... 4,384,000 5,770,000
800 S&P 500 Index Call
(expiring September 1995, exercise price $450) ....... 6,384,000 7,710,000
------------ --------------
Total Purchased Options 12,820,082 15,045,937
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury Security-- 1.0% of Net Assets
- ---------------------------------------------------------------------------------------------------
Principal
Amount
(thousands) Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 12,887 U.S. Treasury Bill 6.81% due 1/11/96 12,414,069 12,517,903
------------ --------------
Total Investments-- 89.3% $924,333,745 1,128,980,691
============ --------------
</TABLE>
25
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Supplemental June 30, 1995 Information
Statement of Net Assets June 30, 1995 (continued)
<TABLE>
<CAPTION>
Written Options -- 0.0% of Net Assets
- ---------------------------------------------------------------------------------------------------
Premium Value
Contracts (Received) (Note 1a)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1,000) Genentech Call (expiring October 1995,
exercise price $50) (b) ............................. $ (153,245) $ (100,000)
(1,000) Genentech Put (expiring October 1995,
exercise price $50) ................................. (109,496) (153,130)
------------ --------------
Total Written Options ................................. (262,741) (253,130)
============ --------------
</TABLE>
<TABLE>
<CAPTION>
Sale of Security to be Received -- (0.4)% of Net Assets
- ---------------------------------------------------------------------------------------------------
Shares Proceeds
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(160,900) Allstate .............................................. $ (4,720,782) (4,766,663)
============ --------------
</TABLE>
<TABLE>
<CAPTION>
Repurchase Agreement -- 10.0% of Net Assets
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
126,000 Morgan Stanley, 6.0%, cost $126,000,000, dated 6/30/95,
$126,105,000 due 7/5/95, collateralized by
U.S. Treasury Notes, maturing in 1996,
valued at $128,515,727 126,000,000
--------------
Cash and Receivables -- 2.1% .......................... $ 26,161,565
Liabilities -- (1.0%) ................................. (12,798,498) 13,363,067
--------------
Net Assets -- equivalent to $14.97 per share
on 84,406,970 shares outstanding .................................. $1,263,323,965
==============
Net Assets Consist of:
Paid-in capital ..................................................... $ 968,587,199
Undistributed net investment income ................................. 8,610,505
Undistributed net realized gain ..................................... 81,515,585
Net unrealized appreciation ......................................... 204,610,676
--------------
Net Assets $1,263,323,965
==============
<FN>
- -------------
* Non-income producing security.
+ Floating rate resets quarterly. Rate in effect on December 31, 1995.
(a) Fair value in the opinion of the Board of Directors.
(b) 100,000 shares of Genentech are held by the Fund's custodian in a segregated account in connection with written call
options outstanding at June 30, 1995.
ADR -- American Depository Receipt
</FN>
</TABLE>
26
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Supplemental June 30, 1995 Information
Annual Shareholder Meeting
The Fund held its annual shareholder meeting on April 25, 1995. At the meeting,
shareholders elected each of the nominees proposed for election to the Fund's
Board of Directors and ratified the selection of Price Waterhouse LLP as the
independent accountants of the Fund. The shareholder proposal relating to Annual
and Interim Reports was not approved. The following table provides information
concerning the matters voted on at the meeting:
1. Election of Directors
Nominees Votes for Votes Withheld
- --------------------------------------------------------------------------------
Charles F. Barber 65,898,190 2,143,144
Andrew L. Breech 66,324,642 1,716,992
Thomas W. Brock 66,343,626 1,698,008
Carol L. Colman 66,268,927 1,772,707
William R. Dill 66,292,672 1,748,962
Michael S. Hyland 66,235,625 1,806,009
Clifford M. Kirtland, Jr. 65,872,387 2,169,247
Robert W. Lawless 66,272,124 1,769,510
Louis P. Mattis 66,268,368 1,773,266
Thomas F. Schlafly 66,276,935 1,764,699
2. Ratification of Price Waterhouse LLP as the Independent Accountants of the
Fund
Votes For Votes Against Votes Abstained
- --------------------------------------------------------------------------------
66,141,067 906,143 994,424
3. Stockholder Proposal Relating to Annual and Interim Reports
Votes For Votes Against Votes Abstained Unvoted
- --------------------------------------------------------------------------------
11,408,146 33,939,675 4,175,353 18,518,460
27
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Automatic Dividend Reinvestment
and Cash Payment Plans
Dividend Reinvestment
The Automatic Dividend Reinvestment Plan ("DR Plan") administered by The Bank of
New York, Agent for shareholders of The Salomon Brothers Fund Inc ("SBF"),
offers you a prompt, simple, and inexpensive way to put your dividends and
distributions to work through reinvestment in additional shares of capital stock
of SBF. All new shareholders initially investing on or after November 20, 1995
will automatically be enrolled in the DR Plan, unless the shares are held in the
name of a broker or nominee. All other shareholders may enroll by simply
completing the attached Authorization Card. If your shares are held in the name
of a broker or nominee, you should contact your broker or nominee about your
ability to participate in the DR Plan.
