================================================================================
SALOMON BROTHERS Annual
Investment Series Report
1997
DECEMBER 31, 1997
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o ASIA GROWTH FUND
o CAPITAL FUND
[GRAPHIC OMITTED] o INVESTORS FUND
o TOTAL RETURN FUND
o HIGH YIELD BOND FUND
o STRATEGIC BOND FUND
o U.S. GOVERNMENT INCOME
FUND
o NATIONAL INTERMEDIATE
MUNICIPAL FUND
o NEW YORK MUNICIPAL
MONEY MARKET FUND
o CASH MANAGEMENT FUND
<PAGE>
[GRAPHIC OMITTED]
THE SALOMON BROTHERS INVESTMENT SERIES
Our Message to You
DEAR SHAREHOLDERS:
The year 1997 was characterized by a spectacular 33.36% rise in the S&P 500 and
the near-perfect combination of strong economic growth and benign inflation
readings in the United States. However, the truly global nature of financial
markets was starkly revealed when a sharp depreciation in Southeast Asian
currencies sparked a series of sell-offs that reverberated around the world.
ECONOMIC AND MARKET TRENDS
U.S. economic conditions were extremely supportive of the financial markets in
1997. The combination of moderate growth with low inflation and unemployment
propelled domestic stocks to new highs, and fixed-income securities benefited as
interest rates fell in the second half of the year. The Federal Reserve's
decision to hold rates steady since its 25 basis point hike in March comforted
the markets, as did the notion that the Asian crisis would provide enough of a
dampening effect on the U.S. economy that growth would moderate to sustainable
levels. Upward pressures on wages appeared to stall in the spring; global
commodity prices traded sideways; and the U.S. budget deficit continued to
dwindle. Against this backdrop of quiescent inflation, financial assets thrived.
The domestic equity market continued to be the greatest beneficiary of the U.S.
economic environment. Following spectacular gains of 38% and 23%, respectively,
in 1995 and 1996, the S&P 500 continued its climb with a surge of 33.36% for
1997. The majority of these returns came in the first half of 1997 due to the
near perfect economic scenario. The markets became more volatile in the second
half of the year. A 550 point drop in the S&P 500 on October 10th and
fluctuating conditions in the fourth quarter, due primarily to concerns about
Asian markets, were among the highlights of this more volatile time period.
The Asian equity markets plummeted during 1997. A rapid and massive build up of
external debt coupled with sharply decelerating export growth in the region were
the primary factors bringing about the financial crisis. As a result, currencies
of many of the countries in this region fell in value by more than 50% and some
stock markets fell to levels they had not seen since the beginning of the
decade. While the economies and markets of some countries like Hong Kong were
less influenced than others, a domino effect occurred spreading the crisis
across the entire region.
The fixed income markets responded to the same events as the equity markets.
Moderate economic growth and low levels of inflation helped the U.S. fixed
income market achieve a 9.62% return as measured by the Salomon Brothers Broad
Investment-Grade Bond Index. These positive results were shared by the domestic
high yield and municipal bond markets.
1
<PAGE>
The high yield market had a record number of new issues and experienced
improving credit quality keeping defaults at historically low levels. The market
responded well in this environment with returns of 13.19% as measured by the
Salomon Brothers High-Yield Market Index. Municipal bonds also experienced solid
performance with a return of 7.26% for the weighted average of the Lehman
Brothers 1-10 year Municipal Bond Indexes. The domestic municipal market issued
a record amount of new debt and also refinanced older outstanding higher
interest rate debt.
Emerging debt markets benefited from favorable conditions for most of 1997 as
well. The fourth quarter brought an abrupt change as the Asian financial crisis
led to a global market sell-off. The instability in this market caused yield
spreads versus Treasuries to widen dramatically during the quarter.
ASSET MANAGEMENT FIRST
Salomon Brothers Asset Management enjoyed the positive results in the financial
markets and the fund family continued to post solid returns. At year end, seven
of our funds' Class A shares were ranked in the top quartile for their
performance since inception when compared to their peers in their respective
Lipper categories.(+) The eighth fund was ranked in the second quartile. These
results are the product of our continued commitment to "asset management first".
INDUSTRY RECOGNITION
Salomon Brothers Asset Management received the #1 ranking for general opinion
from Dalbar, Inc, an industry analytics firm. We also ranked #2 for client
service and overall operations support. These results are part of an extensive
survey of more than 3,000 financial professionals to determine how mutual fund
companies are viewed by those who sell their products. We will continue to work
hard to perform at the highest level.
WEB SITE LAUNCH
The launch of our web site at www.sbam.com was another major step towards
fulfilling your needs. The site contains information on the Salomon Brothers
Investment Series including daily prices, monthly performance updates and Lipper
rankings. We have also implemented account inquiry capability so you can access
your most recent account balances on the world wide web. Please visit the site
and take advantage of these features.
TRAVELERS - SALOMON MERGER UPDATE
On November 28, 1997, the merger between the Travelers Group and Salomon Inc was
completed. The resulting organization, Salomon Smith Barney, creates
2
<PAGE>
one of the most profitable, diversified financial services companies in the
world -- with equity capital of $9 billion. We believe this new firm's combined
resources are poised to effectively compete in today's global environment.
Due to the unique positioning and success of Salomon Brothers Asset Management
within the institutional and retail investment community, Travelers Group
decided to keep SBAM as a separate and distinct mutual fund complex. As such,
the same management team, investment professionals, service and sales support
will continue to service your account.
OUTLOOK
As we move into 1998, the effects of the turmoil in Asia are likely to continue.
Large, multinational companies with sizable currency and business exposure will
be vulnerable, and thus the outlook for corporate earnings, while still
positive, is more cautious. The U.S. economy, in our view, will post slow to
moderate growth in GDP, reflecting the weakness in Asia, the strength of the
dollar, and the reduced competitiveness of U.S. exports in world markets. This
confluence of factors will serve to curb U.S. economic growth without any move
from the Federal Reserve.
At current levels, stock valuations are extremely high. As of December 31, the
S&P 500 was trading at 23 times estimated trailing earnings and at 18 times 12
months forward earnings -- a relatively high historical level of its earning
multiples. Lofty valuations in the U.S. market coupled with the uncertainty in
Asia, as the region attempts to stabilize, lend a degree of uncertainty to what
is an otherwise benign economic environment for 1998. Remember the importance of
diversification and the value of guidance from your financial advisor as you
create a strategy that will fit your financial needs in the coming year.
We appreciate your investment with the Salomon Brothers Investment Series, and
we look forward to serving you in the future.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman and President
3
<PAGE>
[GRAPHIC OMITTED]
THE SALOMON BROTHERS
Asia Growth Fund
INVESTMENT OBJECTIVE
Long-term capital appreciation.
INVESTMENT STRATEGY
The Fund invests at least 65% of total assets in the equity and equity-related
securities of companies located in developing nations of the Pacific Rim
(ex-Japan). Areas considered for investment include, but are not limited to,
China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and
Thailand. In seeking to capture high long-term returns with volatility in line
with or lower than that experienced in the Asian markets, the Fund will allocate
assets among countries and industries believed most likely to benefit from
regional economic trends.
PERFORMANCE
The Asia Growth Fund (Class A shares) returned -25.55% in 1997. This compares
favorably with a return of -40.30% for the Morgan Stanley Capital International
All Country Asia Free Ex-Japan Index ("MSCI AC Asia Free Ex-Japan"), and -35.52%
for the Lipper Pacific Ex-Japan Funds.
- --------------------------------------------------------------------------------
THE FUND MANAGER
- --------------------------------------------------------------------------------
[PHOTO OMITTED]
Giampaolo G. Guarnieri, Director and Head of Salomon Brothers Asset Management
Asia Pacific Limited (SBAM AP), has 12 years of investment industry experience.
SBAM AP is an affiliate of Salomon Brothers Asset Management Inc and serves as a
sub-advisor to the Fund. Mr. Guarnieri is primarily responsible for day-to-day
Fund management.
- --------------------------------------------------------------------------------
MARKET REVIEW
Apart from Hong Kong and Taiwan, virtually all Asian markets fell back to their
1989-1990 levels and their currencies fell in value by more than 50% in some
cases. The antecedents of the Asian financial crisis are explained by a rapid
and massive build up of external debt coupled with sharply decelerating export
growth in the region. Although Hong Kong and China were generally spared from a
massive devaluation of their currencies, a stronger relative exchange rate in
both countries contributed to slowing domestic demand and deflationary
pressures. The Hong Kong economy was adversely affected by a huge asset bubble
in the property sector before the government handover with property prices up
60% between September 1996 and December 1997, and rental yields falling below
5%. With interest rate increases required to defend the currency peg and bring
capital values lower, Hong Kong's financial assets fell and created a
significant negative wealth effect on private consumption. In this environment,
we do not expect Hong Kong's GDP to grow over 5% until the peg and labor costs
have adjusted.
HIGHLIGHTS
In response to the Asian crisis, a number of forecasters have pared their 1998
forecast of global GDP growth to more realistic levels of around 3%. We believe
that the impact of the Asian crisis on world economic growth should not be
exaggerated in that Pan-Asian intra-regional trade tends to represent less than
2% of the world GDP. Although non-Japan Asia GDP represents around 20% of world
GDP, its share of world trade is less than 10%. Global financial flows will be
impacted by the magnitude of current account surpluses that could materialize in
key Asian countries in 1998 and 1999, such as Korea, Thailand and Malaysia which
have started to generate positive external balances.
OUTLOOK
What the Asian financial markets signaled regarding economic activity in 1996
and 1997 has become a reality in 1998. There is a slowdown in economic growth in
Asian economies. The banking systems and property markets (the principal
collateral of Asia's credit system) are the most affected sectors. Domestic
demand, investment spending and consumption growth are all likely to fall to
zero and private-sector capital formation is unlikely to lead to economic
growth. Weak domestic demand on the back of high interest rates means that the
way to recovery for Asian ex-Japan economies rests on their ability to generate
large and steady current account surpluses. Thailand and Korea have started to
generate current account surpluses and we expect this trend to continue.
Positive external balances in South Asia and Korea could help currencies to
stabilize and even appreciate, and set the scene for possible reduction in
interest rates at the end of the year or early 1999. We expect equity markets in
Asia to start discounting such developments in 1998.
In conclusion, trade and current account surpluses will help to solve the
current liquidity crunch and lift oversold exchange rates. We believe that it is
now time to engineer strategic asset allocation changes and slowly rebuild
exposure to selected South Asian markets. We believe these markets will fair
better than Hong Kong which should have reduced or stable importance in regional
indices.
4
<PAGE>
The following graph depicts the performance of the Asia Growth Fund versus the
Morgan Stanley Capital International All Country Asia Free Ex-Japan Index. It is
important to note that the Asia Growth Fund is a professionally managed mutual
fund while the index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
[The following table was depicted as a line graph in the printed material.]
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ASIA GROWTH FUND -- CLASS A, B, C, and O SHARES
Comparison of $10,000 Investment in the Fund with MSCI AC Asia Free Ex-Japan
Index
- --------------------------------------------------------------------------------
MSCI AC
Asia Free
Asia Growth Class A Class B Class C Class O ex-Japan
- ----------- ------- ------- ------- ------- --------
5/6/96 9525 10000 10000 10000 10000
6/96 9286.875 9740 9740 9750 9740.67
9/96 9220.2 9650 9650 9690 9454.13
12/96 10018.205 10465.1 10464.3 10531.4 9678.26
3/97 10200.513 10641.62 10643.21 10736.11 9400.62
6/97 11865.699 12358.01 12361.54 12497.5 10032.73
9/97 10260.34 10662.42 10664.04 10809.5 8285.71
12/97 7458.439 7367.36 7748.09 7863.36 5777.96
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1997
- --------------------------------------------------------------------------------
Class A Net Asset Value* Public Offering Price**
- --------------------------------------------------------------------------------
Since Inception (5/6/96) -13.70% -16.20%
1 year -25.55% -29.06%
- --------------------------------------------------------------------------------
Class B Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (5/6/96) -14.31% -16.81%
1 year -26.05% -29.65%
- --------------------------------------------------------------------------------
Class C Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (5/6/96) -14.25% -14.25%
1 year -25.96% -26.68%
- --------------------------------------------------------------------------------
Class O Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (5/6/96) -13.48% -13.48%
1 year -25.33% -25.33%
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- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
Composition of portfolio as of
December 31, 1997
[The following table was depicted as a pie chart in the printed material.]
Convertible Securities 2%
Corporate Bond 2%
Cash/Cash Equivalents 5%
Common Stocks 91%
- --------------------------------------------------------------------------------
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
Breakdown by Country
- --------------------------------------------------------------------------------
Hong Kong 46.5%
- ---------------------------------
Singapore 10.2%
- ---------------------------------
Taiwan 9.3%
- ---------------------------------
Malaysia 9.1%
- ---------------------------------
China 7.7%
- ---------------------------------
India 7.6%
- ---------------------------------
Thailand 4.8%
- ---------------------------------
Indonesia 2.2%
- ---------------------------------
Philippines 2.1%
- ---------------------------------
Korea 0.3%
- ---------------------------------
Sri Lanka 0.2%
=================================
- --------------------------------------------------------------------------------
Lipper Comparative Performance(+)
Salomon Brothers Asia Growth Fund
- --------------------------------------------------------------------------------
Lipper Category: Pacific Ex-Japan Funds
- --------------------------------------------------------------------------------
1 Year Total Return
12/31/96 - 12/31/97
- --------------------------------------------------------------------------------
Class A Shares Lipper Average Ranking
- --------------------------------------------------------------------------------
- -25.55% -35.52% 1st Quartile
Top 16%
#11 of 73 funds
- --------------------------------------------------------------------------------
Class B Shares Ranking
- --------------------------------------------------------------------------------
- -26.05% 1st Quartile
Top 18%
#13
- --------------------------------------------------------------------------------
Class C Shares Ranking
- --------------------------------------------------------------------------------
- -25.96% 1st Quartile
Top 17%
#12
- --------------------------------------------------------------------------------
Class O Shares Ranking
- --------------------------------------------------------------------------------
- -25.33% 1st Quartile
Top 14%
#10
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See pages 24 and 25 for all footnotes.
5
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[GRAPHIC OMITTED]
THE SALOMON BROTHERS
Capital Fund
INVESTMENT OBJECTIVE
Capital appreciation through investments primarily in common stocks or
securities convertible into common stock.
INVESTMENT STRATEGY
The Capital Fund seeks to achieve its investment objective through investments
in securities which are believed to have above-average price appreciation
potential. Such investments may also involve above-average risk. The Fund may
invest in seasoned, established companies, relatively small new companies as
well as new issues. The Fund will not invest more than 25% of its assets in any
particular industry.
PERFORMANCE
The Capital Fund (Class A shares) returned 26.41% in 1997. This compares with a
return of 31.78% for the Russell 3000, 33.36% for the S&P 500 and 20.36% for the
Lipper Capital Appreciation Average.
- --------------------------------------------------------------------------------
THE FUND MANAGER
- --------------------------------------------------------------------------------
[PHOTO OMITTED]
Ross Margolies, Managing Director and Portfolio Manager at Salomon Brothers
Asset Management Inc, has 17 years of investment industry experience in the
equity, convertible and high yield markets. Mr. Margolies is primarily
responsible for day-to-day Fund management.
- --------------------------------------------------------------------------------
MARKET REVIEW
The U.S. equity market posted sizable gains in 1997 for the third consecutive
year, but the second half was marked by intensified volatility resulting from
the crisis in Asia. During the first half of 1997, stocks enjoyed a period of
strong appreciation, buoyed by near-perfect economic conditions in the United
States: inflation readings were extremely benign, and economic growth remained
solid. In the fourth quarter the turmoil in Asian markets spread to the United
States. It dampened the performance of equities and cast a pall over prospects
for corporate earnings. In this environment, declining interest rates nudged
equity valuations higher, equities were "commoditized", and the largest stocks
benefited due to their perceived safety and liquidity. The Capital Fund -- which
uses a bottom-up approach to stock selection -- maintained its strategy of
owning attractive stocks in all categories. Despite positive fundamentals, many
of our best stocks did not do well towards the end of the year.
HIGHLIGHTS
The performance of the Capital Fund in 1997 largely reflects our strategy of
weighing risk and potential reward as well as our focus on a diversified all
capitalization ("cap") investment strategy. While the Fund underperformed
indices that are weighted to the largest companies, it outperformed smaller
capitalization indices and had strong outperformance and much lower volatility
compared to the Capital Fund's peer group. The Fund's performance was adversely
affected by several positions during the last four months of the year,
particularly in the healthcare (Aetna, Pacificare, and Vencor) and technology
areas (Cabletron Systems, Seagate Technology). Although these technology stocks
did not perform well in the fourth quarter, we feel they have attractive
prospects for the next 12-18 months. The Fund benefited from several positions
in different size categories holding Plantronics (small cap); Tosco (mid-cap)
and Costco (large cap).
OUTLOOK
The outlook for corporate earnings remains positive for the long term, but is
likely to be muted by global developments in the near term. Financial results of
large multinational companies will no doubt come under pressure as a result of
their foreign currency and business exposure. The effect will be greater on the
smaller companies that do business in Asia.
The near-term outlook for equities is mixed. We expect to raise our weighting of
technology stocks in the Fund, and expect an opportunity to increase our
holdings in the energy sector towards the end of the winter heating season. For
1998, we expect technology to recover, a trading range for energy/oil service
stocks, and continued steady performance from consumer stocks such as retailers
and auto parts suppliers. We will be watching the tobacco stocks carefully as
the prospects for a settlement with the government may create investment
opportunities.
6
<PAGE>
[The following table was depicted as a line graph in the printed material.]
- --------------------------------------------------------------------------------
CAPITAL FUND - CLASS A, B and C SHARES
Comparison of $10,000 Investment in the Fund with S&P 500 and Russell 3000
- --------------------------------------------------------------------------------
Class A Class B Class C S&P 500 Russell 3000
------- ------- ------- ------- ------------
11/1/96 9525 10000 10000 10000 10000
12/96 10261.648 10762.72 10768.14 10542.93 10577
3/97 10347.076 10841.35 10852.28 10825.25 10668
6/97 11725.984 12264.79 12275.71 12715.12 12455
9/97 13241.731 13826.17 13837.07 13667.52 13618
12/97 12972.245 13040.98 13524.36 14509.9 13938
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
[The following table was depicted as a line graph in the printed material.]
- --------------------------------------------------------------------------------
CAPITAL FUND - CLASS O SHARES
Comparison of $10,000 Investment in the Fund with S&P 500 and Russell 3000
- --------------------------------------------------------------------------------
Class O S&P 500 Russell 3000
------- ------- ------------
12/87 10000 10000 10000
12/88 9542.24 11661 11782
12/89 13334.68 15356 15237
12/90 12126.21 14879 14466
12/91 16180.87 19412 19335
12/92 16943.27 20891 21206
12/93 19851.71 22997 23512
12/94 17041.09 23300 23554
12/95 22985.8 32058 32223
12/96 30648.81 39416 39254
12/97 38849.82 52567 51730
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
The graphs above depict the performance of the Capital Fund versus the S&P 500
Stock Index and the Russell 3000 Index. It is important to note that the Capital
Fund is a professionally managed mutual fund while the indexes are not available
for investment and are unmanaged. The comparisons are shown for illustrative
purposes only.
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Average Annual Total Returns for Period Through December 31, 1997
- --------------------------------------------------------------------------------
Class A Net Asset Value* Public Offering Price**
- --------------------------------------------------------------------------------
Since Inception (11/1/96) 30.21% 24.89%
1 year 26.41% 20.42%
- --------------------------------------------------------------------------------
Class B Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (11/1/96) 29.40% 25.48%
1 year 25.61% 20.61%
- --------------------------------------------------------------------------------
Class C Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (11/1/96) 29.44% 29.44%
1 year 25.60% 24.60%
- --------------------------------------------------------------------------------
Class O Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
10 year 14.54% 14.54%
5 year 18.05% 18.05%
1 year 26.76% 26.76%
================================================================================
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
Composition of portfolio as of
December 31, 1997
[The following table was depicted as a pie chart in the printed material.]
Cash/Cash Equivalents 9%
Common & Preferred Stocks 91%
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
Top Holdings
- --------------------------------------------------------------------------------
Plantronics
- --------------------------------------------------------------------------------
Viacom
- --------------------------------------------------------------------------------
Hormel Foods
- --------------------------------------------------------------------------------
SmithKline Beecham
- --------------------------------------------------------------------------------
Sears, Roebuck
================================================================================
- --------------------------------------------------------------------------------
Lipper Comparative Performance(+)
Salomon Brothers Capital Fund
- --------------------------------------------------------------------------------
Lipper Category: Capital Appreciation Funds
- --------------------------------------------------------------------------------
1 Year Total Return
12/31/96 - 12/31/97
- --------------------------------------------------------------------------------
Class A Shares Lipper Average Ranking
- --------------------------------------------------------------------------------
26.41% 20.36% 2nd Quartile
Top 35%
#79 of 231 funds
- --------------------------------------------------------------------------------
Class B Shares Ranking
- --------------------------------------------------------------------------------
25.61% 2nd Quartile
Top 39%
#89
- --------------------------------------------------------------------------------
Class C Shares Ranking
- --------------------------------------------------------------------------------
25.60% 2nd Quartile
Top 39%
#90
- --------------------------------------------------------------------------------
Class O Shares Ranking
- --------------------------------------------------------------------------------
26.76% 2nd Quartile
Top 32%
#73
================================================================================
See pages 24 and 25 for all footnotes.
7
<PAGE>
[GRAPHIC OMITTED]
THE SALOMON BROTHERS
Investors Fund
INVESTMENT OBJECTIVE
Long-term growth of capital. Current income is a secondary objective.
INVESTMENT STRATEGY
The Investors Fund invests primarily in common stocks listed on the New York
Stock Exchange and other U.S. exchanges. The portfolio managers generally favor
large capitalization stocks representing well-known companies with good growth
potential at a reasonable price.
PERFORMANCE
The Investors Fund (Class A shares) posted a strong nominal return of 26.19% for
1997, but underperformed the S&P 500, which returned 33.36%, and the Lipper
Growth & Income Average, which returned 27.14%. The longer term performance of
the fund remained solid as evidenced by its five star Morningstar rating.(1)
MARKET REVIEW
Equity investors were rewarded in 1997 with outstanding returns for the third
consecutive year. Indeed, the near-perfect combination of moderate U.S. economic
growth with low inflation, declining interest rates and another year of
better-than-expected earnings growth propelled the market to new highs. Even
fourth quarter returns were positive, despite the Asian turmoil and higher
volatility in U.S. markets.
HIGHLIGHTS
The market's rise in the first half of the year was led by the largest
capitalization and technology stocks. During the second half of the year, the
strongest stocks were defensive names. The Fund's excellent nominal returns
reflect the powerful performance from several of the Fund's largest holdings,
including Tyco International, Viacom, Travelers Group and SmithKline Beecham.
OUTLOOK
Looking ahead, we expect the favorable economic environment in the U.S. to
persist. Inflation should remain low. Profit growth may be constrained by the
lingering effects from the crisis in Asia. In particular, commodity companies
may experience a slowing in demand, and U.S. manufacturing companies may see a
more difficult pricing environment due to competition from Asian imports. But
lower interest rates have sparked a mortgage refinancing boom, and consumer
confidence is high. U.S. growth should remain robust in 1998, although it will
probably slow from the rapid pace seen in 1997.
The challenge in 1998 will be to navigate through these crosscurrents. The stock
market is unlikely to repeat the powerful returns of the past three years.
Valuations for many defensive stocks are high. In our view, the appropriate near
term strategy is to stay with companies with above average earnings growth and
below average valuation - stocks such as Martin Marietta Materials, OM Group,
Vulcan Materials and Cytec Industries. We see many attractive stocks in which to
invest.
- --------------------------------------------------------------------------------
THE FUND MANAGERS
- --------------------------------------------------------------------------------
[PHOTO OMITTED] [PHOTO OMITTED]
Allan R. White,
Managing Director and Portfolio John B. Cunningham,
Manager at Salomon Brothers Asset Vice President and Portfolio
Management Inc, has 17 years of Manager at Salomon Brothers Asset
investment industry experience in Management Inc, has 9 years of
the equity, convertible and fixed investment industry experience. Mr.
income markets. Mr. White is Cunningham assists in day-to-day
primarily responsible for Fund management.
day-to-day Fund management.
- --------------------------------------------------------------------------------
See pages 24 and 25 for all footnotes.
8
<PAGE>
[The following table was depicted as a line graph in the printed material.]
- --------------------------------------------------------------------------------
INVESTORS FUND - CLASS A, B and C SHARES
Comparison of $10,000 Investment in the Fund with S&P 500
- --------------------------------------------------------------------------------
Class A Class B Class C S&P 500
------- ------- ------- -------
1/3/95 9525 10000 10000 10000
6/95 11133.32 11655.05 11655.05 12021.28
12/95 12891.32 13449.9 13450.6 13757.79
6/96 14499.74 15061.12 15061.9 15146.04
12/96 16796.34 17380.55 17385.06 16915.91
6/97 19298.64 19896.52 19900.34 20401.14
12/97 21194.9 21373.51 21766.42 22558.81
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
[The following table was depicted as a line graph in the printed material.]
- --------------------------------------------------------------------------------
INVESTORS FUND - CLASS O SHARES
Comparison of $10,000 Investment in the Fund with S&P 500
- --------------------------------------------------------------------------------
Class O S&P 500
------- -------
12/87 10000 10000
12/88 11687 11661
12/89 14240 15356
12/90 13315 14879
12/91 17219 19412
12/92 18495 20891
12/93 21305 22997
12/94 21036 23300
12/95 28481 32058
12/96 37184 39416
12/97 47028 52557
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
The graphs above depict the performance of the Investors Fund versus the S&P 500
Stock Index. It is important to note that the Investors Fund is a professionally
managed mutual fund while the index is not available for investment and is
unmanaged. The comparison is shown for illustrative purposes only.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1997
- --------------------------------------------------------------------------------
Class A Net Asset Value* Public Offering Price**
- --------------------------------------------------------------------------------
Since Inception (1/3/95) 30.55% 28.45%
1 year 26.19% 20.21%
- --------------------------------------------------------------------------------
Class B Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (1/3/95) 29.61% 28.81%
1 year 25.28% 20.28%
- --------------------------------------------------------------------------------
Class C Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (1/3/95) 29.60% 29.60%
1 year 25.20% 24.20%
- --------------------------------------------------------------------------------
Class O Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
10 year 16.74% 16.74%
5 year 20.52% 20.52%
1 year 26.47% 26.47%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
[The following table was depicted as a pie chart in the printed material]
Composition of portfolio as of
December 31, 1997
Cash/Cash Equivalents 5%
Common Stocks 95%
- --------------------------------------------------------------------------------
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
Top Holdings
- --------------------------------------------------------------------------------
Tyco International
- --------------------------------------------------------------------------------
Bank of New York
- --------------------------------------------------------------------------------
SmithKline Beecham
- --------------------------------------------------------------------------------
Canadian Pacific
- --------------------------------------------------------------------------------
Travelers Group
================================================================================
- --------------------------------------------------------------------------------
Lipper Comparative Performance(+)
Salomon Brothers Investors Fund
- --------------------------------------------------------------------------------
Lipper Category: Growth & Income Funds
- --------------------------------------------------------------------------------
1 Year Total Return
12/31/96 - 12/31/97
- --------------------------------------------------------------------------------
Class A Shares Lipper Average Ranking
- --------------------------------------------------------------------------------
26.19% 27.14% 3rd Quartile
Top 60%
#366 of 611 funds
- --------------------------------------------------------------------------------
Class B Shares Ranking
- --------------------------------------------------------------------------------
25.28% 3rd Quartile
Top 69%
#416
- --------------------------------------------------------------------------------
Class C Shares Ranking
- --------------------------------------------------------------------------------
25.20% 3rd Quartile
Top 70%
#422
- --------------------------------------------------------------------------------
Class O Shares Ranking
- --------------------------------------------------------------------------------
26.47% 3rd Quartile
Top 57%
#343
================================================================================
See pages 24 and 25 for all footnotes.
9
<PAGE>
[GRAPHIC OMITTED]
THE SALOMON BROTHERS
Total Return Fund
INVESTMENT OBJECTIVE
The Fund seeks to obtain above-average income compared to a portfolio that
invests only in stocks. The Fund's secondary objective is to seek growth of
capital and income. The Fund seeks to achieve its objectives by investing in a
variety of asset classes including equities, fixed income securities and
short-term obligations.
INVESTMENT STRATEGY
The Fund seeks to increase income and provide for long-term growth. The Fund
invests primarily in large capitalization stocks that are paying dividends
greater than the S&P 500 average. With assets allocated to investment grade,
high yield and convertible securities, the fixed income portion of the portfolio
is distributed across a broader range of fixed income instruments than most
Balanced Funds. The Fund's strategic approach in the fixed income market tends
to raise income and has allowed it to achieve one of the higher yields among
Balanced Funds. The variety of fixed income holdings also provides
diversification benefits which help to limit volatility.
- --------------------------------------------------------------------------------
THE FUND MANAGER
- --------------------------------------------------------------------------------
Richard Dahlberg, Managing Director and Portfolio Manager at Salomon Brothers
Asset Management Inc, has 38 years of investment industry experience in the
equity markets. Mr. Dahlberg is primarily responsible for day-to-day Fund
management.
- --------------------------------------------------------------------------------
PERFORMANCE
The Total Return Fund (Class A shares) posted returns of 19.05% for 1997. This
compares with a 21.21% total return for a composite index of 50% Salomon
Brothers Broad Investment-Grade Index and 50% S&P 500, and 19.00% for the Lipper
Balanced Average. The Total Return Fund's average annual return of 19.27% since
inception has easily surpassed the Lipper Balanced Average of 16.23%.
MARKET REVIEW
The performance of the Salomon Brothers Total Return Fund is affected by trends
in both the stock and bond markets. The U.S. economic environment in 1997 was
extremely supportive of financial assets. The combination of benign inflation
readings and solid economic growth propelled stocks to their third consecutive
year of huge gains, and bonds benefited from a lower interest rate environment.
HIGHLIGHTS
The Fund's performance reflects several changes that we made to the composition
of our holdings. As yield spreads in the high-yield sector became compressed, we
lowered our allocation to that sector from 20% to approximately 10%. Similarly,
we increased our holdings of high-grade securities (including U.S. Governments,
mortgage securities and investment-grade bonds) to 27% by year-end. On the
equity side, our allocation remained at 45%. We continued to emphasize the
energy sector, but trimmed our weighting in that sector. Canadian National
Railway -- our largest stock holding -- showed strong earnings patterns, and we
believe it will continue to offer attractive returns. Although REITs posted
sub-par performance in the first half of 1997, we still emphasized these
higher-yielding investments, as they benefit from the general recovery in real
estate prices.
OUTLOOK
A return to more normalized stock market gains next year seems likely, and we
remain cautious about the sustainability of such lofty valuations. We believe
that the global situation will remain unstable in the near term, and that stocks
will be vulnerable. We are currently emphasizing companies with improving
business prospects such as Canadian National Railway and Suncor, and have added
firms in the telecommunications area such as Frontier Corp. and Bell Canada
Enterprises. In this setting of greater volatility, we plan to continue an
allocation of roughly 45% equities, 50% bonds and 5% cash, and would look to
increase our holdings of high-yield securities if spreads begin to widen.
