The Salomon Brothers
Fund Inc
Annual Report
DECEMBER 31, 1996
--------------------------------------
Salomon Brothers Asset Management
--------------------------------------
<PAGE>
Board of Directors
<TABLE>
<S> <C>
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 Interim Presidentship, Boston Architectural Center; formerly
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 and Managing Director,
Salomon Brothers Asset Management Inc and Managing
Director, Salomon Brothers Inc
Clifford M. Kirtland, Jr. Director, Oxford Industries, Inc., Shaw Industries, Inc. and
Graphic Industries, Inc.; formerly Chairman, Cox
Communications, Inc.
Member of the Proxy Committee
Robert W. Lawless President and Chief Executive Officer, University of Tulsa;
formerly President and Chief Executive Officer, Texas Tech
University and Texas Tech University Health Sciences Center
Member of the Proxy Committee
Louis P. Mattis Consultant; 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
</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 20, 1997
THE YEAR 1996 PROVED to be rewarding for the U.S. equity market and The Salomon
Brothers Fund. The net asset value of Fund shares increased by 29.7%, assuming
the income and capital gain distributions made in 1996 were reinvested in
additional shares of the Fund. This compares quite favorably with the 23.0% gain
posted by the Standard and Poor's Index of 500 Stocks. Based on market price, an
investment in The Salomon Brothers Fund appreciated 38.7% during 1996, assuming
reinvestment of income and capital gain distributions in additional Fund shares.
THE NEAR-AND LONG-TERM PERFORMANCE of the Salomon Brothers Fund has been
recognized positively by the financial services industry. Lipper Analytical
Services rated the Fund #1 of 6 closed-end growth and income funds for its one-
and five-year average total returns.
Market Review
THE STOCK MARKET WAS PROPELLED by near-ideal conditions in 1996, including
moderate growth, low inflation and healthy corporate earnings. Further support
was added to the market in the form of demand generated by mutual fund buying,
stock repurchases by corporations and merger and acquisition activity. Corporate
profits came in stronger than expected and the U.S. equity market enjoyed its
second consecutive year of double-digit returns.
IT IS ALSO WORTH NOTING THAT DURING 1996 much of the momentum in the equity
markets was supplied by large-capitalization blue chip stocks. However, The
Salomon Brothers Fund posted the above-average gains discussed above despite
underweighting blue chip issues. We attribute this to the stock-selection skills
of our portfolio managers and to the research and analysis capabilities provided
to them.
Highlights
THE FUND'S STRONG PERFORMANCE IN 1996 was due primarily to stock selection and
to a lesser degree, industry weightings. The financial sector performed well
during the year and the Fund benefited from its holdings in issues such as
SunAmerica and Travelers Group. The decision to own Real Estate Investment
Trusts (REITs) and high yield debt instead of utilities contributed
significantly to performance. In fact, one of the best performing stocks held by
the Fund was the hotel REIT, Starwood Lodging. Fund performance was also
enhanced by the large energy holdings entering the year but these positions have
been pared back as oil prices have risen.
THE FUND BEGAN THE YEAR with almost no technology holdings but took positions in
Seagate Technology and International Business Machines when prices for these
issues moved to attractive levels at mid-year. We held very few commodity
companies, but our sole large holding, DuPont (E.I.) de Nemours, was the only
large capitalization commodity to beat the market in 1996.
Outlook
THE LARGE RALLY IN THE STOCK MARKET over the past two years, and the record
profit margins at industrial companies have raised the level of risk in the
financial markets. Therefore, the Fund is 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. We
consider companies that are restructuring such as Canadian National Railways,
Canadian Pacific, and Eastman Kodak to be defensive holdings, since they are
less dependent upon top line growth to achieve their earnings estimates.
Fund News
Share Repurchase Program. For the year ended December 31, 1996, 179,500 shares
of The Salomon Brothers Fund were repurchased by the Fund at an average price of
$15.013 for a net
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
total of $2,694,828. As authorized by the Board of Directors, the Fund
periodically makes share repurchases out of existing cash assets. Not only does
this practice help to maintain an active market for those wishing to sell
shares, it also benefits investors by giving them an opportunity to purchase
shares at a discount to net asset value.
