<PAGE>
The Salomon Brothers
Fund Inc
Annual Report
DECEMBER 31, 1998
- ---------------------------------------
Salomon Brothers Asset Management
---------------------------------------
<PAGE>
SALOMON BROTHERS FUND INC
To Our Shareholders
The Salomon Brothers Fund Inc
7 World Trade Center
New York, NY 10048
February 19, 1999
MARKET OVERVIEW & PORTFOLIO HIGHLIGHTS
During 1998, the Salomon Brothers Fund returned 21.3% based on net asset value
per share and assuming the distributions from income and capital gains were
reinvested in additional shares of the Fund. The S&P 500 index rose 28.6%, an
unprecedented fourth consecutive year of more than 20% annual performance. The
stock market's leadership was narrow, with the largest 20 companies up 55%,
while the next 480 stocks rose only 16%. Microsoft alone was responsible for
over one quarter of the increase in value of the entire stock market! In
contrast to the smooth seas of the past three years, financial markets were
choppy in 1998. The stock market rose 23% throughout July 17, only to swoon back
to a 0% gain on October 7, before returning to new highs in December.
THE REVERBERATIONS FROM THE ASIAN CRISIS propelled the market swings in 1998.
During the first half of the year, the market was led by defensive names; the
pharmaceuticals, consumer products and telecommunications companies. Commodity
and cyclical companies rebounded in the first quarter on hopes that the brunt of
Asia's crisis had already been felt, only to fall sharply in the second quarter
as US GDP growth slowed to 1.4%. The collapse of the Russian ruble in August and
the near failure of Long Term Capital Management crushed financial stocks during
the third quarter. By year end the Federal Reserve had taken aggressive action
making three interest rate cuts which drove the market to new highs, led by the
technology and telecommunications sectors.
SIGNIFICANT CONTRIBUTORS to the fund's 1999 performance included MCI WorldCom,
IBM and Viacom. The Fund is well diversified, with overweighted sectors
including basic industries and transportation. The fund has underweight
positions in capital goods and health care. While the average holding is less
expensive than the US market, the Fund's holdings are expected to grow more
rapidly than the market.
OUTLOOK
Our outlook for the stock market in 1999 is one of cautious optimism. We expect
the US economy to have a positive influence on stocks, as the three interest
rate cuts in the fall of 1998 should lead to an acceleration in earnings during
1999. The Asian crisis seems to have bottomed. Inflation is low, giving the
Federal Reserve room to ease if further problems in the world's economies
warrant action. Our chief concern is that stock market valuations are very high.
Internet stocks, and to a lesser degree the entire technology sector, appear to
be irrationally priced.
FOR THE FIRST TIME in three years, significant valuation disparities are
emerging between industry groups. The defensive sectors are expensive, while
basic industries and cyclicals are more attractively valued. We are currently
finding opportunities in consistent growers that have fallen in price, and are
nibbling at cyclicals where we feel that the price declines are overdone. We
believe that the macroeconomic environment continues to favor long-term
financial assets.
THE FUND INTENDS to repurchase shares of its stock at such times and prices and
in such amounts as is deemed advisable. We will report all repurchases to
shareholders semi-annually. The Fund made no share repurchases during 1998.
THE AUTOMATIC DIVIDEND REINVESTMENT and Cash Payment Plan (the "Plan") remains a
popular service for many shareholders seeking to build their holdings in the
Fund. Under the terms of the Plan, shareholders may arrange to reinvest their
dividends automatically in additional shares. The Plan provides that when the
Fund's shares are traded at a discount to net asset value, dividends and
distributions will be initially payable in the form of shares purchased by The
Bank of New York, the "Plan Agent", in the open market. To the extent that the
discount converts to a premium during the purchase period or when the
permissible purchase period ends, the balance will be paid in newly issued
shares of the Fund. With respect to the December 1998 dividends, the Plan Agent
purchased 671,700 shares on behalf of participants in the Dividend Reinvestment
Plan for a net total of $12,222,886 and 3,562,403 shares were issued to
participants.
THE PLAN OFFERS participants three different reinvestment options: (1)
shareholders may have all of their net investment income dividends and capital
gain distributions (short-term and long-term)
Page 1
<PAGE>
SALOMON BROTHERS FUND INC
automatically reinvested; (2) shareholders may have all of their net investment
income dividends paid in cash and all of their capital gain distributions
(short-term and long-term) automatically reinvested; or (3) shareholders may
have their net investment income dividends automatically reinvested and their
capital gain distributions (short-term and long-term) paid in cash. A new
shareholder or new participant will be deemed to have chosen option (1) unless
the Plan Agent is notified of a change in election. Additional information
regarding these additional optional features of the Plan can be obtained from
the Plan Agent, by calling 1-800-432-8224.
SHAREHOLDERS OF THE FUND may call 1-888-777-0102, toll free, 24 hours a day to
obtain account information, including account values, portfolio breakdown and
performance information. For information concerning your Salomon Brothers Fund
stock account, please call the Bank of New York at 1-800-432-8224.
ALL OF US AT Salomon Brothers Asset Management Inc appreciate the confidence you
have demonstrated in the past and hopes to continue to serve you in future
years.