10
<PAGE>
The following graph depicts the performance of the Total Return Fund versus 50%
Standard and Poor's 500 Stock Index and 50% Salomon Brothers Broad
Investment-Grade Bond Index(2). It is important to note that the Total Return
Fund is a professionally managed mutual fund while the index is not available
for investment and is unmanaged. The comparison is shown for illustrative
purposes only.
[The following table was depicted as a line graph in the printed material.]
- --------------------------------------------------------------------------------
TOTAL RETURN FUND -- CLASS A, B, C and O SHARES
Comparison of $10,000 Investment in the Fund with
50% S&P 500 and 50% SB Broad Investment-Grade Bond Index
- --------------------------------------------------------------------------------
50% S%P 500 SB
Broad Investment-
Class A Class B Class C Class O Grade Bond Index
------- ------- ------- ------- ----------------
9/11/95 9525 10000 10000 10000 10000
12/95 10158.82 10644.21 10653.65 10689.09 10519.17
3/96 10558.98 11033.25 11052.38 11116.33 10705.47
6/96 10818.21 11281.08 11300.07 11395.32 10971.27
9/96 11196.49 11664.56 11673.06 11800.62 11248.63
12/96 12020.13 12497.7 12486.59 12676.88 11888.73
3/97 12313.84 12770.41 12887.61 13146.41 12021.66
6/97 13177.94 13644.31 13912.16 14263.88 13270.38
9/97 14216.48 14686.6 15093.58 15548.1 13996.33
12/97 14309.79 14366.07 14799.00 15181.00 14410.71
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1997
- --------------------------------------------------------------------------------
Class A Net Asset Value* Public Offering Price**
- --------------------------------------------------------------------------------
Since Inception (9/11/95) 19.27% 16.77%
1 year 19.05% 13.39%
- --------------------------------------------------------------------------------
Class B Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (9/11/95) 18.38% 16.98%
1 year 18.15% 13.15%
- --------------------------------------------------------------------------------
Class C Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (9/11/95) 18.43% 18.43%
1 year 18.11% 17.11%
- --------------------------------------------------------------------------------
Class O Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (9/11/95) 19.81% 19.81%
1 year 19.31% 19.31%
================================================================================
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
[The following table was depicted as a pie chart in the printed material]
Composition of portfolio as of
December 31, 1997
Cash/Cash Equivalents 8%
High Yield Securities 10%
Convertible Securities 10%
Investment Grade Debt 27%
Stocks 45%
- --------------------------------------------------------------------------------
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
Top Stock Holdings
- --------------------------------------------------------------------------------
Canadian National Railway
- -------------------------
Suncor Inc.
- -------------------------
Dresser Industries
- -------------------------
Stone & Webster
- -------------------------
BCE Inc.
=========================
- --------------------------------------------------------------------------------
Lipper Comparative Performance(+)
Salomon Brothers Total Return Fund
- --------------------------------------------------------------------------------
Lipper Category: Balanced Funds
- --------------------------------------------------------------------------------
1 Year Total Return
12/31/96 - 12/31/97
- --------------------------------------------------------------------------------
Class A Shares Lipper Average Ranking
- --------------------------------------------------------------------------------
19.05% 19.00% 3rd Quartile
Top 51%
#176 of 350 funds
- --------------------------------------------------------------------------------
Class B Shares Ranking
- --------------------------------------------------------------------------------
18.15% 3rd Quartile
Top 60%
#208
- --------------------------------------------------------------------------------
Class C Shares Ranking
- --------------------------------------------------------------------------------
18.11% 3rd Quartile
Top 60%
#210
- --------------------------------------------------------------------------------
Class O Shares Ranking
- --------------------------------------------------------------------------------
19.31% 2nd Quartile
Top 50%
#172
================================================================================
See pages 24 and 25 for all footnotes.
11
<PAGE>
THE SALOMON BROTHERS
High Yield Bond Fund
INVESTMENT OBJECTIVE
To maximize current income by investing primarily in a diversified portfolio of
high yield, fixed income securities rated in medium or lower categories. As a
secondary objective, the Fund seeks capital appreciation.
INVESTMENT STRATEGY
Under normal market conditions, the Fund intends to invest at least 65% of its
assets in securities rated Baa or lower by Moody's, or those rated BBB or lower
by Standard & Poor's. A key component of the overall strategy is to determine
the optimal asset allocation between domestic high yield bonds and foreign-
dollar denominated fixed income securities such as Brady Bonds and lower-rated
sovereign debt.
- --------------------------------------------------------------------------------
THE FUND MANAGER
- --------------------------------------------------------------------------------
[PHOTO OMITTED]
Peter J. Wilby, Managing Director and Portfolio Manager at Salomon Brothers
Asset Management Inc, has 18 years of investment industry experience principally
in the high yield and emerging debt markets. Mr. Wilby is primarily responsible
for day-to-day Fund management.
- --------------------------------------------------------------------------------
PERFORMANCE
The Salomon Brothers High Yield Bond Fund (Class A shares) posted a return of
13.03% in 1997. This performance compares with the 13.19% return for the High
Yield Bond Market, as measured by the Salomon Brothers High-Yield Market Index
and a 12.96% return for the Lipper High Current Yield Average. The Salomon
Brothers High Yield Bond Fund (Class A shares) has average annual returns of
18.02% since its inception on February 22, 1995 exceeding the Lipper High
Current Yield Market Index's average annual returns of 13.88% over the same time
period.
MARKET REVIEW
The traditional U.S. corporate high yield market benefited from the near-perfect
economic conditions that prevailed in the United States in 1997: the combination
of solid economic growth with virtually no inflation.
The U.S. corporate high yield market posted a strong performance, buoyed by both
fundamental and technical factors. The combination of solid economic growth, low
inflation, and continued ready access to the equity markets in the United States
served to improve credit quality among a broad spectrum of issuers, keeping
default loss experience well below historical norms in the market. Taking
advantage of the strong high yield market conditions, new issue financing
exceeded previous record levels by a substantial amount. Due primarily to the
following factors, the heavy flow of new issues was easily absorbed. Mutual fund
cash inflows continued at a healthy pace. Traditional institutional investor
demand for the market grew as the market increased its share of investment from
asset allocators, and the securitization of the market through collateralized
bond obligations augmented demand. And, despite some widening of yield spreads
in March and April and then October, spreads generally contracted for the year.
Within the traditional U.S. high yield market, the strongest performance in 1997
was recorded by the media sector, which represents over 30% of the market,
including cable television and other broadcasters, telecommunications companies
and print media. The media sector of the Salomon Brothers High-Yield Market
Index was up approximately 15%. The outperformance in this sector came as a
result of strong fundamentals in the industry as well as a burst of
consolidation in traditional media outlets following new industry legislation
passed in 1996.
The weakest performance during the year was recorded by the broad manufacturing
sector, which returned 11% for the year. Broad manufacturing was dragged down by
the automotive supply group, which returned 5.9%. The bankruptcy of Harvard
Industries, a significant issuer in that sector, which was not owned by the
Fund, contributed to these poor results.
12
<PAGE>
Throughout most of 1997, emerging debt markets benefited from favorable market
conditions, attractive yields, and positive economic and political settings in
many key countries. In the fourth quarter, however, the markets fell prey to the
dramatic global market sell-off that was sparked by the turmoil in Asia. The
instability of financial markets around the world -- notably the U.S. and Hong
Kong -- contributed to the significant pickup in volatility among emerging
markets. Indeed, yield spreads over U.S. Treasuries widened to as much as 825
basis points over Treasuries at the market's low point in October. At year end,
the yield spread settled at around 500 basis points above U.S. Treasuries.
HIGHLIGHTS
The High Yield Bond Fund performance was in line with the U.S. high yield market
for 1997, although the returns were derived with an exposure to emerging markets
debt that ranged from 16-27% for the year. Within the U.S. portion of the Fund,
during 1997 our largest weightings were in consumer non-cyclicals (ranging from
21-31%), media (ranging from 17-23%), and manufacturing industries (ranging from
10-17%). Other key weightings were basic industries, which declined from 16% as
of 3/31/97 to below 12% at year end, and energy, which increased from 6% as of
3/31/97 to 8% as of year end. U.S. credit quality was maintained in the single B
range to take advantage of the strong U.S. economic environment. In emerging
markets, we focused on U.S. dollar-denominated debt, principally sovereign debt
of Latin American and Eastern European issuers. Our focus was on searching for
individual credit quality improvements, emphasizing the double-B credit quality
sector.
OUTLOOK
Our outlook for the domestic U.S. high yield market is very positive for 1998.
Although there is the possibility of a slowing of economic growth in the U.S. if
the spillover effect from Asian economic turmoil is strong, we believe that
overall credit quality will remain stable. We will likely, however, continue our
current process of moving our portfolio away from industries and companies that
will be subject to increased competition from Asian exports. As a result of the
Asian turmoil, we expect to see currency volatility continue and corporate
bankruptcies develop in several nations, which will likely keep the entire
emerging markets debt markets tenuous for the time being. We do believe that
non-Asian emerging debt represents a strong long-term value at current levels
and will maintain a position there.
13
<PAGE>
The following graph depicts the performance of the High Yield Bond Fund versus
the Salomon Brothers High-Yield Market Index(3). It is important to note that
the High Yield Bond Fund is a professionally managed mutual fund while the index
is not available for investment and is unmanaged. The comparison is shown for
illustrative purposes only.
[The following table was depicted as a line graph in the printed material.]
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND -- CLASS A, B, C and O SHARES
Comparison of $10,000 Investment in the Fund with
Salomon Brothers High-Yield Market Index
- --------------------------------------------------------------------------------
Salomon Brothers
High-
Yield
Class A Class B Class C Class O Market Index
------- ------- ------- ------- ------------
2/22/95 9525 10000 10000 10000 10000
6/95 10313.72 10798.12 10800.27 10837.28 10725.23
12/95 11102.35 11573.37 11575.49 11676.26 11420.85
6/96 12151.19 12626.25 12617.12 12755.47 11753.56
12/96 13536.24 14022.46 14013.14 14248.44 12710.57
6/97 14541.71 14994.008 14997.34 15332.08 13468.01
12/97 15300.26 15330.81 15721.1 16157.29 14386.71
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1997
- --------------------------------------------------------------------------------
Class A Net Asset Value* Public Offering Price**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 18.02% 16.03%
1 year 13.03% 7.62%
- --------------------------------------------------------------------------------
Class B Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 17.16% 16.11%
1 year 12.18% 7.18%
- --------------------------------------------------------------------------------
Class C Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 17.14% 17.14%
1 year 12.19% 11.19%
- --------------------------------------------------------------------------------
Class O Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 18.27% 18.27%
1 year 13.40% 13.40%
================================================================================
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
[The following table was depicted as a pie chart in the printed material.]
Composition of portfolio as of
December 31, 1997
Cash/Cash Equivalents 7%
Emerging Markets Debt 23%
High Yield Securities 70%
- --------------------------------------------------------------------------------
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
Top U.S. High Yield Holdings
- --------------------------------------------------------------------------------
Clark-Schwebel
- ----------------
Collins & Aikman
- ----------------
Unisys
- ----------------
Foamex
- ----------------
Jordan Telecom
================
- --------------------------------------------------------------------------------
Lipper Comparative Performance(+)
Salomon Brothers High Yield Bond Fund
- --------------------------------------------------------------------------------
Lipper Category: High Current Yield Funds
- --------------------------------------------------------------------------------
1 Year Total Return
12/31/96 - 12/31/97
- --------------------------------------------------------------------------------
Class A Shares Lipper Average Ranking
- --------------------------------------------------------------------------------
13.03% 12.96% 2nd Quartile
Top 44%
#78 of 181 funds
- --------------------------------------------------------------------------------
Class B Shares Ranking
- --------------------------------------------------------------------------------
12.18% 3rd Quartile
Top 63%
#113
- --------------------------------------------------------------------------------
Class C Shares Ranking
- --------------------------------------------------------------------------------
12.19% 3rd Quartile
Top 62%
#112
- --------------------------------------------------------------------------------
Class O Shares Ranking
- --------------------------------------------------------------------------------
13.40% 2nd Quartile
Top 35%
#62
================================================================================
See pages 24 and 25 for all footnotes.
14
<PAGE>
[This page intentionally left blank]
15
<PAGE>
[PHOTO OMITTED]
THE SALOMON BROTHERS
Strategic Bond Fund
INVESTMENT OBJECTIVE
The Salomon Brothers Strategic Bond Fund seeks a high level of current income.
The Fund seeks to achieve its objective by investing in a globally diverse
portfolio of fixed income instruments. As a secondary objective, the Fund seeks
capital appreciation.
INVESTMENT STRATEGY
Assets of the Fund may be deployed among various sectors of the global fixed
income market, depending on portfolio managers' analysis of current economic and
market conditions and the relative risks and opportunities presented in various
market segments.
PERFORMANCE
For the year ended December 31, 1997, the Strategic Bond Fund (Class A shares)
posted a 11.23% return. This compares with a 9.62% return for the Salomon
Brothers Broad Investment-Grade Bond Index and 8.77% for the Lipper Multi-Sector
Income Average.
MARKET REVIEW
Our investment process focuses on identifying and capturing relative value among
global fixed-income markets. In 1997, this was especially important as financial
markets showed how vulnerable they are to changes around the globe. The turmoil
in Asia reverberated throughout world financial markets, and the Fund made
allocation choices to reflect these events. However, the stable U.S. economic
environment, featuring low inflation and solid growth, provided two main
benefits: (1) a favorable yield environment for investment-grade securities; and
(2) positive growth in the high yield sector, resulting from credit improvement.
The U.S. corporate high yield market continued to benefit from strong
fundamental and technical factors. Credit quality among issuers improved,
reflecting the combination of solid economic growth and low inflation in the
United States. New issuance reached record levels. In addition, the sector was
supported by strong mutual fund cash inflows and demand by CBOs (collateralized
bond obligations). During the past year, the emerging debt markets benefited
from favorable market conditions, attractive yields and positive economic and
political settings in many key countries.
HIGHLIGHTS
At the start of 1997, the Fund's target allocations were 20% emerging market
debt, 45% high-yield debt, 30% investment-grade debt, and 5% non-dollar debt.
Following the strong performance of the high yield and emerging debt markets
through the first nine months of the year and the subsequent narrowing of yield
spreads in those markets, we reduced our allocations to 35% and 15%,
respectively, in those segments. We then added to our allocation of
investment-grade bonds and extended duration from 31 1/42 years to 41 1/42
years. This allocation gener-
- --------------------------------------------------------------------------------
THE FUND MANAGERS
- --------------------------------------------------------------------------------
[PHOTO OMITTED]
Steven Guterman, Managing Director and Portfolio Manager at Salomon Brothers
Asset Management Inc, has 18 years of investment industry experience principally
in the fixed income markets. Mr. Guterman is primarily responsible for the
overall asset allocation and the day-to-day management of the investment grade
securities in the Fund.
[PHOTO OMITTED]
Peter J. Wilby, Managing Director and Portfolio Manager at Salomon Brothers
Asset Management Inc, has 18 years of investment industry experience principally
in the high yield and emerging debt markets. Mr. Wilby is primarily responsible
for day-to-day Fund management of the high yield and foreign sovereign bond
portions of the Fund.
[PHOTO OMITTED]
David J. Scott, Director and Portfolio Manager at Salomon Brothers Asset
Management LTD, has 15 years of investment industry experience. SBAM Ltd
provides certain advisory services to SBAM Inc relating to currency transactions
and investments in non-dollar denominated securities.
- --------------------------------------------------------------------------------
16
<PAGE>
ated strong investment returns, as the Fund ranked within the top quintile among
multi-sector bond funds for the year.
OUTLOOK
One of the benefits of a global bond fund is the ability to rotate in or out of
different fixed-income sectors to enhance performance as opportunities arise or
to avoid risk. The effects of the turmoil in Asia will continue in 1998. The
dampening impact on the U.S. economy from the weakness in Asia is likely to keep
the Federal Reserve on the sidelines for the near term. While we believe that
the direct impact on the U.S. will be limited, the indirect effects could be
larger. The weakness in Asia should slow U.S. growth to sustainable levels,
offsetting strength in housing and other consumer sectors. This should also
serve to curb mounting pressure in the labor force. We believe that the
inflation picture will improve going forward, as price competition in
commodities and produced goods from countries such as Korea and Japan keep U.S.
prices in check. In the high yield market, we still favor those companies that
will benefit from the continued strong U.S. economy. We have become more
cautious in our view of the emerging debt markets, where spreads have widened
substantially. However, we believe that long-term buying opportunities still
exist, as credit quality in Latin America and Eastern Europe remains strong.
Indeed, the market remains attractive for long-term investors.
17
<PAGE>
The following graph depicts the performance of the Strategic Bond Fund versus
the Salomon Brothers Broad Investment-Grade Bond Index(4). It is important to
note that the Strategic Bond Fund is a professionally managed mutual fund while
the index is not available for investment and is unmanaged. The comparison is
shown for illustrative purposes only.
[The following table was depicted as a line graph in the printed material.]
- --------------------------------------------------------------------------------
STRATEGIC BOND FUND -- CLASS A, B, C and O SHARES
Comparison of $10,000 Investment in the Fund with Salomon Brothers
Broad Investment-Grade Bond Index
- --------------------------------------------------------------------------------
Salomon Brothers
Broad Investment
Class A Class B Class C Class O Grade Bond Index
------- ------- ------- ------- ----------------
2/22/95 9525 10000 10000 10000 10000
6/95 10280.76 10764.56 10765.52 10802.82 10674.36
12/95 11216.4 11613.82 11607.35 11703.94 11347.75
6/96 11746.38 12189.97 12194.91 12358.47 11210.18
12/96 12689.86 13119.25 13124.57 13366.81 11759.2
6/97 13369.24 13781.54 13786.84 14111.72 12123.34
12/97 14114.72 14082.23 14500.82 14901.81 12895.56
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1997
- --------------------------------------------------------------------------------
Class A Net Asset Value* Public Offering Price**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 14.74% 12.80%
1 year 11.23% 5.95%
- --------------------------------------------------------------------------------
Class B Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 13.82% 12.72%
1 year 10.39% 5.39%
- --------------------------------------------------------------------------------
Class C Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 13.88% 13.88%
1 year 10.49% 9.49%
- --------------------------------------------------------------------------------
Class O Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 14.97% 14.97%
1 year 11.48% 11.48%
================================================================================
[The following table was depicted as a pie chart in the printed material.]
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
Composition of portfolio as of
December 31, 1997
Cash/Cash Equivalents 5%
Non U.S. Investment Grade 7%
Emerging Markets Debt 16%
U.S. Investment Grade
Debt 39%
High Yield Securities 33%
- --------------------------------------------------------------------------------
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
Lipper Comparative Performance(+)
Salomon Brothers Strategic Bond Fund
- --------------------------------------------------------------------------------
Lipper Category: Multi-Sector Income Funds
- --------------------------------------------------------------------------------
12/31/96 - 12/31/97
- --------------------------------------------------------------------------------
Class A Shares Lipper Average Ranking
- --------------------------------------------------------------------------------
11.23% 8.77% 1st Quartile
Top 12%
#9 of 81 funds
- --------------------------------------------------------------------------------
Class B Shares Ranking
- --------------------------------------------------------------------------------
10.39% 1st Quartile
Top 19%
#15
- --------------------------------------------------------------------------------
Class C Shares Ranking
- --------------------------------------------------------------------------------
10.49% 1st Quartile
Top 18%
#14
- --------------------------------------------------------------------------------
Class O Shares Ranking
- --------------------------------------------------------------------------------
11.48% 1st Quartile
Top 10%
#8
================================================================================
See pages 24 and 25 for all footnotes.
18
<PAGE>
[This page intentionally left blank]
19
<PAGE>
[PHOTO OMITTED]
THE SALOMON BROTHERS
U.S. Government
Income Fund
INVESTMENT OBJECTIVE
To obtain a high level of current income.
INVESTMENT STRATEGY
Under normal conditions the Fund invests 100% of its net assets in debt
obligations and mortgage-backed securities issued by or guaranteed by the U.S.
government, its agencies or instrumentalities. The Fund expects to maintain an
average portfolio duration of two to five years.
PERFORMANCE
The U.S. Government Income Fund (Class A shares) posted a 7.86% return in 1997.
This performance compares favorably with the Lipper Short-Intermediate U.S.
Government Bond Average return of 6.72% and the Salomon Brothers 1-5 Year
Treasury Bond Index return of 7.13%.
MARKET REVIEW
Economic conditions in the U.S. remained surprisingly favorable throughout 1997.
The combination of moderate growth and low inflation supported the financial
markets. The Federal Reserve's decision to raise interest rates in March was
widely anticipated, and since then, the market continued to be comforted by the
fact that strong growth did not translate into higher inflation readings. The
turmoil in Asian markets reverberated throughout the world later in the year,
and the resultant dampening effects are likely to keep the Fed on hold for the
near term.
HIGHLIGHTS
Early in 1997, bonds sold off on the expectation that strong U.S. economic
growth would begin to translate into higher inflation readings. Following the
March tightening by the Fed -- when long bond yields were more than 7% --
inflation unexpectedly continued to decline. This led to a rally in U.S.
fixed-income securities, and yields fell about 75 basis points through the
summer. The rally continued in the fall, when it was widely believed that the
Asian crisis would slow economic growth in the United States to more sustainable
levels. The Fund's strong performance reflects the continued overweight position
in mortgage-backed securities. Indeed, the mortgage sector (as measured by the
Salomon Brothers Mortgage Index) posted returns of 9.27% in 1997, which on a
duration-adjusted basis exceeded Treasuries by about 125 basis points. The
Fund's performance was also helped by the slightly longer duration position
relative to the benchmark since mid-year.
OUTLOOK
As we move into 1998, the effects of the turmoil in Asia will continue. While we
believe that the direct impact on the U.S. will be limited, the indirect effects
could be larger. The weakness in Asia should dampen U.S. growth to sustainable
levels, offsetting strength in housing and other consumer sectors. This should
also serve to curb mounting pressure in the labor force. We believe that the
inflation picture will improve going forward, as price competition in
commodities and produced goods from countries such as Korea and Japan keep U.S.
prices in check. In this low interest rate environment, we believe that
additional spreads from mortgages will lead to higher returns.
- --------------------------------------------------------------------------------
THE FUND MANAGERS
- --------------------------------------------------------------------------------
[PHOTO OMITTED]
Steven Guterman, Managing Director and Portfolio Manager at Salomon Brothers
Asset Management Inc, has 18 years of investment industry experience principally
in the fixed income markets. Mr. Guterman is responsible for oversight and
management of the Fund.
[PHOTO OMITTED]
Roger Lavan, Director and Portfolio Manager at Salomon Brothers Asset Management
Inc, has 13 years of investment industry experience. Mr. Lavan is responsible
for day-to-day Fund management.
- --------------------------------------------------------------------------------
20
<PAGE>
The following graph depicts the performance of the U.S. Government Income Fund
versus the Salomon Brothers 1-5 year Treasury Bond Index.(5) It is important to
note that the U.S. Government Income Fund is a professionally managed mutual
fund while the index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
[The following table was depicted as a line graph in the printed material.]
- --------------------------------------------------------------------------------
U.S. GOVERNMENT INCOME FUND -- CLASS A, B, C and O SHARES
Comparison of $10,000 Investment in the Fund with
Salomon Brothers 1-5 Year Treasury Bond Index
- --------------------------------------------------------------------------------
Salomon Brothers 1-5
Class A Class B Class C Class O Treasury Bond Index
------- ------- ------- ------- --------------------
2/22/95 9525 10000 10000 10000 10000
6/95 9959.15 10428.57 10428.47 10464.83 10450.43
12/95 10428.69 10879.28 10879.15 10971 10912
6/96 10362.56 10757.95 10757.82 10903.48 10996.34
12/96 10802.68 11171.87 11171.74 11380.53 11411.89
6/97 11100.33 11446.82 11446.58 11708.32 11731.28
12/97 11652.28 11570.36 11958.48 12305.4 12225.67
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1997
- --------------------------------------------------------------------------------
Class A Net Asset Value* Public Offering Price**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 7.30% 5.49%
1 year 7.86% 2.76%
- --------------------------------------------------------------------------------
Class B Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 6.49% 5.23%
1 year 7.15% 2.15%
- --------------------------------------------------------------------------------
Class C Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 6.45% 6.45%
1 year 7.04% 6.04%
- --------------------------------------------------------------------------------
Class O Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 7.52% 7.52%
1 year 8.13% 8.13%
================================================================================
[The following table was depicted as a pie chart in the printed material.]
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
Composition of portfolio as of
December 31, 1997
Cash/Cash
Equivalents 2%
Treasury & Agency
Debentures 16%
Agency CMOs 25%
Agency Pass
Throughs 57%
- --------------------------------------------------------------------------------
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
Lipper Comparative Performance(+)
Salomon Brothers U.S. Government Income Fund
- --------------------------------------------------------------------------------
Lipper Category: Short/Intermediate U.S. Government Funds
- --------------------------------------------------------------------------------
1 Year Total Return
12/31/96 - 12/31/97
- --------------------------------------------------------------------------------
Class A Shares Lipper Average Ranking
- --------------------------------------------------------------------------------
7.86% 6.72% 1st Quartile
Top 9%
#8 of 92 funds
- --------------------------------------------------------------------------------
Class B Shares Ranking
- --------------------------------------------------------------------------------
7.15% 4th Quartile
Top 25%
#23
- --------------------------------------------------------------------------------
Class C Shares Ranking
- --------------------------------------------------------------------------------
7.04% 4th Quartile
Top 33%
#30
- --------------------------------------------------------------------------------
Class O Shares Ranking
- --------------------------------------------------------------------------------
8.13% 1st Quartile
Top 4%
#3
================================================================================
See pages 24 and 25 or all footnotes.
21
<PAGE>
[PHOTO OMITTED]
THE SALOMON BROTHERS
National Intermediate
Municipal Fund
INVESTMENT OBJECTIVE
To achieve a high level of current income exempt from regular federal income
taxes.
INVESTMENT STRATEGY
Under normal circumstances, at least 80% of the Fund's net assets will be
invested in municipal obligations, the interest on which is exempt from regular
federal income tax. All or a portion of the Fund's income may be subject to the
federal alternative minimum tax.
PERFORMANCE
During 1997, the National Intermediate Municipal Fund (Class A shares) achieved
a total return of 7.52%. This compares favorably with returns of 7.16% for the
average Intermediate Municipal Debt Fund as measured by Lipper Analytical
Services and 7.26% for the weighted average of the Lehman Brothers 1-10 year
Municipal Bond Index.
- --------------------------------------------------------------------------------
THE FUND MANAGER
- --------------------------------------------------------------------------------
[PHOTO OMITTED]
Marybeth Whyte, Director and Portfolio Manager at Salomon Brothers Asset
Management Inc, has 20 years of investment industry experience. Ms. Whyte is
responsible for day-to-day Fund management.
- --------------------------------------------------------------------------------
MARKET REVIEW
U.S. fixed income securities performed well during 1997. Inflation (as measured
by the Core Consumer Price Index) at 2.2% for the year was the lowest level
since 1965. Early in the year the Federal Reserve raised short-term interest
rates by 25 basis points in an effort to slow economic growth. Economic growth
slowed during the second and third quarters, only to increase during the fourth
quarter. The Asian crisis is expected to slow future growth.
Municipals fully participated in the bond rally. State and local governments
took advantage of the relatively low interest rate environment and issued a
record amount of new debt and also refinanced older outstanding higher interest
rate debt. Demand was strong from property and casualty insurance companies, but
sporadic from individual investors. Individual investors' participation was
dependent upon on the absolute level of municipal rates and the extent of the
stock market's volatility. Municipals were not able to keep pace with the
improvement of Treasuries during the fourth quarter and became undervalued
relative to Treasuries. The attractiveness of municipals drew many
non-traditional buyers to the market.
HIGHLIGHTS
The Fund performed well in 1997. As inflation statistics proved benign, we
focused on the seven to ten year maturity range emphasizing non-callable higher
coupon bonds. During 1997, credit spreads continued to narrow. We took advantage
of these conditions by upgrading the credit quality of the portfolio. The Fund
had an average credit quality of AA at year end.
OUTLOOK
New issue volume of $220 billion for 1997 was the highest level since 1993. We
expect issuance of about $190 to $195 billion in 1998. Technical factors should
remain positive as the large coupon payments, calls and maturities should
bolster demand for municipals this year. We expect property and casualty
insurance companies to continue to be active participants. Individual investors'
interest is likely to be linked to asset allocation, the volatility in the stock
market and the nominal level of interest rates.
22
<PAGE>
The following graph depicts the performance of the National Intermediate
Municipal Fund versus the Lehman Brothers 1-10 Year Municipal Bond Index.(6) It
is important to note that the National Intermediate Municipal Fund is a
professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only.
[The following table was depicted as a line graph in the printed material.]
- --------------------------------------------------------------------------------
NATIONAL INTERMEDIATE MUNICIPAL FUND -- CLASS A, B, C and O SHARES
Comparison of $10,000 Investment in the Fund with
Lehman Muni 1-10 Year (Mkt Wtd) Index
- --------------------------------------------------------------------------------
Lehman Muni
1-10 Year
Class A Class B Class C Class O (Mkt Wtd) Index
------- ------- ------- ------- ---------------
2/22/95 9525 10000 10000 10000 10000
6/95 9812.03 10274.1 10274.1 10310.49 10369.07
12/95 10357.15 10796.97 10796.97 10895.94 10913.3
6/96 10336.92 10738.31 10738.31 10877.36 10951.44
12/96 10789.63 11159.46 11159.46 11366.52 11391.19
6/97 11083.58 11413.21 11413.21 11689.96 11699.28
12/97 11600.87 11506.53 11907.00 12249.85 12217.63
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1997
- --------------------------------------------------------------------------------
Class A Net Asset Value* Public Offering Price**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 7.14% 5.32%
1 year 7.52% 2.38%
- --------------------------------------------------------------------------------
Class B Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 6.29% 5.03%
1 year 6.69% 1.69%
- --------------------------------------------------------------------------------
Class C Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 6.29% 6.29%
1 year 6.69% 5.69%
- --------------------------------------------------------------------------------
Class O Return If Not Redeemed* Return If Redeemed**
- --------------------------------------------------------------------------------
Since Inception (2/22/95) 7.35% 7.35%
1 year 7.77% 7.77%
================================================================================
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
[The following table was depicted as a pie chart in the printed material]
Quality Breakdown
A 17%
AA 13%
AAA 49%
BBB 21%
- --------------------------------------------------------------------------------
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
Composition of portfolio as of December 31, 1997
- --------------------------------------------------------------------------------
New York 25%
- -----------------------------------
Pennsylvania 13%
- -----------------------------------
Illinois 11%
- -----------------------------------
Indiana 11%
- -----------------------------------
South Carolina 8%
- -----------------------------------
California 4%
- -----------------------------------
Texas 4%
- -----------------------------------
Mississippi 4%
- -----------------------------------
New Jersey 4%
- -----------------------------------
Ohio 4%
- -----------------------------------
Louisiana 3%
- -----------------------------------
Massachusetts 3%
- -----------------------------------
Michigan 2%
- -----------------------------------
Hawaii 2%
- -----------------------------------
Florida 1%
- -----------------------------------
Nevada 1%
===================================
- --------------------------------------------------------------------------------
Lipper Comparative Performance(+)
Salomon Brothers National Inter. Muni. Fund
- --------------------------------------------------------------------------------
Lipper Category: Intermediate Municipal Debt Funds
- --------------------------------------------------------------------------------
1 Year Total Return
12/31/96 - 12/31/97
- --------------------------------------------------------------------------------
Class A Shares Lipper Average Ranking
- --------------------------------------------------------------------------------
7.52% 7.16% 2nd Quartile
Top 34%
#47 of 140 funds
- --------------------------------------------------------------------------------
Class B Shares Ranking
- --------------------------------------------------------------------------------
6.69% 3rd Quartile
Top 74%
#103
- --------------------------------------------------------------------------------
Class C Shares Ranking
- --------------------------------------------------------------------------------
6.69% 3rd Quartile
Top 73%
#102
- --------------------------------------------------------------------------------
Class O Shares Ranking
- --------------------------------------------------------------------------------
7.77% 2nd Quartile
Top 26%
#36
================================================================================
See pages 24 and 25 for all footnotes.