Automatic Dividend Reinvestment and Cash Payment Plan. This popular service
allows shareholders to have dividends invested automatically in additional Fund
shares. Shareholders who participate in the plan often have an opportunity to
purchase additional shares at a discount to net asset value. Many shareholders
chose this strategy for building long-term holdings in the Fund. During 1996,
4,401,298 shares were purchased on behalf of participants in the Dividend
Reinvestment Plan at an average price of $15.753 for a net total of $69,332,700.
A discussion of benefits of participation in the Plan is included on page 20 and
I encourage you to consider this information carefully.
Shareholders Meeting. The annual meeting of shareholders of The Salomon Brothers
Fund will be held at 1:00 P.M. on April 29, 1997. We invite any shareholder
interested in attending the meeting to join us at Salomon Brothers headquarters,
7 World Trade Center, New York City.
SHAREHOLDERS OF THE FUND may call 1-800-SALOMON (1-800-725-6666), Monday through
Friday from 8:30 A.M. to 6:00 P.M. EST to obtain a current net asset value,
performance and other information about the Fund. For information concerning
your Salomon Brothers Fund stock account, please call the Bank of New York at
1-800-524-4458.
Our Commitment to You
AT SALOMON BROTHERS ASSET MANAGEMENT we are committed to seeking excellence in
performance and in shareholder service and we intend to work hard in the coming
year to achieve these goals. We appreciate the confidence you have demonstrated
in us in the past and we hope to continue to serve you in the future.
Cordially,
Michael S. Hyland
Chairman and President
- --------------------------------------------------------------------------------
IMPORTANT MESSAGE TO SHAREHOLDERS
Any shareholders who are holding old certificates of The Lehman Corporation, the
Fund's former name, should exchange those certificates, free of charge, 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 while you are not
required to exchange the certificates, 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-11W
Church Street Station
P.O. Box 11002
New York, New York 10286-1002
Page 2
<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 the 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.
<TABLE>
<CAPTION>
SUMMARY (unaudited)
- ----------------------------------------------------------------------------------------------------
For the Year Ended December 31
- ----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Assets (in millions) $1,441 $1,291 $1,087 $1,176 $1,109
Shares Outstanding (000's) 83,477 83,657 84,407 79,031 73,161
Net Assets Per Share $17.26 $15.43 $12.88 $14.88 $15.16
Distributions $ 2.425 $ 1.84 $ 1.725 $ 2.06 $ 1.00
Market Price Per Share $16.000 $13.375 $10.625 $12.750 $13.750
Discount from NAV at Year End (7.30)% (13.32)% (17.51)% (14.31)% (9.30)%
Market Price Range (NYSE, symbol SBF):
High $17.000 $14.125 $13.875 $14.375 $14.375
Low $13.250 $10.625 $10.500 $12.625 $13.000
</TABLE>
<TABLE>
<CAPTION>
1996 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>
April April $ .08 $ .21 $ .28 $ .57
August July .09 - - .09
November October .09 - - .09
December December .075 .41 1.19 1.675
-----------------------------------------------------------
Total $ .335 $ .62 $1.47 $2.425
===========================================================
- ----------------------------------------------------------------------------------------------------
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
Automatic Dividend Reinvestment
and Cash Payment Plans
Dividend Reinvestment
The Automatic Dividend Reinvestment Plan ("DRPlan"), administered by The Bank of
New York as DR Plan Agent for shareholders of The Salomon Brothers Fund Inc (the
"Fund"), 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 DRPlan your dividends and distributions are promptly invested
for you, automatically by The Bank of New York, DRPlan agent, 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 the Fund 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 the Fund. 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 DRPlan. 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.
Page 4
<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 1972, 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.