Money from dividends and distributions can lie idle for months at a time;
however, with the DR Plan your dividends and distributions are promptly invested
for you, automatically increasing your holdings in SBF. All paper work is done
for you automatically by The Bank of New York, Agent for the DR Plan, and you
will receive statements from the Agent to simplify your personal records. The DR
Plan also acts as a form of forced savings program.
Cash Payment Plan
The Cash Payment Plan allows you to purchase shares of SBF conveniently and
inexpensively, without committing large dollar amounts. Under the Cash Payment
Plan, you have the option to send a check or money order of at least $25.00 to
the Agent which will be used to buy more shares of SBF. You may make these
payments regularly or from time to time, as you choose. You may also vary the
amount of each optional payment as long as it is at least $25.00. Optional cash
payments received by the Agent will be applied by the Agent to the purchase of
additional shares of SBF on the Investment Date next following receipt. The
"Investment Dates" will be each Friday (or closest business day prior thereto,
if a holiday). All cash payment shares will be purchased on the open market at
prevailing market prices and in accordance with the "Terms and Conditions of
Authorization for Amended and Restated Dividend Reinvestment and Cash Payment
Plans ("Terms and Conditions") There is no maximum amount of investment under
the Cash Payment Plan.
Shares purchased under the Cash Payment Plan will be held as uncertificated
shares, unless separate specific instructions to issue certificates are
received. Fractional shares cannot be issued in certificate form, and dividends
and distributions on those shares held by the Agent will be automatically
reinvested.
Certificate of Deposit
If you wish, you may deposit with the Agent stock certificates representing
ownership of capital stock in SBF which you now hold. The Agent will combine the
shares represented thereby with the shares issued or purchased through the DR
Plan or Cash Payment Plan. The actual certificates forwarded by you will be
cancelled.
28
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Cost to You
Except as specifically noted, you will not bear any of the costs of
administering the Plan. When the Agent makes open-market purchases, the cost of
reinvesting your dividends and distributions or purchasing additional shares
through these Plans is less than the usual brokerage commission on odd-lot
transactions because the Agent combines the purchase of shares for all
participants and passes the savings in commissions on to you. You pay your
proportionate share of the commissions paid on all open-market purchases.
Dividends and distributions, even though automatically reinvested, continue to
be taxable.
How the Automatic Dividend Reinvestment and Cash Payment Plans Work:
1. If SBF declares a dividend or distribution, you will receive the dividend or
distribution either in newly-issued shares of SBF or in shares of SBF purchased
on the New York Stock Exchange or otherwise on the open market, depending on the
relationship between the market price per share of SBF and the net asset value
per share of SBF, as described in the terms and conditions of the DR Plan. Any
newly-issued shares will be valued at the time specified in the Plan, either at
the market price per share of SBF or at the greater of (a) the net asset value
per share of SBF and (b) 95% of the market price per share of SBF, depending on
the relationship between market price and net asset value at that time. If your
dividend or distribution is not large enough to buy a full share, the Agent will
credit you with a fractional share, computed to four decimal places, which will
earn additional dividends and distributions for you just the way full shares do.
2. You will receive a
detailed statement of your Plan accounts following each investment by the Agent
showing total dividends and distributions and additional cash payments, shares
purchased and issued, and total shares held by you and the Agent on your behalf.
Each of these statements will contain a tear-off portion which you should
utilize for all transaction processing.
3. The Agent will hold the shares it has purchased for you unless you otherwise
request. This convenience provides added protection against loss, theft, or
inadvertent destruction of certificates. Certificates for full shares held by
the Agent will be issued to you upon your request. If a certificate is lost, the
replacement cost is currently 2% of the value of the shares at the time of loss.
4. You may terminate your participation in the DR Plan at any time up to a
record date, and future dividends and distributions will thereafter be sent
directly to you. Upon termination, stock certificates for any full shares will
be issued in your name, or, upon receipt of your instructions, your shares will
be sold for you and the proceeds sent to you less brokerage commissions and any
applicable taxes. Any fractional shares at the time of termination will be
converted to cash on the basis of the then current market price of SBF capital
stock.