23
<PAGE>
FOOTNOTES
- ----------
(1) Morningstar ratings reflect historical risk-adjusted performance and are
subject to monthly changes. Ratings are calculated from a fund's average
annual return with appropriate sales charge adjustment and a risk factor
relative to the three month Treasury bill return. Average annual total
returns include changes in share price and reinvestment of dividends and
distributions. Overall rating is a weighted average of a fund's three-,
five- and ten-year ratings. For the period ended 12/31/97, the Investors
Fund O was rated 5, 5 and 4 for the 3-, 5- and 10-year periods
respectively. Ten percent of the top performing funds in a Morningstar
investment category receive five stars. Please note that Salomon Brothers
Asset Management Inc began managing this Fund May 1, 1990. Prior to this
period, the Fund was managed by another investment advisor.
(2) The Salomon Brothers Broad Investment Grade Bond Index is valued at month
end only. As a result, while the Fund's total return calculations used in
this comparison are for the period September 11, 1995 through December 31,
1997, the combined Index returns are for the period October 1, 1995
through December 31, 1997.
(3) The Salomon Brothers High-Yield Market Index is valued at month end only.
As a result, while the Fund's total return calculations used in this
comparison are for the period February 22, 1995 through December 31, 1997,
the Index returns are for the period March 1, 1995 through December 31,
1997.
(4) The Salomon Brothers Broad Investment-Grade Bond Index is valued at month
end only. As a result, while the Fund's total return calculations used in
this comparison are for the period February 22, 1995 through December 31,
1997, the Index returns are for the period March 1, 1995 through December
31, 1997.
(5) The Salomon Brothers 1-5 year Treasury Bond Index is valued at month end
only. As a result, while the Fund's total return calculations used in this
comparison are for the period February 22, 1995 through December 31, 1997,
the Index returns are for the period March 1, 1995 through December 31,
1997.
(6) The Salomon Brothers 1-10 year Municipal Bond Index is valued at month end
only. As a result, while the Fund's total return calculations used in this
comparison are for the period February 22, 1995 through December 31, 1997,
the Index returns are for the period March 1, 1995 through December 31,
1997.
* Return does not reflect the deduction of sales charge.
** Class A shares reflect the deduction of the maximum 4.75% sales charge.
Class B & C shares reflect the maximum contingent deferred sales charge of
5% and 1%, respectively. Class O shares have no initial or contingent
deferred sales charge.
+ Lipper Analytical Services, an industry recognized analysis company,
calculates rankings based on total return performance of funds within each
category. Lipper rankings change monthly and do not reflect the effect of
sales charges. Accordingly, the result in this table for the Class A,
Class B and Class C shares of each Fund do not reflect the effects of the
sales charges applicable to each Class. Lipper performance results
represent changes in net asset value, adjusted to reflect reinvestment of
dividends and capital gains.
24
<PAGE>
GENERAL PERFORMANCE AND RANKING NOTES: Average annual total returns are based on
changes in net asset value and assume the reinvestment of all dividends, and/or
capital gains distributions in additional shares with and without the effect of
the maximum sales charge (Class A) and the contingent deferred sales charge
(Class B and C). Class A shares reflect the deduction of an annual 0.25%
12b-1fee. Class B & C shares are subject to an annual 12b-1 service and
distribution fee of 1.00%. Class O shares are not subject to an annual 12b-1
fee. Class O shares are only available to existing Class O shareholders. Past
performance does not guarantee future results. Investment return and principal
value fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Returns reflect a voluntary expense cap
imposed by SBAM to limit total Fund operating expenses. Absent this expense cap,
Fund returns would be lower. Expense caps may be revised or terminated at any
time.
25
<PAGE>
[This page intentionally left blank]
26
<PAGE>
Portfolio of Investments
(December 31, 1997)
Salomon Brothers Asia Growth Fund
- --------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- --------------------------------------------------------------------------------
Common Stocks -- 90.9%
China -- 7.3%
197,500 Heilongjiang Electric Power, Class B ... $ 151,285
158,000 Inner Mongolia Yitai Coal, Class B * ... 61,620
229,000 Shandong Chenming Paper, Class B * ..... 161,651
390,000 Shanghai Worldbest, Class B ............ 197,340
215,000 Shenzhen Fangda, Class B ............... 246,935
710,000 Southeastern Power, Class B * .......... 228,620
-----------
1,047,451
-----------
Hong Kong -- 42.1%
118,000 APT Satellite Holdings * ............... 178,165
62,400 Cheung Kong ............................ 408,672
148,000 China Resources Enterprises ............ 330,417
216,000 China Telecom * ........................ 370,732
270,000 Guangdong Kelon Electronics * .......... 277,003
305,000 Hong Kong Telecom ...................... 627,791
22,000 HSBC Holdings .......................... 542,264
53,000 Hutchison Whampoa ...................... 332,404
90,000 New World Development .................. 311,266
92,000 New World Infrastructure * ............. 207,175
234,000 Ng Fung Hong ........................... 246,109
97,000 Shanghai Industrial Holdings ........... 360,511
1,358,000 Shanghai Petrochemical ................. 212,051
908,000 Shenzhen Expressway * .................. 175,765
41,000 Sun Hung Kai Properties ................ 285,714
107,500 Swire Pacific, Class A ................. 589,592
180,000 Tianjin Development * .................. 167,247
416,000 Zhejiang Expressway Holdings * ......... 84,284
701,000 Zhenhai Refining & Chemicals ........... 291,744
-----------
5,998,906
-----------
India -- 5.4%
19,000 Industrial Credit & Investment - GDR ... 247,000
18,500 Mahindra & Mahindra - GDR .............. 197,488
18,000 State Bank of India - GDR .............. 327,600
-----------
772,088
-----------
Indonesia -- 2.1%
24,000 PT Gudang Garam ........................ 36,545
42,000 PT Gudang Garam (a) .................... 63,955
35,000 PT Telecomunikasion .................... 18,614
346,000 PT Telecomunikasion (a) ................ 184,009
-----------
303,123
-----------
Korea -- 0.3%
1,720 Pohang Iron & Steel .................... 46,577
-----------
Malaysia -- 8.6%
60,000 Berjaya Sports Toto .................... 153,490
124,000 Malakoff ............................... 258,234
95,000 Malayan Banking ........................ 275,999
88,000 Systems Telekom Malaysia ............... 260,188
131,000 Tenaga National ........................ 279,547
-----------
1,227,458
-----------
See accompanying notes to financial statements
27
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Asia Growth Fund (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Interest Maturity Value
Shares Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C>
Philippines -- 1.9%
83,000 Manila Electric, Class B ................................ $ 274,617
-----------
Singapore -- 9.6%
29,000 Cycle & Carriage ........................................ 119,579
109,000 Natsteel ................................................ 147,446
60,000 Singapore Airlines (a) .................................. 391,575
21,000 Singapore Press Holdings (a) ............................ 262,889
412,471 Singapore Technologies Engineering * .................... 310,791
78,000 Singapore Telecom ....................................... 145,310
-----------
1,377,590
-----------
Sri Lanka -- 0.2%
162,800 Asia Capital * .......................................... 22,410
-----------
Taiwan -- 8.8%
43,000 Aurora * ................................................ 93,579
170,000 BES Engineering ......................................... 167,785
416,000 China Steel ............................................. 313,674
99,600 Compal Electronics ...................................... 290,023
51,000 Hon Hai Precision Industry * ............................ 257,931
45,000 Taiwan Liton Electronic ................................. 128,276
-----------
1,251,268
-----------
Thailand -- 4.6%
54,000 Bangkok Bank (a) ........................................ 138,832
308,000 Bangkok Expressway * .................................... 176,518
8,500 Delta Electronics (a) ................................... 72,844
15,000 PTT Exploration & Production ............................ 131,762
16,000 Siam Cement (a) ......................................... 82,271
268,000 TelecomAsia (a)* ........................................ 52,825
-----------
655,052
-----------
Total Common Stocks
(cost $14,757,658) .................................... 12,976,540
-----------
<CAPTION>
Principal
Amount
---------
<C> <S> <C> <C> <C>
Corporate Bonds -- 3.3%
Hong Kong -- 1.6%
$ 375,000 Silver Grant International,
Convertible ....................... 1.000% 08/19/04 225,000
-----------
India -- 1.7%
300,000 Reliance Industries Index Note (b) .. -- 11/06/00 250,713
-----------
Total Corporate Bonds
(cost $564,151) ....................................... 475,713
-----------
<CAPTION>
Warrants Warrants* -- 0.0%
--------
<C> <S> <C>
Hong Kong -- 0.0%
1,040,000 Swire Pacific, expires 02/14/98 ......................... 1,342
-----------
Philippines -- 0.0%
228,600 Belle, expires 10/06/00 ................................. 0
-----------
Total Warrants (cost $163,256) .......................... 1,342
-----------
</TABLE>
See accompanying notes to financial statements
28
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Asia Growth Fund (concluded)
- --------------------------------------------------------------------------------
Value
Contracts Description (Note 1a)
- --------------------------------------------------------------------------------
Purchased Options* -- 0.5%
Hong Kong -- 0.5%
900 Hang Seng OTC Index Put
(expiring 02/26/98,
exercise price 9,932.25 HKD) ................. $ 43,670
245 Hang Seng OTC Index Call
(expiring 03/30/98,
exercise price 10,900 HKD) ................... 24,756
-----------
Total Purchased Options
(cost $103,605) .............................. 68,426
-----------
Total Investments -- 94.7%
(cost $15,588,670) ........................... 13,522,021
Other assets in excess of
liabilities -- 5.3% .......................... 760,864
-----------
Net Assets -- 100.0% ...................... $14,282,885
===========
<TABLE>
<CAPTION>
Forward Foreign Currency Contracts
- -----------------------------------------------------------------------------------------
Maturity Contracts to In Exchange Contracts at Unrealized
Dates Deliver for Value Depreciation
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales
02/24/98 HKD 28,659,800 $3,650,000 $3,686,464 $ (36,464)
01/05/98 MYR 213,236 54,655 54,846 (191)
-----------
$ (36,655)
===========
</TABLE>
* Non-income producing security.
(a) Foreign Shares.
(b) Each $100,000 note is equivalent to 19,526 shares of Reliance Industries
Ltd. Redemption proceeds will be determined at date of redemption based on
the change in (1) the value of the shares of Reliance Industries Ltd. and
(2) the exchange rate between the U.S. Dollar and Indian Rupee. Interest
on the notes is equal to the amount of dividends paid on the underlying
shares of Reliance Industries Ltd.
Abbreviations used in this statement:
GDR Global Depository Receipt.
HKD Hong Kong Dollar.
MYR Malaysian Ringgit.
OTC Over the Counter.
See accompanying notes to financial statements
29
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Capital Fund Inc
- --------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- --------------------------------------------------------------------------------
Common Stocks -- 89.5%
Basic Industries -- 8.1%
60,000 Cytec Industries * ..................... $ 2,816,250
75,000 IMC Global ............................. 2,456,250
75,000 Martin Marietta Materials .............. 2,742,188
110,000 OM Group ............................... 4,028,750
30,000 Vulcan Materials ....................... 3,063,750
------------
15,107,188
------------
Capital Goods -- 4.5%
125,000 Mark IV Industries ..................... 2,734,375
27,000 Stone & Webster ........................ 1,265,625
100,000 Tyco International ..................... 4,506,250
------------
8,506,250
------------
Consumer Cyclicals -- 16.0%
100,000 Breed Technologies ..................... 1,825,000
125,000 Champion Enterprises * ................. 2,570,313
100,000 Children's Place * ..................... 512,500
100,000 Costco Companies * ..................... 4,462,500
100,000 Federated Department Stores * .......... 4,306,250
125,000 Fine Host * ............................ 1,265,625
75,000 Hollinger .............................. 628,125
40,000 Lear * ................................. 1,900,000
115,000 Samsonite * ............................ 3,636,874
100,000 Sears, Roebuck ......................... 4,525,000
50,000 Star Buffet * .......................... 575,000
87,500 Tower Automotive * ..................... 3,680,469
------------
29,887,656
------------
Consumer Non-Cyclicals -- 19.6%
30,000 Cablevision Systems * .................. 2,872,500
175,000 Chiquita Brands International .......... 2,854,688
300,000 Food Lion, Class A ..................... 2,531,250
500,000 Food Lion, Class B ..................... 4,125,000
175,000 Hormel Foods ........................... 5,731,250
200,000 John B. Sanfilippo & Sons * ............ 1,575,000
130,000 Michael Foods .......................... 3,168,750
80,000 Philip Morris Companies ................ 3,625,000
100,000 Tyson Foods, Class A ................... 2,050,000
250,000 U.S. Satellite Broadcasting * .......... 1,984,375
150,000 Viacom, Class B * ...................... 6,215,625
------------
36,733,438
------------
Energy -- 6.0%
60,000 Nuevo Energy * ......................... 2,445,000
62,500 Pioneer Natural Resources .............. 1,808,594
75,000 Tosco .................................. 2,835,938
75,000 TOTAL - ADR ............................ 4,162,500
------------
11,252,032
------------
See accompanying notes to financial statements
30
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Capital Fund Inc (continued)
- --------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- --------------------------------------------------------------------------------
Financial Services -- 10.6%
75,000 Bank of New York ....................... $ 4,335,933
25,000 BankBoston ............................. 2,348,438
18,900 Dime Community Bancorp ................. 448,875
40,000 Federal National Mortgage Association .. 2,282,500
30,000 Fleet Financial Group .................. 2,248,125
50,000 Mercantile Bankshares .................. 1,956,250
25,000 Peoples Heritage Financial Group ....... 1,150,000
60,000 Provident Companies .................... 2,317,500
52,500 Travelers Group ........................ 2,828,438
------------
19,916,059
------------
Health Care -- 4.9%
75,000 HEALTHSOUTH * .......................... 2,081,250
30,000 Johnson & Johnson ...................... 1,976,250
100,000 SmithKline Beecham - ADR ............... 5,143,750
------------
9,201,250
------------
Technology -- 11.2%
12,500 3Com * ................................. 436,719
25,000 Bay Networks * ......................... 639,063
125,000 Cabletron Systems * .................... 1,875,000
150,000 Data General * ......................... 2,615,625
100,000 Electric Fuel * ........................ 362,500
93,000 FORE Systems * ......................... 1,418,250
40,000 Integrated Process Equipment * ......... 630,000
20,000 International Business Machines ........ 2,091,250
175,000 Plantronics * .......................... 7,000,000
200,000 Seagate Technology * ................... 3,850,000
------------
20,918,407
------------
Telecommunications & Utilities -- 6.6%
135,000 CoreComm * ............................. 1,366,875
46,700 Frontier ............................... 1,123,719
100,000 NTL * .................................. 2,787,500
100,000 Tele-Communications, Class A * ......... 2,793,750
150,000 Williams Companies ..................... 4,256,250
------------
12,328,094
------------
Transportation -- 2.0%
40,000 Canadian National Railway .............. 1,890,000
121,500 Carey International * .................. 1,837,687
------------
3,727,687
------------
Total Common Stocks
(cost $142,068,601) .................. 167,578,061
------------
Preferred Stocks -- 0.2%
Consumer Cyclicals -- 0.2%
75,000 Hollinger International, Series B, 7.00%
(cost $438,966) ...................... 479,550
------------
Convertible Preferred Stocks -- 1.2%
Consumer Cyclicals -- 1.2%
175,000 Hollinger International 9.75%
(cost $1,895,444) .................... 2,253,125
------------
See accompanying notes to financial statements
31
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Capital Fund Inc (concluded)
- --------------------------------------------------------------------------------
Value
Contracts Description (Note 1a)
- --------------------------------------------------------------------------------
Purchased Options* -- 0.3%
300 Cisco Put (expiring January 1998,
exercise price $50) .................. $ 18,750
75 Cisco Put (expiring January 1998,
exercise price $53.375) .............. 6,563
150 Compaq Put (expiring January 1998,
exercise price $70) .................. 210,000
200 Dell Put (expiring January 1998,
exercise price $90) .................. 145,000
350 Microsoft Put (expiring January 1998,
exercise price $115) ................. 21,875
100 Motorola Put (expiring April 1998,
exercise price $65) .................. 91,250
1,000 Motorola Put (expiring January 1998,
exercise price $50) .................. 31,250
250 Motorola Put (expiring January 1998,
exercise price $55) .................. 32,813
------------
Total Purchased Options
(cost $645,299) ...................... 557,501
------------
Total Investments -- 91.2%
(cost $145,048,310) .................. 170,868,237
------------
Principal
Amount Repurchase Agreements -- 9.7%
---------
$ 9,052,000 Repurchase Agreement, 6.25%, due 01/02/98,
dated 12/31/97, with J.P. Morgan,
collateralized by $6,910,000 U.S. Treasury
Bonds, 10.75%, due 08/15/05 valued at
$9,233,488; proceeds: $9,055,143 ..... 9,052,000
9,053,000 Repurchase Agreement, 6.60%, due 01/02/98,
dated 12/31/97, with Merrill Lynch, Pierce,
Fenner & Smith, collateralized by
$8,830,000 U.S. Treasury Bonds, 6.50%,
due 08/31/01 valued at $9,238,388;
proceeds: $9,056,319 ................. 9,053,000
------------
Total Repurchase Agreements
(cost $18,105,000) ................... 18,105,000
------------
Liabilities in excess of other
assets -- (0.9%) ..................... (1,709,440)
------------
Net Assets -- 100.0% ................... $187,263,797
============
* Non-income producing security.
Abbreviation used in this statement:
ADR American Depository Receipt.
See accompanying notes to financial statements
32
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Investors Fund Inc
- --------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- --------------------------------------------------------------------------------
Common Stocks -- 94.4%
Basic Industries -- 12.6%
80,000 Aluminum Company of America ............ $ 5,630,000
355,000 Cytec Industries * ..................... 16,662,813
110,000 Du Pont (E.I.) de Nemours .............. 6,606,875
275,000 IMC Global ............................. 9,006,250
405,000 Martin Marietta Materials .............. 14,807,813
370,000 OM Group ............................... 13,551,250
207,000 Praxair ................................ 9,315,000
175,000 Union Camp ............................. 9,395,313
67,800 Vulcan Materials ....................... 6,924,075
------------
91,899,389
------------
Capital Goods -- 7.4%
160,000 AlliedSignal ........................... 6,230,000
195,800 Chicago Bridge & Iron .................. 3,181,750
110,000 General Electric ....................... 8,071,250
109,400 Gulfstream Aerospace * ................. 3,199,950
140,000 Sealed Air * ........................... 8,645,000
48,000 Silgan Holdings * ...................... 1,560,000
506,000 Tyco International ..................... 22,801,625
------------
53,689,575
------------
Consumer Cyclicals -- 10.8%
26,200 Avon Products .......................... 1,608,025
498,300 Champion Enterprises * ................. 10,246,294
240,000 Costco Companies * ..................... 10,710,000
140,000 Federated Department Stores * .......... 6,028,750
366,500 Host Marriott * ........................ 7,192,563
195,000 Lear * ................................. 9,262,500
162,600 Sears, Roebuck ......................... 7,357,650
310,000 Sherwin-Williams ....................... 8,602,500
231,500 Tower Automotive * ..................... 9,737,469
270,000 U.S. Industries ........................ 8,133,750
------------
78,879,501
------------
Consumer Non-Cyclicals -- 10.5%
50,000 Cablevision Systems * .................. 4,787,500
649,100 Chiquita Brands International .......... 10,588,444
175,400 Hormel Foods ........................... 5,744,350
75,000 Loews .................................. 7,959,375
344,200 Philip Morris Companies ................ 15,596,563
235,000 Tele-Communications, Liberty Media Group,
Class A * .............................. 8,518,750
360,000 Tyson Foods, Class A ................... 7,380,000
390,900 Viacom, Class B * ...................... 16,197,919
------------
76,772,901
------------
Energy -- 10.3%
113,500 Amoco .................................. 9,661,688
217,500 Dresser Industries ..................... 9,121,406
185,400 Mobil .................................. 13,383,563
276,000 Royal Dutch Petroleum, 5 Guilder ....... 14,955,750
400,000 Suncor ................................. 13,650,000
225,000 Talisman Energy * ...................... 6,834,375
133,557 TOTAL - ADR ............................ 7,412,414
------------
75,019,196
------------
See accompanying notes to financial statements
33
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Investors Fund Inc (continued)
- --------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- --------------------------------------------------------------------------------
Financial Services -- 16.4%
85,600 American Express ....................... $ 7,639,800
70,300 Associates First Capital ............... 5,000,088
364,400 Bank of New York ....................... 21,066,875
41,000 BankAmerica ............................ 2,993,000
157,500 BankBoston ............................. 14,795,156
127,800 Dime Bancorp ........................... 3,865,950
294,000 Federal Home Loan Mortgage Corporation . 12,329,625
72,500 Fannie Mae ............................. 4,137,031
245,100 Nationwide Financial Services, Class A . 8,854,238
229,400 Provident Companies .................... 8,860,575
265,050 SunAmerica ............................. 11,330,880
334,027 Travelers Group ........................ 17,995,705
------------
118,868,923
------------
Health Care -- 9.2%
110,000 Abbott Laboratories .................... 7,211,875
92,500 American Home Products ................. 7,076,250
471,000 HEALTHSOUTH * .......................... 13,070,250
120,000 Johnson & Johnson ...................... 7,905,000
59,500 Pacificare Health Systems, Class B * ... 3,116,313
404,500 SmithKline Beecham - ADR ............... 20,806,469
60,000 Warner-Lambert Company ................. 7,440,000
------------
66,626,157
------------
Real Estate Investment Trusts -- 5.5%
235,000 Arden Realty Group ..................... 7,226,250
170,000 Brandywine Realty Trust ................ 4,271,250
234,800 Glenborough Realty Trust ............... 6,955,950
112,000 Kilroy Realty .......................... 3,220,000
146,200 Mills .................................. 3,581,900
174,002 Patriot American Hospitality ........... 5,013,433
126,000 Reckson Associates Realty .............. 3,197,250
178,100 Sun Communities ........................ 6,400,469
------------
39,866,502
------------
Technology -- 4.0%
75,000 3Com * ................................. 2,620,312
148,000 Data General * ......................... 2,580,750
120,000 International Business Machines ........ 12,547,500
113,200 Plantronics * .......................... 4,528,000
110,000 Quantum * .............................. 2,206,875
230,000 Seagate Technology * ................... 4,427,500
------------
28,910,937
------------
Telecommunications & Utlilities -- 3.6%
142,100 Frontier ............................... 3,419,282
295,235 Tele-Communications, TCI Ventures
Group, Class A * ..................... 8,358,829
206,765 Tele-Communications, TCIGroup, Class A * 5,776,509
307,400 Williams Companies ..................... 8,722,475
------------
26,277,095
------------
Transportation -- 4.1%
225,000 Canadian National Railway .............. 10,631,250
696,000 Canadian Pacific ....................... 18,966,000
------------
29,597,250
------------
Total Common Stocks
(cost $460,354,514) .................. 686,407,426
------------
See accompanying notes to financial statements
34
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Investors Fund Inc (concluded)
- --------------------------------------------------------------------------------
Principal Value
Amount Description (Note 1a)
- --------------------------------------------------------------------------------
Convertible Corporate Bonds -- 0.4%
Consumer Cyclicals -- 0.4%
$ 2,000,000 Federated Department Stores, 5.00%, due
10/01/03 (cost $2,000,000) ......... $ 2,695,000
------------
Total Investments -- 94.8%
(cost $462,354,514) ................ 689,102,426
------------
Repurchase Agreements -- 5.9%
21,527,000 Repurchase Agreement, 6.25%, due
01/02/98, dated 12/31/97 with J.P.
Morgan Securities, collateralized by
$16,433,000 U.S. Treasury Bonds, 10.75%,
due 08/15/05, valued at $21,958,596;
proceeds: $21,534,475 .............. 21,527,000
21,528,000 Repurchase Agreement, 6.60%, due
01/02/98, dated 12/31/97 with Merrill
Lynch, Pierce, Fenner & Smith,
collateralized by $20,990,000 U.S.
Treasury Bonds, 6.50%, due 08/31/01,
valued at $21,960,788;
proceeds: $21,535,894 .............. 21,528,000
------------
Total Repurchase Agreements
(cost $43,055,000) ................. 43,055,000
------------
Liabilities in excess of other
assets -- (0.7%) ................... (5,164,575)
------------
Net Assets -- 100.0% ................. $726,992,851
============
* Non-income producing security.
Abbreviation used in this statement:
ADR American Depository Receipt.