<TABLE>
<CAPTION>
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
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1972 $11,455 $ 727 $ 176 $ 12,358 $ 10,715
1973 9,233 1,113 309 10,655 8,557
1974 6,027 1,013 371 7,411 5,763
1975 7,359 1,714 635 9,708 7,751
1976 8,439 1,966 898 11,303 9,275
1977 7,342 2,457 988 10,787 8,633
1978 7,728 3,021 1,349 12,098 8,650
1979 9,189 4,567 2,057 15,813 12,640
1980 10,565 6,640 3,039 20,244 17,156
1981 8,707 7,602 3,329 19,638 18,932
1982 9,312 11,526 4,827 25,665 26,798
1983 10,213 15,191 6,399 31,803 32,456
1984 8,209 16,306 6,281 30,796 31,489
1985 9,384 21,260 8,446 39,090 37,296
1986 8,629 27,261 8,974 44,864 44,005
1987 7,420 28,880 8,909 45,209 37,504
1988 8,041 33,099 11,438 52,578 42,535
1989 8,719 41,888 14,094 64,701 53,986
1990 7,459 38,962 13,983 60,404 49,846
1991 8,763 51,662 18,653 79,078 70,064
1992 8,483 53,260 20,096 81,839 74,227
1993 8,327 61,912 21,537 91,776 78,638
1994 7,202 61,941 20,600 89,743 74,088
1995 8,635 85,211 27,227 121,073 104,948
1996 9,659 112,527 33,241 155,427 144,080
</TABLE>
Page 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
G R O W T H O F $ 1 0 , 0 0 0
Total Net
Asset Value
$155,427
$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
Total Market
Value
$144,080
Cumulative
Net
Asset Value of
Income
Dividends
Reinvested
$33,241
Cumulative
Net Asset Value
of Income
Dividends
Reinvested
Cumulative
Net Asset
Value of
Capital Gain
Distributions
Reinvested
Cumulative
Net
Asset Value of
Capital Gains
Distributions
Reinvested
$112,527
Net Asset
Value of Initial
Investment
Initial Market
Value
$9,163
Net Asset
Value of Initial
Investment
$9,659
1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
12/31/96
Page 7
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
Record 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
1996 .335 2.09 17.26 48.435 65.695
------- -------
Totals $20.136 $48.435
======= =======
<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>
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
Largest Investments (unaudited)
The ten largest investments in the Fund's portfolio at December 31, 1996 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, 1996 had an
aggregate net asset value of $17,260, of which 27%, or $4,660, was invested in
these ten securities.
<TABLE>
<CAPTION>
Shares Value
----------------------------------------------------
<S> <C> <C>
Columbia/HCA Healthcare ................................ 1,080,000 $ 44,010,000
Canadian National Railway .............................. 1,125,000 42,750,000
Bank of New York ....................................... 1,263,400 42,639,750
First Data ............................................. 1,087,000 39,675,500
SmithKline Beecham-- ADR ............................... 580,000 39,440,000
Royal Dutch Petroleum, 5 Guilder ....................... 213,500 36,455,125
Praxair ................................................ 780,000 35,977,500
Mobil .................................................. 285,000 34,841,250
Travelers Group ........................................ 736,332 33,411,065
Tyco International ..................................... 626,500 33,126,188
------------
Total......................................................... $382,326,378
============
- ----------------------------------------------------------------------------------------------------
FEDERAL TAX STATUS OF DISTRIBUTIONS (unaudited)
For corporate taxpayers, approximately 19% of the ordinary dividends paid in
April and 30% of the ordinary dividends paid in August, November and December
qualify for the corporate dividends received deduction.
- ----------------------------------------------------------------------------------------------------
</TABLE>
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
Major Portfolio Changes (unaudited)
Listed below are the Fund's major portfolio changes during the three months
ended December 31, 1996. Excluded from the list are changes resulting entirely
from stock dividends and stock splits.