5. The Agent will forward all proxy materials, including a form of proxy and
return envelope, covering all shares owned by a participant to be voted and
returned by the participant to SBF or its proxy agent.
6. Your attention is directed to the Terms and Conditions set forth on page 30
which govern the operation of the Plan.
If you wish to withdraw from the DR Plan, please contact the Agent at:
The Bank of New York
Dividend Reinvestment Department
P.O. Box 1958
Newark, New Jersey 07101-9774
1-800-432-8224
29
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
If you withdraw and subsequently wish to re-enroll, simply complete the enclosed
Authorization Card and mail it to the address above or call the number above.
Your participation will commence with the next dividend or distribution payable
after receipt of your authorization, provided it is received prior to the record
date for the dividend or distribution. Should your authorization arrive after
the record date, your participation will take effect with the following dividend
or distribution.
Please be advised that the Agent may utilize BNY Brokerage Inc., an affiliate of
the Agent, for all trading activity relating to the DR Plan and Cash Payment
Plan on behalf of participants. BNY Brokerage Inc. receives a commission in
connection with such transactions.
Remember, the detailed statement of your account will include a tear-off portion
which you should utilize for all transaction processing.
If your shares are held in the name of a broker or nominee, you should contact
your broker or nominee for more information about your ability to participate in
the DR Plan. If the broker or nominee does not provide an automatic reinvestment
service, it may be necessary for you to have your shares taken out of "street
name" and registered in your own name to guarantee your participation.
Otherwise, dividends and distributions will be paid in cash by your broker or
nominee.
SBF and the Agent may amend or terminate the Plan. The Agent will mail to
participants notice at least 30 days prior to the effective date of any
amendment.
Any inquiries concerning the Plans should be directed to the Agent at:
The Bank of New York
Investor Relations Department
P.O. Box 11258
New York, New York 10286-1258
1-800-432-8224
Terms and Conditions of Authorization for Amended and Restated Automatic
Dividend Reinvestment and Cash Payment Plans
1. (a) The Bank of New York (the "Agent") will act as agent for each
participant in the Amended and Restated Dividend Reinvestment Plan (the
"DR Plan") of Salomon Brothers Fund Inc (the "Corporation").
(b) Unless the Corporation declares a dividend or distribution which may be
paid to shareholders only in the form of cash, the Agent will apply all
dividends and distributions in the manner set forth below.
2. (a) If, on the determination date, the market price per share plus estimated
brokerage commissions equals or exceeds the net asset value per share on
that date (such condition, a "market premium"), the Agent shall receive
the dividend or distribution in newly issued shares of the Corporation
on behalf of shareholders. If, on the determination date, the net asset
value per share exceeds the market price per share plus estimated
brokerage commissions on that date (such condition, a "market
discount"), the Agent will purchase shares in the open market. The
determination date will be the fourth New York Stock Exchange trading
day (a New York Stock Exchange trading day being referred to herein as a
"Trading Day") preceding the payment date for the dividend or
distribution. For purposes herein, "market price" shall mean the average
of the highest and lowest prices at which the Corporation's stock sells
on the New York Stock Exchange on the particular date, or if there is no
sale on that date, the average of the closing bid and asked quotations.
(b) Purchases by the Agent shall be made in accordance with the
conditions set forth in Item 4 below and may be made on any securities
exchange where such shares are traded, in the over-the-counter market,
or in negotiated transactions, and may be on such terms as to price,
delivery, and otherwise as the Agent may determine. Such purchases shall
be made as soon as practicable commencing on the Trading Day following
the determination date and ending no later than 30 days after the
dividend or distribution date except where temporary curtailment or
suspension of purchase is necessary to comply with applicable provisions
of federal securities laws; provided, however, that such purchases
shall, in any event, terminate on the earlier of (i) 60 days after the
dividend or distribution payment date and (ii) the Trading Day prior to
the "ex-dividend date" next succeeding the dividend or distribution
payment date.
(c) If the Agent is unable to invest the full dividend or distribution
amount in open market purchases during the purchase period provided for
in paragraph (b) above or a market discount shifts to a market premium
during the purchase period, the Agent will cease making open market
purchases and will receive the uninvested portion of the dividend or
distribution amount in newly issued shares at the close of business on
the earlier of the first date on which a market premium exists or the
last date purchases are made, but in no event prior to the payment date
for the dividend or distribution.