Cordially,
/s/ Heath B. McLendon
HEATH B. MCLENDON
Chairman and President
SPECIAL SHAREHOLDER NOTICE. In August, 1998, Michael A. Kagan became portfolio
manager of the Fund, primarily responsible for the Fund's day-to-day
investments. Mr. Kagan is a Director of Salomon Brothers Asset Management Inc,
which he joined in 1994, and had been co-manager of the portfolio since
September, 1995.
- --------------------------------------------------------------------------------
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>
SALOMON BROTHERS FUND INC
Investment Policy
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
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 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.
SUMMARY (unaudited)
- --------------------------------------------------------------------------------
For the Year Ended December 31
- --------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Assets (in millions) $ 1,686 $ 1,545 $ 1,441 $ 1,291 $ 1,087
Shares Outstanding (000's) 89,907 83,477 83,477 83,657 84,407
Net Assets Per Share $ 18.76 $ 18.51 $ 17.26 $ 15.43 $ 12.88
Distributions $ 3.459 $ 2.95 $ 2.425 $ 1.84 $ 1.725
Market Price Per Share $18.188 $17.688 $16.000 $13.375 $10.625
Discount from NAV at Year End (3.05)% (4.44)% (7.30)% (13.32)% (17.51)%
Market Price Range (NYSE, symbol SBF):
High $19.813 $19.688 $17.000 $14.125 $13.875
Low $14.750 $14.875 $13.250 $10.625 $10.500
1998 DISTRIBUTIONS DECLARED (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Short Term Long Term Total Payment
Payment Date Record Date Investment Income Capital Gains Capital Gains Per Share
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
February February $ - $ - $ .32 $ .32
May May .05 - - .05
August July .05 .015 .265 .33
November November .10 - - .10
December December .069 .065 2.525 2.659
----------------------------------------------------
Total $ .269 $ .08 $3.11* $3.459
====================================================
<FN>
* Consists of $.105 of 28% gain and $3.005 from 20% gain.
</FN>
- ------------------------------------------------------------------------------------------
Page 3
</TABLE>
<PAGE>
SALOMON BROTHERS FUND INC
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>
SALOMON BROTHERS FUND INC
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
1997 .27 2.68 18.51 51.115 69.625
1998 .269 3.19 18.76 54.305 73.065
------- -------
Totals $20.675 $54.305
======= =======
<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.
* Does not reflect the effect of reinvestment of income dividends or capital
gain distributions.
</FN>
Page 5
</TABLE>
<PAGE>
SALOMON BROTHERS FUND INC
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 1974, 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>
1974 $ 6,527 $ 269 $ 159 $ 6,955 $ 5,409
1975 7,970 776 365 9,111 7,274
1976 9,139 890 578 10,607 8,705
1977 7,952 1,475 697 10,124 8,102
1978 8,370 1,960 1,023 11,353 8,118
1979 9,952 3,246 1,642 14,840 11,862
1980 11,442 5,036 2,520 18,998 16,100
1981 9,430 6,149 2,851 18,430 17,768
1982 10,085 9,763 4,238 24,086 25,150
1983 11,061 13,101 5,685 29,847 30,459
1984 8,891 14,374 5,637 28,902 29,553
1985 10,164 18,891 7,632 36,687 35,002
1986 9,345 24,608 8,151 42,104 41,299
1987 8,036 26,264 8,129 42,429 35,197
1988 8,709 30,153 10,482 49,344 39,919
1989 9,442 38,325 12,954 60,721 50,665
1990 8,079 35,722 12,889 56,690 46,781
1991 9,491 47,492 17,230 74,213 65,754
1992 9,188 49,024 18,593 76,805 69,662
1993 9,018 57,162 19,951 86,131 73,801
1994 7,800 57,316 19,107 84,223 69,531
1995 9,352 78,993 25,282 113,627 98,493
1996 10,461 104,513 30,893 145,867 135,218
1997 11,218 135,130 35,334 181,682 173,609
1998 11,370 170,617 38,438 220,425 213,698
</TABLE>
Page 6
<PAGE>
SALOMON BROTHERS FUND INC
TOTAL NET ASSET VALUE
$220,425
$230,000
220,000
210,000
200,000
190,000
180,000
170,000
160,000
150,000
140,000
130,000
120,000
110,000
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
TOTAL MARKET VALUE
$213,698
1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
CUMULATIVE NET
ASSET VALUE OF INCOME DIVIDENDS REINVESTED
$38,438
CUMULATIVE
NET ASSET VALUE OF INCOME DIVIDENDS REINVESTED
$170,617
CUMULATIVE NET ASSET VALUE OF CAPITAL GAIN DISTRIBUTIONS REINVESTED
CUMULATIVE NET
ASSET VALUE OF CAPITAL GAINS DISTRIBUTIONS REINVESTED
NET ASSET VALUE OF INITIAL INVESTMENT
INITIAL MARKET VALUE
$8,030
NET ASSET VALUE OF INITIAL INVESTMENT
$11,370
12/31/98
Page 7
<PAGE>
SALOMON BROTHERS FUND INC
Largest Investments (unaudited)
The ten largest investments in the Fund's portfolio at December 31, 1998 are
listed below. The total market value of these securities approximates 28% 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, 1998 had an
aggregate net asset value of $18,760, of which 28%, or $5,253, was invested in
these ten securities.