<TABLE>
<CAPTION>
Additions
- ----------------------------------------------------------------------------------------------------
Shares
Increased
-----------------
<S> <C>
AT&T............................................................................... 461,200(1)
Chase Manhattan.................................................................... 86,400(1)
Crown Cork & Seal.................................................................. 267,200(1)
Gulfstream Aerospace............................................................... 1,140,000(1)
Lear............................................................................... 115,000
Millennium Chemicals............................................................... 23,500(1)
Price/Costco....................................................................... 606,700
Rhone-Poulenc Rorer................................................................ 45,000
Seagate Technology................................................................. 153,638
SunAmerica 8.50% Convertible Preferred............................................. 200,000(1)
Union Camp......................................................................... 300,000(1)
</TABLE>
<TABLE>
<CAPTION>
Reductions
- ----------------------------------------------------------------------------------------------------
Shares/
Principal Amount
Decreased
-----------------
<S> <C>
ADVANTA, Class B................................................................... 137,300
AlliedSignal....................................................................... 110,000
Aluminum Company of America........................................................ 51,600(2)
American Express................................................................... 37,800
Black & Decker..................................................................... 449,500(2)
Cole National 11.25% due 10/1/01................................................... $1,000,000(2)
DuPont (E.I.) de Nemours........................................................... 49,000
EMC................................................................................ 540,000(2)
Ford Motor......................................................................... 101,800
Hanna (M.A.)....................................................................... 90,800(2)
Merrill Lynch 6.50% Convertible Preferred.......................................... 70,000(2)
Praxair............................................................................ 75,000
Raytheon........................................................................... 494,000(2)
Samsonite 11.125% due 7/15/05...................................................... $2,000,000(2)
Silgan Holdings 13.25% due 12/15/02................................................ $231,000
SmithKline Beecham-- ADR........................................................... 125,000
SunAmerica......................................................................... 200,000
Texaco............................................................................. 150,000(2)
UCAR International................................................................. 495,000(2)
(1) New Addition (2) Elimination
Page 9
</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 Investments December 31, 1996
<TABLE>
<CAPTION>
Common Stocks -- 96.8% of Net Assets
- ----------------------------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Industries -- 7.5%
267,200 Crown Cork & Seal.................................. $ 12,387,447 $ 14,529,000
281,000 Du Pont (E.I.) de Nemours.......................... 18,735,219 26,519,375
23,500 Millennium Chemicals............................... 530,160 417,125
450,000 Nalco Chemical..................................... 13,777,075 16,256,250
780,000 Praxair ........................................... 17,111,780 35,977,500
300,000 Union Camp......................................... 14,740,133 14,325,000
------------ --------------
77,281,814 108,024,250
------------ --------------
Capital Goods -- 9.1%
290,000 AlliedSignal....................................... 5,723,040 19,430,000
361,500 Deere.............................................. 8,449,480 14,685,937
193,750 General Electric................................... 1,361,174 19,157,031
1,140,000 Gulfstream Aerospace............................... 27,470,704 27,645,000
626,500 Tyco International................................. 14,679,139 33,126,188
300,000 York International................................. 14,140,882 16,762,500
------------ --------------
71,824,419 130,806,656
------------ --------------
Consumer Cyclicals -- 13.0%
330,000 Eastman Kodak...................................... 12,859,127 26,482,500
405,000 Federated Department Stores*....................... 7,668,103 13,820,625
