- ----------------------------------------------------- August 19, 1996
The Salomon Brothers
Fund Inc
To Our Shareholders,
WE ARE PLEASED to present our semi-annual report to shareholders for the Salomon
Brothers Fund Inc for the six months ended June 30, 1996.
THE NET ASSET VALUE of each of your shares at June 30, 1996 was $16.67,
equivalent to $17.33 assuming the distributions from income and capital gains
paid during the first six months of 1996 were reinvested in additional shares of
the Fund. This represents an increase of 12.3% from $15.43 on December 31, 1995.
Performance of the Fund exceeded the 10.1% increase for the Standard & Poor's
Index of 500 stocks and the 10.0% average increase for the growth and income
open-end and closed-end funds with net assets in excess of $1 billion as
measured by Lipper Analytical Services*. Lipper Analytical Services ranked the
Salomon Brothers Fund #3 of 58 growth and income funds in that investment
category. The Salomon Brothers Fund continues to be rated "Four Star"by
Morningstar Inc., a widely recognized closed-end fund rating service.**
AT A MEETING OF THE FUND'S BOARD OF DIRECTORS held on July 16, 1996, the Board
declared a dividend of $0.09 per share from net investment income. The dividend
was payable August 9, 1996 to shareholders of record on July 26, 1996.
Investment Objective
LONG-TERM GROWTH of capital. Current income is a secondary objective.
Investment Strategy
THE FUND INVESTS PRIMARILY in common stocks listed on the New York Stock
Exchange and other U.S. exchanges. The portfolio manager maintains a long-term
focus. While we believe that economic forecasting has a role to play in helping
us identify promising stocks, we devote most of our resources to identifying
attractive companies rather than trying to predict market trends. Our stock
selection process continues to be aimed at finding companies with strong
management, accelerating operating trends, healthy balance sheets, and strong
competitive positions.
Market Review
OVER THE LAST EIGHTEEN MONTHS the equity markets have benefited from a
confluence of positive factors. Inflation has been benign, economic growth has
been moderate and earnings growth has been very strong. The Salomon Brothers
Fund's strong relative performance in the first half of 1996 resulted from
security selection and, to a lesser degree, favorable sector weightings. Large
positions aiding performance included Sears, Roebuck, Praxair, Tyco
International and Stop &Shop Companies.
DURING THE SECOND HALF of the year, we believe that markets may be characterized
by more volatility than we have seen the last eighteen months. Steady earnings
growth is highly valued in uncertain market environments. As a result, we have
built up our positions in the medical sector. We believe operating trends for
companies such as SmithKline Beecham, Rhone-Poulenc Rorer and Columbia/HCA
Healthcare are very favorable. We continue our search for undervalued stocks and
have begun selectively to buy high quality technology stocks after their recent
declines.
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
*Lipper rankings change monthly and do not reflect the effects of sales charges.
Lipper performance results represent changes in net asset value, adjusted to
reflect reinvestment of dividends and capital gains. Past performance is no
guarantee of future results.
**Morningstar proprietary ratings reflect historical risk-adjusted performance,
are subject to change monthly and are calculated from the fund's 3 year average
annual returns in excess of 90-day T-bill returns with appropriate fee
adjustments and a risk factor that reflects fund performance below 90-day T-bill
returns. 10% of funds in an investment category receive a 5-star rating, 22.5%
receive 4-stars and 35% receive 3-stars.
- -----------------
THE FUND HELD its Annual Meeting of Stockholders on April 23, 1996. 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 following table provides
information concerning the matters voted on at the meeting:
1. Election of Directors
Nominees Votes for Votes Withheld
- --------------------------------------------------------------------------------
Charles F. Barber 66,510,946 1,615,111
Andrew L. Breech 66,961,411 1,164,646
Thomas W. Brock 66,979,712 1,146,345
Carol L. Colman 66,939,220 1,186,837
William R. Dill 66,929,226 1,196,831
Michael S. Hyland 67,071,579 1,054,478
Clifford M. Kirtland, Jr. 66,502,626 1,623,431
Robert W. Lawless 66,942,370 1,183,687
Louis P. Mattis 66,760,133 1,365,924
Thomas F. Schlafly 66,855,435 1,270,622
2. Ratification of Price Waterhouse LLP as the Independent Accountants of the
Fund
Votes For Votes Against Votes Abstained
- --------------------------------------------------------------------------------
66,329,082 521,275 800,450
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. 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. Thus far the Fund has repurchased
750,000 shares.