Shares Value
--------------------------
Bank of New York..................................... 1,690,000 $ 68,022,500
International Business Machines...................... 360,000 66,510,000
Costco Companies..................................... 800,000 57,750,000
Federal Home Loan Mortgage........................... 882,400 56,859,650
Philip Morris Companies.............................. 942,000 50,397,000
Tele-Communications--TCI Ventures Group, Class A..... 1,655,770 39,014,081
RJR Nabisco Holdings................................. 1,213,000 36,010,938
MCI WorldCom......................................... 495,000 35,516,250
Vulcan Materials..................................... 260,000 34,206,250
Viacom, Class B...................................... 445,500 32,967,000
------------
Total................................................ $477,253,669
============
- --------------------------------------------------------------------------------
FEDERAL TAX STATUS OF DISTRIBUTIONS (unaudited)
The Fund herby designates, for federal income tax purposes, $268,528,710 as the
amount of long-term gains paid for the fiscal year ended December 31, 1998.
For corporate taxpayers, approximately 34% of the ordinary dividends paid in the
year ended December 31, 1998, qualify for the corporate dividends received
deduction.
- --------------------------------------------------------------------------------
Page 8
<PAGE>
SALOMON BROTHERS FUND INC
Major Portfolio Changes for the three months ended December 31, 1998 (unaudited)
ADDITIONS+
- --------------------------------------------------------------------------------
Shares
----------
Adaptec............................................................ 500,000(1)
Carlisle Companies................................................. 192,100(1)
Cigna.............................................................. 216,000(1)
Conoco............................................................. 732,400(1)
Dial............................................................... 330,000(1)
Eli Lilly.......................................................... 235,000(1)
General Electric................................................... 95,000(1)
General Motors, Class H............................................ 429,100(1)
Hewlett-Packard.................................................... 270,000(1)
Monsanto........................................................... 310,000(1)
Morgan Stanley Dean Witter & Co.................................... 175,000(1)
Oracle............................................................. 380,000(1)
Quantum............................................................ 420,000
RJR Nabiasco Holdings.............................................. 338,000
SBC Communications................................................. 270,000(1)
Tele-Communications - TCI Group, Class A........................... 200,000
Teradyne........................................................... 300,000(1)
Union Pacific...................................................... 350,000
REDUCTIONS
- --------------------------------------------------------------------------------
Shares
----------
American Home Products............................................. 170,000
Applied Materials.................................................. 240,000
Avon Products...................................................... 543,800(2)
Canadian Pacific................................................... 788,300(2)
CitiGroup.......................................................... 864,498(2)
Cytec Industries................................................... 400,000
HEALTHSOUTH........................................................ 912,500(2)
Johnson & Johnson.................................................. 115,000
Loews.............................................................. 92,300(2)
MCIWorldCom........................................................ 110,000
Mobil.............................................................. 162,000
Royal Dutch Petroleum, 5 Guilder................................... 357,100
Shlumberger........................................................ 161,000
Sealed Air $2.00 Convertible Preferred ............................ 320,000(2)
Sears, Roebuck..................................................... 372,000
3 Com.............................................................. 395,000
Texas Instruments.................................................. 120,000
Union Pacific Capital Trust, 6.25% ............................... 350,000(2)
Viacom, Class B.................................................... 119,500
Warner-Lambert .................................................... 160,000(2)
(1) New addition (2) Elimination
+ Exclusive of changes resulting entirely from stock dividends and stock
splits.
Page 9
<PAGE>
SALOMON BROTHERS FUND INC
Statement of Investments December 31, 1998
COMMON STOCKS -- 88.1%
- --------------------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------------------
Basic Industries -- 4.3%
70,000 Aluminum Company of America.......................... $ 5,219,375
750,000 Cytec Industries*.................................... 15,937,500
200,000 Geon................................................. 4,600,000
205,000 Georgia Pacific...................................... 12,005,312
260,000 Vulcan Materials..................................... 34,206,250
--------------
71,968,437
--------------
Capital Goods -- 3.0%
192,100 Carlisle Companies................................... 9,917,162
95,000 General Electric..................................... 9,695,937
415,000 Tyco International................................... 31,306,563
--------------
50,919,662
--------------
Consumer Cyclicals -- 8.2%
250,000 Breed Technologies*.................................. 2,046,875
800,000 Costco Companies*.................................... 57,750,000
100,000 Dayton-Hudson........................................ 5,425,000
475,528 Federated Department Stores*......................... 20,715,197
85,000 Home Depot........................................... 5,200,938
325,000 Lear*................................................ 12,512,500
75,000 May Department Stores................................ 4,528,125
85,000 Penney (J. C.)....................................... 3,984,375
88,500 Sears, Roebuck....................................... 3,761,250
380,000 Tower Automotive*.................................... 9,476,250
651,000 U.S. Industries...................................... 12,124,875
--------------
137,525,385
--------------
Consumer Non-Cyclicals -- 13.6%
136,200 Alberto-Culver, Class B.............................. 3,634,838
330,000 Dial................................................. 9,528,750
1,760,000 Food Lion, Class A................................... 18,700,000
429,100 General Motors, Class H.............................. 17,029,906
1,175,000 News Corporation-- ADR............................... 29,007,812
942,000 Philip Morris Companies.............................. 50,397,000
1,213,000 RJR Nabisco Holdings................................. 36,010,938
200,000 Tele-Communications-- TCI Group, Class A*............ 11,062,500
600,000 UST.................................................. 20,925,000
445,500 Viacom, Class B*..................................... 32,967,000
--------------