See accompanying notes to financial statements
35
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund
- --------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- --------------------------------------------------------------------------------
Common Stocks -- 45.3%
Basic Industries -- 4.5%
9,000 AK Steel Holding ....................... $ 159,188
22,000 Aluminum Company of America ............ 1,548,250
10,000 Monsanto ............................... 420,000
16,000 Nalco Chemical ......................... 633,000
20,000 Union Camp ............................. 1,073,750
15,800 Vulcan Materials ....................... 1,613,575
20,000 Weyerhaeuser ........................... 981,250
26,000 Willamette Industries .................. 836,875
-----------
7,265,888
-----------
Capital Goods -- 2.1%
16,000 Boeing ................................. 783,000
15,000 Fluor .................................. 560,625
43,000 Stone & Webster ........................ 2,015,625
-----------
3,359,250
-----------
Consumer Cyclicals -- 2.9%
30,000 Chrysler ............................... 1,055,625
20,726 Cooper Industries ...................... 1,015,574
19,000 Eastman Kodak .......................... 1,155,438
12,100 May Department Stores .................. 637,519
18,000 Sears, Roebuck ......................... 814,500
-----------
4,678,656
-----------
Consumer Non-Cyclicals -- 3.3%
67,000 Food Lion, Class A ..................... 565,313
83,000 Food Lion, Class B ..................... 684,750
40,000 Hormel Foods ........................... 1,310,000
30,000 Philip Morris Companies ................ 1,359,375
15,000 Ralston Purina ......................... 1,394,063
-----------
5,313,501
-----------
Energy -- 7.1%
11,500 Amoco .................................. 978,926
50,000 Dresser Industries ..................... 2,096,875
18,000 Exxon .................................. 1,101,375
60,000 Lyondell Petrochemical ................. 1,590,000
4,000 Mobil .................................. 288,750
7,500 Pioneer Natural Resources .............. 217,017
16,000 Royal Dutch Petroleum, 5 Guilder ....... 867,000
85,000 Suncor ................................. 2,900,625
12,000 Texaco ................................. 652,500
25,000 USX - Marathon Group ................... 843,750
-----------
11,536,818
-----------
See accompanying notes to financial statements
36
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
- --------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- --------------------------------------------------------------------------------
Financial Services -- 4.4%
15,000 Allstate ............................... $ 1,363,125
20,000 Bay View Capital ....................... 725,000
23,000 Chubb .................................. 1,739,375
7,000 Cigna .................................. 1,211,438
5,300 Citicorp ............................... 670,119
12,000 Marsh & McLennan ....................... 894,750
10,000 Merrill Lynch .......................... 345,000
5,700 Nationwide Financial Services, Class A . 205,913
-----------
7,154,720
-----------
Health Care -- 2.7%
22,000 American Home Products ................. 1,683,000
26,000 Bausch & Lomb .......................... 1,030,250
33,400 SmithKline Beecham - ADR ............... 1,718,013
-----------
4,431,263
-----------
Real Estate Investment Trusts -- 8.4%
30,000 Arden Realty Group ..................... 922,500
35,000 Bedford Property Investors ............. 765,625
55,000 Brandywine Realty Trust ................ 1,381,875
45,000 Duke Realty Investments ................ 1,091,250
60,000 Excel Realty Trust ..................... 1,890,000
65,000 Glenborough Realty Trust ............... 1,925,625
40,000 Golf Trust of America .................. 1,160,000
75,000 Mid Atlantic Realty Trust .............. 1,101,563
30,000 Patriot American Hospitality ........... 864,375
18,000 Prentiss Properties Trust .............. 502,875
35,000 Reckson Associates Realty .............. 888,125
35,000 Sun Communities ........................ 1,257,813
-----------
13,751,626
-----------
Technology -- 1.0%
18,000 Pitney Bowes ........................... 1,618,875
-----------
Telecommunications & Utilities -- 6.5%
60,000 BCE .................................... 1,998,750
40,000 Edison International ................... 1,087,500
60,000 Frontier ............................... 1,443,750
28,000 GTE .................................... 1,463,000
45,000 Houston Industries ..................... 1,200,938
25,000 SBC Communications ..................... 1,831,250
58,000 Williams Companies ..................... 1,645,750
-----------
10,670,938
-----------
Transportation -- 2.4%
70,000 Canadian National Railway .............. 3,307,500
25,000 Canadian Pacific ....................... 681,250
-----------
3,988,750
-----------
Total Common Stocks
(cost $62,034,099) ................... 73,770,285
-----------
See accompanying notes to financial statements
37
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
- --------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- --------------------------------------------------------------------------------
Convertible Preferred Stocks -- 3.3%
Consumer Cyclicals -- 0.4%
20,000 Hollinger International 9.75% .......... $ 257,500
6,000 Host Marriott 6.75% .................... 366,000
-----------
623,500
-----------
Consumer Non-Cyclicals -- 0.8%
8,500 Chiquita Brands $2.875 ................. 435,094
5,000 Fort James $3.50 ....................... 278,750
5,000 Ralston Purina 7.00% ................... 348,125
6,236 Samsonite 2.85% ........................ 197,214
-----------
1,259,183
-----------
Energy -- 0.5%
6,000 EVI $0.625 ............................. 277,125
14,000 Enron 6.25% ............................ 288,750
6,000 Ultramar Diamond Shamrock 5.00% ........ 371,250
-----------
937,125
-----------
Financial Services -- 0.9%
7,500 BTI Capital Trust 6.50% ................ 363,750
5,000 Finova Finance Trust 5.50% ............. 350,000
1,500 Protective Life Capital Trust II 6.50% . 82,500
5,000 St. Paul Capital 6.00% ................. 360,000
4,000 Tosco Financing Trust 5.75% ............ 259,000
-----------
1,415,250
-----------
Media -- 0.2%
10,000 Cablevision Systems 8.50% .............. 385,000
-----------
Telecommunications & Utilities -- 0.5%
15,000 Mobile Telecommunication Technologies $2.25 495,000
5,000 TCI Communications $2.125 .............. 320,625
-----------
815,625
-----------
Total Convertible Preferred Stocks
(cost $4,859,108) .................... 5,435,683
-----------
See accompanying notes to financial statements
38
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Corporate Bonds -- 19.9%
Basic Industries -- 2.0%
$ 100,000 Algoma Steel ................. 12.375% 07/15/05 $ 116,000
250,000 Allied Waste (Zero Coupon until
06/01/02, 11.30% thereafter) (a) 10.742 06/01/07 175,625
100,000 Alvey Systems ................ 11.375 01/31/03 109,000
200,000 Clark-Schwebel ............... 10.500 04/15/06 219,000
125,000 Commonwealth Aluminum ........ 10.750 10/01/06 135,000
100,000 Crown Paper .................. 11.000 09/01/05 102,000
200,000 Doman Industries Limited ..... 8.750 03/15/04 191,000
250,000 Insilco ...................... 10.250 08/15/07 260,625
200,000 Norcal Waste Systems * ....... 13.500 11/15/05 232,000
250,000 Nortek ....................... 9.125 09/01/07 251,875
675,000 Pohang Iron & Steel .......... 7.500 08/01/02 560,230
100,000 Renco Metals ................. 11.500 07/01/03 106,000
250,000 Shop Vac ..................... 10.625 09/01/03 273,438
200,000 Southdown .................... 10.000 03/01/06 219,500
250,000 Stone Container .............. 12.250 04/01/02 253,125
-----------
3,204,418
-----------
Conglomerates -- 0.2%
350,000 Tenneco ...................... 7.875 04/15/27 382,911
-----------
Consumer Cyclicals -- 3.3%
250,000 Ameristar Casinos ............ 10.500 08/01/04 256,250
250,000 Cinemark USA ................. 9.625 08/01/08 260,625
250,000 Cole National ................ 8.625 08/15/07 250,000
100,000 Collins & Aikman, Series B ... 10.000 01/15/07 104,000
250,000 Grand Casinos ................ 9.000 10/15/04 251,250
100,000 Herff Jones .................. 11.000 08/15/05 109,000
200,000 Hines Horticulture ........... 11.750 10/15/05 219,000
600,000 Hollinger (a) ................ 6.209-6.637 10/05/13 233,250
250,000 International Knife & Saw .... 11.375 11/15/06 271,250
250,000 Jitney-Jungle Stores ......... 12.000 03/01/06 283,750
250,000 North Atlantic Trading ....... 11.000 06/15/04 262,500
250,000 Polymer Group ................ 9.000 07/01/07 250,625
250,000 Prime Hospitality ............ 9.750 04/01/07 267,500
250,000 Regal Cinemas ................ 8.500 10/01/07 253,125
400,000 Revlon Worldwide (a) ......... 10.906-11.591 03/15/01 279,000
250,000 Ridell Sports ................ 10.500 07/15/07 258,125
1,275,000 Staples ...................... 7.125 08/15/07 1,295,349
200,000 Wyndham Hotel ................ 10.500 05/15/06 234,000
-----------
5,338,599
-----------
</TABLE>
See accompanying notes to financial statements
39
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer Non-Cyclicals -- 2.4%
$ 100,000 American Safety Razor ........ 9.875% 08/01/05 $ 107,375
200,000 Berry Plastics ............... 12.250 04/15/04 221,500
100,000 Borg-Warner .................. 9.125 05/01/03 102,000
250,000 B&G Foods .................... 9.625 08/01/07 253,125
100,000 Carr-Gottstein Foods ......... 12.000 11/15/05 111,000
200,000 CFP Holdings ................. 11.625 01/15/04 201,000
200,000 Eyecare Centers of America ... 12.000 10/01/03 217,000
125,000 French Fragrances ............ 10.375 05/15/07 131,250
250,000 Iron Mountain ................ 10.125 10/01/06 275,000
150,000 Pueblo Xtra International .... 9.500 08/01/03 142,875
200,000 Radnor Holdings .............. 10.000 12/01/03 208,500
163,000 Rayovac ...................... 10.250 11/01/06 178,485
100,000 Selmer ....................... 11.000 05/15/05 109,500
200,000 Stroh Brewery ................ 11.100 07/01/06 181,000
150,000 Tekni-Plex ................... 11.250 04/01/07 162,000
1,150,000 Texas Instruments ............ 6.125 02/01/06 1,127,161
250,000 Williams Scotsman ............ 9.875 06/01/07 257,500
-----------
3,986,271
-----------
Energy -- 1.4%
250,000 Bellwether Exploration ....... 10.875 04/01/07 275,000
200,000 Benton Oil & Gas ............. 11.625 05/01/03 220,500
200,000 Cliffs Drilling .............. 10.250 05/15/03 216,000
250,000 Dailey Petroleum Services .... 9.750 08/15/07 260,625
200,000 National Energy Group ........ 10.750 11/01/06 207,500
250,000 Snyder Oil ................... 8.750 06/15/07 251,563
650,000 Sun .......................... 7.950 12/15/01 685,204
200,000 Transamerican Energy (Zero Coupon until
06/15/99, 13.00% thereafter) (a) 13.000 06/15/02 161,500
-----------
2,277,892
-----------
Financial Services -- 5.5%
1,000,000 Banc One ..................... 7.600 05/01/07 1,074,870
1,125,000 Bank One Auto Grantor Trust .. 6.290 07/20/04 1,126,406
1,375,000 Chase Manhattan Auto Owner Trust 6.250 11/15/00 1,378,438
400,000 Coleman Escrow (a) ........... 11.125 05/15/01 266,000
100,000 Dollar Financial ............. 10.875 11/15/06 108,500
795,746 Green Tree Financial ......... 7.070 02/15/16 818,624
275,000 Maylayan Bank ................ 7.125 09/15/05 250,401
750,000 Midland Bank ................. 7.650 05/01/25 815,295
1,800,000 Nationsbank Credit Card Master Trust 6.450 04/15/03 1,817,424
1,240,000 Standard Credit Card Master Trust 7.850 02/07/02 1,279,519
-----------
8,935,477
-----------
Health Care -- 0.2%
100,000 Fresenius Medical Care ....... 9.000 12/01/06 105,000
150,000 Genesis Eldercare ............ 9.000 08/01/07 147,188
150,000 Integrated Health Services ... 9.500 09/15/07 154,500
-----------
406,688
-----------
</TABLE>
See accompanying notes to financial statements
40
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Media -- 1.6%
$ 200,000 Adelphia Communications ...... 10.500% 07/15/04 $ 214,250
200,000 American Media Operation ..... 11.625 11/15/04 217,000
1,000,000 Belo (A.H.) .................. 7.250 09/15/27 1,022,600
200,000 Cablevision Systems .......... 10.500 05/15/16 233,000
325,000 Diamond Cable (Zero Coupon
until 12/15/00, 11.75%
thereafter) (a) ............ 10.594-11.750 12/15/05 252,688
300,000 Marcus Cable (Zero Coupon
until 06/15/00, 14.25%
thereafter) (a) ............ 12.642-12.921 12/15/05 259,500
200,000 SFX Broadcasting ............. 10.750 05/15/06 219,500
150,000 United International Holdings (a) 13.187 11/15/99 123,000
-----------
2,541,538
-----------
Technology -- 2.3%
250,000 Axiohm Transaction Solution .. 9.750 10/01/07 255,625
250,000 Burke Industries ............. 10.000 08/15/07 258,125
250,000 Decisionone .................. 9.750 08/01/07 258,125
850,000 Empresa Electric Pehuenche ... 7.300 05/01/03 863,362
100,000 Exide Electronics Group ...... 11.500 03/15/06 119,000
1,125,000 First Data ................... 6.375 12/15/07 1,120,388
250,000 High Voltage Engineering ..... 10.500 08/15/04 260,625
200,000 Packard Bioscience ........... 9.375 03/01/07 192,000
100,000 Talley Manufacturing & Technology 10.750 10/15/03 106,500
250,000 Unisys ....................... 11.750 10/15/04 286,250
-----------
3,720,000
-----------
Telecommunications & Utilities -- 0.6%
250,000 Comcast Cellular ............. 9.500 05/01/07 260,000
125,000 ICG Holdings (Zero Coupon until
09/15/00, 13.50% thereafter) (a) 12.725 09/15/05 102,656
150,000 NTL (Zero Coupon until 02/01/01,
11.50% thereafter) (a) ..... 11.804 02/01/06 117,750
250,000 Rogers Communications ........ 8.875 07/15/07 250,000
250,000 Venture Holding Trust ........ 9.500 07/01/05 252,500
-----------
982,906
-----------
Transportation -- 0.4%
125,000 Loomis Fargo ................. 10.000 01/15/04 128,750
200,000 Ryder TRS .................... 10.000 12/01/06 201,000
400,000 TFM (Zero Coupon until 06/15/02,
11.75% thereafter) (a) ..... 11.398 06/15/09 255,000
-----------
584,750
-----------
Total Corporate Bonds
(cost $31,731,845) ......... 32,361,450
-----------
Convertible Corporate Bonds -- 6.8%
Basic Industries -- 0.5%
500,000 Cypress Semiconductor ........ 6.000 10/01/02 423,125
500,000 Integrated Process Equipment . 6.250 09/15/04 415,625
-----------
838,750
-----------
Conglomerates -- 0.2%
400,000 Loews ........................ 3.125 09/15/07 387,000
-----------
</TABLE>
See accompanying notes to financial statements
41
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer Cyclicals -- 1.5%
$ 750,000 Costco Companies (a) ......... 3.270-3.500% 08/19/17 $ 447,188
350,000 Federated Department Stores .. 5.000 10/01/03 471,625
500,000 Fine Host .................... 5.000 11/01/04 340,000
500,000 Interpublic Group of Companies 1.800 09/16/04 411,875
350,000 Rite Aid ..................... 5.250 09/15/02 378,000
300,000 Tower Automotive ............. 5.000 08/01/04 312,000
50,000 Tower Automotive ............. 5.000 08/01/04 51,125
-----------
2,411,813
-----------
Consumer Non-Cyclicals -- 0.6%
250,000 Alberto-Culver ............... 5.500 06/30/05 424,063
1,000,000 Roche Holdings (a) ........... 5.325-5.565 04/20/10 552,500
-----------
976,563
-----------
Energy -- 0.8%
500,000 Consolidated Natural Gas ..... 7.250 12/15/15 566,250
400,000 Oryx Energy .................. 7.500 05/15/14 404,000
400,000 Pogo Producing ............... 5.500 06/15/06 384,500
-----------
1,354,750
-----------
Financial Services -- 0.5%
300,000 Morgan Stanley ............... 2.000 03/29/02 357,750
400,000 Xerox Credit ................. 2.875 07/01/02 392,000
-----------
749,750
-----------
Health Care -- 0.5%
300,000 Athena Neurosciences ......... 4.750 11/15/04 301,500
500,000 Mark IV Industries ........... 4.750 11/01/04 468,750
-----------
770,250
-----------
Media -- 0.2%
750,000 Time Warner (a) .............. 4.841-4.959 06/22/13 376,875
-----------
Technology -- 1.0%
300,000 Adaptec ...................... 4.750 02/01/04 294,000
400,000 Data General ................. 6.000 05/15/04 392,000
300,000 Kent Electronics ............. 4.500 09/01/04 252,750
200,000 Level One Communications ..... 4.000 09/01/04 196,750
100,000 Micron Technology ............ 7.000 07/01/04 92,000
100,000 Photronics ................... 6.000 06/01/04 111,000
350,000 VLSI Technology .............. 8.250 10/01/05 338,625
-----------
1,677,125
-----------
Telecommunications & Utilities -- 1.0%
350,000 DSC Communications ........... 7.000 08/01/04 331,188
500,000 NTL .......................... 7.000 06/15/08 490,000
400,000 Synoptics Communications ..... 5.250 05/15/03 384,500
500,000 Tele-Communications .......... 4.500 02/15/06 430,000
-----------
1,635,688
-----------
Total Convertible Corporate Bonds
(cost $11,189,181) 11,178,564
-----------
</TABLE>
See accompanying notes to financial statements
42
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Government & Agency -- 17.1%
$ 353,343 Federal Home Loan Mortgage
Corporation ........................ 7.000% 03/01/11 $ 360,064
1,376,724 Federal Home Loan Mortgage
Corporation ........................ 8.000 07/01/20 1,443,523
2,500,000 Federal Home Loan Mortgage
Corporation (b) .................... 6.500 ** 2,471,094
283,960 Federal Home Loan Mortgage
Corporation ........................ 6.500 03/01/26 280,943
271,509 Federal Home Loan Mortgage
Corporation ........................ 6.500 03/01/26 268,919
399,858 Federal Home Loan Mortgage
Corporation ........................ 6.500 05/01/26 396,043
885,000 Federal National Mortgage
Association (b) .................... 6.500 ** 886,106
1,500,000 Federal National Mortgage
Association (b) .................... 6.500 ** 1,481,250
1,225,000 Federal National Mortgage
Association (b) .................... 7.000 ** 1,233,805
1,450,000 Federal National Mortgage
Association (b) .................... 7.500 ** 1,483,984
1,375,000 Federal National Mortgage
Association (b) .................... 8.000 ** 1,423,555
40,090 Federal National Mortgage
Association ........................ 6.500 10/01/10 40,355
282,746 Federal National Mortgage
Association ........................ 6.500 10/01/11 283,276
84,394 Federal National Mortgage
Association ........................ 7.500 08/01/23 86,707
863,475 Federal National Mortgage
Association ........................ 7.574 11/01/24 895,319
89,630 Federal National Mortgage
Association ........................ 7.000 09/01/25 90,629
82,332 Federal National Mortgage
Association ........................ 6.500 12/01/25 81,624
286,545 Federal National Mortgage
Association ........................ 7.000 03/01/26 288,874
464,139 Federal National Mortgage
Association ........................ 6.500 06/01/26 459,275
487,670 Federal National Mortgage
Association ........................ 7.000 03/01/27 491,632
734,233 Government National Mortgage
Association (c) .................... 7.000 09/20/22 754,424
83,888 Government National Mortgage
Association ........................ 7.500 01/15/23 86,215
190,754 Government National Mortgage
Association ........................ 7.500 03/15/26 195,583
445,597 Government National Mortgage
Association ........................ 7.500 03/15/27 456,706
1,650,000 U.S. Treasury Bond (c) ............... 6.125 11/15/27 1,695,639
800,000 U.S. Treasury Bond (c) ............... 6.375 08/15/27 843,752
1,000,000 U.S. Treasury Note (c) ............... 5.625 10/31/99 999,060
900,000 U.S. Treasury Note (c) ............... 6.375 04/30/99 908,154
1,000,000 U.S. Treasury Note (c) ............... 6.375 05/15/00 1,015,000
2,200,000 U.S. Treasury Note (c) ............... 6.500 10/15/06 2,303,466
555,000 U.S. Treasury Note (c) ............... 6.625 05/15/07 587,434
3,400,000 U.S. Treasury Note (d) ............... 6.125 08/15/07 3,494,044
------------
Total U.S. Government & Agency
(cost $27,380,187) ................. 27,786,454
------------
Total Investments -- 92.4%
(cost $137,194,420) ................ 150,532,436
------------
</TABLE>
See accompanying notes to financial statements
43
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Total Return Fund (concluded)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Repurchase Agreements -- 18.3%
$ 7,000,000 Repurchase Agreement dated
12/31/97, with J.P.
Morgan Securities,
collateralized by $5,349,000
U.S. Treasury Bonds, 8.75%,
due 05/15/20 valued at
$7,140,915;
proceeds: $7,002,431 ............... 6.250% 01/02/98 $ 7,000,000
22,844,000 Repurchase Agreement dated
12/31/97, with Merrill
Lynch, Pierce, Fenner &
Smith, collateralized by
$22,275,000 U.S. Treasury
Bonds, 6.50%, due 08/31/01,
valued at $23,305,219;
proceeds: $22,852,376 .............. 6.600` 1/02/98 22,844,000
------------
Total Repurchase Agreements
(cost $29,844,000) ................. 29,844,000
------------
Liabilities in excess of
other assets -- (10.7%) ............ (17,490,733)
------------
Net Assets -- 100.0% ................. $162,885,703
============
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
** To be announced.
(a) Zero or step coupon bond. Interest rate shown reflects yield to maturity
on date of purchase.
(b) Mortgage dollar roll. See note 1.
(c) All or part of the security is segregated as collateral for mortgage
dollar rolls.
(d) All or part of the security is subject to repurchase under reverse
repurchase agreements as of December 31, 1997.
Abbreviation used in this statement:
ADR American Depository Receipt.
See accompanying notes to financial statements
44
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Corporate Bonds -- 71.4%
Basic Industries -- 9.5%
$ 500,000 Algoma Steel ....................... 12.375% 07/15/05 $ 580,000
2,500,000 Allied Waste (Zero Coupon until
06/01/02, 11.30% thereafter) (a) 10.708 06/01/07 1,756,250
1,250,000 Alvey Systems ...................... 11.375 01/31/03 1,362,500
1,000,000 American Architecture .............. 11.750 12/01/07 1,015,000
3,000,000 Asia Pulp & Paper .................. 12.000 12/29/49 2,587,500
500,000 Asia Pulp & Paper International
Finance .......................... 11.750 10/01/05 462,500
1,000,000 Clark-Schwebel ..................... 10.500 04/15/06 1,095,000
4,001,478 Clark-Schwebel, Series A ........... 12.500 07/15/07 4,261,574
2,500,000 Commonwealth Aluminum .............. 10.750 10/01/06 2,700,000
500,000 Crown Paper ........................ 11.000 09/01/05 510,000
1,000,000 DI Industries ...................... 8.875 07/01/07 1,035,000
1,500,000 Doman Industries Limited ........... 8.750 03/15/04 1,432,500
3,000,000 Envirosource ....................... 9.750 06/15/03 3,052,500
1,000,000 Envirosource, Series B ............. 9.750 06/15/03 1,005,000
5,000,000 Foamex ............................. 9.875 06/15/07 5,125,000
4,250,000 Insilco ............................ 10.250 08/15/07 4,430,625
5,000,000 International Semi-Technology
(Zero Coupon until 08/15/00,
11.50% thereafter) (a) ........... 14.977 08/15/03 1,800,000
2,000,000 Norcal Waste Systems * ............. 13.500 11/15/05 2,320,000
1,500,000 Nortek ............................. 9.125 09/01/07 1,511,250
2,500,000 Plastic Containers ................. 10.000 12/15/06 2,662,500
1,000,000 Renco Metals ....................... 11.500 07/01/03 1,060,000
2,000,000 Royal Oak Mines .................... 11.000 08/15/06 1,420,000
2,000,000 Sequa .............................. 9.375 12/15/03 2,080,000
500,000 Southdown .......................... 10.000 03/01/06 548,750
3,500,000 Stellex Industries ................. 9.500 11/01/07 3,552,500
2,000,000 Stone Container .................... 12.250 04/01/02 2,025,000
334,000 Terex .............................. 13.250 05/15/02 377,420
1,500,000 Texas Petrochemical ................ 11.125 07/01/06 1,620,000
1,500,000 Wheeling-Pittsburgh ................ 9.250 11/15/07 1,455,000
-----------
54,843,369
-----------
</TABLE>
See accompanying notes to financial statements
45
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer Cyclicals -- 14.3%
$ 2,750,000 Ameristar Casinos ............. 10.500% 08/01/04 $ 2,818,750
2,000,000 Anchor Advanced Products ...... 11.750 04/01/04 2,160,000
1,000,000 Big Flower Press .............. 8.875 07/01/07 1,012,500
3,000,000 Cinemark USA .................. 9.625 08/01/08 3,127,500
3,300,000 Cole National Group ........... 9.875 12/31/06 3,514,500
1,000,000 Cole National Group ........... 8.625 08/15/07 1,000,000
5,000,000 Collins & Aikman, Series B .... 10.000 01/15/07 5,200,000
2,000,000 Delta Beverage ................ 9.750 12/15/03 2,090,000
3,000,000 Finlay Enterprises (Zero Coupon
until 05/01/98, 12.00%
thereafter) (a) ............... 10.861 05/01/05 2,955,000
7,000,000 Fox Kids Worldwide (Zero Coupon
until 11/01/02, 10.25%
thereafter) (a) ............... 10.250 11/01/07 4,147,500
4,000,000 Glasstech ..................... 12.750 07/01/04 4,180,000
3,000,000 Grand Casinos ................. 9.000 10/15/04 3,015,000
1,000,000 Herff Jones ................... 11.000 08/15/05 1,090,000
2,000,000 Hines Horticulture ............ 11.750 10/15/05 2,190,000
1,000,000 Hollinger International Publishing 9.250 02/01/06 1,050,000
1,000,000 Hollinger International Publishing 9.250 03/15/07 1,050,000
4,800,000 Hollinger (a) ................. 6.062-6.091 10/05/13 1,866,000
2,250,000 International Knife & Saw ..... 11.375 11/15/06 2,441,250
1,500,000 Jitney-Jungle Stores .......... 12.000 03/01/06 1,702,500
1,800,000 Lamar Advertising ............. 9.625 12/01/06 1,946,250
2,000,000 Maxim Group ................... 9.250 10/15/07 1,980,000
1,000,000 Neenah ........................ 11.125 05/01/07 1,097,500
1,000,000 Newport News Shipbuilding ..... 9.250 12/01/06 1,057,500
4,000,000 North Atlantic Trading ........ 11.000 06/15/04 4,200,000
1,000,000 Perry-Judd .................... 10.625 12/15/07 1,045,000
4,000,000 Polymer Group ................. 9.000 07/01/07 4,010,000
2,250,000 Polytama ...................... 11.250 06/15/07 1,676,250
3,000,000 Prime Hospitality ............. 9.750 04/01/07 3,210,000
6,000,000 Revlon Worldwide (a) .......... 10.750-11.566 03/15/01 4,185,000
1,000,000 Sealy Mattress ................ 9.875 12/15/07 1,023,750
2,000,000 Sealy Mattress (Zero Coupon until
12/15/02, 10.875% thereafter) (a) 10.875 12/15/07 1,210,000
1,100,000 Simmons ....................... 10.750 04/15/06 1,163,250
1,500,000 Sun International Hotels ...... 8.625 12/15/07 1,522,500
1,375,000 Sun International Hotels ...... 9.000 03/15/07 1,419,688
3,000,000 Trident Automotive ............ 10.000 12/15/05 3,082,500
2,000,000 Wyndham Hotel ................. 10.500 05/15/06 2,340,000
-----------
82,779,688
-----------
</TABLE>
See accompanying notes to financial statements
46
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer Non-Cyclicals -- 10.1%
$ 1,500,000 Berry Plastics ............... 12.250% 04/15/04 $ 1,661,250
396,000 Borg-Warner .................. 9.125 05/01/03 403,920
2,500,000 Bruno's Food (d) ............. 10.500 08/01/05 850,000
3,500,000 B&G Foods .................... 9.625 08/01/07 3,543,750
1,000,000 Carr-Gottstein Foods ......... 12.000 11/15/05 1,110,000
2,000,000 CFP Holdings ................. 11.625 01/15/04 2,010,000
1,000,000 Dade International ........... 11.125 05/01/06 1,112,500
1,500,000 Doane Products ............... 10.625 03/01/06 1,620,000
1,000,000 Ekco Group ................... 9.250 04/01/06 1,040,000
1,150,000 Fleming Companies ............ 10.500 12/01/04 1,213,250
1,000,000 Fleming Companies ............ 10.625 07/31/07 1,060,000
750,000 Harvey Casinos ............... 10.625 06/01/06 817,500
2,000,000 Hills Stores ................. 12.500 07/01/03 1,570,000
1,300,000 IMED ......................... 9.750 12/01/06 1,371,500
4,000,000 Imperial Holly ............... 9.750 12/15/07 4,045,000
2,000,000 Iowa Select Farms ............ 10.750 12/01/05 2,062,500
1,000,000 Iron Mountain ................ 10.125 10/01/06 1,100,000
2,010,483 Jordan Industries (Zero
Coupon until 04/01/02,
11.75%thereafter) (a) ...... 11.750 04/01/09 1,196,237
7,000,000 Nebco Evans Holding (Zero
Coupon until 07/15/02,
12.375% thereafter) (a) .... 10.875-11.041 07/15/07 4,585,000
1,000,000 Plastic Specialties .......... 11.250 12/01/03 1,070,000
2,500,000 Pueblo Xtra International .... 9.500 08/01/03 2,387,500
1,000,000 Pueblo Xtra International .... 9.500 08/01/03 952,500
2,000,000 Radnor Holdings .............. 10.000 12/01/03 2,085,000
1,949,000 Rayovac ...................... 10.250 11/01/06 2,134,155
2,000,000 SC International Services .... 9.250 09/01/07 2,080,000
2,905,000 Selmer ....................... 11.000 05/15/05 3,180,975
2,000,000 Specialty Foods .............. 11.125 10/01/02 2,020,000
2,000,000 Stroh Brewery ................ 11.100 07/01/06 1,810,000
4,000,000 Tekni-Plex ................... 11.250 04/01/07 4,320,000
4,000,000 Williams Scotsman ............ 9.875 06/01/07 4,120,000
-----------
58,532,537
-----------
Energy -- 7.1%
1,500,000 AEI Holding .................. 10.000 11/15/07 1,548,750
3,000,000 Bellwether Exploration ....... 10.875 04/01/07 3,300,000
3,000,000 Benton Oil & Gas ............. 11.625 05/01/03 3,307,500
1,500,000 Clark Refining & Marketing ... 8.875 11/15/07 1,522,500
1,500,000 Cliffs Drilling .............. 10.250 05/15/03 1,620,000
3,000,000 Companhia Energetica Sao Paul * 9.125 06/26/07 2,711,250
2,000,000 Costilla Energy .............. 10.250 10/01/06 2,090,000
1,000,000 Cross Timbers Oil ............ 8.750 11/01/09 1,021,250
2,000,000 Cross Timbers Oil, Series B .. 9.250 04/01/07 2,080,000
3,500,000 Dailey Petroleum Services .... 9.750 08/15/07 3,648,750
1,000,000 Magnum Hunter Resources ...... 10.000 06/01/07 1,020,000
3,000,000 Murrin Murrin ................ 9.375 08/31/07 2,985,000
2,000,000 National Energy Group ........ 10.750 11/01/06 2,075,000
1,250,000 Parker Drilling .............. 9.750 11/15/06 1,340,625
1,000,000 Transamerican Energy ......... 11.500 06/15/02 1,005,000
4,000,000 Transamerican Energy (Zero
Coupon until 06/15/99,
13.00% thereafter) (a) ..... 13.000-18.293 06/15/02 3,230,000
3,000,000 Trico Marine ................. 8.500 08/01/05 3,056,250
3,500,000 United Refining .............. 10.750 06/15/07 3,605,000
-----------
41,166,875
-----------
</TABLE>
See accompanying notes to financial statements
47
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Financial Services -- 3.8%
$ 5,000,000 Coleman Escrow (a) ........... 11.125% 05/15/01 $ 3,325,000
525,000 Dollar Financial ............. 10.875 11/15/06 569,625
1,500,000 DVI .......................... 9.875 02/01/04 1,530,000
1,000,000 Imperial Credit Industries ... 9.875 01/15/07 980,000
2,000,000 Intertek Finance PLC ......... 10.250 11/01/06 2,090,000
1,500,000 K Mart Funding ............... 9.440 07/01/18 1,601,295
3,000,000 Pindo Deli Finance ........... 10.750 10/01/07 2,595,000
4,000,000 Polysindo International Finance 9.375 07/30/07 2,880,000
2,000,000 Tembec Finance ............... 9.875 09/30/05 2,040,000
5,000,000 Tjiwi Kimia Financial ........ 10.000 08/01/04 4,200,000
-----------
21,810,920
-----------
Health Care -- 2.5%
1,000,000 Fresenius Medical Care ....... 9.000 12/01/06 1,050,000
2,000,000 Genesis Eldercare ............ 9.000 08/01/07 1,962,500
1,500,000 Graham Field Health Products . 9.750 08/15/07 1,563,750
3,500,000 Imagyn Medical Technology .... 12.500 04/01/04 3,333,750
3,500,000 Integrated Health Services ... 9.500 09/15/07 3,605,000
2,000,000 Integrated Health Services ... 9.250 01/15/08 2,040,000
1,000,000 Maxxim Medical ............... 10.500 08/01/06 1,092,500
-----------
14,647,500
-----------
Media -- 8.9%
2,000,000 Adelphia Communications ...... 10.500 07/15/04 2,142,500
1,600,000 Adelphia Communications ...... 9.250 10/01/02 1,632,000
1,500,000 Adelphia Communications,
Series B ................... 9.875 03/01/07 1,578,750
2,500,000 American Media Operation ..... 11.625 11/15/04 2,712,500
3,000,000 Cablevision Systems .......... 10.500 05/15/16 3,495,000
2,500,000 Century Communications ....... 8.750 10/01/07 2,550,000
1,750,000 Century Communications ....... 8.375 12/15/07 1,723,750
1,500,000 Chancellor Media ............. 9.375 10/01/04 1,560,000
2,000,000 Citadel Broadcasting ......... 10.250 07/01/07 2,175,000
4,500,000 Diamond Cable (Zero Coupon
until 12/15/00, 11.75%
thereafter) (a) ............ 11.15-11.75 12/15/05 3,498,750
2,000,000 Frontiervision Holdings
(Zero Coupon until 09/15/01,
11.875% thereafter) (a) .... 11.875 09/15/07 1,465,000
3,000,000 Garden State Newspapers ...... 8.750 10/01/09 3,026,250
3,000,000 Intermedia Commission of Florida
(Zero Coupon until 05/15/01,
12.50% thereafter) (a) 11.732-12.271 (05/15/06 2,385,000
1,500,000 ITT Publimedia ............... 9.375 09/15/07 1,593,599
4,000,000 Marcus Cable
(Zero Coupon until 06/15/00,
14.25% thereafter) (a) 12.813-13.014 (12/15/05 3,460,000
4,000,000 Production Resource .......... 11.500 01/15/08 4,030,000
1,000,000 Rogers Cable Systems ......... 10.000 03/15/05 1,100,000
3,000,000 SFX Broadcasting ............. 10.750 05/15/06 3,292,500
3,000,000 Sun Media .................... 9.500 02/15/07 3,240,000
1,000,000 Transwestern Publishing ...... 9.625 11/15/07 1,045,000
2,250,000 United International
Holdings (a) 10.735-13.893 11/15/99 1,845,000
2,000,000 United International Holdings,
Series B (a) ................. 10.735 11/15/99 1,620,000
250,000 Wireless One ................. 13.000 10/15/03 77,500
-----------
51,248,099
-----------
Real Estate -- 0.5%
1,450,000 Crown Castle International
(Zero Coupon until 11/15/02,
10.625% thereafter) (a) .... 10.625 11/15/07 909,875
2,000,000 Glencore Nickel .............. 9.000 12/01/14 1,980,000
-----------
2,889,875
-----------
</TABLE>
See accompanying notes to financial statements
48
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Technology -- 6.8%
$ 3,000,000 Axiohm Transaction Solution .. 9.750% 10/01/07 $ 3,067,500
4,000,000 Burke Industries ............. 10.000 08/15/07 4,130,000
1,500,000 Decisiononec ................. 9.750 08/01/07 1,548,750
4,000,000 Decisiononec Zero Coupon
until 08/01/02,
11.50% thereafter) (a) ..... 10.092-11.500 08/01/08 2,580,000
1,000,000 Derlan Manufacturing ......... 10.000 01/15/07 1,035,000
2,000,000 Dyncorp ...................... 9.500 03/01/07 2,040,000
3,000,000 Employee Solution ............ 10.000 10/15/04 2,895,000
2,750,000 Exide Electronics Group ...... 11.500 03/15/06 3,272,500
3,250,000 Federal Data ................. 10.125 08/01/05 3,302,813
1,000,000 HCC Industries ............... 10.750 05/15/07 1,042,500
2,750,000 High Voltage Engineering ..... 10.500 08/15/04 2,866,875
2,000,000 L-3 Communications ........... 10.375 05/01/07 2,180,000
2,000,000 Packard Bioscience ........... 9.375 03/01/07 1,920,000
2,000,000 Talley Manufacturing
& Technology ............... 10.750 10/15/03 2,130,000
4,500,000 Unisys ....................... 11.750 10/15/04 5,152,500
-----------
39,163,438
-----------
Telecommunications & Utilities -- 5.5%
1,000,000 AES .......................... 10.250 07/15/06 1,092,500
1,500,000 AES China Generating ......... 10.125 12/15/06 1,530,000
2,000,000 Comcast Cellular ............. 9.500 05/01/07 2,080,000
2,500,000 COMFORCE Operating ........... 12.000 12/01/07 2,531,250
2,250,000 ICG Holdings (Zero Coupon
until 05/01/01,
12.50% thereafter) (a) ..... 11.334 05/01/06 1,698,750
2,500,000 ICG Holdings (Zero Coupon
until 09/15/00,
13.50% thereafter) (a) ..... 11.459-12.725 09/15/05 2,053,125
3,000,000 NTL(Zero Coupon until
02/01/01, 11.50%
thereafter) (a) ............ 10.430-12.111 02/01/06 2,355,000
1,810,000 Jacor Communications ......... 9.750 12/15/06 1,945,750
5,750,000 Jordan Telecom Products
(Zero Coupon until
08/01/00, 11.75%
thereafter) (a) ............ 11.750 08/01/07 4,657,500
4,900,000 Nextel Communications
(Zero Coupon until
02/15/99, 9.75%
thereafter) (a) ............ 9.874-10.430 08/15/04 4,361,000
1,000,000 Nextlink ..................... 12.500 04/15/06 1,140,000
2,000,000 Radnor Holdings .............. 10.000 12/01/03 2,085,000
1,250,000 Rogers Communications ........ 8.875 07/15/07 1,250,000
3,250,000 Venture Holding Trust ........ 9.500 07/01/05 3,282,500
-----------
32,062,375
-----------
Transportation -- 2.4%
500,000 Airplanes Pass Through Trust . 10.875 03/15/19 558,750
1,000,000 Atlantic Express ............. 10.750 02/01/04 1,067,500
3,000,000 Loomis Fargo ................. 10.000 01/15/04 3,090,000
3,950,000 Ryder TRS .................... 10.000 12/01/06 3,969,750
6,500,000 TFM (Zero Coupon
until 06/15/02, 11.75%
thereafter) (a) ............ 11.499-11.767 06/15/09 4,143,750
890,000 Venture Holdings Trust ....... 9.750 04/01/04 885,550
-----------
13,715,300
-----------
Total Corporate Bonds
(cost $408,399,256) ........ 412,859,976
-----------
Sovereign Bonds -- 15.4%
Argentina -- 3.0%
12,750,000 Republic of Argentina,
Global Bond ................ 11.000 10/09/06 13,610,623
5,000,000 Republic of Argentina,
Par Bond, Series L* ........ 5.500 03/31/23 3,662,500
-----------
17,273,123
-----------
</TABLE>
See accompanying notes to financial statements
49
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Brazil -- 2.9%
$ 1,500,000 Federal Republic of Brazil
- NMB, Series L* ........... 6.750% 04/15/09 $ 1,217,813
14,823,380 Federal Republic of Brazil,
Capitalization Bond (b) .... 8.000 04/15/14 11,673,412
3,925,000 Federal Republic of Brazil,
IDU Bond* .................. 6.813 01/01/01` 3,743,469
------------
16,634,694
------------
Bulgaria -- 2.1%
19,500,000 Republic of Bulgaria,
FLIRB, Series A * .......... 2.250 07/28/12 11,895,000
750,000 Republic of Bulgaria, Discount
Bond, Tranche A * .......... 6.688 07/28/24 577,500
------------
12,472,500
------------
Ecuador -- 2.0%
16,184,621 Republic of Ecuador,
PDI Bond * (b) ............ 6.688 02/27/15 10,621,158
1,093,569 Republic of Ecuador, Registered
PDI Bond * (b) ............. 6.688 02/27/15 717,655
------------
11,338,813
------------
Mexico -- 0.7%
5,250,000 United Mexico States, Series A,
(including 5,250,000 rights) 6.250 12/31/19 4,383,750
------------
Panama -- 0.8%
5,750,000 Government of Panama, IRB * .. 3.750 07/17/14 4,398,750
------------
Peru -- 1.5%
13,200,000 Government of Peru, PDI Bond * 4.000 03/07/17 8,679,000
------------
Russia -- 0.1%
1,069,976 Russian Government, IAN * .... 6.719 12/15/15 754,333
------------
Venezuela -- 2.3%
6,240,000 Republic of Venezuela ........ 9.250 09/15/27 5,569,200
4,297,610 Republic of Venezuela,
FLIRB, Series A * .......... 6.750 03/31/07 3,857,105
4,297,610 Republic of Venezuela,
FLIRB, Series B * .......... 6.750 03/31/07 3,857,105
------------
13,283,410
------------
Total Sovereign Bonds
(cost $85,990,679) ......... 89,218,373
------------
Loan Participations -- 5.5%
Algeria -- 1.5%
10,775,000 The People's Democratic
Republic of Algeria,
Tranche A * (c)
(Chase Manhattan Bank) ..... 7.000 09/04/06 8,822,031
------------
Jamaica -- 0.2%
1,500,000 Republic of Jamaica * (c)
(Chase Manhattan Bank) ..... 6.563 11/15/04 1,312,500
------------
Morocco -- 3.3%
21,700,000 Kingdom of Morocco,
Tranche A * (c)
(Bank of Boston, Chase
Manhattan Bank, Lehman
Brothers and Morgan
Guaranty Trust Company) .... 6.656 01/01/09 18,831,531
------------
</TABLE>
See accompanying notes to financial statements
50
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers High Yield Bond Fund (concluded)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Russia -- 0.5%
$ 4,500,000 Russian Government, Principal
Loan * (e) (Chase Manhattan
Bank and Merrill Lynch,
Pierce, Fenner & Smith) .... 6.719% 12/15/20 $ 2,780,826
------------
Total Loan Participations
(cost $31,183,533) ......... 31,746,888
------------
Shares
------
Preferred Stocks -- 0.4%
80,000 California Federal Capital,
9.125% (cost $2,000,000) ... 2,100,000
------------
Warrants/
Rights
--------
Warrants and Rights(+) -- 0.0%
900 In Flight Phone Warrants,
expires 08/31/02 ........... 0
2,000 Terex Stock Appreciation
Rights, expires 05/15/02 ... 0
3,500 Urohealth Systems Warrants,
expires 04/01/04 ........... 0
750 Wireless One Warrants,
expires 10/19/00 ........... 0
4,000 Glasstech Warrants,
expires 06/30/04 ........... 0
------------
Total Warrants and Rights
(cost $50,391) ............. 0
------------
Total Investments -- 92.7%
(cost $527,623,859) ........ 535,925,237
Principal
Amount
---------
Repurchase Agreement -- 5.8%
$ 33,479,000 Repurchase Agreement dated
12/31/97, with Merrill
Lynch, Pierce, Fenner &
Smith, collateralized by
$32,640,000 U.S. Treasury
Bonds, 6.50%, due 08/31/01,
valued at $34,149,600;
proceeds: $33,491,276
(cost $33,479,000) ......... 6.600 01/02/98 33,479,000
Other assets in excess of
liabilities -- 1.5% ....... 8,416,154
------------
Net Assets -- 100.0% ......... $577,820,391
============
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
+ Non-income producing security.