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 April 13, 1996
and May 12, 1996, the Plan Agent purchased 1,107,709 shares on behalf of
participants in the Dividend Reinvestment Plan at an average price of $14.508
for a net total of $16,070,680.
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
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,
/s/ MICHAEL S. HYLAND
Chairman and President
Major Portfolio Changes for the three months ended June 30, 1996(unaudited)
(Left Column)
Additions+
- ------------------------------------------------
Shares
----------
ADVANTA, Class B................. 123,800(1)
Aetna Life & Casualty............ 135,000(1)
Aluminum Company of America...... 73,500
American Home Products........... 360,000(1)
Associates First Capital......... 230,500(1)
Bank of Boston................... 225,000(1)
Canadian National Railway........ 564,000
Coca-Cola Enterprises............ 175,700
Columbia/HCA Healthcare.......... 150,000
Dresser Industries............... 225,000(1)
EMC.............................. 180,000
FHP International................ 540,000(1)
Ford Motor....................... 105,000
General Motors................... 105,500
Highwoods Properties............. 225,000
Lear............................. 89,600
Loews............................ 150,000(1)
Magna International, Class A..... 210,000(1)
Melville......................... 300,000(1)
MGIC Investment.................. 37,500
Nalco Chemical................... 405,100(1)
Philip Morris Companies.......... 112,500
Rhone-Poulenc Rorer.............. 78,000
Seagate Technology............... 56,200(1)
UCAR International............... 330,000(1)
- --------------------------------------------
(Right Column)
Reductions
- ------------------------------------------------
Shares
----------
Ahmanson (H.F.).................. 116,800(2)
Ball............................. 440,000(2)
Chrysler......................... 266,300(2)
Everest Reinsurance Holdings..... 352,500
Federal National Mortgage
Association.................... 157,500
General Electric................. 90,000
Hanna (M.A.)..................... 172,900
Hercules......................... 381,500(2)
MascoTech........................ 187,500
MascoTech $1.20 Convertible
Preferred...................... 225,000(2)
Royal Dutch Petroleum, 5 Guilder. 30,000
Sears, Roebuck................... 75,000
St Paul Companies................ 339,000(2)
Stop & Shop Companies............ 810,000(2)
Texaco........................... 69,000
Tyco International............... 186,000
- ------------------------------------------------
(1) New addition (2) Elimination
+ This list excludes changes resulting entirely from stock dividends and
stock splits.