229,263,744
--------------
Energy -- 7.5%
325,000 Amerada Hess......................................... 16,168,750
439,700 Burlington Resources................................. 15,746,756
732,400 Conoco*.............................................. 15,288,850
400 Gas Properties (100% owned) (a)...................... 719,000
298,000 Mobil................................................ 25,963,250
500,000 Royal Dutch Petroleum, 5 Guilder..................... 23,937,500
175,000 Schlumberger......................................... 8,071,875
402,777 TOTAL-- ADR.......................................... 20,038,156
Royalty Interest (a)................................. 931,900
--------------
126,866,037
--------------
Page 10
<PAGE>
SALOMON BROTHERS FUND INC
Statement of Investments December 31, 1998 (continued)
Common Stocks continued
- --------------------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------------------
Financial Services -- 16.9%
249,700 American Express..................................... $ 25,531,825
490,000 Associates First Capital............................. 20,763,750
500,000 BankBoston........................................... 19,468,750
1,690,000 Bank of New York..................................... 68,022,500
216,000 Cigna................................................ 16,699,500
882,400 Federal Home Loan Mortgage........................... 56,859,650
70,000 Merrill Lynch........................................ 4,672,500
175,000 Morgan Stanley Dean Witter & Co...................... 12,425,000
554,800 Nationwide Financial Services, Class A............... 28,676,225
513,200 Provident Companies.................................. 21,297,800
130,000 SunAmerica........................................... 10,546,250
--------------
284,963,750
--------------
Health Care -- 7.5%
520,000 Abbott Laboratories.................................. 25,480,000
400,000 American Home Products............................... 22,525,000
175,000 Johnson & Johnson.................................... 14,678,125
235,000 Eli Lilly............................................ 20,885,625
310,000 Monsanto............................................. 14,725,000
507,100 Pharmacia & Upjohn................................... 28,714,537
--------------
127,008,287
--------------
Technology -- 14.8%
500,000 Adaptec*............................................. 8,781,250
146,600 Applied Materials*................................... 6,257,988
125,000 Cisco Systems*....................................... 11,601,562
85,000 Electronic Data Systems.............................. 4,271,250
270,000 Hewlett-Packard...................................... 18,444,375
265,000 IMS Health........................................... 19,990,938
210,000 Intel................................................ 24,898,125
360,000 International Business Machines...................... 66,510,000
38,000 Microsoft*........................................... 5,270,125
380,000 Oracle*.............................................. 16,387,500
420,000 Quantum*............................................. 8,925,000
490,000 Seagate Technology*.................................. 14,822,500
190,000 3Com*................................................ 8,514,375
300,000 Teradyne*............................................ 12,712,500
270,000 Texas Instruments.................................... 23,101,875
--------------
250,489,363
--------------
Telecommunications & Utilities -- 10.0%
550,000 Bell Atlantic........................................ 29,150,000
563,100 Frontier............................................. 19,145,400
255,000 GTE.................................................. 16,575,000
495,000 MCI WorldCom*........................................ 35,516,250
270,000 SBC Communications................................... 14,478,750
1,655,770 Tele-Communications-- TCI Ventures Group, Class A*... 39,014,081
95,000 Texas Utilities...................................... 4,435,312
351,800 Williams Companies................................... 10,971,763
--------------
169,286,556
--------------
Transportation -- 2.3%
273,000 Canadian National Railway............................ 14,161,875
563,100 Union Pacific........................................ 25,374,694
--------------
39,536,569
--------------
Total Common Stocks (cost -- $953,630,922)........... 1,487,827,790
--------------
Page 11
<PAGE>
SALOMON BROTHERS FUND INC
Statement of Investments December 31, 1998 (concluded)
Convertible Preferred Stock -- 0.1%
- --------------------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------------------
Consumer Cyclicals -- 0.1%
100,000 BTI Capital Trust, 6.500% (cost -- $5,000,000).... $ 2,450,000
--------------
Rights -- 0.0%
- --------------------------------------------------------------------------------
Rights
- --------------------------------------------------------------------------------
Capital Goods -- 0.0%
8,000 Terex Stock Appreciation Rights (expiring on 05/15/02)*
(cost-- $0)..................................... 90,000
--------------
Purchased Options -- 0.0%
- --------------------------------------------------------------------------------
Contracts (b)
- --------------------------------------------------------------------------------
2,000 Tele-Communications -- TCI Group, Class A Put*
(expiring April 1999, exercise price $40)
(cost -- $881,000).............................. 212,500
--------------
Written Options -- 0.0%
- --------------------------------------------------------------------------------
Contracts (b)
- --------------------------------------------------------------------------------
(1,300) American Home Products Call*
(expiring January 1999, exercise price $50)
(proceeds -- ($728,580))........................ (845,000)
--------------
CORPORATE BONDS AND NOTES -- 0.6%
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
Consumer Cyclicals -- 0.2%
$5,000,000 Breed Technologies, 9.250%, due 04/15/08.......... 4,400,000
--------------
Telecommunications & Utilities -- 0.4%
6,000,000 Bell Atlantic Service, 5.750%, due 04/01/03....... 6,195,000
--------------
Total Corporate Bonds and Notes -- 0.6%
(cost -- $10,539,120)........................... 10,595,000
--------------
REPURCHASE AGREEMENTS -- 11.2%
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
$53,884,000 Repurchase Agreement, 4.680%, due 01/04/99,
dated 12/31/98, with J.P. Morgan Securities,
collateralized by $37,807,000 U.S. Treasury
Bonds, 8.875%, due 02/15/19, valued at
$54,961,926; proceeds: $53,912,020.............. 53,884,000
53,884,000 Repurchase Agreement, 4.850%, due 01/04/99,
dated 12/31/98, with State Street Bank,
collateralized by $40,905,000 U.S. Treasury
Bonds, 8.000%, due 11/15/21, valued at
$54,966,094; proceeds $53,913,037............... 53,884,000
80,995,000 Repurchase Agreement, 4.750%, due 01/04/99,
dated 12/31/98, with Warburg, Dillon, Read,
collateralized by $49,545,000 U.S. Treasury
Bonds, 13.250%, due 05/15/14, valued at
$82,616,288; proceeds $81,037,747............... 80,995,000
--------------
Total Repurchase Agreements -- 11.2%
(cost -- $188,763,000).......................... 188,763,000
--------------
Total Investments-- 100.0%
(cost -- $1,158,085,462)+....................... $1,689,093,290
==============
- --------------
* Non-income producing security.