213,000 Ford Motor......................................... 6,916,845 6,789,375
235,000 General Motors..................................... 13,012,719 13,101,250
1,144,500 Host Marriott*..................................... 12,119,158 18,312,000
585,000 Lear*.............................................. 18,918,448 19,963,125
210,000 Magna International, Class A....................... 9,925,414 11,707,500
875,000 Price/Costco*...................................... 17,901,724 21,984,375
494,700 Sears, Roebuck..................................... 12,283,660 22,818,038
315,000 Sherwin-Williams................................... 10,664,192 17,640,000
434,000 U.S. Industries*................................... 6,391,891 14,918,750
------------ --------------
128,661,281 187,537,538
------------ --------------
Consumer Staples -- 9.8%
566,300 Coca-Cola Enterprises.............................. 17,407,867 27,465,550
308,000 ConAgra............................................ 10,260,970 15,323,000
525,800 Hormel Foods....................................... 12,602,983 14,196,600
640,500 Kroger*............................................ 15,512,934 29,783,250
150,000 Loews.............................................. 12,270,614 14,137,500
301,000 Penn Traffic*...................................... 11,851,288 1,091,125
172,500 Philip Morris Companies............................ 13,843,158 19,427,813
750,000 Pittston Brink's Group............................. 13,947,383 20,250,000
------------ --------------
107,697,197 141,674,838
------------ --------------
Energy -- 12.0%
335,300 Amoco.............................................. 19,098,473 26,991,650
211,000 Chevron............................................ 9,195,555 13,715,000
225,000 Dresser Industries................................. 6,799,613 6,975,000
400 Gas Properties (100% owned)........................ 40,000 742,000(a)
285,000 Mobil.............................................. 21,712,087 34,841,250
213,500 Royal Dutch Petroleum, 5 Guilder................... 17,192,475 36,455,125
402,777 TOTAL-- ADR........................................ 11,363,654 16,211,774
394,737 Union Pacific Resources Group...................... 9,769,329 11,546,058
647,400 Williams Companies................................. 16,315,572 24,277,500
Royalty Interest................................... -- 923,800(a)
------------ --------------
111,486,758 172,679,157
------------ --------------
</TABLE>
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
Statement of Investments December 31, 1996 (continued)
<TABLE>
<CAPTION>
Common Stocks continued
- ----------------------------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Services -- 15.2%
167,700 ADVANTA, Class B................................... $ 7,428,130 $ 6,854,737
269,700 American Express................................... 4,805,434 15,238,050
230,500 Associates First Capital........................... 6,806,300 10,170,812
461,500 Bank of Boston..................................... 19,967,599 29,651,375
1,263,400 Bank of New York................................... 18,380,844 42,639,750
86,400 Chase Manhattan.................................... 7,755,610 7,711,200
220,600 Federal Home Loan Mortgage......................... 14,276,815 24,293,575
152,500 Federal National Mortgage Association.............. 845,689 5,680,625
106,500 Long Island Bancorp................................ 2,827,317 3,727,500
217,500 MGIC Investment.................................... 6,818,755 16,530,000
520,000 SunAmerica......................................... 6,049,981 23,075,000
736,332 Travelers Group.................................... 12,625,892 33,411,065
------------ --------------
108,588,366 218,983,689
------------ --------------
Health Care -- 13.2%
319,500 Aetna.............................................. 21,783,668 25,560,000
360,000 American Home Products............................. 21,094,425 21,105,000
630,000 Astra AB, Class A.................................. 26,115,296 31,093,910
1,080,000 Columbia/HCA Healthcare............................ 30,517,898 44,010,000
375,000 Rhone-Poulenc Rorer................................ 23,811,655 29,296,875
580,000 SmithKline Beecham-- ADR........................... 27,561,722 39,440,000
------------ --------------
150,884,664 190,505,785
------------ --------------
Real Estate Investment Trusts -- 2.9%
336,000 Beacon Properties.................................. 7,683,650 12,306,000
450,000 Highwood Properties................................ 11,527,507 15,187,500
250,000 Starwood Lodging Trust............................. 8,939,050 13,781,250
------------ --------------
28,150,207 41,274,750
------------ --------------
Technology -- 7.2%
487,500 Ceridian*.......................................... 12,777,968 19,743,750