Page 1
<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 Net Assets June 30, 1996 (unaudited)
Common Stocks -- 90.3% of Net Assets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic Industries -- 7.9%
253,500 Aluminum Company of America.................................... $ 15,625,107 $ 14,544,563
348,000 Du Pont (E.I.) de Nemours...................................... 23,494,899 27,535,500
107,300 Hanna (M.A.)................................................... 1,795,397 2,239,887
405,100 Nalco Chemical................................................. 12,388,118 12,760,650
935,000 Praxair ....................................................... 20,687,010 39,503,750
330,000 UCAR International*............................................ 13,897,310 13,736,250
------------ ------------
87,887,841 110,320,600
------------ ------------
Capital Goods -- 8.9%
400,000 AlliedSignal................................................... 9,449,074 22,850,000
361,500 Deere.......................................................... 8,449,480 14,460,000
193,750 General Electric............................................... 1,361,174 16,759,375
494,000 Raytheon....................................................... 14,396,833 25,502,750
716,500 Tyco International............................................. 16,827,979 29,197,375
300,000 York International............................................. 14,140,882 15,525,000
------------ ------------
64,625,422 124,294,500
------------ ------------
Consumer Cyclicals -- 12.3%
330,000 Eastman Kodak.................................................. 12,859,127 25,657,500
405,000 Federated Department Stores*................................... 7,668,103 13,820,625
320,000 Ford Motor..................................................... 9,919,265 10,360,000
235,000 General Motors................................................. 13,012,718 12,308,125
1,144,500 Host Marriott*................................................. 12,119,158 15,021,563
470,000 Lear*.......................................................... 14,822,042 16,567,500
210,000 Magna International, Class A................................... 9,925,414 9,660,000
225,000 MascoTech...................................................... 2,746,228 3,318,750
300,000 Melville....................................................... 12,012,907 12,150,000
552,500 Sears, Roebuck................................................. 13,818,981 26,865,312
315,000 Sherwin-Williams............................................... 10,664,192 14,647,500
434,000 U.S. Industries*............................................... 6,391,891 10,470,250
------------ ------------
125,960,026 170,847,125
------------ ------------
Consumer Staples -- 12.7%
449,500 Black & Decker................................................. 14,699,637 17,361,938
441,300 Coca-Cola Enterprises.......................................... 13,014,117 15,280,013
660,500 ConAgra........................................................ 21,975,942 29,970,187
560,500 Hormel Foods................................................... 13,658,378 14,993,375
640,500 Kroger*........................................................ 15,512,934 25,299,750
150,000 Loews.......................................................... 12,270,614 11,831,250
301,000 Penn Traffic*.................................................. 11,851,288 2,558,500
367,500 Philip Morris Companies........................................ 31,020,529 38,220,000
750,000 Pittston Brink's Group......................................... 13,947,383 21,843,750
------------ ------------
147,950,822 177,358,763
------------ ------------
Page 2
</TABLE>
<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 Net Assets June 30, 1996 (unaudited) (continued)
Common Stocks continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Energy -- 12.9%
335,300 Amoco.......................................................... $ 19,098,473 $ 24,267,338
211,000 Chevron........................................................ 9,195,555 12,449,000
225,000 Dresser Industries............................................. 6,799,613 6,637,500
400 Gas Properties (100% owned).................................... 40,000 783,000(a)
300,000 Mobil.......................................................... 23,064,397 33,637,500
228,500 Royal Dutch Petroleum, 5 Guilder............................... 18,737,228 35,131,875
165,000 Texaco......................................................... 12,212,287 13,839,375
392,401 TOTAL-- ADR.................................................... 11,029,642 14,567,887
154,400 Union Pacific Resources Group.................................. 3,541,311 4,130,200
690,000 Williams Companies............................................. 26,307,863 34,155,000
Royalty Interests.............................................. -- 590,100(a)
------------ ------------
130,026,369 180,188,775
------------ ------------
Financial Services -- 12.5%
123,800 ADVANTA, Class B............................................... 5,637,215 5,601,950
307,500 American Express............................................... 5,567,009 13,722,187
230,500 Associates First Capital*...................................... 6,806,300 8,672,563
225,000 Bank of Boston................................................. 11,181,975 11,137,500