(a) Zero or step coupon bond. Interest rate shown reflects yield to maturity
on date of purchase.
(b) Payment-in-kind security for which all or part of the interest earned is
paid by the issuance of additional bonds.
(c) Participation interest was acquired through the financial institutions
indicated parenthetically.
(d) In default of its most recent interest payment.
(e) Portion of income earned is capitalized as Russian Government Interest in
Arrears Notes.
Abbreviations used in this statement:
FLIRB Front-Loaded Interest Reduction Bonds.
IAN Interest Arrears Notes.
IDU Interest Due and Unpaid.
IRB Interest Reduction Bonds.
NMB New Money Bonds.
PDI Past Due Interest.
See accompanying notes to financial statements
51
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount (a) Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Corporate Bonds -- 41.4%
Basic Industries -- 6.7%
250,000 Algoma Steel ........................................... 12.375% 07/15/05 $ 290,000
400,000 Allied Waste
(Zero Coupon until 06/01/02, 11.30% thereafter) (b) ... 10.837 06/01/07 281,000
125,000 Alvey Systems .......................................... 11.375 01/31/03 136,250
250,000 Clark-Schwebel ......................................... 10.500 04/15/06 273,750
250,000 Envirosource ........................................... 9.750 06/15/03 254,375
200,000 Foamex ................................................. 9.875 06/15/07 205,000
400,000 Harnischfeger Industries ............................... 6.875 02/15/27 417,128
250,000 Huntsman Packaging ..................................... 9.125 10/01/07 258,750
1,000,000 Hylsa S.A de C.V. (f) .................................. 9.250 09/15/07 1,002,500
250,000 Insilco ................................................ 10.250 08/15/07 260,625
250,000 Norcal Waste Systems * ................................. 13.500 11/15/05 290,000
250,000 Nortek ................................................. 9.125 09/01/07 251,875
250,000 Renco Metals ........................................... 11.500 07/01/03 265,000
100,000 Shop Vac ............................................... 10.625 09/01/03 109,375
250,000 Stellex Industries ..................................... 9.500 11/01/07 253,750
250,000 Stone Container ........................................ 12.250 04/01/02 253,125
167,000 Terex .................................................. 13.250 05/15/02 188,710
250,000 Texas Petrochemical .................................... 11.125 07/01/06 270,000
500,000 Wheeling-Pittsburgh .................................... 9.250 11/15/07 485,000
-----------
5,746,213
-----------
Consumer Cyclicals -- 8.6%
250,000 Cinemark USA ........................................... 9.625 08/01/08 260,625
250,000 Cole National .......................................... 8.625 08/15/07 250,000
250,000 Collins & Aikman, Series B ............................. 10.000 01/15/07 260,000
250,000 Delta Beverage ......................................... 9.750 12/15/03 261,250
500,000 Fox Kids Worldwide
(Zero Coupon until 11/01/02, 10.25% thereafter)(b) .... 10.250 11/01/07 296,250
250,000 Grand Casinos .......................................... 9.000 10/15/04 251,250
250,000 Hines Horticulture ..................................... 11.750 10/15/05 273,750
250,000 International Knife & Saw .............................. 11.375 11/15/06 271,250
250,000 Jitney-Jungle Stores ................................... 12.000 03/01/06 283,750
869,989 Mid States Trust ....................................... 7.340 07/01/35 913,157
250,000 North Atlantic Trading ................................. 11.000 06/15/04 262,500
250,000 Polymer Group .......................................... 9.000 07/01/07 250,625
250,000 Prime Hospitality ...................................... 9.750 04/01/07 267,500
250,000 Regal Cinemas .......................................... 8.500 10/01/07 253,125
350,000 Revlon Worldwide (b) ................................... 10.750 03/15/01 244,125
250,000 Ridell Sports .......................................... 10.500 07/15/07 258,125
650,000 Staples (f) ............................................ 7.125 08/15/07 660,374
100,000 Sun International Hotels ............................... 9.000 03/15/07 103,250
250,000 Synthetic Industries ................................... 9.250 02/15/07 262,500
500,000 Trident Automotive (f) ................................. 10.000 12/15/05 513,750
200,000 U.S. Leasing International ............................. 8.450 01/25/05 221,624
500,000 Worldtex (f) ........................................... 9.625 12/15/07 517,500
200,000 Wyndham Hotel .......................................... 10.500 05/15/06 234,000
-----------
7,370,280
-----------
</TABLE>
See accompanying notes to financial statements
52
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount (a) Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer Non-Cyclicals -- 8.1%
250,000 Ameriserv Food ......................................... 10.125% 07/15/07 $ 263,750
250,000 Berry Plastics ......................................... 12.250 04/15/04 276,875
250,000 B&G Foods .............................................. 9.625 08/01/07 253,125
250,000 CFP Holdings ........................................... 11.625 01/15/04 251,250
250,000 Dade International (f) ................................. 11.125 05/01/06 278,125
250,000 Doane Products ......................................... 10.625 03/01/06 270,000
200,000 Dole Foods ............................................. 6.750 07/15/00 201,664
250,000 Eyecare Centers of America ............................. 12.000 10/01/03 271,250
125,000 French Fragrances ...................................... 10.375 05/15/07 131,250
500,000 Iowa Select Farms (f) .................................. 10.750 12/01/05 515,625
250,000 Iron Mountain .......................................... 10.125 10/01/06 275,000
402,096 Jordan Industries
(Zero Coupon until 04/01/02, 11.75% thereafter)(b) .... 11.750 04/01/09 239,247
250,000 Key Plastics ........................................... 10.250 03/15/07 265,000
500,000 Kindercare Learning Centers (f) ........................ 9.500 02/15/09 497,500
500,000 Maxim Group ............................................ 9.250 10/15/07 495,000
375,000 Nebco Evans Holding
(Zero Coupon until 07/15/02, 12.375% thereafter)(b) ... 10.773 07/15/07 245,625
250,000 Pueblo Xtra International .............................. 9.500 08/01/03 238,125
250,000 Radnor Holdings ........................................ 10.000 12/01/03 260,625
250,000 SC International Services .............................. 9.250 09/01/07 260,000
250,000 Selmer ................................................. 11.000 05/15/05 273,750
250,000 Stroh Brewery .......................................... 11.100 07/01/06 226,250
250,000 Tekni-Plex ............................................. 11.250 04/01/07 270,000
500,000 Trump Atlantic City .................................... 11.250 05/01/06 493,750
250,000 Williams Scotsman ...................................... 9.875 06/01/07 257,500
-----------
7,010,286
-----------
Energy -- 3.2%
200,000 Benton Oil & Gas ....................................... 11.625 05/01/03 220,500
250,000 Clark USA .............................................. 10.875 12/01/05 272,188
250,000 Cliffs Drilling ........................................ 10.250 05/15/03 270,000
250,000 Costilla Energy ........................................ 10.250 10/01/06 261,250
250,000 Dailey Petroleum Services .............................. 9.750 08/15/07 260,625
250,000 Murrin Murrin .......................................... 9.375 08/31/07 248,750
250,000 National Energy ........................................ 10.750 11/01/06 259,375
400,000 Occidental Petroleum ................................... 9.250 08/01/19 499,588
250,000 Snyder Oil ............................................. 8.750 06/15/07 251,563
250,000 Transamerican Energy
(Zero Coupon until 06/15/99, 13.00% thereafter)(b)(f) . 13.000 06/15/02 201,875
-----------
2,745,714
-----------
Financial Services -- 2.7%
400,000 Coleman Escrow (b) ..................................... 11.125 05/15/01 266,000
1,094,151 Green Tree Financial (f) ............................... 7.070 02/15/16 1,125,608
525,000 Maylayan Bank .......................................... 7.125 09/15/05 478,039
300,000 Midland Bank ........................................... 7.650 05/01/25 326,118
150,000 Paine Webber Group ..................................... 7.000 03/01/00 151,653
-----------
2,347,418
-----------
Health Care -- 1.8%
500,000 Aetna Services ......................................... 7.625 08/15/26 527,060
250,000 Graham Field Health Products ........................... 9.750 08/15/07 260,625
250,000 Imagyn Medical Technology .............................. 12.500 04/01/04 238,125
250,000 Integrated Health Services ............................. 9.500 09/15/07 257,500
250,000 Integrated Health Services ............................. 9.250 01/15/08 255,000
-----------
1,538,310
-----------
</TABLE>
See accompanying notes to financial statements
53
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount (a) Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Media -- 3.5%
150,000 Adelphia Communications ................................ 10.500% 07/15/04 $ 160,688
100,000 Adelphia Communications, Series B ...................... 9.875 03/01/07 105,250
250,000 American Media Operation ............................... 11.625 11/15/04 271,250
250,000 Cablevision Systems .................................... 10.500 05/15/16 291,250
500,000 Century Communications ................................. 8.375 12/15/07 492,500
500,000 Diamond Cable
(Zero Coupon until 12/15/00, 11.75% thereafter) (b) ... 10.594-11.087 12/15/05 388,750
250,000 Garden State Newspapers ................................ 8.750 10/01/09 252,188
200,000 Intermedia Commission of Florida
(Zero Coupon until 05/15/01, 12.50% thereafter) (b) ... 10.529 05/15/06 159,000
500,000 Marcus Cable
(Zero Coupon until 06/15/00, 14.25% thereafter) (b)(f) 12.813 12/15/05 432,500
250,000 SFX Broadcasting ....................................... 10.750 05/15/06 274,375
250,000 United International Holdings (b) ...................... 13.893 11/15/99 205,000
-----------
3,032,751
-----------
Real Estate -- 0.5%
750,000 Crown Castle International
(Zero Coupon until 11/15/02, 10.625% thereafter)(b) ... 10.625 11/15/07 470,625
-----------
Technology -- 2.7%
250,000 Amphenol ............................................... 9.875 05/15/07 265,000
250,000 Axiohm Transaction Solution ............................ 9.750 10/01/07 255,625
250,000 Burke Industries ....................................... 10.000 08/15/07 258,125
250,000 Decisionone ............................................ 9.750 08/01/07 258,125
250,000 Dyncorp ................................................ 9.500 03/01/07 255,000
100,000 Exide Electronics Group ................................ 11.500 03/15/06 119,000
250,000 International Semi-Technology
(Zero Coupon until 08/15/00, 11.50% thereafter) (b) ... 11.737 08/15/03 90,000
250,000 Packard Bioscience ..................................... 9.375 03/01/07 240,000
250,000 Talley Manufacturing & Technology ...................... 10.750 10/15/03 266,250
250,000 Unisys ................................................. 11.750 10/15/04 286,250
-----------
2,293,375
-----------
Telecommunications & Utilities -- 1.8%
250,000 AES .................................................... 8.500 11/01/07 251,250
250,000 Comcast Cellular ....................................... 9.500 05/01/07 260,000
350,000 ICG Holdings
(Zero Coupon until 09/15/00, 13.50% thereafter) (b) ... 11.459 09/15/05 287,438
325,000 NTL (Zero Coupon until 02/01/01, 11.50% thereafter) (b). 11.029 02/01/06 255,125
250,000 Nextel Communications
(Zero Coupon until 02/15/99, 9.75% thereafter) (b) .... 9.874 - 9.900 08/15/04 222,500
250,000 Venture Holding Trust .................................. 9.500 07/01/05 252,500
-----------
1,528,813
-----------
Transportation -- 1.8%
250,000 Airplanes Pass Through Trust ........................... 10.875 03/15/19 279,375
250,000 Coach USA .............................................. 9.375 07/01/07 255,625
500,000 Loomis Fargo (f) ....................................... 10.000 01/15/04 515,000
200,000 Ryder TRS .............................................. 10.000 12/01/06 201,000
400,000 TFM
(Zero Coupon until 06/15/02, 11.75% thereafter) (b) ... 11.398 06/15/09 255,000
-----------
1,506,000
-----------
Total Corporate Bonds
(cost $34,801,906) ................................... 35,589,785
-----------
</TABLE>
See accompanying notes to financial statements
54
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount (a) Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C>
Sovereign Bonds -- 18.6%
Argentina -- 0.6%
500,000 Republic of Argentina, Global Bond ......................... 11.000% 10/09/06 $ 533,750
-----------
Australia -- 0.0%
AUD 20,000 Government of Australia .................................... 8.750 08/15/08 15,703
-----------
Brazil -- 2.5%
2,280,520 Federal Republic of Brazil, Capitalization Bond (c) ........ 8.000 04/15/14 1,795,910
500,000 Federal Republic of Brazil, DCB * .......................... 6.750 04/15/12 378,750
-----------
2,174,660
-----------
Bulgaria -- 1.6%
250,000 Republic of Bulgaria, Discount Bond, Tranche A * ........... 6.688 07/28/24 192,500
2,000,000 Republic of Bulgaria, FLIRB, Series A * (f) ................ 2.250 07/28/12 1,220,000
-----------
1,412,500
-----------
Canada -- 1.4%
CAD 1,220,000 Government of Canada ....................................... 6.500 09/01/98 861,942
CAD 190,000 Government of Canada ....................................... 7.500 09/01/00 140,099
CAD 130,000 Government of Canada ....................................... 7.000 12/01/06 99,745
-----------
1,101,786
-----------
Denmark -- 0.8%
DKK 3,720,000 Kingdom of Denmark ......................................... 6.000 11/15/02 564,505
DKK 840,000 Kingdom of Denmark ......................................... 8.000 03/15/06 141,999
-----------
706,504
-----------
Ecuador -- 0.4%
600,000 Republic of Ecuador, Par Bond * ............................ 3.500 02/28/25 331,500
-----------
Germany -- 2.9%
DsM 2,560,000 Government of Germany ...................................... 6.500 07/04/27 1,532,086
DEM 1,120,000 Government of Germany ...................................... 6.875 02/24/99 642,669
DEM 580,000 Government of Germany ...................................... 7.375 12/02/02 357,610
-----------
2,532,365
-----------
Italy -- 0.8%
ITL 1,290,000,000 Government of Italy (b) .................................... 5.523 11/16/98 699,028
-----------
Mexico -- 1.7%
250,000 United Mexico States, Series A
(including 250,000 rights) ............................... 6.250 12/31/19 208,750
1,500,000 United Mexico States, Series B (f)
(including 1,500,000 rights) ............................. 6.250 12/31/19 1,252,500
-----------
1,461,250
-----------
New Zealand -- 1.0%
NZD 1,360,000 Government of New Zealand .................................. 8.000 07/15/98 787,824
-----------
Panama -- 1.1%
1,250,000 Government of Panama, IRB * ................................ 3.750 07/17/14 956,250
-----------
Poland -- 0.4%
500,000 Republic of Poland, RSTA Bond * ............................ 3.750 10/27/24 335,000
-----------
Russia -- 1.2%
1,500,000 Russian Government, IAN * .................................. 6.719 12/15/15 1,057,500
-----------
</TABLE>
See accompanying notes to financial statements
55
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount (a) Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C>
South Korea -- 0.4%
400,000 Korea Development Bank ..................................... 9.600% 12/01/00 $ 357,372
-----------
Sweden -- 0.6%
SEK 2,500,000 Kingdom of Sweden .......................................... 10.250 05/05/00 347,681
SEK 1,500,000 Kingdom of Sweden .......................................... 6.500 10/25/06 195,857
-----------
543,538
-----------
Venezuela -- 1.2%
904,760 Republic of Venezuela, FLIRB, Series A *(f) ................ 6.750 03/31/07 812,022
226,190 Republic of Venezuela, FLIRB, Series B * ................... 6.750 03/31/07 203,006
-----------
1,015,028
-----------
Total Sovereign Bonds
(cost $15,664,618) 16,021,558
-----------
Loan Participations -- 3.3%
Morocco -- 1.5%
1,500,000 Kingdom of Morocco, Tranche A * (d)
(Chase Manhattan Bank and
Morgan Guaranty Trust Company) ............................ 6.656 01/01/09 1,301,719
-----------
Russia -- 1.8%
2,500,000 Russian Government, Principal Loan * (d)(h)
(J.P. Morgan Securities) .................................. 6.719 12/15/20 1,544,903
-----------
Total Loan Participations
(cost $2,731,228) 2,846,622
-----------
U.S. Government & Agency -- 31.4%
482,200 Federal Home Loan Mortgage Corporation (f) ................. 7.000 07/01/11 490,668
223,459 Federal Home Loan Mortgage Corporation (f) ................. 10.000 05/15/20 247,410
17,391 Federal Home Loan Mortgage Corporation Gold ................ 6.000 10/01/10 17,207
8,600,000 Federal National Mortgage Association (e) .................. 6.500 ** 8,492,500
2,200,000 Federal National Mortgage Association (e) .................. 7.500 ** 2,251,563
968,386 Federal National Mortgage Association (f) .................. 6.500 03/01/26 958,237
544,000 Federal National Mortgage Association (f) .................. 7.000 11/18/15 555,023
500,000 Federal National Mortgage Association (f) .................. 6.650 08/25/07 511,406
92,177 Federal National Mortgage Association (f) .................. 10.400 04/25/19 103,756
89,607 Federal National Mortgage Association (f) .................. 6.500 02/01/26 88,667
22,552 Federal National Mortgage Association (f) .................. 13.000 11/15/15 27,027
4,153,950 Federal National Mortgage Association - Interest only (f) .. 0.636 10/01/08 127,319
8,541,256 Federal National Mortgage Association - Interest only (f) .. 0.560 10/17/36 266,914
6,000,000 U.S. Treasury Note (f) ..................................... 5.875 09/30/02 6,032,820
5,160,000 U.S. Treasury Note (g) ..................................... 6.125 08/15/07 5,302,726
1,240,000 U.S. Treasury Note (f) ..................................... 6.375 08/15/27 1,307,816
200,000 U.S. Treasury Index Note ................................... 3.375 01/15/07 198,624
-----------
Total U.S. Government & Agency
(cost $26,944,909) ....................................... 26,979,683
-----------
Warrants/
Rights Warrants and Rights+ -- 0.0%
------
400 Inflight Phone Warrants, expires 08/31/02 .................. 0
1,000 Terex Stock Appreciation Rights, expires 05/15/02 .......... 0
250 Urohealth Systems Warrants, expires 04/01/04 ............... 0
-----------
Total Warrants and Rights
(cost $22,396) ............................................................... 0
-----------
Total Investments -- 94.7%
(cost $80,165,057) ........................................................... 81,437,648
-----------
</TABLE>
See accompanying notes to financial statements
56
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Strategic Bond Fund (concluded)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Repurchase Agreements -- 23.8%
$ 5,451,000 Repurchase Agreement dated 12/31/97, with J.P.
Morgan Securities, collateralized by $4,161,000
U.S. Treasury Bonds, 10.75%, due 08/15/05
valued at $5,560,136; proceeds: $5,452,893 ............... 6.250% 01/02/98 $ 5,451,000
15,000,000 Repurchase Agreement dated 12/31/97, with Merrill
Lynch, Pierce, Fenner & Smith, collateralized by
$14,625,000 U.S. Treasury Bonds, 6.50%, due 08/31/01
valued at $15,301,406; proceeds: $15,005,500 ............. 6.600 01/02/98 15,000,000
------------
Total Repurchase Agreements
(cost $20,451,000) ....................................... 20,451,000
------------
Liabilities in excess of other assets -- (18.5%) ........... (15,948,622)
------------
Net Assets -- 100.0% ....................................... $ 85,940,026
============
</TABLE>
<TABLE>
<CAPTION>
Forward Foreign Currency Contracts
- ------------------------------------------------------------------------------------------------
Unrealized
Maturity Contracts to In Exchange Contracts at Appreciation
Dates Deliver for Value (Depreciation)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases 02/11/98 DEM 1,896,783 $ 1,075,009 $ 1,057,566 $ (17,443)
Sales 02/11/98 AUD 16,966 11,191 11,062 129
02/11/98 CAD 1,424,978 1,003,506 998,564 4,942
02/11/98 DEM 5,380,062 3,066,785 2,999,695 67,090
02/11/98 ITL 1,193,163,979 690,776 674,679 16,097
---------
$ 70,815
=========
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
** To be announced.
+ Non-income producing security.
(a) Principal denominated in U.S. Dollars unless otherwise indicated.
(b) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(c) Payment-in-kind security for which all or part of the income earned is paid
by the issuance of additional bonds.
(d) Participation interest was acquired through the financial institutions
indicated parenthetically.
(e) Mortgage dollar roll. See Note 1.
(f) All or part of the security is segregated as collateral for mortgage dollar
rolls and loan participations.
(g) All or part of the security is subject to repurchase under reverse
repurchase agreements as of December 31, 1997.
(h) Portion of income earned is capitalized as Russian Government Interest in
Arrears Notes.
Abbreviations used in this statement:
DCB Debt Conversion Bonds.
FLIRB Front-Loaded Interest Reduction Bonds.
IAN Interest in Arrears Notes.
IRB Interest Reduction Bonds.
RSTA Revolving Short-Term Agreement.
AUD Australian Dollar.
CAD Canadian Dollar.
DEM German Deutschemark.
DKK Danish Krone.
ITL Italian Lira.
NZD New Zealand Dollar.
SEK Swedish Krone.
See accompanying notes to financial statements
57
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers U.S. Government Income Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Treasury Notes -- 14.9%
$ 300,000 U.S. Treasury Note (a) .................................... 5.875% 09/30/02 $ 301,641
450,000 U.S. Treasury Note (a) .................................... 6.625 05/15/07 476,298
1,300,000 U.S. Treasury Note (c) .................................... 6.125 08/15/07 1,335,958
-----------
Total U.S. Treasury Notes
(cost $2,085,897) 2,113,897
-----------
U.S. Government Agency -- 82.7%
100,000 Federal Home Loan Bank .................................... 5.940 06/13/00 100,312
362,279 Federal Home Loan Mortgage Corporation .................... 7.500 05/01/07 373,071
29,269 Federal Home Loan Mortgage Corporation .................... 6.000 07/01/10 29,042
17,746 Federal Home Loan Mortgage Corporation .................... 11.750 01/01/11 19,538
177,213 Federal Home Loan Mortgage Corporation .................... 7.000 05/01/11 180,583
435,457 Federal Home Loan Mortgage Corporation .................... 7.000 07/01/11 443,103
687,673 Federal Home Loan Mortgage Corporation .................... 7.000 07/01/11 699,748
336,238 Federal Home Loan Mortgage Corporation .................... 7.000 08/01/11 342,633
878 Federal Home Loan Mortgage Corporation .................... 11.750 06/01/14 957
14,078 Federal Home Loan Mortgage Corporation .................... 11.750 12/01/14 16,012
33,180 Federal Home Loan Mortgage Corporation .................... 11.750 07/01/15 37,554
252,245 Federal Home Loan Mortgage Corporation .................... 8.250 04/01/17 264,852
289,318 Federal Home Loan Mortgage Corporation .................... 8.000 12/01/19 302,581
688,362 Federal Home Loan Mortgage Corporation .................... 8.000 07/01/20 721,761
197,182 Federal Home Loan Mortgage Corporation .................... 7.000 04/15/21 199,585
1,125,000 Federal Home Loan Mortgage Corporation (a) ................ 5.000 05/15/21 1,047,296
873,525 Federal National Mortgage Association ..................... 6.783 01/17/03 884,170
237,442 Federal National Mortgage Association ..................... 6.500 12/01/03 238,169
1,500,000 Federal National Mortgage Association (b) ................. 7.000 * 1,510,781
870,000 Federal National Mortgage Association (a) ................. 6.740 08/25/07 898,003
34,537 Federal National Mortgage Association ..................... 14.500 11/01/14 42,513
18,949 Federal National Mortgage Association ..................... 12.500 08/01/15 22,318
86,348 Federal National Mortgage Association ..................... 12.500 09/01/15 102,835
90,209 Federal National Mortgage Association ..................... 13.000 11/15/15 108,110
515,538 Federal National Mortgage Association ..................... 12.000 01/01/16 597,591
33,030 Federal National Mortgage Association ..................... 12.000 01/01/16 38,712
333,170 Federal National Mortgage Association ..................... 12.500 01/01/16 392,620
400,000 Federal National Mortgage Association (a) ................. 6.909 06/25/16 410,625
29,250 Federal National Mortgage Association ..................... 11.500 04/01/19 33,443
195,725 Federal National Mortgage Association ..................... 10.500 08/01/20 218,844
469,037 Federal National Mortgage Association ..................... 8.500 11/01/23 494,727
750,000 Federal National Mortgage Association (b) ................. 6.500 * 740,625
179,551 Government National Mortgage Association .................. 8.500 01/15/18 191,497
-----------
Total U.S. Government Agency
(cost $11,502,645) ...................................... 11,704,211
-----------
Total Investments -- 97.6%
(cost $13,588,542) ...................................... 13,818,108
-----------
</TABLE>
See accompanying notes to financial statements
58
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers U.S. Government Income Fund (concluded)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Repurchase Agreements -- 21.9%
$1,550,000 Repurchase Agreement dated 12/31/97, with J.P.