+ Aggregate cost for Federal income tax purposes is substantially the same.
(a) Fair value determined pursuant to procedures established by the Board of
Directors.
(b) One contract relates to 100 shares.
Abbreviation used in this statement:
ADR--American Depository Receipt.
See accompanying notes to financial statements
Page 12
<PAGE>
SALOMON BROTHERS FUND INC
Statement of Operations
For the Year Ended
December 31,
1998
- ------------------------------------------------------------------------------
Income:
Dividends (Note A)........................................ $ 19,261,293
Interest.................................................. 12,425,912
Oil royalties............................................. 316,324
------------
32,003,529
Expenses:
Management fee............................................ 7,647,618
Shareholder meeting and reports........................... 337,910
Shareholder services...................................... 223,750
Custodian................................................. 137,475
Directors' fees........................................... 111,175
Legal and auditing fees................................... 90,075
Stock certificates and listing fees....................... 70,385
Other..................................................... 67,240
------------
Net expenses.............................................. 8,685,628
------------
Net investment income..................................... 23,317,901
------------
Realized and unrealized gain:
Net realized gain on:
Investments............................................... 305,921,451
Options written........................................... 17,500
Net change in unrealized appreciation on:
Investments............................................... (6,697,070)
------------
Net realized and unrealized gain.......................... 299,241,881
------------
Net increase in net assets from operations................ $322,559,782
============
Note A: Net of foreign withholding tax of:................ $ 217,804
============
See accompanying notes to financial statements
Page 13
<PAGE>
SALOMON BROTHERS FUND INC
Statement of Assets and Liabilities
December 31,
1998
- ------------------------------------------------------------------------------
Assets:
Investments, at value (Note A)......................... $1,501,175,290
Repurchase agreements, at value and cost............... 188,763,000
Cash................................................... 3,482,558
Dividends and interest receivable...................... 1,977,475
Receivable for securities sold......................... 57,042
Other assets........................................... 34,636
--------------
Total assets....................................... 1,695,490,001
==============
Liabilities:
Payable for securities purchased....................... 5,740,291
Management fee payable................................. 1,938,142
Written call options at value.......................... 845,000
Payable for dividends declared......................... 405,457
Accrued expenses....................................... 345,235
--------------
Total liabilities.................................. 9,274,125
--------------
Net assets ............................................ $1,686,215,876
==============
Net assets consists of:
Capital stock.......................................... $ 89,906,753
Paid-in capital........................................ 982,834,863
Undistributed net investment income.................... 452,480
Accumulated net realized gain on investments, options,
and foreign currency transactions.................... 82,013,952
Net unrealized appreciation on investments, foreign
currency transactions and other assets............... 531,007,828
--------------
Net assets............................................. $1,686,215,876
==============
Shares outstanding ($1.00 par value, 100,000,000 shares
authorized).......................................... 89,906,753
Net asset value per share.............................. $18.76
Note A: Cost of investments............................ 1,158,085,462
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income .................................... $ 23,317,901 $ 23,150,805
Net realized gain on investments, options and foreign
currency transactions.................................. 305,938,951 258,117,184
Net change in unrealized appreciation on investments and
other assets............................................ (6,697,070) 69,603,429
-------------- --------------
Net increase in net assets from operations................ 322,559,782 350,871,418
-------------- --------------
Dividends and distributions to shareholders:
Dividends from net investment income ..................... (23,226,617) (22,789,609)
Distributions from net realized gains .................... (275,438,541) (223,469,182)
-------------- --------------
(298,665,158) (246,258,791)
-------------- --------------
Net fund capital shares transactions:
Value of shares issued in payment of dividends
(6,429,283 shares issued)............................... 117,023,659 --
-------------- --------------
Net increase in net assets................................ 140,918,283 104,612,627
Net assets:
Beginning of year......................................... 1,545,297,593 1,440,684,966
-------------- --------------
End of year (a) .......................................... $1,686,215,876 $1,545,297,593
============== ==============
(a) Including undistributed net investment income of
(Note 1(e)):.......................................... $ 452,480 $ 213,404
============== ==============
</TABLE>
See accompanying notes to financial statements
Page 14
<PAGE>
SALOMON BROTHERS FUND INC
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 affect 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. Short-term securities with less
than 60 days remaining to maturity when acquired by the Fund are valued at
amortized cost which approximates market value.