631,700 Bank of New York............................................... 18,380,844 32,374,625
107,500 BayBanks....................................................... 8,785,624 11,583,125
209,600 Everest Reinsurance Holdings................................... 3,510,800 5,423,400
220,600 Federal Home Loan Mortgage..................................... 14,276,815 18,861,300
152,500 Federal National Mortgage Association.......................... 845,689 5,108,750
106,500 Long Island Bancorp............................................ 2,827,317 3,254,906
217,500 MGIC Investment................................................ 6,818,755 12,207,187
360,000 SunAmerica..................................................... 8,427,758 20,340,000
552,249 Travelers Group................................................ 12,625,892 25,196,361
------------ ------------
105,691,993 173,483,854
------------ ------------
Health Care -- 13.7%
135,000 Aetna Life & Casualty.......................................... 9,992,371 9,652,500
360,000 American Home Products......................................... 21,094,425 21,645,000
630,000 Astra AB, Class A.............................................. 26,115,296 27,818,661
720,000 Columbia/HCA Healthcare........................................ 30,517,898 38,430,000
540,000 FHP International*............................................. 15,615,038 14,782,500
288,000 Rhone-Poulenc Rorer............................................ 18,060,685 19,332,000
705,000 SmithKline Beecham-- ADR....................................... 34,084,447 38,334,375
375,000 U.S. HealthCare................................................ 15,715,114 20,625,000
------------ ------------
171,195,274 190,620,036
------------ ------------
Real Estate Investment Trusts -- 1.5%
336,000 Beacon Properties.............................................. 7,754,685 8,610,000
450,000 Highwood Properties............................................ 11,571,015 12,431,250
------------ ------------
19,325,700 21,041,250
------------ ------------
Technology--4.7%
75,000 Ceridian*...................................................... 2,843,250 3,787,500
106,000 DSTSystems*.................................................... 2,425,650 3,392,000
540,000 EMC*........................................................... 10,231,920 10,057,500
543,500 First Data..................................................... 20,453,428 43,276,187
90,000 National Data.................................................. 2,089,643 3,082,500
56,200 Seagate Technology*............................................ 2,524,897 2,529,000
------------ ------------
40,568,788 66,124,687
------------ ------------
Page 3
</TABLE>
<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 Net Assets June 30, 1996 (unaudited) (continued)
Common Stocks continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Transportation -- 3.2%
1,125,000 Canadian National Railway...................................... $ 18,727,914 $ 20,671,875
176,400 Norfolk Southern............................................... 10,361,840 14,949,900
135,000 Union Pacific.................................................. 8,864,730 9,433,125
------------ --------------
37,954,484 45,054,900
------------ --------------
Total Common Stocks............................................ 931,186,719 1,259,334,490
------------ --------------
Convertible Preferred Stocks -- 1.8% of Net Assets
- ---------------------------------------------------------------------------------------------------------------
Financial Services -- 0.3%
70,000 Merrill Lynch 6.50% ........................................... 3,360,000 3,780,000
------------ --------------
Technology -- 1.5%
187,500 Ceridian 5.50% ................................................ 9,934,718 20,812,500
------------ --------------
Total Convertible Preferred Stocks............................. 13,294,718 24,592,500
------------ --------------
Corporate Bonds and Notes -- 2.8% of Net Assets
- ---------------------------------------------------------------------------------------------------------------
Principal
Amount
(Thousands)
- ---------------------------------------------------------------------------------------------------------------
Basic Industries -- 0.2%
$ 1,000 Selmer 11% due 5/15/05........................................ 980,660 1,070,000
2,500 United International Holding Zero Coupon
due 11/15/99................................................ 1,625,772 1,650,000
------------ --------------
2,606,432 2,720,000
------------ --------------
Capital Goods -- 0.4%
3,687 Silgan Holdings 13.25% due 12/15/02........................... 3,804,155 3,723,870
2,000 Terex 13.75% due 5/15/02...................................... 1,827,944 2,080,000
------------ --------------
5,632,099 5,803,870
------------ --------------
Consumer Cyclicals -- 1.2%
2,000 Bally's Grand 10.375% due 12/15/03................ 2,027,460 2,202,500
1,000 Cole National 11.25% due 10/1/01.................. 1,014,111 1,057,500
6,000 Federated Department Stores 5% Convertible
due 10/1/03..................................... 6,000,000 6,990,000
2,000 Finlay Fine Jewelry 10.625% due 5/1/03............ 1,919,574 2,010,000
2,000 Hines Horticulture 11.75% due 10/15/05............ 2,100,030 2,080,000
2,000 Samsonite 11.125% due 7/15/05..................... 1,951,587 2,070,000