106,000 DSTSystems*........................................ 2,425,650 3,325,750
1,087,000 First Data......................................... 20,453,428 39,675,500
138,000 International Business Machines.................... 16,551,333 20,838,000
90,000 National Data...................................... 2,089,643 3,915,000
275,138 Seagate Technology*................................ 8,968,119 10,867,951
225,000 Silicon Graphics*.................................. 5,248,411 5,737,500
------------ --------------
68,514,552 104,103,451
------------ --------------
Telecommunications & Utilities -- 1.4%
461,200 AT&T............................................... 18,548,126 20,062,200
------------ --------------
Transportation -- 5.5%
1,125,000 Canadian National Railway.......................... 27,744,354 42,750,000
1,095,000 Canadian Pacific .................................. 25,073,062 29,017,500
135,000 Union Pacific...................................... 5,960,644 8,116,875
------------ --------------
58,778,060 79,884,375
------------ --------------
Total Common Stocks................................ 930,415,444 1,395,536,689
------------ --------------
Page 11
</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 Investments December 31, 1996 (continued)
<TABLE>
<CAPTION>
Convertible Preferred Stock -- 0.6% of Net Assets
- ----------------------------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Services -- 0.6%
200,000 SunAmerica 8.50% ................................. $ 7,500,000 $ 8,450,000
------------ --------------
</TABLE>
<TABLE>
<CAPTION>
Corporate Bonds and Notes -- 2.0% of Net Assets
- ----------------------------------------------------------------------------------------------------
Principal
Amount
(Thousands)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Industries -- 0.3%
$ 1,000 Selmer 11% due 5/15/05............................ 981,322 1,092,500
1,161 Silgan Holdings 13.25% due 12/15/02............... 1,192,464 1,175,513
2,500 United International Holding Zero Coupon
due 11/15/99.................................... 1,733,346 1,787,500
------------ --------------
3,907,132 4,055,513
------------ --------------
Capital Goods -- 0.2%
2,000 Terex 13.25% due 5/15/02.......................... 1,837,610 2,160,000
8,000 Terex Stock Appreciation Rights*.................. -- 18,000
------------ --------------
1,837,610 2,178,000
------------ --------------
Consumer Cyclicals -- 0.8%
6,000 Federated Department Stores 5% Convertible
due 10/1/03..................................... 6,000,000 6,982,500
2,000 Finlay Fine Jewelry 10.625% due 5/1/03............ 1,923,629 2,100,000
2,000 Hines Horticulture 11.75% due 10/15/05............ 2,096,764 2,140,000
------------ --------------
10,020,393 11,222,500
------------ --------------
Consumer Staples -- 0.1%
2,000 Borg-Warner Security 9.125% due 5/1/03............ 1,877,809 2,007,500
------------ --------------
Technology -- 0.1%
2,000 Talley Manufacturing & Technology
10.75% due 10/15/03............................. 2,018,296 2,095,000
------------ --------------
Telecommunications & Utilities -- 0.5%
2,000 Adelphia Communications 12.50% due 5/15/02........ 2,002,238 2,060,000
1,000 American Media Operation 11.625% due 11/15/04..... 1,032,673 1,065,000
2,500 Diamond Cable zero coupon to 12/15/00,
11.75% thereafter, due 12/15/05................. 1,627,645 1,790,625
3,000 Marcus Cable 14.25% due 12/15/05.................. 2,287,245 2,167,500
------------ --------------
6,949,801 7,083,125
------------ --------------
Total Corporate Bonds and Notes................... 26,611,041 28,641,638
------------ --------------
Total Investments................................. $964,526,485 $1,432,628,327
============ ==============
</TABLE>
<TABLE>
Repurchase Agreements -- 3.5% of Net Assets
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
25,049 J.P. Morgan Securities, 6.60%, cost $25,049,000,
dated 12/31/96, $25,058,185 due 1/2/97,
collateralized by $23,996,000 U.S. Treasury Bond,
7.125%, valued at $25,675,720 due 2/15/23................... $ 25,049,000
24,050 UBS Securities, 6.75%, cost $24,050,000, dated 12/31/96,
$24,059,019 due 1/2/97, collateralized by $20,615,000
U.S. Treasury Bond, 8.125%, valued at $24,531,850
due 8/15/19................................................. 24,050,000
1,000 UBS Securities, 6.50%, cost $1,000,000, dated 12/31/96,
$1,000,361 due 1/2/97, collateralized by $994,000
U.S. Treasury Bond, 6.125%, valued at $1,020,093
due 7/31/00................................................. 1,000,000
--------------
Total Repurchase Agreements....................... $ 50,099,000
==============
<FN>
- ------------
*Non-income producing security.
(a)Fair value determined pursuant to procedures established by the Board of Directors.
ADR-- American Depository Receipt.