Morgan Securities, collateralized by $1,184,000
U.S. Treasury Bonds, 10.75%, due 08/15/05,
valued at $1,582,120; proceeds: $1,550,538 .............. 6.250% 01/02/98 $ 1,550,000
1,551,000 Repurchase Agreement dated 12/31/97, with Merrill
Lynch, Pierce, Fenner & Smith, collateralized by
$1,515,000 U.S. Treasury Bonds, 6.50%, due 8/31/01,
valued at $1,585,069; proceeds: $1,551,569 .............. 6.600 01/02/98 1,551,000
-----------
Total Repurchase Agreements
(cost $3,101,000) ....................................... 3,101,000
-----------
Liabilities in excess of other assets -- (19.5%) .......... (2,764,243)
-----------
Net Assets -- 100.0% ...................................... $14,154,865
===========
</TABLE>
* To be announced.
(a) All or part of the security is segregated as collateral for mortgage dollar
rolls.
(b) Mortgage dollar roll. See Note 1.
(c) All or part of the security is subject to repurchase under reverse
repurchase agreements as of December 31, 1997.
See accompanying notes to financial statements
59
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers National Intermediate Municipal Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Municipal Securities -- 97.6%
California -- 4.1%
$ 285,000 Los Angeles, California AMBAC ................................ 6.000% 08/01/03 $ 309,986
250,000 Oakland, California Port Authority MBIA ...................... 6.000 11/01/05 276,420
-----------
586,406
-----------
Florida -- 1.3%
175,000 Florida Housing Finance Agency ............................... 6.150 07/01/06 182,100
-----------
Hawaii -- 1.9%
250,000 Hawaii State Department of Budget & Finance .................. 5.600 07/01/06 266,700
-----------
Illinois -- 11.1%
300,000 Chicago, Illinois Metropolitan Water GO ...................... 5.900 12/01/06 333,303
250,000 Chicago, Illinois O'Hare International Airport AMBAC ......... 5.000 01/01/02 256,923
400,000 Illinois Student Assistance Commission ....................... 6.400 03/01/04 423,888
500,000 Springfield, Illinois Electric MBIA .......................... 6.000 03/01/06 553,880
-----------
1,567,994
-----------
Indiana -- 11.0%
500,000 Indiana Health Facilities Finance Authority .................. 5.800 08/15/06 531,305
300,000 Indiana Secondary Market for Education AMBAC ................. 5.550 12/01/05 317,088
650,000 Indiana Transportation Finance Authority ..................... 6.250 11/01/03 711,230
-----------
1,559,623
-----------
Louisiana -- 2.6%
350,000 Louisiana Public Facilities Authority ........................ 6.750 09/01/06 371,497
-----------
Massachusetts -- 3.2%
400,000 Commonwealth of Massachusetts
Health & Educational Facilities Authority .................. 6.500 12/01/05 451,064
-----------
Michigan -- 2.0%
250,000 Detroit, Michigan Water Supply MBIA .......................... 6.000 07/01/07 278,730
-----------
Mississippi -- 3.9%
420,000 Mississippi Higher Education ................................. 6.050 09/01/07 443,978
100,000 Perry County, Mississippi, Pollution Control VR .............. 5.000 01/02/98 100,000
-----------
543,978
-----------
Nevada -- 0.7%
100,000 Clark County, Nevada,
Industrial Development Agency VR ........................... 5.200 01/02/98 100,000
-----------
New Jersey -- 3.4%
450,000 Passaic Valley, New Jersey
Sewer Commission AMBAC ..................................... 5.750 12/01/07 481,982
-----------
New York -- 24.4%
250,000 Municipal Assistance Corporation, New York City, New York .... 5.500 07/01/02 264,040
450,000 New York City, New York GO ................................... 6.500 02/01/02 484,250
500,000 New York State Dormitory Authority ........................... 6.000 07/01/06 543,660
400,000 New York State Dormitory Authority
(State University of New York) .............................. 6.625 07/01/04 453,100
700,000 New York State Dormitory Authority MBIA ...................... 5.600 07/01/06 752,864
500,000 New York State Mortgage Agency ............................... 5.900 10/01/06 517,130
400,000 New York State, Thruway Authority MBIA ....................... 6.000 01/01/04 435,848
-----------
3,450,892
-----------
</TABLE>
See accompanying notes to financial statements
60
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers National Intermediate Municipal Fund (concluded)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Ohio -- 3.7%
$ 250,000 Cleveland, Ohio Airport Systems FSA .......................... 5.500% 01/01/08 $ 266,018
250,000 Miami County, Ohio Hospital Facilities ....................... 5.600 05/15/02 257,590
-----------
523,608
-----------
Pennsylvania -- 12.4%
500,000 Allegheny County, Pennsylvania Airport MBIA .................. 5.500 01/01/03 526,735
400,000 Geisinger Authority, Pennsylvania Health System .............. 6.000 07/01/01 423,076
500,000 Monroeville, Pennsylvania Hospital Authority ................. 5.750 10/01/05 535,070
265,000 Philadelphia, Pennsylvania Hospital Authority ................ 5.400 07/01/04 274,386
-----------
1,759,267
-----------
South Carolina -- 7.9%
250,000 Piedmont Municipal Power Agency FGIC ......................... 6.000 01/01/07 277,113
750,000 South Carolina State
Public Service Authority FGIC .............................. 6.500 01/01/05 846,413
-----------
1,123,526
-----------
Texas -- 4.0%
500,000 Austin, Texas Airport Systems MBIA ........................... 6.500 11/15/05 567,520
-----------
Total Investments -- 97.6%
(cost $13,097,102) ......................................... 13,814,887
Other assets in excess of liabilities -- 2.4% ................ 343,400
-----------
Net Assets -- 100.0% ......................................... $14,158,287
===========
</TABLE>
Abbreviations used in this statement:
AMBAC Insured as to principal and interest by the American Municipal Bond
Assurance Corporation.
FGIC Insured as to principal and interest by the Financial Guaranty
Insurance Corporation.
FSA Insured as to principal and interest by the Financial Security
Assurance Corporation.
GO General Obligation.
MBIA Insured as to principal and interest by the MBIA Insurance Corporation.
VR Variable Rate Demand Note. Maturity date shown is the date of next
interest rate change.
See accompanying notes to financial statements
61
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers New York Municipal Money Market Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Municipal Securities -- 99.6%
New York -- 99.4%
$ 655,000 Albany County, New York
Industrial Development Agency VR ................. 4.250% 01/08/98 $ 655,000
1,770,000 Amherst, New York
Industrial Development Agency VR ................. 4.400 01/08/98 1,770,000
3,100,000 Amherst, New York
Industrial Development Agency VR ................. 3.900 05/01/98 3,100,000
1,550,000 Auburn, New York
Industrial Development Agency VR ................. 4.100 01/07/98 1,550,000
575,000 Babylon, New York
Industrial Development Agency VR ................. 4.400 01/08/98 575,000
1,375,000 Broome County, New York
Industrial Development Agency VR ................. 4.250 01/08/98 1,375,000
1,000,000 Capital District Youth Center, New York VR ......... 4.100 01/08/98 1,000,000
1,700,000 Chautauqua County, New York
Industrial Development Agency VR ................. 4.100 01/07/98 1,700,000
1,870,000 Chemung County, New York
Industrial Development Agency VR ................. 4.250 01/08/98 1,870,000
4,500,000 Chenango, New York
Industrial Development Agency VR ................. 4.400 01/08/98 4,500,000
690,000 Colonie, New York
Housing Development Corporation VR ............... 4.000 01/07/98 690,000
495,000 Colonie, New York
Industrial Development Agency VR ................. 4.250 01/08/98 495,000
1,025,000 Dutchess County, New York
Industrial Development Agency VR ................. 4.250 01/08/98 1,025,000
2,000,000 Erie County, New York GO RAN ....................... 3.820 10/29/98 2,010,800
100,000 Erie County, New York
Industrial Development Agency VR ................. 4.250 01/08/98 100,000
410,000 Erie County, New York
Industrial Development Agency VR ................. 4.250 01/08/98 410,000
1,140,000 Erie County, New York
Industrial Development Agency VR ................. 4.250 01/08/98 1,140,000
263,600 Erie County, New York
Industrial Development Agency VR ................. 4.400 01/08/98 263,600
2,550,000 Islip, New York
Industrial Development Authority VR .............. 4.250 01/08/98 2,550,000
1,560,000 Monroe County, New York
Industrial Development Agency PUT ................ 4.000 06/01/98 1,560,000
700,000 Monroe County, New York
Industrial Development Agency PUT ................ 4.500 06/15/98 700,000
6,500,000 Monroe County, New York
Industrial Development Agency VR ................. 4.100 01/07/98 6,500,000
2,600,000 Monroe County, New York
Industrial Development Agency VR ................. 4.150 01/08/98 2,600,000
3,465,000 Monroe County, New York
Industrial Development Agency VR ................. 4.250 01/08/98 3,465,000
1,100,000 Monroe County, New York
Industrial Development Agency VR ................. 4.400 01/08/98 1,100,000
2,000,000 Monroe County, New York
Industrial Development Agency VR ................. 4.400 01/08/98 2,000,000
1,485,000 Monroe County, New York
Industrial Development Agency VR ................. 4.400 01/08/98 1,485,000
825,000 Monroe County, New York
Industrial Development Agency VR ................. 4.450 01/08/98 825,000
</TABLE>
See accompanying notes to financial statements
62
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers New York Municipal Money Market Fund (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$3,075,000 Monroe County, New York
Industrial Development Agency VR ................. 4.450% 01/08/98 $ 3,075,000
3,325,000 Monroe County, New York
Industrial Development Agency VR ................. 4.450 01/08/98 3,325,000
2,500,000 Monroe County, New York
Industrial Development Agency VR ................. 4.250 01/08/98 2,500,000
100,000 Municipal Assistance Corporation,
New York City, New York .......................... 4.000 07/01/98 101,401
2,500,000 Nassau County, New York
Industrial Development Agency VR ................. 4.850 01/02/98 2,500,000
900,000 Nassau County, New York
Industrial Development Agency VR ................. 4.250 01/08/98 900,000
1,200,000 New York City, New York GO VR ...................... 5.000 01/02/98 1,200,000
1,000,000 New York City, New York
Housing Development Corporation VR ............... 3.600 01/07/98 1,000,000
100,000 New York City, New York
Housing Development Corporation VR ............... 4.100 01/07/98 100,000
19,300,000 New York City, New York
Industrial Development Agency VR ................. 4.600 01/02/98 19,300,000
50,000 New York City, New York
Industrial Development Agency VR ................. 3.550 01/07/98 50,000
10,200,000 New York City, New York
Industrial Development Agency VR ................. 4.350 01/07/98 10,200,000
845,000 New York City, New York
Industrial Development Agency VR ................. 4.250 01/08/98 845,000
400,000 New York City, New York
Industrial Development Agency VR ................. 4.400 01/08/98 400,000
250,000 New York City, New York
Industrial Development Agency VR ................. 4.550 01/08/98 250,000
1,000,000 New York City, New York
Municipal Water Finance Authority VR ............. 5.000 01/02/98 1,000,000
11,400,000 New York City, New York
Municipal Water Finance Authority VR FGIC ........ 4.150 01/02/98 11,400,000
7,600,000 New York City, New York
Health & Hospital Corporation VR ................. 3.550 01/07/98 7,600,000
2,550,000 New York City, New York
Industrial Development Agency VR ................. 3.500 01/07/98 2,550,000
2,975,000 New York City, New York
Industrial Development Agency VR ................. 4.000 01/08/98 2,975,000
5,785,000 New York State,
Energy Research & Development Authority VR ....... 5.000 01/02/98 5,785,000
3,929,000 New York State,
Dormitory Authority TECP ......................... 3.950 01/09/98 3,929,000
750,000 New York State,
Dormitory Authority FSA .......................... 3.850 07/1/98 760,336
4,500,000 New York State,
Dormitory Authority VR ........................... 5.250 01/02/98 4,500,000
700,000 New York State,
Energy Research & Development Authority VR ....... 4.500 01/02/98 700,000
1,100,000 New York State,
Energy Research & Development Authority VR ....... 5.000 01/02/98 1,100,000
17,900,000 New York State,
Energy Research & Development Authority VR ....... 4.550 01/02/98 17,900,000
95,000 New York State,
Housing Finance Agency VR AMBAC .................. 3.650 01/07/98 95,000
</TABLE>
See accompanying notes to financial statements
63
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers New York Municipal Money Market Fund (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$7,400,000 New York State,
Housing Finance Agency VR ........................ 3.550% 01/07/98 $ 7,400,000
5,780,000 New York State,
Job Development Authority VR ..................... 4.250 01/02/98 5,780,000
3,545,000 New York State,
Job Development Authority VR ..................... 4.250 01/02/98 3,545,000
2,275,000 New York State,
Job Development Authority VR ..................... 4.250 01/02/98 2,275,000
955,000 New York State,
Job Development Authority VR ..................... 4.300 01/02/98 955,000
245,000 New York State,
Job Development Authority VR ..................... 4.300 01/02/98 245,000
435,000 New York State,
Job Development Authority VR ..................... 4.300 01/02/98 435,000
75,000 New York State,
Job Development Authority VR ..................... 4.300 01/02/98 75,000
1,480,000 New York State,
Job Development Authority VR ..................... 4.300 01/02/98 1,480,000
1,930,000 New York State,
Job Development Authority VR ..................... 4.300 01/02/98 1,930,000
1,045,000 New York State,
Job Development Authority VR ..................... 4.550 01/02/98 1,045,000
610,000 New York State,
Job Development Authority VR ..................... 4.550 01/02/98 610,000
1,000,000 New York State,
Job Development Authority VR ..................... 5.250 01/02/98 1,000,000
5,320,000 New York State,
Job Development Authority VR ..................... 5.250 01/02/98 5,320,000
450,000 New York State, Thruway Authority AMBAC ............ 3.800 04/01/98 451,294
5,200,000 Niagara County, New York
Industrial Development Agency VR ................. 3.800 01/07/98 5,200,000
47,495,000 Niagara County, New York
Industrial Development Agency VR ................. 3.900 01/07/98 47,495,000
910,000 Niagara County, New York
Industrial Development Agency VR ................. 4.400 01/08/98 910,000
270,000 Oneida County, New York
Industrial Development Agency VR ................. 4.200 01/08/98 270,000
1,470,000 Oneida County, New York
Industrial Development Agency VR ................. 4.400 01/08/98 1,470,000
3,900,000 Onondaga County, New York
Industrial Development Agency VR ................. 4.050 01/07/98 3,900,000
1,400,000 Onondaga County, New York
Industrial Development Agency VR ................. 4.050 01/07/98 1,400,000
20,000,000 Onondaga County, New York
Industrial Development Agency PUT ................ 4.100 11/01/98 20,000,000
3,500,000 Ontario County, New York
Industrial Development Agency VR ................. 4.600 01/02/98 3,500,000
1,900,000 Port Authority of New York & New Jersey VR ......... 4.900 01/02/98 1,900,000
1,300,000 Rockland County, New York
Industrial Development Agency VR ................. 4.400 01/08/98 1,300,000
175,000 Schoharie County, New York
Industrial Development Agency VR ................. 4.200 01/08/98 175,000
4,235,000 St. Lawrence County, New York
Industrial Development Agency VR ................. 4.500 01/08/98 4,235,000
10,000,000 Suffolk County, New York GO TAN .................... 3.850 09/10/98 10,026,541
</TABLE>
See accompanying notes to financial statements
64
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers New York Municipal Money Market Fund (concluded)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$1,400,000 Syracuse, New York
Industrial Development Agency PUT ................ 4.500% 06/15/98 $ 1,400,000
3,550,000 Syracuse, New York
Industrial Development Agency VR ................. 4.100 01/07/98 3,550,000
1,000,000 Triborough Bridge & Tunnel Authority, New York P/R.. 3.750 01/01/98 1,015,000
2,460,000 Warren & Washington Counties, New York
Industrial Development Agency VR ................. 4.250 01/08/98 2,460,000
305,000 Wyoming County, New York
Industrial Development Agency VR ................. 4.250 01/08/98 305,000
5,900,000 Wyoming County, New York
Industrial Development Agency VR ................. 4.400 01/08/98 5,900,000
1,180,000 Yates County, New York
Industrial Development Agency VR ................ 4.250 01/08/98 1,180,000
4,200,000 Yonkers, New York
Industrial Development Agency VR ................. 3.500 01/07/98 4,200,000
------------
307,392,972
------------
Puerto Rico -- 0.2%
500,000 University of Puerto Rico P/R ...................... 3.800 06/01/98 505,449
------------
Total Investments -- 99.6%
(cost $307,898,421) .............................. 307,898,421
Other assets in excess of liabilities -- 0.4% ...... 1,378,432
------------
Net Assets -- 100.0% ............................... $309,276,853
============
</TABLE>
* Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR) and Put Bonds, whose yields are determined on date of the
last interest rate change. For Variable Rate Demand Notes and Put Bonds,
maturity date shown is the date of next interest rate change.
Abbreviations used in this statement:
AMBAC Insured as to principal and interest by the American Municipal Bond
Assurance Corporation.
FGIC Insured as to principal and interest by the Financial Guaranty
Insurance Corporation.
FSA Insured as to principal and interest by the Financial Security
Assurance Corporation.
GO General Obligation.
P/R Pre-refunded in U.S. Government Securities.
PUT Optional or mandatory put. Maturity date shown is the put date as well
as the date of the next interest rate change.
RAN Revenue Anticipation Note.
TAN Tax Anticipation Note.
TECP Tax Exempt Commercial Paper.
See accompanying notes to financial statements
65
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Cash Management Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Asset-Backed Securities -- 1.7%
Financial Services -- 1.7%
$ 757,362 Ford Credit Auto Owner Trust (cost $757,362) ...... 5.748% 10/15/98 $ 757,362
------------
Certificates of Deposit -- 20.4%
Banks -- 20.4%
1,000,000 American Express Centurion Bank ................... 5.870 01/20/98 1,000,000
1,000,000 Bankers Trust ..................................... 5.950 09/09/98 999,777
1,000,000 Branch Banking & Trust ............................ 5.900 08/24/98 1,000,000
1,000,000 Canadian Imperial Bank ............................ 6.030 01/20/98 1,000,115
1,000,000 Chase Manhattan Bank .............................. 5.650 01/06/98 1,000,000
1,000,000 Morgan Guaranty Trust ............................. 5.710 01/06/98 999,876
1,000,000 Norinchukin Bank .................................. 5.840 02/06/98 999,871
1,000,000 Societe Generale .................................. 5.620 01/07/98 1,000,002
1,000,000 Swiss Bank ........................................ 5.980 03/19/98 1,000,231
------------
Total Certificates of Deposit
(cost $8,999,872) ............................... 8,999,872
------------
Commercial Paper -- 35.2%
Banks -- 2.3%
1,000,000 BBL North America ................................. 6.800 01/02/98 999,811
------------
Beverages & Tobacco -- 4.1%
1,800,000 UST ............................................... 6.300 01/05/98 1,798,740
------------
Building Materials -- 2.3%
1,000,000 Boral Industries .................................. 5.700 01/20/98 996,991
------------
Electrical Components -- 2.3%
1,000,000 Sharp Electric .................................... 5.920 01/30/98 995,231
------------
Financial Services -- 5.0%
1,235,000 Credit Agricole Indosuez .......................... 5.750 01/14/98 1,232,435
1,000,000 Toshiba International Finance ..................... 5.800 02/02/98 994,844
------------
2,227,279
------------
Food -- 2.3%
1,000,000 Golden Peanut ..................................... 5.540 01/13/98 998,153
------------
Household Products -- 2.3%
1,000,000 Guardian Industries ............................... 5.550 01/05/98 999,384
------------
Municipal -- 6.7%
1,000,000 New York City, New York GO ........................ 5.850 02/03/98 1,000,000
1,000,000 New York City, New York Housing
Development Corporation ......................... 5.790 01/05/98 1,000,000
1,000,000 Tennessee State School Board ...................... 5.920 01/16/98 1,000,000
------------
3,000,000
------------
Pharmaceuticals -- 2.3%
1,000,000 Bayer ............................................. 5.850 01/05/98 999,350
------------
Real Estate -- 3.4%
1,500,000 Weyerhaeuser Real Estate .......................... 5.750 01/20/98 1,495,448
------------
</TABLE>
See accompanying notes to financial statements
66
<PAGE>
Portfolio of Investments
(continued)
Salomon Brothers Cash Management Fund (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Transportation -- 2.2%
$1,000,000 Daimler-Benz ....................................... 5.540% 02/04/98 $ 994,768
------------
Total Commercial Paper
(cost $15,505,155) ............................... 15,505,155
------------
Corporate Bonds -- 4.1%
Financial Services -- 4.1%
500,000 Associates Corporation of North America ............ 5.940 07/15/98 502,864
300,000 Associates Corporation of North America ............ 5.820 05/15/98 303,170
1,000,000 General Electric Capital ........................... 5.800 02/16/98 1,002,071
------------
Total Corporate Bonds
(cost $1,808,105) ................................ 1,808,105
------------
Floating Rate Notes -- 28.8%
California -- 3.1%
1,000,000 Fontana, California VR ............................. 6.500 01/07/98 1,000,000
385,000 Pasadena, California Certificates of
Participation VR ................................. 7.000 01/06/98 385,000
------------
1,385,000
------------
Florida -- 5.4%
1,000,000 Baptist Health Systems VR MBIA ..................... 5.900 01/07/98 1,000,000
1,000,000 Dade County, Florida Expressway Authority VR FGIC .. 6.150 01/08/98 1,000,000
400,000 Florida Housing Finance Agency VR .................. 5.900 01/07/98 400,000
------------
2,400,000
------------
Georgia -- 1.3%
600,000 De Kalb Development Authority VR ................... 5.900 01/07/98 600,000
------------
Illinois -- 1.6%
500,000 Edward Hospital Group VR ........................... 5.950 01/07/98 500,000
200,000 Isac, Illinios VR .................................. 5.920 01/07/98 200,000
------------
700,000
------------
Louisiana -- 2.3%
1,000,000 Calcasieu Parish, Louisiana
Industrial Development Agency VR ................. 5.700 01/07/98 1,000,000
------------
Michigan -- 1.6%
700,000 Genesys Health Systems VR .......................... 5.970 01/07/98 700,000
------------
Minnesota -- 2.3%
1,000,000 Catholic Health Initiatives VR ..................... 5.900 01/07/98 1,000,000
------------
New Jersey -- 0.6%
270,000 New Jersey Economic Development Authority VR ....... 6.280 01/05/98 270,000
------------
</TABLE>
See accompanying notes to financial statements
67
<PAGE>
Portfolio of Investments
(concluded)
Salomon Brothers Cash Management Fund (concluded)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
New York -- 4.5%
$ 400,000 Health Insurance Plan, Greater New York VR ......... 6.150% 01/07/98 $ 400,000
295,000 New York City, New York
Industrial Development Agency VR ................. 6.000 01/07/98 295,000
100,000 New York City, New York
Industrial Development Agency VR ................. 6.000 01/07/98 100,000
900,000 New York State, Housing Finance Agency VR .......... 5.900 01/07/98 900,000
300,000 Syracuse, New York GO VR ........................... 6.000 01/07/98 300,000
-----------
1,995,000
-----------
North Carolina -- 0.9%
380,000 Greensboro, North Carolina GO VR ................... 6.000 01/07/98 380,000
-----------
Pennsylvania -- 2.3%
1,000,000 Pennsylvania Economic Development Authority VR ..... 5.650 01/07/98 1,000,000
-----------
Tennessee -- 0.9%
400,000 Community Health Systems VR ........................ 6.150 01/07/98 400,000
-----------
Texas -- 2.0%
875,000 Texas State GO VR .................................. 5.900 01/07/98 875,000
-----------
Total Floating Rate Notes
(cost $12,705,000) ............................... 12,705,000
-----------
Total Investments -- 90.2%
(cost $39,775,494) ............................... 39,775,494
Repurchase Agreement -- 3.9%
1,716,595 Repurchase Agreement dated 12/31/97 with J.P.
Morgan Securities, collateralized by $1,815,000
U.S. Treasury Strips, Zero Coupon, due 08/15/98
valued at $1,751,475; proceeds: $1,717,191
(cost $1,716,595) ................................ 6.250 01/02/98 1,716,595
Other assets in excess of liabilities -- 5.9% ...... 2,583,599
------------
Net Assets -- 100.0% ............................... $ 44,075,688
============
</TABLE>
* Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR), whose yields are determined on date of last interest rate
change. For Variable Rate Demand Notes, maturity date shown is the date of
next interest rate change.
Abbreviations used in this statement:
FGIC Insured as to principal and interest by the Financial Guaranty
Insurance Corporation.
GO General Obligation.
MBIA Insured as to principal and interest by the MBIA Insurance Corporation.