------------ --------------
15,012,762 16,410,000
------------ --------------
Page 4
</TABLE>
<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 Net Assets June 30, 1996 (unaudited) (continued)
Corporate Bonds and Notes continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Principal
Amount Value
(Thousands) Cost (Note 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Staples -- 0.4%
$ 1,000 American Media Operation 11.625% due 11/15/04................. $ 1,033,966 $ 1,010,000
2,000 Borg-Warner Security 9.125% due 5/1/03........................ 1,871,096 1,875,000
2,000 Flagstar 10.75% due 9/15/01................................... 1,863,695 1,750,000
1,500 Pathmark Stores 9.625% due 5/1/03............................. 1,442,989 1,415,625
------------ --------------
6,211,746 6,050,625
------------ --------------
Technology -- 0.2%
2,000 Talley Manufacturing & Technology
10.75% due 10/15/03......................................... 2,019,211 2,095,000
------------ --------------
Telecommunications & Utilities -- 0.4%
2,000 Adelphia Communications 12.50% due 5/15/02.................... 2,002,383 2,040,000
2,500 Diamond Cable zero coupon to 12/15/00,
11.75% thereafter, due 12/15/05............................. 1,539,913 1,484,375
3,000 Marcus Cable 14.25% due 12/15/05.............................. 2,165,000 1,852,500
------------ --------------
5,707,296 5,376,875
------------ --------------
Total Corporate Bonds and Notes............................... 37,189,546 38,456,370
------------ --------------
Total Investments............................................. $981,670,983 1,322,383,360
============ --------------
Repurchase Agreements -- 5.3% of Net Assets
- ---------------------------------------------------------------------------------------------------------------
37,131 J.P. Morgan Securities, 5.42%, cost $37,131,000,
dated 6/28/96, $37,147,771 due 7/1/96,
collateralized by $25,124,000 U.S Treasury Bond,
12.50%, valued at $37,874,430 due 8/15/14................... 37,131,000
37,130 Merrill Lynch, Pierce, Fenner & Smith, 5.30%, cost
$37,130,000, dated 6/28/96, $37,146,399 due 7/1/96,
collateralized by $36,950,000 U.S. Treasury Bond,
7.25%, valued at $37,873,750 due 5/15/16.................... 37,130,000
--------------
Total Repurchase Agreements................................... 74,261,000
--------------
Cash and Receivables-- 0.8%................................... $11,276,253
Liabilities-- (1.0%).......................................... (13,749,404) (2,473,151)
------------ --------------
Net Assets -- equivalent to $16.67 per share
on 83,656,970 shares outstanding............................ $1,394,171,209
==============
Net Assets Consist of:
Capital stock................................................. $ 83,656,970
Additional paid-in capital (note 3)........................... 874,755,815
Undistributed net investment income........................... 8,653,309
Undistributed net realized gain............................... 86,392,738
Net unrealized appreciation................................... 340,712,377
--------------
Net Assets.................................................... $1,394,171,209
==============
<FN>
- --------------
* Non income producing security.
(a) Fair value in the opinion of the Board of Directors.
ADR - American Depository Receipt
</FN>
See accompanying notes to financial statements.
Page 5
</TABLE>
<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 for the six months ended June 30, 1996 (unaudited)
<TABLE>
Investment Income
<S> <C>
Income
Dividends (net of foreign withholding tax of $338,722)............................... $ 12,589,480
Interest............................................................................. 5,207,465
Oil royalties........................................................................ 301,109
------------
18,098,054
<S> <C> <C>
Expenses
Management fee......................................................... $ 2,744,349
Shareholder meeting and reports........................................ 216,360
Shareholder services................................................... 123,160
Legal and auditing fees................................................ 93,550
Custodian.............................................................. 54,120
Directors' fees........................................................ 44,890
Stock certificates and listing fees.................................... 37,340
Other.................................................................. 39,270 3,353,039
------------ ------------
Net investment income................................................................ 14,745,015
------------
Net Realized Gain on Investments, Options and Foreign Currency Transactions.......... 86,013,015
Net Unrealized Appreciation of Investments and Options
Beginning of period.................................................... 290,623,635
End of period.......................................................... 340,712,377
------------
Increase in net unrealized appreciation.............................................. 50,088,742
------------
Net realized gain and increase in net unrealized appreciation........................ 136,101,757
------------
Net increase in net assets resulting from operations................................. $150,846,772
============
See accompanying notes to financial statements.