(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 substantially all of its taxable income to its shareholders.
Therefore, no Federal income 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 during the term of the repurchase agreement to ensure
that it 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 and market discount on securities purchased is accreted on
an effective yield basis over the life of the security. The character of
income and gains distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. At December 31, 1998,
Page 15
<PAGE>
SALOMON BROTHERS FUND INC
Notes to Financial Statements (continued)
reclassifications were made to the Fund's capital accounts reflecting
permanent book to tax differences in income and gains available for
distribution under income tax regulations. Undistributed net investment
income was increased by $147,792. Accumulated net realized gains were
decreased by $147,792, and net assets remained unaffected by this change.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Salomon Brothers Asset Management Inc. ("SBAM"), a wholly owned subsidiary of
Salomon Brothers Holding Company Inc., which in turn is wholly owned by Salomon
Smith Barney Holdings, Inc. ("SSBH"), acts as investment manager to the Fund.
SBAM is responsible on a day-to-day basis for the management of the Fund's
portfolio in accordance with the Fund's investment objectives and policies and
for making decisions to buy, sell, or hold particular securities and is
responsible for day-to-day administration of the Fund. The agreement with SBAM
was most recently approved by shareholders at a special meeting held on January
15, 1998. Approval of the agreement was necessary due to the merger of Salomon
Inc, which had been the ultimate parent company of SBAM, with and into Salomon
Smith Barney Holdings Inc. which occurred on November 28, 1997.
Certain officers and/or directors of the Fund are also officers and/or
directors of the investment manager.
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 .650%
Next $150 million .550%
Next $250 million .525%
Next $250 million .500%
Over $1 billion .450%
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
rolling one year period ended March 31, 1997, there was no performance
adjustment. For the rolling one year period ended June 30, 1997, September 30,
1997 and December 31, 1997, the performance of the S&P 500 Index exceeded the
Fund's performance by 3.47%, 7.28% and 8.68%, respectively. This resulted in a
total decrease of the base management fee of $756,750. For the rolling one year
period ended March 31, 1998, June 30, 1998, September 30, 1998, and December 31,
1998, the performance of the S&P 500 Index exceeded the Fund's performance by
7.94%, 6.46%, 6.17% and 7.21%, respectively. This resulted in a total decrease
of the base management fee of $1,084,003.
Brokerage commissions of $12,912 and $126,936 were paid to Salomon Brothers
Inc and Smith Barney Inc., respectively, for investment transactions executed on
behalf of the Fund during the year ended December 31, 1998.
Page 16
<PAGE>
SALOMON BROTHERS FUND INC
Notes to Financial Statements (concluded)
3. 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,
1998 aggregated $940,027,812 and $1,171,980,939, respectively. The cost of
securities purchased and proceeds from securities sold (other than short-term
investments and written options) during the year ended December 31, 1997
aggregated $701,772,375 and $1,019,619,258, respectively. Included in the cost
of securities purchased and proceeds from securities sold for the year ended
December 31, 1997, are amounts related to a merger of a wholly-owned subsidiary
of Tyco International. This merger resulted in a taxable gain of $24,180,355
which was recognized by the Fund.
Cost of securities held (excluding short-term investments and written
options) on December 31, 1998 for Federal income tax purposes was substantially
the same as for book purposes. As of December 31, 1998, total unrealized
appreciation and depreciation was $554,201,119 and $23,193,291, respectively,
resulting in net unrealized appreciation of $531,007,828.
Transactions in options written during the years ended December 31, 1997
and December 31, 1998 were as follows:
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
Options outstanding at December 31, 1996............ -- --
Options written .................................... (1500) $ (256,851)
Options terminated in closing purchase transactions. 750 77,622
Options exercised................................... 750 179,229
------ ----------
Options outstanding at December 31, 1997............ -- --
------ ----------
Options written (2,400) (1,330,280)
Options terminated in closing purchase transactions. 1,100 601,700
------ ----------
Options outstanding at December 31, 1998............ (1,300) $ (728,580)
====== ==========
During the year ended December 31, 1997 realized gain from written option
transactions amounted to $90,539. During the year ended December 31, 1997 net
realized gain from purchased option transactions amounted to $6,675,106, for a
net realized gain on all option transactions of $6,765,645. During the year
ended December 31, 1998 net realized gain from written option transactions
amounted to $17,500. During the year ended December 31, 1998 net realized gain
from purchased option transactions amounted to $27,482,102, for a net realized
gain on all option transactions of $27,499,602.