See accompanying notes to financial statements
68
<PAGE>
(This page intentionally left blank)
69
<PAGE>
Statements of Assets and Liabilities
December 31, 1997
<TABLE>
<CAPTION>
Asia
Growth Capital Investors
Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (Note A) ................................................. $ 13,522,021 $170,868,237 $689,102,426
Repurchase agreements, at value and cost ....................................... -- 18,105,000 43,055,000
Cash (including foreign currency) .............................................. 581,811 695 435
Receivable for securities sold ................................................. 151,257 87,049 853,332
Receivable for Fund shares sold ................................................ 214,906 485,938 468,288
Interest and dividends receivable .............................................. 8,997 75,604 621,940
Receivable from investment advisor ............................................. 226,260 -- --
Deferred organization expense .................................................. 75,250 -- --
Net unrealized appreciation of forward foreign currency contracts .............. -- -- --
Other assets ................................................................... 11,150 13,190 25,332
------------ ------------ ------------
Total assets ................................................................... 14,791,652 189,635,713 734,126,753
------------ ------------ ------------
LIABILITIES:
Payable for:
Securities purchased ......................................................... 28,482 1,413,880 5,428,326
Reverse repurchase agreement ................................................. -- -- --
Fund shares redeemed ......................................................... 375,733 709,688 419,414
Dividends and distributions declared ......................................... -- -- --
Affiliate transactions:
Management fees ........................................................... -- 136,189 933,125
Service and distribution fees .............................................. 24,517 16,242 178,590
Net unrealized depreciation of forward foreign currency contracts .............. 36,655 -- --
Accrued expenses and other liabilities ......................................... 43,380 95,917 174,447
------------ ------------ ------------
Total liabilities .............................................................. 508,767 2,371,916 7,133,902
------------ ------------ ------------
Net assets ..................................................................... $ 14,282,885 $187,263,797 $726,992,851
============ ============ ============
Net assets consist of:
Paid-in capital ................................................................ $ 20,150,904 $153,003,730 $482,444,752
Undistributed net investment income or (distributions in excess of net
investment income) ........................................................... 191 385,558 164,292
Accumulated net realized gain (loss) on investments, options and
foreign currency transactions ................................................ (3,760,542) 8,054,582 17,635,725
Net unrealized appreciation (depreciation) on investments, foreign currency
transactions and other assets ................................................ (2,107,668) 25,819,927 226,748,082
------------ ------------ ------------
Net assets: .................................................................... $ 14,282,885 $187,263,797 $726,992,851
============ ============ ============
Class A ........................................................................ $ 6,490,875 $ 5,588,550 $ 57,105,293
============ ============ ============
Class B ........................................................................ $ 5,737,641 $ 3,819,893 $ 49,785,608
============ ============ ============
Class C ........................................................................ $ 1,642,697 $ 2,385,339 $ 11,701,161
============ ============ ============
Class O ........................................................................ $ 411,672 $175,470,015 $608,400,789
============ ============ ============
Shares outstanding:
Class A ........................................................................ 867,533 264,272 2,705,397
============ ============ ============
Class B ........................................................................ 771,230 181,818 2,370,932
============ ============ ============
Class C ........................................................................ 220,900 113,470 557,056
============ ============ ============
Class O ........................................................................ 54,872 8,264,251 28,786,802
============ ============ ============
Net asset value:
Class A shares
Net asset value and redemption price per share ................................. $ 7.48 $ 21.15 $ 21.11
============ ============ ============
Maximum offering price per share (based on maximum sales charge
of 4.75%, except Cash Management Fund and New York Municipal Money Fund) ..... $ 7.85 $ 22.20 $ 22.16
============ ============ ============
Class B shares
Net asset value and offering price per share * ................................. $ 7.44 $ 21.01 $ 21.00
============ ============ ============
Class C shares
Net asset value and offering price per share * ................................. $ 7.44 $ 21.02 $ 21.01
============ ============ ============
Class O shares
Net asset value, offering price and redemption price per share ................. $ 7.50 $ 21.23 $ 21.13
============ ============ ============
Note A: Cost of investments ................................................... $ 15,588,670 $145,048,310 $462,354,514
============ ============ ============
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See accompanying notes to financial statements
70
<PAGE>
<TABLE>
<CAPTION>
Total High
Return Yield Strategic
Fund Bond Fund Bond Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (Note A) ................................................. $150,532,436 $535,925,237 $ 81,437,648
Repurchase agreements, at value and cost ....................................... 29,844,000 33,479,000 20,451,000
Cash (including foreign currency) .............................................. 651 752 319
Receivable for securities sold ................................................. -- -- 8,685,135
Receivable for Fund shares sold ................................................ 785,685 3,980,698 1,156,317
Interest and dividends receivable .............................................. 1,148,172 10,842,726 1,383,360
Receivable from investment advisor ............................................. -- -- --
Deferred organization expense .................................................. 51,557 63,167 63,393
Net unrealized appreciation of forward foreign currency contracts .............. -- -- 70,815
Other assets ................................................................... -- 67,308 25,332
------------ ------------ ------------
Total assets ................................................................... 182,362,501 584,358,888 113,273,319
------------ ------------ ------------
LIABILITIES:
Payable for:
Securities purchased ......................................................... 15,119,426 -- 20,890,439
Reverse repurchase agreement ................................................. 3,571,175 -- 5,304,246
Fund shares redeemed ......................................................... 254,032 901,327 263,616
Dividends and distributions declared ......................................... 108,259 3,992,685 403,784
Affiliate transactions:
Management fees ........................................................... 80,159 312,538 263,743
Service and distribution fees .............................................. 280,622 1,050,799 169,211
Net unrealized depreciation of forward foreign currency contracts .............. -- -- --
Accrued expenses and other liabilities ......................................... 63,125 281,148 38,254
------------ ------------ ------------
Total liabilities .............................................................. 19,476,798 6,538,497 27,333,293
------------ ------------ ------------
Net assets ..................................................................... $162,885,703 $577,820,391 $ 85,940,026
============ ============ ============
Net assets consist of:
Paid-in capital ................................................................ $148,828,945 $569,726,837 $ 84,523,879
Undistributed net investment income or (distributions in excess of net
investment income) ........................................................... 127,947 -- (57,860)
Accumulated net realized gain (loss) on investments, options and
foreign currency transactions ................................................ 590,814 (121,297) 136,825
Net unrealized appreciation (depreciation) on investments, foreign currency
transactions and other assets ................................................ 13,337,997 8,214,851 1,337,182
------------ ------------ ------------
Net assets: .................................................................... $162,885,703 $577,820,391 $ 85,940,026
============ ============ ============
Class A ........................................................................ $ 53,024,315 $169,720,528 $ 17,149,950
============ ============ ============
Class B ........................................................................ $ 87,549,449 $329,671,695 $ 47,920,983
============ ============ ============
Class C ........................................................................ $ 21,085,221 $ 76,041,932 $ 20,219,867
============ ============ ============
Class O ........................................................................ $ 1,226,718 $ 2,386,236 $ 649,226
============ ============ ============
Shares outstanding:
Class A ........................................................................ 4,037,397 14,452,404 1,567,016
============ ============ ============
Class B ........................................................................ 6,674,754 28,155,839 4,383,809
============ ============ ============
Class C ........................................................................ 1,603,616 6,496,800 1,848,827
============ ============ ============
Class O ........................................................................ 92,907 203,096 59,377
============ ============ ============
Net asset value:
Class A shares
Net asset value and redemption price per share ................................. $ 13.13 $ 11.74 $ 10.94
============ ============ ============
Maximum offering price per share (based on maximum sales charge
of 4.75%, except Cash Management Fund and New York Municipal Money Fund) ..... $ 13.78 $ 12.33 $ 11.49
============ ============ ============
Class B shares
Net asset value and offering price per share * ................................. $ 13.12 $ 11.71 $ 10.93
============ ============ ============
Class C shares
Net asset value and offering price per share * ................................. $ 13.15 $ 11.70 $ 10.94
============ ============ ============
Class O shares
Net asset value, offering price and redemption price per share ................. $ 13.20 $ 11.75 $ 10.93
============ ============ ============
Note A: Cost of investments ................................................... $137,194,420 $527,623,859 $ 80,165,057
============ ============ ============
<CAPTION>
U.S. National
Government Intermediate
Income Fund Municipal Fund
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Note A) ................................................. $ 13,818,108 $ 13,814,887
Repurchase agreements, at value and cost ....................................... 3,101,000 --
Cash (including foreign currency) .............................................. 846 2,770
Receivable for securities sold ................................................. 461 --
Receivable for Fund shares sold ................................................ 36,597 2,585
Interest and dividends receivable .............................................. 105,116 257,436
Receivable from investment advisor ............................................. 73,598 71,682
Deferred organization expense .................................................. 51,854 50,089
Net unrealized appreciation of forward foreign currency contracts .............. -- --
Other assets ................................................................... 23,137 23,427
------------ ------------
Total assets ................................................................... 17,210,717 14,222,876
------------ ------------
LIABILITIES:
Payable for:
Securities purchased ......................................................... 2,241,959 --
Reverse repurchase agreement ................................................. 630,207 --
Fund shares redeemed ......................................................... 57,844 --
Dividends and distributions declared ......................................... 101,057 45,580
Affiliate transactions:
Management fees ........................................................... -- --
Service and distribution fees .............................................. 7,572 5,003
Net unrealized depreciation of forward foreign currency contracts .............. -- --
Accrued expenses and other liabilities ......................................... 17,213 14,006
------------ ------------
Total liabilities .............................................................. 3,055,852 64,589
------------ ------------
Net assets ..................................................................... $ 14,154,865 $ 14,158,287
============ ============
Net assets consist of:
Paid-in capital ................................................................ $ 13,929,765 $ 13,443,031
Undistributed net investment income or (distributions in excess of net
investment income) ........................................................... -- --
Accumulated net realized gain (loss) on investments, options and
foreign currency transactions ................................................ (4,466) (2,529)
Net unrealized appreciation (depreciation) on investments, foreign currency
transactions and other assets ................................................ 229,566 717,785
------------ ------------
Net assets: .................................................................... $ 14,154,865 $ 14,158,287
============ ============
Class A ........................................................................ $ 1,319,999 $ 1,062,613
============ ============
Class B ........................................................................ $ 2,530,670 $ 1,295,495
============ ============
Class C ........................................................................ $ 751,385 $ 514,461
============ ============
Class O ........................................................................ $ 9,552,811 $ 11,285,718
============ ============
Shares outstanding:
Class A ........................................................................ 129,442 100,093
============ ============
Class B ........................................................................ 248,203 122,377
============ ============
Class C ........................................................................ 73,733 48,581
============ ============
Class O ........................................................................ 937,253 1,063,875
============ ============
Net asset value:
Class A shares
Net asset value and redemption price per share ................................. $ 10.20 $ 10.62
============ ============
Maximum offering price per share (based on maximum sales charge
of 4.75%, except Cash Management Fund and New York Municipal Money Fund) ..... $ 10.71 $ 11.15
============ ============
Class B shares
Net asset value and offering price per share * ................................. $ 10.20 $ 10.59
============ ============
Class C shares
Net asset value and offering price per share * ................................. $ 10.19 $ 10.59
============ ============
Class O shares
Net asset value, offering price and redemption price per share ................. $ 10.19 $ 10.61
============ ============
Note A: Cost of investments ................................................... $ 13,588,542 $ 13,097,102
============ ============
<CAPTION>
New York Cash
Municipal Management
Money Fund Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Note A) ................................................. $307,898,421 $ 39,775,494
Repurchase agreements, at value and cost ....................................... -- 1,716,595
Cash (including foreign currency) .............................................. 55,248 --
Receivable for securities sold ................................................. -- --
Receivable for Fund shares sold ................................................ 363,947 2,323,707
Interest and dividends receivable .............................................. 1,249,958 391,172
Receivable from investment advisor ............................................. -- --
Deferred organization expense .................................................. -- --
Net unrealized appreciation of forward foreign currency contracts .............. -- --
Other assets ................................................................... -- 22,262
------------ ------------
Total assets ................................................................... 309,567,574 44,229,230
------------ ------------
LIABILITIES:
Payable for:
Securities purchased ......................................................... -- --
Reverse repurchase agreement ................................................. -- --
Fund shares redeemed ......................................................... 135,492 12,184
Dividends and distributions declared ......................................... 11,700 102,307
Affiliate transactions:
Management fees ........................................................... 41,607 16,633
Service and distribution fees .............................................. -- --
Net unrealized depreciation of forward foreign currency contracts .............. -- --
Accrued expenses and other liabilities ......................................... 101,922 22,418
------------ ------------
Total liabilities .............................................................. 290,721 153,542
------------ ------------
Net assets ..................................................................... $309,276,853 $ 44,075,688
============ ============
Net assets consist of:
Paid-in capital ................................................................ $309,515,181 $ 44,077,888
Undistributed net investment income or (distributions in excess of net
investment income) ........................................................... -- --
Accumulated net realized gain (loss) on investments, options and
foreign currency transactions ................................................ (238,328) (2,200)
Net unrealized appreciation (depreciation) on investments, foreign currency
transactions and other assets ................................................ -- --
------------ ------------
Net assets: .................................................................... $309,276,853 $ 44,075,688
============ ============
Class A ........................................................................ $ 3,807,918 $ 18,246,345
============ ============
Class B ........................................................................ $ 25,000 $ 4,151,327
============ ============
Class C ........................................................................ $ 25,000 $ 1,806,171
============ ============
Class O ........................................................................ $305,418,935 $ 19,871,845
============ ============
Shares outstanding:
Class A ........................................................................ 3,808,034 18,246,378
============ ============
Class B ........................................................................ 25,000 4,151,337
============ ============
Class C ........................................................................ 25,000 1,806,177
============ ============
Class O ........................................................................ 305,658,004 19,873,996
============ ============
Net asset value:
Class A shares
Net asset value and redemption price per share ................................. $ 1.00 $ 1.00
============ ============
Maximum offering price per share (based on maximum sales charge
of 4.75%, except Cash Management Fund and New York Municipal Money Fund) ..... $ 1.00 $ 1.00
============ ============
Class B shares
Net asset value and offering price per share * ................................. $ 1.00 $ 1.00
============ ============
Class C shares
Net asset value and offering price per share * ................................. $ 1.00 $ 1.00
============ ============
Class O shares
Net asset value, offering price and redemption price per share ................. $ 1.00 $ 1.00
============ ============
Note A: Cost of investments ................................................... $307,898,421 $ 39,775,494
============ ============
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See accompanying notes to financial statements
71
<PAGE>
Statements of Operations
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Asia
Growth Capital Investors
Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest ........................................................ $ 27,721 $ 506,667 $ 2,634,065
Dividends (Note A) .............................................. 165,321 1,954,236 9,263,582
------------- ------------- -------------
193,042 2,460,903 11,897,647
Expenses:
Management fee .................................................. 102,243 1,505,753 3,360,670
Registration and filing fees .................................... 31,120 37,440 33,625
Custody and administration fees ................................. 220,590 75,009 74,521
Legal ........................................................... 11,655 111,465 168,750
Printing ........................................................ -- 84,200 196,290
Shareholder services ............................................ 60,665 58,245 461,565
Amortization of organization expenses ........................... 21,026 -- --
Audit and tax return preparation fees ........................... 3,760 81,895 93,490
Directors' fees and expenses .................................... 2,345 60,155 63,460
Other ........................................................... 1,625 26,190 38,765
------------- ------------- -------------
455,029 2,040,352 4,491,136
Management fee waived and expenses absorbed by investment advisor (328,503) -- --
Credits earned from custodian on cash balances .................. -- (54) (236)
------------- ------------- -------------
126,526 2,040,298 4,490,900
Distribution and service fees:
Class A Shares .................................................. 15,166 7,313 89,289
Class B Shares .................................................. 52,196 15,694 312,440
Class C Shares .................................................. 11,934 10,406 76,117
------------- ------------- -------------
Net expenses .................................................... 205,822 2,073,711 4,968,746
------------- ------------- -------------
Net investment income (loss) .................................... (12,780) 387,192 6,928,901
------------- ------------- -------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (Note B) ............................................ (3,596,949) 34,253,431 86,460,558
Options written ................................................. -- (115,927) 30,180
Foreign currency transactions ................................... (149,867) (1,301) (1,980)
------------- ------------- -------------
(3,746,816) 34,136,203 86,488,758
------------- ------------- -------------
Net change in unrealized appreciation (depreciation) on:
Investments ..................................................... (2,119,841) 4,077,698 55,513,046
Foreign currency transactions and other assets .................. (40,964) 28 367
------------- ------------- -------------
(2,160,805) 4,077,726 55,513,413
------------- ------------- -------------
Net realized and unrealized gain (loss) ......................... (5,907,621) 38,213,929 142,002,171
------------- ------------- -------------
Net increase (decrease) in net assets from operations ........... $ (5,920,401) $ 38,601,121 $ 148,931,072
============= ============= =============
Note A: Net of foreign withholding tax of: ..................... $ 9,987 $ 71,465 $ 183,790
============= ============= =============
Note B: Net of foreign withholding tax of: ..................... $ 11,981 $ -- $ --
============= ============= =============
</TABLE>
See accompanying notes to financial statements
72
<PAGE>
<TABLE>
<CAPTION>
Total High U.S.
Return Yield Strategic Government
Fund Bond Fund Bond Fund Income Fund
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Interest ........................................................ $ 3,843,013 $ 37,742,999 $ 4,673,172 $ 850,502
Dividends (Note A) .............................................. 1,545,341 211,042 -- --
------------ ------------ ------------ ------------
5,388,354 37,954,041 4,673,172 850,502
Expenses:
Management fee .................................................. 585,841 2,878,280 430,840 77,327
Registration and filing fees .................................... 43,845 105,055 43,655 30,575
Custody and administration fees ................................. 140,906 467,730 94,828 31,518
Legal ........................................................... 27,265 30,515 2,980 --
Printing ........................................................ 23,680 90,350 12,365 2,975
Shareholder services ............................................ 184,530 435,855 99,020 53,490
Amortization of organization expenses ........................... 19,122 29,448 29,551 24,171
Audit and tax return preparation fees ........................... 21,555 107,235 13,865 2,230
Directors' fees and expenses .................................... 1,900 1,900 1,900 1,900
Other ........................................................... 8,351 24,910 6,860 4,084
------------ ------------ ------------ ------------
1,056,995 4,171,278 735,864 228,270
Management fee waived and expenses absorbed by investment advisor (505,682) (371,931) (167,097) (150,925)
Credits earned from custodian on cash balances .................. (56) (17) (58) (18)
------------ ------------ ------------ ------------
551,257 3,799,330 568,709 77,327
Distribution and service fees:
Class A Shares .................................................. 93,675 305,953 38,358 3,378
Class B Shares .................................................. 568,667 2,174,677 301,245 16,492
Class C Shares .................................................. 112,603 420,949 114,072 4,488
------------ ------------ ------------ ------------
Net expenses .................................................... 1,326,202 6,700,909 1,022,384 101,685
------------ ------------ ------------ ------------
Net investment income (loss) .................................... 4,062,152 31,253,132 3,650,788 748,817
------------ ------------ ------------ ------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (Note B) ............................................ 4,262,875 8,465,196 1,513,401 63,896
Options written ................................................. -- -- -- --
Foreign currency transactions ................................... (343) -- 199,524 --
------------ ------------ ------------ ------------
4,262,532 8,465,196 1,712,925 63,896
------------ ------------ ------------ ------------
Net change in unrealized appreciation (depreciation) on:
Investments ..................................................... 9,001,545 1,024,478 295,479 181,947
Foreign currency transactions and other assets .................. (1,700) (55,438) 77,528 --
------------ ------------ ------------ ------------
8,999,845 969,040 373,007 181,947
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) ......................... 13,262,377 9,434,236 2,085,932 245,843
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations ........... $ 17,324,529 $ 40,687,368 $ 5,736,720 $ 994,660
============ ============ ============ ============
Note A: Net of foreign withholding tax of: ...................... $ 16,457 $ -- $ -- $ --
============ ============ ============ ============
Note B: Net of foreign withholding tax of: ...................... $ -- $ -- $ -- $ --
============ ============ ============ ============
<CAPTION>
National New York Cash
Intermediate Municipal Management
Municipal Fund Money Fund Fund
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest ........................................................ $ 683,008 $ 9,456,998 $ 1,715,093
Dividends (Note A) .............................................. -- -- --
------------ ------------ ------------
683,008 9,456,998 1,715,093
Expenses:
Management fee .................................................. 64,592 490,138 60,655
Registration and filing fees .................................... 30,470 12,480 40,145
Custody and administration fees ................................. 21,100 268,070 42,960
Legal ........................................................... -- 37,430 1,410
Printing ........................................................ 3,460 99,897 7,165
Shareholder services ............................................ 52,105 81,995 44,205
Amortization of organization expenses ........................... 23,349 -- --
Audit and tax return preparation fees ........................... 2,265 134,765 8,850
Directors' fees and expenses .................................... 1,900 3,400 1,900
Other ........................................................... 3,790 14,996 3,535
------------ ------------ ------------
203,031 1,143,171 210,825
Management fee waived and expenses absorbed by investment advisor (136,274) -- (44,023)
Credits earned from custodian on cash balances .................. (2,165) -- --
------------ ------------ ------------
64,592 1,143,171 166,802
Distribution and service fees:
Class A Shares .................................................. 2,073 -- --
Class B Shares .................................................. 10,025 -- --
Class C Shares .................................................. 5,080 -- --
------------ ------------ ------------
Net expenses .................................................... 81,770 1,143,171 166,802
------------ ------------ ------------
Net investment income (loss) .................................... 601,238 8,313,827 1,548,291
------------ ------------ ------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (Note B) ............................................ (2,529) (13,552) (76)
Options written ................................................. -- -- --
Foreign currency transactions ................................... -- -- --
------------ ------------ ------------
(2,529) (13,552) (76)
------------ ------------ ------------
Net change in unrealized appreciation (depreciation) on:
Investments ..................................................... 371,912 -- --
Foreign currency transactions and other assets .................. -- -- --
------------ ------------ ------------
371,912 -- --
------------ ------------ ------------
Net realized and unrealized gain (loss) ......................... 369,383 (13,552) (76)
------------ ------------ ------------
Net increase (decrease) in net assets from operations ........... $ 970,621 $ 8,300,275 $ 1,548,215
============ ============ ============
Note A: Net of foreign withholding tax of: ...................... $ -- $ -- $ --
============ ============ ============
Note B: Net of foreign withholding tax of: ...................... $ -- $ -- $ --
============ ============ ============
</TABLE>
See accompanying notes to financial statements
73
<PAGE>
Statements of Changes in Net Assets
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Asia
Growth Capital Investors
Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) ........................................ $ (12,780) $ 387,192 $ 6,928,901
Net realized gain (loss) on investments, options, and foreign
currency transactions ............................................. (3,746,816) 34,136,203 86,488,758
Net change in unrealized appreciation (depreciation) on investments,
foreign currency transactions and other assets .................... (2,160,805) 4,077,726 55,513,413
------------- ------------- -------------
Net increase (decrease) in net assets from operations ............... (5,920,401) 38,601,121 148,931,072
------------- ------------- -------------
Dividends and distributions to shareholders:
Dividends from net investment income:
Class A ........................................................... (11,004) -- (394,641)
Class B ........................................................... (924) -- (127,662)
Class C ........................................................... (213) -- (31,038)
Class O ........................................................... (478) -- (6,411,465)
------------- ------------- -------------
(12,619) -- (6,964,806)
------------- ------------- -------------
Dividends in excess of net investment income:
Class A ........................................................... -- -- --
Class B ........................................................... -- -- --
Class C ........................................................... -- -- --
Class O ........................................................... -- -- --
------------- ------------- -------------
-- -- --
------------- ------------- -------------
Distributions from net realized gains:
Class A ........................................................... (104,353) (718,602) (5,343,337)
Class B ........................................................... (89,299) (465,526) (4,567,031)
Class C ........................................................... (11,184) (273,465) (1,068,601)
Class O ........................................................... (4,097) (27,201,307) (63,545,388)
------------- ------------- -------------
(208,933) (28,658,900) (74,524,357)
------------- ------------- -------------
Net fund capital share transactions:
Class A ........................................................... 5,542,052 5,435,106 44,549,064
Class B ........................................................... 5,069,723 3,847,103 38,690,707
Class C ........................................................... 2,131,854 2,353,927 9,264,215
Class O ........................................................... 455,841 29,050,070 26,389,130
------------- ------------- -------------
Net increase in net assets from share transactions .............. 13,199,470 40,686,206 118,893,116
------------- ------------- -------------
Net increase in net assets .......................................... 7,057,517 50,628,427 186,335,025
Net assets:
Beginning of year ................................................. 7,225,368 136,635,370 540,657,826
------------- ------------- -------------
End of year (a) ................................................... $ 14,282,885 $ 187,263,797 $ 726,992,851
============= ============= =============
(a) Including undistributed net investment income or distributions in
excess of net investment income of: ........................... $ 191 $ 385,558 $ 164,292
============= ============= =============
</TABLE>
See accompanying notes to financial statements
74
<PAGE>
<TABLE>
<CAPTION>
Total High
Return Yield Strategic
Fund Bond Fund Bond Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) ........................................ $ 4,062,152 $ 31,253,132 $ 3,650,788
Net realized gain (loss) on investments, options, and foreign
currency transactions ............................................. 4,262,532 8,465,196 1,712,925
Net change in unrealized appreciation (depreciation) on investments,
foreign currency transactions and other assets .................... 8,999,845 969,040 373,007
------------- ------------- -------------
Net increase (decrease) in net assets from operations ............... 17,324,529 40,687,368 5,736,720
------------- ------------- -------------
Dividends and distributions to shareholders:
Dividends from net investment income:
Class A ........................................................... (1,558,218) (10,420,856) (1,143,614)
Class B ........................................................... (1,977,475) (17,332,825) (2,042,725)
Class C ........................................................... (392,855) (3,341,225) (771,855)
Class O ........................................................... (40,279) (158,226) (42,923)
------------- ------------- -------------
(3,968,827) (31,253,132) (4,001,117)
------------- ------------- -------------
Dividends in excess of net investment income:
Class A ........................................................... -- (48,331) --
Class B ........................................................... -- (80,388) --
Class C ........................................................... -- (15,496) --
Class O ........................................................... -- (734) --
------------- ------------- -------------
-- (144,949) --
------------- ------------- -------------
Distributions from net realized gains:
Class A ........................................................... (1,198,304) (2,590,594) (271,871)
Class B ........................................................... (2,114,495) (4,997,854) (720,497)
Class C ........................................................... (465,720) (1,121,874) (300,522)
Class O ........................................................... (31,374) (35,848) (9,827)
------------- ------------- -------------
(3,809,893) (8,746,170) (1,302,717)
------------- ------------- -------------
Net fund capital share transactions:
Class A ........................................................... 28,181,302 103,283,278 8,671,695
Class B ........................................................... 54,654,942 222,507,647 33,410,343
Class C ........................................................... 16,777,707 62,616,274 15,575,013
Class O ........................................................... 917,192 1,971,786 (3,177,357)
------------- ------------- -------------
Net increase in net assets from share transactions .............. 100,531,143 390,378,985 54,479,694
------------- ------------- -------------
Net increase in net assets .......................................... 110,076,952 390,922,102 54,912,580
Net assets:
Beginning of year ................................................. 52,808,751 186,898,289 31,027,446
------------- ------------- -------------
End of year (a) ................................................... $ 162,885,703 $ 577,820,391 $ 85,940,026
============= ============= =============
(a) Including undistributed net investment income or distributions in
excess of net investment income of: ........................... $ 127,947 $ -- $ (57,860)
============= ============= =============
<CAPTION>
U.S. National
Government Intermediate
Income Fund Municipal Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................................ $ 748,817 $ 601,238
Net realized gain (loss) on investments, options, and foreign
currency transactions ............................................. 63,896 (2,529)
Net change in unrealized appreciation (depreciation) on investments,
foreign currency transactions and other assets .................... 181,947 371,912
------------- -------------
Net increase (decrease) in net assets from operations ............... 994,660 970,621
------------- -------------
Dividends and distributions to shareholders:
Dividends from net investment income:
Class A ........................................................... (71,481) (37,285)
Class B ........................................................... (75,368) (38,708)
Class C ........................................................... (20,511) (19,762)
Class O ........................................................... (522,724) (507,057)
------------- -------------
(690,084) (602,812)
------------- -------------
Dividends in excess of net investment income:
Class A ........................................................... -- (417)
Class B ........................................................... -- (432)
Class C ........................................................... -- (221)
Class O ........................................................... -- (5,664)
------------- -------------
-- (6,734)
------------- -------------
Distributions from net realized gains:
Class A ........................................................... (13,129) (526)
Class B ........................................................... (22,138) (603)
Class C ........................................................... (6,321) (380)
Class O ........................................................... (91,288) (7,141)
------------- -------------
(132,876) (8,650)
------------- -------------
Net fund capital share transactions:
Class A ........................................................... 115,262 340,899
Class B ........................................................... 1,240,773 567,070
Class C ........................................................... 324,948 33,963
Class O ........................................................... 51,765 1,211,479
------------- -------------
Net increase in net assets from share transactions .............. 1,732,748 2,153,411
------------- -------------
Net increase in net assets .......................................... 1,904,448 2,505,836
Net assets:
Beginning of year ................................................. 12,250,417 11,652,451
------------- -------------
End of year (a) ................................................... $ 14,154,865 $ 14,158,287
============= =============
(a) Including undistributed net investment income or distributions in
excess of net investment income of: ........................... $ -- $ --
============= =============
<CAPTION>
New York Cash
Municipal Management
Money Fund Fund
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................................ $ 8,313,827 $ 1,548,291
Net realized gain (loss) on investments, options, and foreign
currency transactions ............................................. (13,552) (76)
Net change in unrealized appreciation (depreciation) on investments,
foreign currency transactions and other assets .................... -- --
------------- -------------
Net increase (decrease) in net assets from operations ............... 8,300,275 1,548,215
------------- -------------
Dividends and distributions to shareholders:
Dividends from net investment income:
Class A ........................................................... (79,283) (569,373)
Class B ........................................................... (1,701) (189,375)
Class C ........................................................... (849) (66,693)
Class O ........................................................... (8,231,994) (722,850)
------------- -------------
(8,313,827) (1,548,291)
------------- -------------
Dividends in excess of net investment income:
Class A ........................................................... -- --
Class B ........................................................... -- --
Class C ........................................................... -- --
Class O ........................................................... -- --
------------- -------------
-- --
------------- -------------
Distributions from net realized gains:
Class A ........................................................... -- --
Class B ........................................................... -- --
Class C ........................................................... -- --
Class O ........................................................... -- --
------------- -------------
-- --
------------- -------------
Net fund capital share transactions:
Class A ........................................................... 3,448,121 10,071,260
Class B ........................................................... -- 231,259
Class C ........................................................... -- 1,371,294
Class O ........................................................... 31,698,249 5,646,570
------------- -------------
Net increase in net assets from share transactions .............. 35,146,370 17,320,383
------------- -------------
Net increase in net assets .......................................... 35,132,818 17,320,307
Net assets:
Beginning of year ................................................. 274,144,035 26,755,381
------------- -------------
End of year (a) ................................................... $ 309,276,853 $ 44,075,688
============= =============
(a) Including undistributed net investment income or distributions in
excess of net investment income of: ........................... $ -- $ --
============= =============
</TABLE>
See accompanying notes to financial statements
75
<PAGE>
Statements of Changes in Net Assets
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Asia
Growth Capital Investors
Fund* Fund Fund
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income .................................... $ 21,810 $ 792,904 $ 6,424,058
Net realized gain (loss) on investments,
options, and foreign currency transactions ............. 314,293 22,862,752 52,051,843
Net change in unrealized appreciation
(depreciation) on investments, options,
foreign currency transactions and other assets ........... 53,137 10,601,610 70,016,509
------------- ------------- -------------
Net increase in net assets from operations ............... 389,240 34,257,266 128,492,410
------------- ------------- -------------
Dividends and distributions to shareholders:
Dividends from net investment income:
Class A ................................................ (16,828) (233) (52,117)
Class B ................................................ (1,406) (120) (15,140)
Class C ................................................ (329) (120) (3,893)
Class O ................................................ (728) (797,069) (6,351,142)
------------- ------------- -------------
(19,291) (797,542) (6,422,292)
------------- ------------- -------------
Dividends in excess of net investment income:
Class A ................................................ -- -- --
Class B ................................................ -- -- --
Class C ................................................ -- -- --
Class O ................................................ -- -- --
------------- ------------- -------------
-- -- --
------------- ------------- -------------
Distributions from net realized gains:
Class A ................................................ (53,543) (6,217) (766,906)
Class B ................................................ (46,007) (3,992) (609,635)
Class C ................................................ (3,591) (3,992) (111,830)
Class O ................................................ (1,798) (25,587,085) (59,558,730)
------------- ------------- -------------
(104,939) (25,601,286) (61,047,101)
------------- ------------- -------------
Net fund capital share transactions:
Class A ................................................ 3,549,887 342,420 10,214,466
Class B ................................................ 3,050,781 218,589 8,511,239
Class C ................................................ 237,212 130,425 1,554,480
Class O ................................................ 117,478 25,656,871 28,941,018
------------- ------------- -------------
Net increase in net assets from share transactions ... 6,955,358 26,348,305 49,221,203
------------- ------------- -------------
Net increase in net assets ............................... 7,220,368 34,206,743 110,244,220
Net assets:
Beginning of period .................................... 5,000 102,428,627 430,413,606
------------- ------------- -------------
End of period (a) ...................................... $ 7,225,368 $ 136,635,370 $ 540,657,826
============= ============= =============
(a) Including undistributed net investment income or
distributions in excess of net investment income of: $ 10,809 $ (333) $ 2,113
============= ============= =============
</TABLE>
* Fund's commencement of investment operations was May 6, 1996.
See accompanying notes to financial statements
76
<PAGE>
<TABLE>
<CAPTION>
Total High U.S.