Page 6
</TABLE>
<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 Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1996 December 31,
(unaudited) 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income...................................... $ 14,745,015 $ 29,913,133
Net realized gain on investments, options and
foreign currency transactions........................... 86,013,015 163,275,979
Increase in net unrealized appreciation.................... 50,088,742 175,429,042
-------------- --------------
Increase in net assets resulting from operations........... 150,846,772 368,618,154
-------------- --------------
Dividends to Shareholders from
Net investment income...................................... (6,692,558) (29,476,237)
Net realized gain.......................................... (40,991,909) (124,785,315)
-------------- --------------
(47,684,467) (154,261,552)
-------------- --------------
Capital Share Transactions
Repurchase of capital stock................................ -- (10,174,413)
-------------- --------------
Total increase in net assets............................... 103,162,305 204,182,189
-------------- --------------
Net Assets
Beginning of period........................................ 1,291,008,904 1,086,826,715
-------------- --------------
End of period (includes undistributed net investment income
of $8,653,309 and $600,852, respectively)............... $1,394,171,209 $1,291,008,904
============== ==============
See accompanying notes to financial statements.
Page 7
</TABLE>
<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 (unaudited)
1. Significant Accounting Policies
The Salomon Brothers Fund Inc (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) 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
Page 8
<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 (unaudited) (continued)
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.
(e) 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. Dividend After June 30, 1996
On July 16, 1996, the Fund declared a dividend of $.09 per share from net
investment income, payable August 9, 1996 to shareholders of record July 26,
1996.
3. Capital Stock
Capital stock transactions were as follows:
1996 1995
---- ----
Shares repurchased
(weighted average discount 15.6%).. -- (750,000)
-------- --------
Net change..................... (750,000) (750,000)
======== ========
4. 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.
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"). 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%
Page 9
<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 (unaudited) (continued)
The performance adjustment is paid quarterly based on a rolling one year period.
A performance adjustment will only be made after the investment performance of
the Fund exceeds or is exceeded by the investment record of the S&P 500 Index by
at least one percentage point. For each percentage point by which the investment
performance of the Fund exceeds or is exceeded by the investment record of the
S&P 500 Index, the base fee will be adjusted upward or downward by .01%
(annualized). The maximum annual adjustment is .10% which would occur if the
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. 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 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. For the years ended March 31, 1996 and June 30, 1996
the Fund's performance exceeded the S&P 500 Index by 1.72% and 2.50%,
respectively. In 1996, this resulted in a total increase of the base management
fee of $140,184 covering the six month period ended June 30, 1996.
Brokerage commissions of $86,448 were paid to Salomon Brothers Inc for
investment transactions executed on behalf of the Fund during the six months
ended June 30, 1996.
5. Portfolio Activity
The cost of securities purchased and proceeds from securities sold (other than
short-term investments and written options) during the six months ended June 30,
1996 aggregated $412,327,270 and $406,203,396, respectively.
Cost of securities held (excluding short-term investments and written options)
on June 30, 1996 for Federal income tax purposes was substantially the same as
for book purposes. As of June 30, 1996, total unrealized appreciation and
depreciation was $354,878,202 and $14,165,825, respectively, resulting in net
unrealized appreciation of $340,712,377.