</FN>
</TABLE>
See accompanying notes to financial statements
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
Statement of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Income
Dividends (net of foreign withholding tax of $468,914 for 1996 and
$263,858 for 1995)........................................ $ 24,315,312 $ 19,911,642
Interest...................................................... 9,519,870 14,709,245
Royalties..................................................... 485,615 369,988
------------ ------------
34,320,797 34,990,875
------------ ------------
Expenses
Management fee ............................................... 5,894,684 3,919,282
Shareholder meeting and reports .............................. 403,720 352,360
Shareholder services ......................................... 203,600 232,200
Legal and auditing fees ...................................... 201,190 204,315
Custodian .................................................... 120,360 122,525
Directors' fees .............................................. 91,810 88,500
Stock certificates and listing fees........................... 61,260 79,955
Other ........................................................ 97,350 78,605
------------ ------------
7,073,974 5,077,742
------------ ------------
Net investment income 27,246,823 29,913,133
------------ ------------
Net Realized Gain on Investments and Options ................. 150,197,562 163,275,979
Net Unrealized Appreciation of Investments and Options
Beginning of year ............................................ 290,623,635 115,194,593
End of year .................................................. 468,101,469 290,623,635
------------ ------------
Increase in net unrealized appreciation ...................... 177,477,834 175,429,042
------------ ------------
Net realized gain and increase in net unrealized appreciation 327,675,396 338,705,021
------------ ------------
Net increase in net assets from operations ................... $354,922,219 $368,618,154
============ ============
See accompanying notes to financial statements
Page 13
</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 Assets and Liabilities
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments (cost 1996 -- $964,526,485;
1995-- $915,472,930)........................................$1,432,628,327 $1,206,106,715
Repurchase agreements ........................................ 50,099,000 110,000,000
Cash ......................................................... 106,288 3,418,022
Receivable for securities sold ............................... - 6,917,621
Dividends and interest receivable ............................ 1,643,301 2,417,707
-------------- --------------
Total assets ............................................. 1,484,476,916 1,328,860,065
============== ==============
Liabilities
Payable for dividends declared................................ 41,891,174 36,588,614
Payable for securities purchased ............................. - 34,060
Written options at value (premium received 1995-- $4,850) .... - 15,000
Management fee payable ....................................... 1,609,860 970,114
Accrued expenses ............................................. 290,916 243,373
-------------- --------------
Total liabilities ........................................ 43,791,950 37,851,161
============== ==============
Net Assets
Capital stock................................................. 83,477,470 83,656,970
Additional paid-in capital.................................... 872,240,487 874,755,815
Undistributed (distributions in excess of) net investment income (147,792) 600,852
Undistributed net realized gains.............................. 17,013,332 41,371,632
Net unrealized appreciation .................................. 468,101,469 290,623,635
-------------- --------------
Net assets ...............................................$1,440,684,966 $1,291,008,904
============== ==============
Shares of capital stock, $1.00 par value,
authorized 100,000,000; outstanding ........................ 83,477,470 83,656,970
Net Asset Value Per Share..................................... $17.26 $15.43
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
- ----------------------------------------------------------------------------------------------------
Operations
<S> <C> <C>
Net investment income ........................................$ 27,246,823 $ 29,913,133
Net realized gain on investments and options.................. 150,197,562 163,275,979
Increase in net unrealized appreciation....................... 177,477,834 175,429,042
-------------- --------------
Increase in net assets from operations........................ 354,922,219 368,618,154
-------------- --------------
Distributions to Shareholders from
Net investment income ........................................ (27,995,467) (29,476,237)
Net realized gain on investments ............................. (174,555,862) (124,785,315)
-------------- --------------
(202,551,329) (154,261,552)
-------------- --------------
Capital Share Transactions
Repurchase of capital stock (note 3).......................... (2,694,828) (10,174,413)
-------------- --------------
Total increase in net assets ................................. 149,676,062 204,182,189
-------------- --------------
Net Assets
Beginning of year ............................................ 1,291,008,904 1,086,826,715
-------------- --------------
End of year ..................................................$1,440,684,966 $1,291,008,904
============== ==============
</TABLE>
See accompanying notes to financial statements
Page 14
<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 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 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. The Fund owns shares of real estate
investment trusts ("REITs") which report information on the source of
their distributions annually. A portion of distributions received from
REITs during the year is estimated to be a return of capital and is
recorded as a reduction of their cost.
Page 15
<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)
2. Distribution After December 31, 1996
On January 28, 1997, the Fund declared a distribution from net short-term
capital gains of $.05 per share and a distribution from net long-term capital
gains of $.16 per share. The distributions are payable March 7, 1997 to
shareholders of record February 26, 1997.
3. Capital Stock Transactions
Capital stock transactions were as follows:
1996 1995
---- ----
Shares repurchased
(weighted average discount 13.9% and
15.6%, respectively)..................... (179,500) (750,000)
--------- ---------
Net change........................... (179,500) (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%
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, June 30, 1996,
September 30, 1996 and December 31, 1996 the Fund's performance exceeded the S&P
500 Index by 1.72%, 2.50%, 5.67% and 5.51%, respectively. In 1996, this resulted
in a total increase of the base management fee of $526,920 covering the year
ended December 31, 1996.
Page 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 (concluded)
Brokerage commissions of $150,180 were paid to Salomon Brothers Inc for
investment transactions executed on behalf of the Fund during the year ended
December 31, 1996.
5. 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,
1996 aggregated $675,795,858 and $751,392,898, respectively.