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 17
<PAGE>
SALOMON BROTHERS FUND INC
Financial Highlights
Selected data per share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value
beginning of year..................... $18.51 $17.26 $15.43 $12.88 $14.88
------ ------ ------ ------ ------
Net investment income .................. .26 .27 .33 .35 .33
Net gains (losses) on securities
(both realized and unrealized) (a).... 3.449 3.93 3.925 4.04 (.605)
------ ------ ------ ------ ------
Total from investment
operations........................ 3.709 4.20 4.255 4.39 (.275)
------ ------ ------ ------ ------
Less dividends and distributions:
Dividends from net investment
income ............................... (.269) (.27) (.335) (.35) (.335)
Distributions from net realized gain
on investments........................ (3.19) (2.68) (2.09) (1.49) (1.39)
------ ------ ------ ------ ------
Total dividends and
distributions .................... (3.459) (2.95) (2.425) (1.84) (1.725)
------ ------ ------ ------ ------
Net asset value end of year ............ $18.76 $18.51 $17.26 $15.43 $12.88
====== ====== ====== ====== ======
Market price end of year................ $18.188 $17.688 $16.00 $13.375 $10.625
Total investment return based on
market price per share
excluding broker commissions.......... +22.6% +29.5% +38.7% +43.3% -3.7%
Ratios/Supplemental Data:
Net assets end of year
(millions)............................ $1,686 $1,545 $1,441 $1,291 $1,087
Ratio of expenses to average
net assets ........................... .52% .53% .51% .41% .49%
Ratio of net investment income to
average net assets ................... 1.39% 1.46% 1.96% 2.42% 2.33%
Portfolio turnover rate ................ 68% 49% 52% 82% 69%
</TABLE>
- --------------
(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.
See accompanying notes to financial statements
Page 18
<PAGE>
SALOMON BROTHERS FUND INC
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, 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, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 22, 1999
Quarterly Financial Information
Summary of quarterly results of operations (unaudited):
<TABLE>
<CAPTION>
Amounts in Thousands and Per Share
Three Months Ended
- -------------------------------------------------------------------------------------------------------------------
March 31, 1998 June 30, 1998 Sept. 30, 1998 Dec. 31, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment
income ................ $ 4,139 $ .04 $ 5,875 $ .07 $ 7,132 $ .08 $ 6,172 $ .07
Net realized gain &
change in net unrealized
appreciation............. $197,880 $2.29 $ 4,844 $ .05 $(194,862) $(2.26) $291,380 $3.37
- -------------------------------------------------------------------------------------------------------------------
March 31, 1997 June 30, 1997 Sept. 30, 1997 Dec. 31, 1997
- -------------------------------------------------------------------------------------------------------------------
Net investment
income ................ $ 4,728 $ .06 $ 6,379 $ .08 $ 6,148 $ .07 $ 6,284 $ .06
Net realized gain &
change in net unrealized
appreciation............. $ 637 $ .01 $191,147 $2.29 $ 113,296 $ 1.36 $ 22,252 $ .27
Page 19
</TABLE>
<PAGE>
SALOMON BROTHERS FUND INC
Other Information (unaudited)
Year 2000. The investment management services provided to the Fund by Salomon
Brothers Asset Management Inc. ("SBAM") depend in large part on the smooth
functioning of its computer systems. Many computer software systems in use
today cannot recognize the year 2000, but revert to 1900 or some other date,
due to the manner in which the dates were encoded or calculated. The capability
of these systems to recognize the year 2000 could have a negative impact on
SBAM's provision of investment advisory services, including handling of
securities trades, pricing and account services. SBAM has advised the Fund that
it has been reviewing all of their computer systems and actively working on
necessary changes to its systems to prepare for the year 2000 and expects that
given the extensive testing which it is undertaking, its systems will be year
2000 compliant before such date. In addition, SBAM has been advised by certain
of the Fund's service providers that they are also in the process of modifying
their systems with the same goal. There can, however, be no assurance that SBAM
or any other service provider will be successful in achieving year 2000
compliance, or that interaction with other non-complying computer systems will
not impair services to the Fund at that time.
Page 20
<PAGE>
SALOMON BROTHERS FUND INC
Automatic Dividend Reinvestment
and Cash Payment Plans (unaudited)
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 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.
The DR Plan also offers shareholders the flexibility to choose from three
different reinvestment options.
(1) shareholders may have all of their net investment income dividends and
capital gain distributions (short-term and long-term) automatically
reinvested.
(2) shareholders may have all of their net investment income dividends paid in
cash and all of their capital gain distributions (short-term and long-term)
automatically reinvested; or
(3) shareholders may have their net investment income dividends automatically
reinvested and their capital gain distributions (short-term and long-term)
paid in cash.
A shareholder will be deemed to have chosen option (1) unless the Agent is
notified of a change in election.
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.
Page 21
<PAGE>
SALOMON BROTHERS FUND INC
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.
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. As a participant in the DR Plan, you will have three options, as follows: (i)
all net investment income dividends ("dividends") and capital gain distributions
(short-term and long-term) ("distributions") will be automatically reinvested;
(ii) all dividends will be paid in cash and all distributions will be
automatically reinvested; or (iii) all dividends will be automatically
reinvested and all distributions will be paid in cash. You will be deemed to
have elected option (i) unless notification is received by the Agent that you
elect option (ii) or option (iii).
2. If SBF declares a dividend or distribution and such distribution is to be
reinvested on your behalf, 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.
3. You will receive a detailed statement of your Plan account 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. The statement will contain a tear-off portion
which you should utilize for all transaction processing.
4. 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.