30
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
(d) In the event that all or part of a dividend or distribution amount is to
be to paid in newly issued shares, such shares will be issued to
participants in accordance with the following formula: (i) if, on the
valuation date, the net asset value per share is less than or equal to
the market price per share, then the newly issued shares shall be valued
at net asset value per share on the valuation date; provided, however,
that if the net asset value per share is less than 95% of the market
price per share on the valuation date, then such shares will be issued
at 95% of the market price and (ii) if, on the valuation date, the net
asset value per share is greater than the market price per share, the
newly issued shares will be valued at the market price per share on the
valuation date. The valuation date shall be the dividend or distribution
payment date except that with respect to shares issued pursuant to
paragraph (c) above, the valuation date shall be the date such shares
are issued. If a date that would otherwise be a valuation date is not a
Trading Day, the valuation date shall be the next preceding Trading Day.
3. Under the Cash Payment Plan (together with the DR Plan, the "Plans"), cash
payments of at least $25.00 made from time to time by the participant and
received by the Agent will be applied by the Agent in the purchase of
additional shares of capital stock of the Corporation on the Investment Date
next following receipt. The "Investment Date" will be each Friday (or
closest business day prior thereto if a holiday). All cash payment shares
will be purchased by the Agent on the open market at prevailing market
prices and in accordance with the conditions set forth in Item 4 below.
Participants have an unconditional right to obtain the return of any cash
payments up to 48 hours prior to such Investment Date. Checks must be drawn
on United States banks and denominated in U.S. dollars only. Third party
checks will not be accepted. There is no maximum amount of investment under
the Cash Payment Plan.
4. In making cash purchases for the participant's account, the Agent will
combine the participant's funds with those of the other participants. The
price at which the Agent shall be deemed to have acquired shares shall be
the average price (including brokerage commissions) of all shares purchased
by it in connection with a particular dividend or distribution under the DR
Plan or in connection with a particular investment under the Cash Payment
Plan, as the case may be.
It is understood that (i) the Agent may hold the shares of all participants
together in its name or in the name of its nominee, (ii) the Agent may
utilize BNY Brokerage Inc., an affiliate of the Agent, for all trading
activity relating to the DR Plan and Cash Payment Plan on behalf of
participants and that BNY Brokerage Inc. receives a commission in connection
with such transactions, (iii) that government regulations may require the
temporary curtailment or suspension of purchase of shares under the Plans
and accordingly, the Agent shall not be accountable for its inability to
make purchases at such times and (iv) that the Agent shall have no
responsibility as to the market value of the shares acquired for the
participant's account.
The Agent will confirm the purchases so made as soon as practicable after
the purchases are made.
5. No certificate with respect to reinvested dividends and diIstributions will
be issued to a participant unless he or she so requests. No certificate for
a fractional share will be issued.
6. Participants shall not bear any of the costs of administering the Plan. Each
account will bear its proportionate share of commissions paid on open market
purchases.
7. It is understood that the investment of dividends and distributions does not
relieve the participant of any taxes which may be payable on such dividends
and distributions. The Agent will report annually to each participant the
amount of dividends and distributions credited to his account during the
year.
8. (a) The Agent will forward all proxy materials, including a form of proxy
and return envelope, covering all shares owned by a participant to be
voted and returned by the participant to the Corporation or its proxy
agent.
(Continued)
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SALOMON BROTHERS FUND INC
AUTHORIZATION TO PARTICIPATE IN THE DIVIDEND
REINVESTMENT PLAN FOR SHAREOWNERS OF
THE SALOMON BROTHERS FUND INC
COMMON SHARES
I wish to participate in the Dividend Reinvestment Plan. I appoint The Bank
of New York (the Agent) and authorize THE SALOMON BROTHERS FUND INC to pay to
the Agent for my account all dividends payable to me on the Common Shares that
are now or may hereafter be registered in my name.
I authorize the Agent to apply all such dividends and distributions and all
optional cash payments which I transmit to the Agent, subject to the terms and
conditions of the Plan set forth in the brochure describing the Plan.
I understand that the appointment of The Bank of New York as the Agent is
subject to the terms and conditions of the Plan set forth in the brochure
describing the Plan.
In addition, please invest the enclosed optional cash payment in the amount
of $___________ as directed by the terms and conditions of the Plan.
(Please sign on the reverse side of this card.)
31
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S A L O M O N B R O T H E R S F U N D I N C
(b) A participant may terminate his or her account under the DR Plan at any
time by notifying the Agent prior to the next dividend or distribution
record date. Participation shall be terminated by written notice
similarly received of the death, or adjudicated incompetency of a
participant.