Cost of securities held (excluding short-term investments and written options)
on December 31, 1996 for Federal income tax purposes was substantially the same
as for book purposes. As of December 31, 1996, total unrealized appreciation and
depreciation was $480,272,142 and $12,170,673, respectively, resulting in net
unrealized appreciation of $468,101,469.
Transactions in options written during the years ended December 31, 1995
and 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 exercised ....................................... 1,725 258,334
------ -----------
Options outstanding at December 31, 1995................. (50) (4,850)
------ -----------
Options exercised........................................ 50 $ 4,850
------ -----------
Options outstanding at December 31, 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 year
ended December 31, 1996 realized gain from written option transactions amounted
to $4,850. During the year ended December 31, 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.
6. Subsequent Event
On January 28, 1997, pending shareholder approval, the Board of Directors of the
Fund approved an increase in the base management fee payable to SBAM.
Information regarding this matter will be contained in a proxy statement to be
mailed to shareholders on or about March 7, 1997.
Page 17
<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 year:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value
beginning of year..................... $15.43 $12.88 $14.88 $15.16 $15.66
------ ------ ------ ------ ------
Net investment income .................. .33 .35 .33 .34 .40
Net gains (losses) on securities
(both realized and unrealized) (a).... 3.925 4.04 (.605) 1.44 .10
------ ------ ------- ------ ------
Total from investment
operations........................ 4.255 4.39 (.275) 1.78 .50
------ ------ ------- ------ ------
Less dividends and distributions:
Dividends from net investment
income ............................... (.335) (.35) (.335) (.34) (.40)
Distributions from net realized gain
on investments........................ (2.09) (1.49) (1.39) (1.72) (.60)
------ ------ ------ ------ ------
Total dividends and
distributions .................... (2.425) (1.84) (1.725) (2.06) (1.00)
------- ------ ------- ------ ------
Net asset value end of year ............ $17.26 $15.43 12.88 $14.88 $15.16
====== ====== ====== ====== ======
Market price end of year................ $16.00 $13.375 $10.625 $12.75 $13.75
Total investment return based on
market price per share
excluding broker commissions.......... +38.7% +43.3% -3.70% +7.86% +6.44%
Ratios/Supplemental Data:
Net assets end of year
(millions)............................ $1,441 $1,291 $1,087 $1,176 $1,109
Ratio of expenses to average
net assets ........................... .51% .41% .49% .41% .43%
Ratio of net investment income to
average net assets ................... 1.96% 2.42% 2.33% 2.19% 2.62%
Portfolio turnover rate ................ 52% 82% 69% 80% 42%
Average broker commission
rate ............................... $0.0596 N/A N/A N/A N/A
<FN>
- ------------
(a) Includes $.015 and $.02 attributable to the increase in net asset value from shares repurchased
at a discount for the years ended 1996 and 1995, respectively.
</FN>
</TABLE>
See accompanying notes to financial statements
Page 18
<PAGE>
S A L O M O N B R O T H E R S F U N D I N C
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, 1996, 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, 1996 and 1995, 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,
1996, 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, 1996 and 1995 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 14, 1997
Quarterly Financial Information
Summary of quarterly results of operations (unaudited):
<TABLE>
<CAPTION>
Amounts in Thousands and Per Share
Three Months Ended
-------------------------------------------------------------------------
March 31, 1996 June 30, 1996 Sept. 30, 1996 Dec. 31, 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment
income ................ $ 6,656 $ .08 $ 8,089 $.10 $ 6,638 $.08 $ 5,864 $5.07
Net realized gain &
change in net unrealized
appreciation........... $101,396 $1.21 $34,706 $.41 $73,743 $.88 $117,830 $1.41
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
Page 19
</TABLE>
<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 share holders 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.
Page 20
<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 22
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
Page 21
<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.
Page 22
<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
THE 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.)
<PAGE>
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
- --------------------------------------------------------------------------------
If you desire 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 hereon.
THIS IS NOT A PROXY
<PAGE>
<TABLE>
<S> <C>
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
Jennifer G. Muzzey Secretary
Janet S. Tolchin Assistant Treasurer
Reji Paul Assistant Treasurer
Noel B. Daugherty 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 Thacher & 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
This report has been printed on recycled paper.
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