5. You may terminate your participation in the DR Plan at any time up to a
record date, and future dividends and distributions that were previously
reinvested 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.
6. 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.
Page 22
<PAGE>
SALOMON BROTHERS FUND INC
7. Your attention is directed to the Terms and Conditions set forth on page 16
which govern the operation of the Plan.
If you wish to withdraw from the DR Plan or you wish to change your reinvestment
option, please contact the Agent at the toll-free telephone number listed
below.
If you withdraw and subsequently wish to re-enroll, simply complete the
enclosed Authorization Card and mail it to the address below 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.
If you wish to change you reinvestment option, simply call the Agent at the
toll free number listed below. Your change will be effective commencing with
the next dividend or distribution payable after your instruction to change your
election, provided you contact the Agent prior to the record date for that
dividend or distribution. Should you contact the Agent after the record date to
change your reinvestment option, the change 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
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 net investment income dividends and capital gain
distributions (short-term and long-term) 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 in the
following manner, subject to the terms and conditions of the Plan set forth in
the brochure describing the Plan.
/ / (1) All net investment income dividends and capital gain distributions
(short-term and long-term) payable to me shall be automatically reinvested
/ / (2) All net investment income dividends payable to me shall be paid in
cash and all capital gain distributions (short-term and long-term) payable to me
shall be automatically reinvested
/ / (3) All net investment income dividends payable to me shall be
reinvested and all capital gain distributions (short-term and long-term) shall
be paid in cash
(Choose one of the above.)
I understand that if I do not choose one of the above, I will be deemed to
have chosen option (1).
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>
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) Participants in the DRPlan will have three options, as follows: (i) a
participant may have all net investment income dividends ("dividends") and
capital gain distributions (short-term and long-term) ("distributions")
automatically reinvested; (ii) a participant may have all dividends paid in cash
and all distributions automatically reinvested; or (iii) a participant may have
all dividends automatically reinvested and all distributions paid in cash.
Participants will be deemed to have elected option (i) unless notification is
received by the Agent that the participant elects option (ii) or option (iii).
Participants may change elections by notifying the Agent and a change in
election will be effective with respect to a dividend or distribution if the
Agent is contacted prior to the record date; otherwise it will be effective with
the following dividend or distribution.
(c) 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 which are to be reinvested on behalf of a
participant 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 (i) 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 (ii) 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 (x) in the case of (i) above, at the close of business on the date
the Agent is required to terminate making open-market purchases as specified in
paragraph (b) above or (y) in the case of (ii) above at the close of business on
the date such shift occurs; but in no event prior to the payment date for the
dividend or distribution.
(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.
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>
SALOMON BROTHERS FUND INC
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. The Agent reserves the right
to sell additional shares from the participant's account to satisfy any returned
checks.
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 distributions 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 brokerage 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.
(b) A participant may terminate his or her account under the DR Plan or
change his or her election pursuant to paragraph 1(b), 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 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 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. You may effect "book-to-book" transfers, which involve transferring shares
from an existing participant account in the Plan to a new participant account
by providing the Bank with a written request in accordance with the terms and
conditions of the Plan. All participants in the current account must sign the
request and their signatures must be guaranteed by a bank, broker or financial
institution that is a member of a signature Guarantee Medallion Program. The
new participant account will automatically be coded for full dividend
reinvestment unless otherwise instructed.
14. 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
Page 25
<PAGE>
Board of Directors
Charles F. Barber Consultant; formerly Chairman, ASARCO
Incorporated
Member of the Audit Committee
Andrew L. Breech President, Dealer Operating Control Service,
Inc.
Member of the Proxy Committee
Carol L. Colman President, Colman Consulting Co., Inc.
Member of the Audit Committee
William R. Dill Consultant; formerly President, Boston
Architectural Center; formerly President,
Anna Maria College
Member of the Nominating Committee
Heath B. McLendon Chairman and President, Managing Director,
Salomon Smith Barney, Inc.; President and
Director, Mutual Management Corp. and
Travelers Investment Adviser, Inc.; Chairman
of Smith Barney Strategy Advisors Inc.
Clifford M. Kirtland, Jr. Member of the Advisory Committee, Nero
Moseley Partners; formerly Director, Oxford
Industries, Inc., Shaw Industries, Inc.
Graphic Industries, Inc. and CSX Corp.;
formerly Chairman and President, 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 Blackwell Sanders Peper Martin
LLP (law Firm); President, The Saint Louis
Brewery, Inc.
Member of the Audit and Nominating Committees
Page 26
<PAGE>
Officers
Heath B. McLendon Chairman and President
Lewis E. Daidone Executive Vice President & Treasurer
Michael A. Kagan Executive Vice President
Martin L. Roberts Vice President
Christine T. Sydor Secretary
Anthony Pace Assistant Treasurer
Janet S. Tolchin Assistant Treasurer
Robert A. Vegliante Assistant Secretary
Salomon Brothers Asset Management Inc. Investment Manager
New York, New York
The Bank of New York Custodian, Transfer and Dividend
New York, New York Disbursing Agent
Simpson Thacher & Bartlett Legal Counsel
New York, New York
PricewaterhouseCoopers LLP Independent Accountants
New York, New York
Page 27
<PAGE>
THE SALOMON BROTHERS FUND INC
7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
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