Page 10
<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 (unaudited) (continued)
Transactions in options written during the year ended December 31, 1995 and
six months ended June 30, 1996 were as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
--------- --------
<S> <C> <C>
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)
------ -----------
Options exercised........................................ 50 4,850
------ -----------
Options outstanding at June 30, 1996..................... - -
====== ===========
</TABLE>
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 $20,362,339. During the six
months ended June 30, 1996 realized gain from written option transactions
amounted to $4,850. During the six months ended June 30, 1996 net realized gain
from purchased option transactions amounted to $1,214,152, for a net realized
gain on all option transactions of $1,219,002.
The risk of 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.
Page 11
<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:
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended June 30, ----------------------------------------------------
1996* 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------
Per share operating performance:
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period............. $15.43 $12.88 $14.88 $15.16 $15.66 $13.33
------ ------ ------ ------ ------ ------
Net investment income............... .18 .35 .33 .34 .40 .45
Net gains (losses) on securities
(both realized and unrealized)(a) 1.63 4.04 (.605) 1.44 .10 3.49
------ ------ ------ ------ ------ ------
Total from investment
operations.............. 1.81 4.39 (.275) 1.78 .50 3.94
------ ------ ------ ------ ------ ------
Less dividends and distributions:
Dividends from net investment
income.......................... (.08) (.35) (.335) (.34) (.40) (.47)
Distributions from net realized
gain on investments............. (.49) (1.49) (1.39) (1.72) (.60) (1.14)
------ ------ ------ ------ ------ ------
Total dividends and
distributions........... (.57) (1.84) (1.725) (2.06) (1.00) (1.61)
------ ------ ------ ------ ------ ------
Net asset value end of period....... $16.67 $15.43 $12.88 $14.88 $15.16 $15.66
====== ====== ====== ====== ====== ======
Market price end of period.......... $14.25 $13.375 $10.625 $12.75 $13.75 $13.875
Total investment return based on
market price per share
excluding broker commissions.... +10.7% +43.3% -3.70% +7.86% +6.44% +42.50%
Ratios/Supplemental data:
Net assets end of period
(millions)...................... $1,394 $1,291 $1,087 $1,176 $1,109 $1,115
Ratio of expenses to average
net assets...................... .49%** .41% .49% .41% .43% .43%
Ratio of net investment income to
average net assets.............. 2.17%** 2.42% 2.33% 2.19% 2.62% 3.01%
Portfolio turnover rate............. 30% 82% 69% 80% 42% 14%
Average broker commission
rate............................ $0.0591 N/A N/A N/A N/A N/A
<FN>
- ------------
(a) For 1995 includes $.02 attributable to the increase in net asset value from
shares repurchased at a discount.
* Unaudited.
** Annualized.
</FN>
</TABLE>
Page 12
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
(left column)
Directors
CHARLES F. BARBER
Consultant; formerly Chairman, ASARCO Incorporated
ANDREW L. BREECH
President, Dealer Operating Control
Service Inc.
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.
WILLIAM R. DILL
President, Anna Maria College;
formerly Consultant and Director of the
Office of Global Enterprise, University of
Southern Maine
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.
ROBERT W. LAWLESS
President and Chief Executive Officer,
Texas Tech University
LOUIS P. MATTIS
Formerly Chairman and President, Sterling
Winthrop Inc.
THOMAS F. SCHLAFLY
Of counsel to law firm of Peper, Martin,
Jensen, Maichel & Hetlage; President,
The Saint Louis Brewery, Inc.
(Right Column)
Officers
MICHAEL S. HYLAND
Chairman and President
RICHARD E. DAHLBERG
Executive Vice President
ALLAN R. WHITE, III
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
<PAGE>
(Left Column)
Salomon Brothers Asset Management
Seven World Trade Center
New York, New York 10048
---------------
BULK RATE
U.S. POSTAGE
PAID
NEWARK, NJ
PERMIT No. 4
---------------
(Right Column)
The Salomon Brothers
Fund Inc
Semi-Annual Report
JUNE 30, 1996
------------------------------------------
Salomon Brothers Asset Management
--------------------------------------