(c) In the event written notice of termination, death or adjudicated
incompetency is received by the Agent after a dividend or distribution
record date, but prior to the determination by the Agent of the number
of shares to be issued to or purchased for the participant following
such dividend or distribution record date, participation in the DR Plan
shall be terminated immediately following such determination. Upon
termination by reason of notice of death, or adjudicated incompetency,
no newly issued shares shall be credited to the participant's account
and no purchase of shares shall be made for the participant's account.
The participant's shares and any cash dividends or distributions paid
thereon shall be retained by the Agent subject to the Terms and
Conditions until such time as such participant's legal representatives
shall have been appointed and shall have furnished proof sufficient to
the Agent of his right to receive such shares and such dividends or
distributions. Upon termination by the participant, the Agent will send
the participant a certificate of the full shares in his or her account
and a check in an amount equal to the then current market price (as
defined in paragraph 2) of any fractional share or, the Agent, upon
receipt of instructions from the participant, will sell the
participant's full and fractional shares as soon as practicable
following termination and send to the participant a check representing
the proceeds, less brokerage commissions and any applicable taxes.
If a participant disposes of all shares registered in his or her name on
the books of the Corporation, the Agent will at its discretion, continue
to reinvest dividends and distributions on the shares in the
participant's DR Plan account until otherwise notified by the
participant.
9. The Agent may terminate either Plan by notice in writing remitted to all
participants. In such event the Agent will send the participant a
certificate for the full shares in his or her account and cash for any
fractional shares at the then current market price as indicated in Item 8.
10. The Agent shall not be liable hereunder for any act done in good faith, or
for any good faith omissions to act, including, without limitation, any
claims of liability (1) arising out of any such act or omission to act which
occurs prior to the termination of participation pursuant to Item 8 above
and (2) with respect to the prices at which shares are purchased or sold for
the participant's account and the times such purchases or sales are made.
11. The participant agrees to notify the Agent promptly in writing of any change
of address. Notices to the participant may be given by letter addressed to
the participant at his last address of record with the Agent.
12. These Terms and Conditions may be amended or supplemented by the Agent at
any time or times by mailing appropriate notice at least 30 days prior to
the effective date thereof to the participant at his last address of record.
The amendment or supplement shall conclusively be deemed to be accepted by
the participant unless prior to effective date thereof the Agent receives
written notice of the termination of the participant's account. Any such
amendment may include the appointment by the Agent in its place and stead of
a successor agent under these Terms and Conditions provided such successor
is a bank or trust company organized under the laws of the United States or
any state thereof. The Corporation is authorized to pay to such successor
agent for the account of each participant in the Plan all dividends and
distributions payable on shares of the Corporation's capital stock held by
the Agent for the participant or by the participant himself or herself, the
shares to be applied by such successor agent as provided in these Terms and
Conditions.
13. The Terms and Conditions of this authorization shall be governed by the laws
of the State of New York.
Any inquiries regarding the Plans should be directed to the Agent at:
THE BANK OF NEW YORK
Investor Relations Department
P.O. Box 11258
New York, New York 10286-1258
1-800-432-8224
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If you sdesire to participate in The Salomon Brothers Fund Inc Dividend
Reinvestment Plan as described in the brochure, please sign and return this card
to:
THE BANK OF NEW YORK
P.O. Box 1958
Newark, NJ 07101-9774
Att: Dividend Reinvestment Department
DATED:_________________________, 19____
---------------------------------------
PLEASE SIGN, DATE AND RETURN
USING THE ENCLOSED ENVELOPE
---------------------------------------
---------------------------------------
Signature
---------------------------------------
Signature (if held jointly)
Please sign exactly as your name(s) appear heron.
THIS IS NOT A PROXY
32
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<TABLE>
Officers
<S> <C>
Michael S. Hyland Chairman and President
Richard E. Dahlberg Executive Vice President
Allan R. White, III Executive Vice President
Ross S. Margolies Executive Vice President
Lawrence H. Kaplan Executive Vice President
and General Counsel
Michael A. Kagan Vice President
Martin L. Roberts Vice President
Alan M. Mandel Treasurer
Tana E. Tselepis Secretary
Janet S. Tolchin Assistant Treasurer
Reji Paul Assistant Treasurer
Jennifer G. Muzzey Assistant Secretary
Salomon Brothers Asset Management Inc Investment Manager
New York, New York
The Bank of New York Custodian, Transfer and Dividend Disbursing Agent
New York, New York
Simpson Thatcher & Bartlett Legal Counsel
New York, New York
Price Waterhouse LLP Independent Accountants
New York, New York
</TABLE>
<PAGE>
THE SALOMON BROTHERS FUND INC
7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
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