Return Yield Strategic Government
Fund Bond Fund Bond Fund Income Fund
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income .................................... $ 1,499,174 $ 6,682,737 $ 1,567,734 $ 601,020
Net realized gain (loss) on investments,
options, and foreign currency transactions ............. 540,089 1,779,535 550,506 88,860
Net change in unrealized appreciation
(depreciation) on investments, options,
foreign currency transactions and other assets ........... 3,888,005 6,797,683 413,887 (277,785)
------------- ------------- ------------- -------------
Net increase in net assets from operations ............... 5,927,268 15,259,955 2,532,127 412,095
------------- ------------- ------------- -------------
Dividends and distributions to shareholders:
Dividends from net investment income:
Class A ................................................ (608,681) (2,693,853) (223,497) (35,750)
Class B ................................................ (585,187) (3,488,256) (463,295) (35,916)
Class C ................................................ (76,316) (390,999) (103,804) (12,551)
Class O ................................................ (195,785) (138,093) (812,077) (516,803)
------------- ------------- ------------- -------------
(1,465,969) (6,711,201) (1,602,673) (601,020)
------------- ------------- ------------- -------------
Dividends in excess of net investment income:
Class A ................................................ -- -- (1,487) --
Class B ................................................ -- -- (3,010) --
Class C ................................................ -- -- (706) --
Class O ................................................ -- -- (4,733) --
------------- ------------- ------------- -------------
-- -- (9,936) --
------------- ------------- ------------- -------------
Distributions from net realized gains:
Class A ................................................ (152,704) (611,200) (125,860) (4,728)
Class B ................................................ (203,017) (942,499) (218,299) (5,771)
Class C ................................................ (25,301) (118,077) (67,806) (2,179)
Class O ................................................ (28,599) (10,856) (58,871) (65,419)
------------- ------------- ------------- -------------
(409,621) (1,682,632) (470,836) (78,097)
------------- ------------- ------------- -------------
Net fund capital share transactions:
Class A ................................................ 15,969,336 52,531,457 7,803,194 914,633
Class B ................................................ 20,798,943 93,129,376 12,296,600 707,635
Class C ................................................ 2,758,002 12,100,036 4,143,135 157,310
Class O ................................................ (4,743,447) (7,754,436) (6,230,578) 62,922
------------- ------------- ------------- -------------
Net increase in net assets from share transactions ... 34,782,834 150,006,433 18,012,351 1,842,500
------------- ------------- ------------- -------------
Net increase in net assets ............................... 38,834,512 156,872,555 18,461,033 1,575,478
Net assets:
Beginning of period .................................... 13,974,239 30,025,734 12,566,413 10,674,939
------------- ------------- ------------- -------------
End of period (a) ...................................... $ 52,808,751 $ 186,898,289 $ 31,027,446 $ 12,250,417
============= ============= ============= =============
(a) Including undistributed net investment income or
distributions in excess of net investment income of: $ 33,205 $ -- $ (9,936) $ --
============= ============= ============= =============
<CAPTION>
National New York Cash
Intermediate Municipal Management
Municipal Fund Money Fund Fund
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income .................................... $ 537,550 $ 6,389,305 $ 913,254
Net realized gain (loss) on investments,
options, and foreign currency transactions ............. 23,657 2,563 (10)
Net change in unrealized appreciation
(depreciation) on investments, options,
foreign currency transactions and other assets ........... (78,007) -- --
------------- ------------- -------------
Net increase in net assets from operations ............... 483,200 6,391,868 913,244
------------- ------------- -------------
Dividends and distributions to shareholders:
Dividends from net investment income:
Class A ................................................ (28,388) (802) (264,829)
Class B ................................................ (23,706) (142) (137,835)
Class C ................................................ (13,552) (142) (13,718)
Class O ................................................ (474,259) (6,388,219) (496,872)
------------- ------------- -------------
(539,905) (6,389,305) (913,254)
------------- ------------- -------------
Dividends in excess of net investment income:
Class A ................................................ -- -- --
Class B ................................................ -- -- --
Class C ................................................ -- --
Class O ................................................ -- -- --
------------- ------------- -------------
-- -- --
------------- ------------- -------------
Distributions from net realized gains:
Class A ................................................ (1,449) -- --
Class B ................................................ (1,467) -- --
Class C ................................................ (976) -- --
Class O ................................................ (20,439) -- --
------------- ------------- -------------
(24,331) -- --
------------- ------------- -------------
Net fund capital share transactions:
Class A ................................................ 131,024 359,913 6,419,571
Class B ................................................ 271,514 25,000 1,681,592
Class C ................................................ 198,788 25,000 252,342
Class O ................................................ 185,121 47,182,964 7,541,082
------------- ------------- -------------
Net increase in net assets from share transactions ... 786,447 47,592,877 15,894,587
------------- ------------- -------------
Net increase in net assets ............................... 705,411 47,595,440 15,894,577
Net assets:
Beginning of period .................................... 10,947,040 226,548,595 10,860,804
------------- ------------- -------------
End of period (a) ...................................... $ 11,652,451 $ 274,144,035 $ 26,755,381
============= ============= =============
(a) Including undistributed net investment income or
distributions in excess of net investment income of: $ 1,574 $ -- $ --
============= ============= =============
</TABLE>
See accompanying notes to financial statements
77
<PAGE>
Notes to Financial Statements
1. Organization and Significant Accounting Policies
The Salomon Brothers Investment Series (the "Investment Series") consists of
certain portfolios of the Salomon Brothers Series Funds Inc (the "Series
Funds"), as indicated below, the Salomon Brothers Investors Fund Inc (the
"Investors Fund") and the Salomon Brothers Capital Fund Inc (the "Capital
Fund"). The Series Funds were incorporated in Maryland on April 17, 1990 as an
open-end management investment company, and currently operate as a series
company comprised of nine portfolios: Salomon Brothers Cash Management Fund (the
"Cash Management Fund"), Salomon Brothers New York Municipal Money Market Fund
(the "New York Municipal Money Fund"), Salomon Brothers Institutional Money
Market Fund (the "Institutional Money Market Fund"), Salomon Brothers National
Intermediate Municipal Fund (the "National Intermediate Municipal Fund"),
Salomon Brothers U.S. Government Income Fund (the "U.S. Government Income
Fund"), Salomon Brothers High Yield Bond Fund (the "High Yield Bond Fund"),
Salomon Brothers Strategic Bond Fund (the "Strategic Bond Fund"), Salomon
Brothers Total Return Fund (the "Total Return Fund"), and Salomon Brothers Asia
Growth Fund (the "Asia Growth Fund"). Separate financial statements are prepared
for the Institutional Money Market Fund which is not part of the Investment
Series. All of the other portfolios of the Series Funds are included in the
Investment Series, which also includes the Investors Fund, a diversified
open-end management investment company incorporated in Maryland on April 2, 1958
and the Capital Fund, a non-diversified open-end management investment company
incorporated in Maryland on August 23, 1976. The Investment Series operates
under a multiple class pricing structure, with each portfolio of the Investment
Series (individually, a "Fund") offering Class A, Class B, Class C, and Class O
shares, each with their own expense structure. Each Fund has a specific
investment objective: the Cash Management Fund's objective is to seek as high a
level of current income as is consistent with liquidity and the stability of
principal; the New York Municipal Money Fund's objective is to seek as high a
level of current income exempt from Federal income taxes, New York State and New
York City personal income taxes consistent with liquidity and the stability of
principal; the National Intermediate Municipal Fund's objective is to seek a
high level of current income which is exempt from regular federal income taxes;
the U.S. Government Income Fund's objective is to seek a high level of current
income; the High Yield Bond Fund's primary objective is to maximize current
income; the Strategic Bond Fund's primary objective is to seek a high level of
current income; the Total Return Fund's primary objective is to obtain
above-average income (compared to a portfolio entirely invested in equity
securities); the Asia Growth Fund's objective is to seek long-term capital
appreciation; the Investors Fund's primary objective is to seek long-term growth
of capital; the Capital Fund's objective is to seek capital appreciation through
investments primarily in common stock, or securities convertible into common
stocks, which are believed to have above average price appreciation potential.
Certain costs incurred in connection with each Fund's organization, which were
payable to Salomon Brothers Asset Management Inc ("SBAM") have been deferred and
are being amortized by the Funds over a 60 month period from the date each Fund
commenced investment operations. A summary of those expenditures that remain as
of December 31, 1997 for each Fund is as follows:
Fund Expiration of Amortization Amount
- -------------------------------------------------------------------------------
Asia Growth Fund ....................... May 2001 $75,250
Total Return Fund ...................... September 2000 $51,557
High Yield Bond Fund ................... February 2000 $63,167
Strategic Bond Fund .................... February 2000 $63,393
U.S. Government Income Fund ............ February 2000 $51,854
National Intermediate Municipal Fund ... February 2000 $50,089
The following is a summary of significant accounting policies followed by the
Investment Series in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles ("GAAP"). The
preparation of financial statements in accordance with GAAP requires management
to make estimates of certain reported amounts in the financial statements.
Actual amounts could differ from those estimates.
78
<PAGE>
Notes to Financial Statements
(continued)
(a) Investment Valuation. Portfolio securities listed or traded on
national securities exchanges, or reported on the NASDAQ national market
system, are valued at the last sale price, or if there have been no sales
on that day, at the mean of the current bid and asked price which
represents the current value of the security. Over-the-counter securities
are valued at the mean of the current bid and asked price. Debt securities
are valued by using either market quotations or independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Publicly traded sovereign bonds are typically
traded internationally on the over-the-counter market and are valued at
the mean of the last current bid and asked price as of the close of
business of that market. Short-term securities with less than 60 days
remaining to maturity when acquired by a Fund are valued at amortized cost
which approximates market value. If a Fund, other than the Cash Management
Fund and New York Municipal Money Fund, acquires such securities with more
than 60 days remaining to maturity, they are valued at current market
value, until the 60th day prior to maturity, and are then valued on an
amortized cost basis.
Portfolio securities for the Cash Management Fund and the New York
Municipal Money Fund are valued using the amortized cost method, which
involves initially valuing an investment at its cost and thereafter
assuming a constant amortization to maturity of any premium or discount.
This method results in a value approximating market value.
Prior governmental approval for foreign investments may be required
under certain circumstances in some emerging market countries, and the
extent of foreign investment in domestic companies may be subject to
limitation in other emerging market countries. Foreign ownership
limitations also may be imposed by the charters of individual companies in
emerging market countries to prevent, among other things, violation of
foreign investment limitations. As a result, an additional class of shares
(identified as "Foreign Shares" in the Portfolio of Investments) may be
created and offered for investment by such companies. The "local" and
"foreign" shares' market values may differ.
Foreign securities quoted in a foreign currency are translated into
U.S. dollars using exchange rates at 2:30 p.m. Eastern time (12:30 p.m.
for the Asia Growth Fund), or at such other rates as SBAM may determine to
be appropriate in computing net asset value.
Securities for which reliable quotations or prices from pricing
services are not readily available (as may be the case for securities of
limited marketability) and all other assets are valued at their respective
fair value as determined in good faith by, or under procedures established
by, the Board of Directors.
(b) Futures Contracts. The National Intermediate Municipal Fund,
High Yield Bond Fund, Strategic Bond Fund, Total Return Fund, Asia Growth
Fund, Investors Fund and Capital Fund may enter into futures contracts,
which involves paying or receiving variation margin, which is recorded as
unrealized gain or loss until the contract is closed. When the contract is
closed, a realized gain or loss is recognized. Outstanding contracts may
involve elements of market risk in excess of amounts reported in the
financial statements.
(c) Option Contracts. When a Fund writes or purchases a call or a
put option, an amount equal to the premium received or paid by the Fund is
recorded as a liability or asset, the value of which is marked-to-market
daily to reflect the current market value of the option. When the option
expires, the Fund realizes a gain or loss equal to the amount of the
premium received or paid. When the Fund exercises an option or enters into
a closing transaction by purchasing or selling an offsetting option, it
realizes a gain or loss without regard to any unrealized gain or loss on
the underlying security. When a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received.
When a written put option is exercised, the amount of the premium received
reduces the cost of the security that the Fund purchased upon exercise of
the option.
79
<PAGE>
Notes to Financial Statements
(continued)
(d) Mortgage Rolls. The U.S. Government Income Fund, Strategic Bond
Fund and Total Return Fund may enter into mortgage "dollar rolls" in which
a Fund sells mortgage-backed securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. The Fund
is compensated by a fee paid by the counterparty. Dollar rolls are
accounted for as financing arrangements; the fee is accrued into interest
income ratably over the term of the dollar roll and any gain or loss on
the roll is deferred until disposition of the rolled security. The average
daily balance of dollar rolls outstanding during the year ended December
31, 1997 was approximately $2,359,000, $5,101,000, and $3,059,000 for the
U.S. Government Income Fund, Strategic Bond Fund and Total Return Fund,
respectively.
(e) Repurchase Agreements. When entering into repurchase agreements,
it is each Fund's policy that the Fund take possession, through its
custodian, of the underlying collateral and monitor the collateral's value
at the time the agreement is entered into and on a daily basis during the
term of the repurchase agreement to ensure that it always equals or
exceeds the repurchase price. In the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
(f) Reverse Repurchase Agreements. Certain Funds may enter into
reverse repurchase agreements in which a Fund sells portfolio securities
and agrees to repurchase them from the buyer at a particular date and
price. Whenever a Fund enters into a reverse repurchase agreement, it
establishes a segregated account consisting of liquid assets in an amount
at least equal to the repurchase price marked to market daily (including
accrued interest), and subsequently monitors the account to ensure that
such equivalent value is maintained. A Fund pays interest on amounts
obtained pursuant to reverse repurchase agreements. Reverse repurchase
agreements are considered to be borrowings by a Fund. Transactions in
reverse repurchase agreements for the Funds during the year ended December
31, 1997 were as follows:
<TABLE>
<CAPTION>
Average Weighted Maximum
Daily Average Amount
Fund Balance Interest Rate Outstanding
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return Fund .................. $1,809,708 3.96% $3,570,000
Strategic Bond Fund ................ $1,911,017 3.05% $5,302,500
U.S. Government Income Fund ........ $1,680,928 4.13% $2,949,750
</TABLE>
(g) Foreign Currency Translation. The accounting records of each
Fund are maintained in U.S. dollars. Investment securities and other
assets and liabilities of the High Yield Bond Fund, Strategic Bond Fund,
Total Return Fund, Asia Growth Fund, Investors Fund and Capital Fund
denominated in a foreign currency are translated into U.S. dollars at the
prevailing rates of exchange each day. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars at
the prevailing exchange rate on the respective dates of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. The effect of changes in foreign
currency exchange rates on investments in securities are not segregated in
the Statements of Operations from the effects of changes in market prices
of those securities, but are included with the net realized and unrealized
gain or loss on investments.
(h) Forward Foreign Currency Contracts. The High Yield Bond Fund,
Strategic Bond Fund, Total Return Fund, Asia Growth Fund, Investors
Fund and Capital Fund may enter into forward foreign currency
contracts. A forward foreign currency contract is an agreement between
two parties to buy and sell a currency at a set price on a future date.
The contract is marked-to-market daily and the change in value is
recorded by the Fund as an unrealized
80
<PAGE>
Notes to Financial Statements
(continued)
gain or loss. When a forward foreign currency contract is extinguished,
through either delivery or offset by entering into another forward foreign
currency contract, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value of the contract at the time it was extinguished or offset.
(i) Loan Participations. The High Yield Bond Fund, Strategic Bond
Fund and Total Return Fund may invest in fixed and floating rate loans
arranged through private negotiations between a foreign sovereign entity
and one or more financial institutions ("lender"). The market values of
the High Yield Bond Fund and the Strategic Bond Fund's loan participations
at December 31, 1997 were $31,746,888 and $2,846,622, respectively.
(j) Federal Income Taxes. Each Fund, except the Asia Growth Fund,
has complied with the requirements of the Internal Revenue Code applicable
to regulated investment companies and distributed all of its income,
including any net realized gains, to shareholders. Therefore, no Federal
income tax provision is required for such Funds.
In the current year ended December 31, 1997, the Asia Growth Fund
did not qualify as a regulated investment company for Federal income tax
purposes, and accordingly, is subject to taxes of approximately $1,500.
The Fund's investment manager has agreed to reimburse the Fund for such
tax liability. All Funds, including the Asia Growth Fund, intend to
qualify as regulated investment companies for Federal income tax purposes
in future years.
(k) Dividends and Distributions to Shareholders. Dividends from net
investment income on the shares of each of the Funds (except the Asia
Growth Fund, Investors Fund, and Capital Fund) are declared each business
day to shareholders of record that day, and are paid on the last business
day of the month. Dividends from net investment income for the Asia Growth
Fund and the Capital Fund will be declared on an annual basis. Dividends
from net investment income for the Investors Fund are declared on a
quarterly basis. Distributions of net realized gains to shareholders of
each Fund, if any, are declared at least annually. Dividends and
distributions to shareholders of each Fund are recorded on the ex-dividend
date and are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles due primarily to
differences in the treatment of foreign currency gains/losses, deferral of
wash sales, and post-October losses incurred by each Fund. Permanent
book/tax differences are reclassified within the capital accounts based on
their federal income tax basis treatment; temporary differences do not
require reclassifications. Dividends and distributions which exceed net
investment income and net realized gains for financial reporting purposes
but not for tax purposes are reported as distributions in excess of net
investment income and distributions in excess of net realized capital
gains.
(l) Class Accounting. Investment income, common expenses and gain
(loss) on investments are allocated to the various classes of a Fund on
the basis of daily net assets of each class. Distribution and shareholder
servicing fees relating to a specific class are charged directly to that
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class
expenses.
(m) Expenses. Direct expenses are charged to the Fund that incurred
them, and general expenses of the Investment Series are allocated to the
Funds based on each Fund's relative net assets.
(n) Other. Investment transactions are recorded as of the trade
date. Dividend income is recorded on the ex-dividend date (except for the
Asia Growth Fund, where certain dividends may be recorded as soon as the
fund is informed of such dividends). Interest income, including the
accretion of discounts or amortization of premiums, is recognized when
earned. Gains or losses on sales of securities are calculated for
financial accounting and Federal income tax purposes on the identified
cost basis. Net investment income (other than distribution fees) and
unrealized and realized gains or losses are allocated daily to each class
of shares based upon the relative proportion of each class's net assets to
the Fund's total net assets.
81
<PAGE>
Notes to Financial Statements
(continued)
2. Management Fee and Other Agreements
Each Fund retains SBAM, an indirect, wholly-owned subsidiary of Travelers Group
Inc. ("Travelers") to act as investment manager of each Fund, subject to the
supervision by the Board of Directors of each Fund. The management agreement
with SBAM was most recently approved by shareholders at a special meeting held
on January 14, 1998. Approval of the agreement was necessary due to the merger
of Salomon Inc, which had been the ultimate parent company of the investment
manager, with and into Smith Barney Holdings Inc., a subsidiary of Travelers,
which occurred on November 28, 1997. Travelers is now the ultimate parent
company of the investment manager. SBAM furnishes the Investment Series with
office space and certain services and facilities required for conducting the
business of the Investment Series and pays the compensation of its officers. The
management fee for these services for each Fund (except the Investors Fund and
Capital Fund) is payable monthly and is based on the following annual
percentages of each Fund's average daily net assets: .20% for the Cash
Management Fund and New York Municipal Money Fund, .50% for the National
Intermediate Municipal Fund, .60% for the U.S. Government Income Fund, .75% for
the High Yield Bond Fund and Strategic Bond Fund, .55% for the Total Return Fund
and .80% for the Asia Growth Fund. The management fee for the Capital Fund is
payable monthly and is based on the following annual percentages of the Fund's
average daily net assets: first $100 million - 1%; next $100 million - .75% ;
next $200 million - .625%; excess over $400 million - .50%. SBAM Limited, an
affiliate of SBAM, provides certain advisory services to SBAM for the benefit of
the Strategic Bond Fund, as well as, certain administrative services for the
Asia Growth Fund. SBAM Limited is compensated by SBAM at no additional expense
to the Strategic Bond and Asia Growth Fund. SBAM has retained SBAM AP, an
affiliate of SBAM, to act as sub-advisor to the Asia Growth Fund. SBAM AP is
compensated by SBAM at no additional expense to the Asia Growth Fund.
The Investors Fund pays SBAM a base fee subject to an increase or decrease
depending on the extent, if any, to which the investment performance of the
Investors Fund exceeds or is exceeded by the investment record of the Standard &
Poor's 500 Index of Composite Stocks ("S&P 500 Index"). For the period January
1, 1997 through April 28, 1997 the base fee was paid quarterly based on the
following annual percentages of the Fund's average daily net assets: first $350
million - .50%; next $150 million - .40%; next $250 million - .375%; next $250
million - .35%; excess over $1 billion - .30%. At its Annual Meeting on April
29, 1997, the Fund's shareholders approved an amendment to the Fund's Management
Agreement between the Fund and SBAM to increase the base fee component of the
management fee. Accordingly, as of April 29, 1997, 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 Investors Fund exceeds or is exceeded by the investment record of the S&P
500 Index by at least one percentage point. For each percentage point by which
the investment performance of the Investors Fund exceeds or is exceeded by the
investment record of the S&P 500 Index, the base fee will be adjusted upward or
downward by .01% (annualized). The maximum annual adjustment is .10% which would
occur if the Investors Fund's performance exceeds or is exceeded by the S&P 500
Index by ten or more percentage points. For the rolling one-year period ended
March 31, 1997, there was no performance adjustment. For the rolling one-year
period ended June 30, 1997, the investment record of the S&P 500 Index exceeded
the Investors Fund's performance by approximately three percent. For the rolling
one-year period ended September 30, 1997, the investment record of the S&P 500
Index exceeded the Investors Fund's performance by approximately five percent.
For the rolling one-year period ended December 31, 1997, the investment record
of the S&P 500 Index exceeded
82
<PAGE>
Notes to Financial Statements
(continued)
the Investors Fund's performance by approximately eight percent. As a result,
base management fees were decreased, in aggregate, by $242,697 for the year
ended December 31, 1997.
For the year ended December 31, 1997, SBAM waived management fees of $102,243,
$505,682, $371,931, $167,097, $77,327, $64,592, and $44,023 for the Asia Growth
Fund, Total Return Fund, High Yield Bond Fund, Strategic Bond Fund, U.S.
Government Income Fund, National Intermediate Municipal Fund, and Cash
Management Fund, respectively, and voluntarily absorbed expenses of $226,260,
$73,598, and $71,682 for the Asia Growth Fund, U.S. Government Income Fund, and
National Intermediate Municipal Fund, respectively.
Investors Bank & Trust Company serves as custodian and administrator for each
Fund, which includes performing certain administrative services in connection
with the operation of each Fund. During the year ended December 31, 1997,
credits earned on outstanding cash balances were used to reduce custodian fees.
Each Fund has an agreement with Salomon Brothers Inc ("Salomon Brothers"), an
affiliate of the Investment Adviser, to distribute its shares pursuant to a
multiple pricing system. Each class (except for Class O) of each Fund (except
for the Cash Management Fund and New York Municipal Money Fund) is authorized
pursuant to a services and distribution plan applicable to that class of shares
(the "Class A Plan," the "Class B Plan," and the "Class C Plan," collectively,
the "Plans") adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "1940 Act"), to pay Salomon Brothers an annual service fee
with respect to Class A, Class B, and Class C shares of the applicable Funds at
the rate of .25% of the value of the average daily net assets of the respective
class. Salomon Brothers is also paid an annual distribution fee with respect to
Class B and Class C shares of each Fund (except for the Cash Management Fund and
New York Municipal Money Fund) at the rate of .75% of the value of the average
daily net assets of the respective class. Class O shares are not subject to a
services and distribution plan fee.
Brokerage commissions of $300, $68,538 and $34,728 were paid by the Total Return
Fund, Investors Fund and Capital Fund, respectively, to Salomon Brothers, the
Funds' distributor and an indirect wholly-owned subsidiary of Salomon Smith
Barney Holdings Inc., for transactions executed on behalf of the Funds for the
year ended December 31, 1997. Brokerage commissions of $1,530 were paid by the
Investors Fund to Salomon Smith Barney Inc.
Salomon Brothers received $14,771 as its portion of the front-end sales charge
on sales of Class A shares of the Funds during the year ended December 31, 1997.
In addition, contingent deferred sales charges of $763,782 were paid to Salomon
Brothers in connection with redemptions of certain Class B and Class C shares of
the Funds during the year ended December 31, 1997.
3. Capital Stock
At December 31, 1997, the Series Funds had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share, of which the Cash Management Fund, New
York Municipal Money Fund, National Intermediate Municipal Fund, U.S. Government
Income Fund, High Yield Bond Fund, and Strategic Bond Fund, each had
1,000,000,000 shares authorized. The Total Return Fund and Asia Growth Fund had
999,999,992 and 1,000,000,008 shares authorized, respectively. The Investors
Fund had 50,000,000 shares of authorized capital stock, par value $1.00 per
share. The Capital Fund had 25,000,000 shares of authorized capital stock, par
value $.001 per share. Transactions in Fund shares for the periods indicated
were as follows:
83
<PAGE>
Notes to Financial Statements
(continued)
<TABLE>
<CAPTION>
Class A
- -------------------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1997 December 31, 1996
---------------------------------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asia Growth Fund
Sold ............................ 784,262 $ 8,043,748 356,682 $ 3,537,272
Issued as reinvestment .......... 4,663 47,952 2,175 22,436
Redeemed ........................ (279,337) (2,549,648) (1,037) (9,821)
------------- ------------- ------------- -------------
Net increase .................... 509,588 $ 5,542,052 357,820 $ 3,549,887
============= ============= ============= =============
Capital Fund
Sold ............................ 244,014 $ 5,395,246 17,551 $ 347,514
Issued as reinvestment .......... 32,960 686,354 121 2,304
Redeemed ........................ (29,990) (646,494) (384) (7,398)
------------- ------------- ------------- -------------
Net increase .................... 246,984 $ 5,435,106 17,288 $ 342,420
============= ============= ============= =============
Investors Fund
Sold ............................ 2,135,627 $ 44,955,334 557,317 $ 10,367,582
Issued as reinvestment .......... 270,764 5,490,289 43,043 791,687
Redeemed ........................ (278,167) (5,896,559) (49,750) (944,803)
------------- ------------- ------------- -------------
Net increase .................... 2,128,224 $ 44,549,064 550,610 $ 10,214,466
============= ============= ============= =============
Total Return Fund
Sold ............................ 2,997,984 $ 37,786,536 1,634,908 $ 18,197,811
Issued as reinvestment .......... 186,260 2,398,523 56,167 639,053
Redeemed ........................ (932,424) (12,003,757) (252,184) (2,867,528)
------------- ------------- ------------- -------------
Net increase (decrease) ......... 2,251,820 $ 28,181,302 1,438,891 $ 15,969,336
============= ============= ============= =============
High Yield Bond Fund
Sold ............................ 10,472,612 $ 123,618,211 5,579,873 $ 62,422,667
Issued as reinvestment .......... 649,010 7,635,569 178,995 2,017,850
Redeemed ........................ (2,381,823) (27,970,502) (1,070,460) (11,909,060)
------------- ------------- ------------- -------------
Net increase (decrease) ......... 8,739,799 $ 103,283,278 4,688,408 $ 52,531,457
============= ============= ============= =============
Strategic Bond Fund
Sold ............................ 1,926,700 $ 21,016,666 749,039 $ 8,090,137
Issued as reinvestment .......... 96,880 1,053,971 22,056 238,009
Redeemed ........................ (1,227,233) (13,398,942) (49,131) (524,952)
------------- ------------- ------------- -------------
Net increase (decrease) ......... 796,347 $ 8,671,695 721,964 $ 7,803,194
============= ============= ============= =============
U.S. Government Income Fund
Sold ............................ 103,116 $ 1,042,851 117,000 $ 1,173,487
Issued as reinvestment .......... 4,667 46,772 1,688 16,972
Redeemed ........................ (96,345) (974,361) (27,629) (275,826)
------------- ------------- ------------- -------------
Net increase .................... 11,438 $ 115,262 91,059 $ 914,633
============= ============= ============= =============
National Intermediate Municipal Fund
Sold ............................ 38,594 $ 401,849 30,133 $ 310,751
Issued as reinvestment .......... 1,526 15,575 1,305 13,429
Redeemed ........................ (7,300) (76,525) (18,756) (193,156)
------------- ------------- ------------- -------------
Net increase .................... 32,820 $ 340,899 12,682 $ 131,024
============= ============= ============= =============
New York Municipal Money Fund
Sold ............................ 4,315,593 $ 4,315,593 359,251 $ 359,251
Issued as reinvestment .......... 78,317 78,317 662 662
Redeemed ........................ (945,789) (945,789) -- --
------------- ------------- ------------- -------------
Net increase .................... 3,448,121 $ 3,448,121 359,913 $ 359,913
============= ============= ============= =============
Cash Management Fund
Sold ............................ 49,364,779 $ 49,364,779 34,309,623 $ 34,309,623
Issued as reinvestment .......... 107,866 107,866 59,295 59,295
Redeemed ........................ (39,401,385) (39,401,385) (27,949,347) (27,949,347)
------------- ------------- ------------- -------------
Net increase .................... 10,071,260 $ 10,071,260 6,419,571 $ 6,419,571
============= ============= ============= =============
<CAPTION>
Class B
- -------------------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1997 December 31, 1996
---------------------------------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asia Growth Fund
Sold ............................ 587,102 $ 6,015,329 305,714 $ 3,042,058
Issued as reinvestment .......... 2,762 28,865 846 8,723
Redeemed ........................ (125,319) (974,471) -- --
------------- ------------- ------------- -------------
Net increase .................... 464,545 $ 5,069,723 306,560 $ 3,050,781
============= ============= ============= =============
Capital Fund
Sold ............................ 170,314 $ 3,845,395 11,001 $ 218,589
Issued as reinvestment .......... 20,010 $ 414,792 -- --
Redeemed ........................ (19,507) (413,084) -- --
------------- ------------- ------------- -------------
Net increase .................... 170,817 $ 3,847,103 11,001 $ 218,589
============= ============= ============= =============
Investors Fund
Sold ............................ 1,807,337 $ 37,583,157 473,935 $ 8,823,215
Issued as reinvestment .......... 210,840 4,248,456 30,569 561,476
Redeemed ........................ (147,459) (3,140,906) (47,379) (873,452)
------------- ------------- ------------- -------------
Net increase .................... 1,870,718 $ 38,690,707 457,125 $ 8,511,239
============= ============= ============= =============
Total Return Fund
Sold ............................ 4,353,173 $ 55,268,487 1,941,522 $ 21,665,343
Issued as reinvestment .......... 278,060 3,583,557 57,560 656,054
Redeemed ........................ (329,620) (4,197,102) (136,340) (1,522,454)
------------- ------------- ------------- -------------
Net increase (decrease) ......... 4,301,613 $ 54,654,942 1,862,742 $ 20,798,943
============= ============= ============= =============
High Yield Bond Fund
Sold ............................ 19,202,042 $ 226,221,650 8,434,142 $ 94,520,293
Issued as reinvestment .......... 858,730 10,077,323 173,250 1,963,617
Redeemed ........................ (1,171,254) (13,791,326) (301,187) (3,354,534)
------------- ------------- ------------- -------------
Net increase (decrease) ......... 18,889,518 $ 222,507,647 8,306,205 $ 93,129,376
============= ============= ============= =============
Strategic Bond Fund
Sold ............................ 3,148,600 $ 34,351,577 1,214,882 $ 13,060,764
Issued as reinvestment .......... 121,076 1,318,901 33,453 360,441
Redeemed ........................ (206,869) (2,260,135) (105,759) (1,124,605)
------------- ------------- ------------- -------------
Net increase (decrease) ......... 3,062,807 $ 33,410,343 1,142,576 $ 12,296,600
============= ============= ============= =============
U.S. Government Income Fund
Sold ............................ 186,691 $ 1,894,446 114,615 $ 1,149,715
Issued as reinvestment .......... 3,100 31,486 1,043 10,504
Redeemed ........................ (67,468) (685,159) (45,248) (452,584)
------------- ------------- ------------- -------------
Net increase .................... 122,323 $ 1,240,773 70,410 $ 707,635
============= ============= ============= =============
National Intermediate Municipal Fund
Sold ............................ 58,555 $ 610,666 45,974 $ 472,141
Issued as reinvestment .......... 1,136 11,852 623 6,378
Redeemed ........................ (5,312) (55,448) (20,022) (207,005)
------------- ------------- ------------- -------------
Net increase .................... 54,379 $ 567,070 26,575 $ 271,514
============= ============= ============= =============
New York Municipal Money Fund
Sold ............................ 171,196 $ 171,196 25,000 $ 25,000
Issued as reinvestment .......... 823 823 -- --
Redeemed ........................ (172,019) (172,019) -- --
------------- ------------- ------------- -------------
Net increase .................... -- -- 25,000 $ 25,000
============= ============= ============= =============
Cash Management Fund
Sold ............................ 7,072,814 $ 7,072,814 4,686,602 $ 4,686,602
Issued as reinvestment .......... 3,490 3,490 111,779 111,779
Redeemed ........................ (6,845,045) (6,845,045) (3,116,789) (3,116,789)
------------- ------------- ------------- -------------
Net increase .................... 231,259 $ 231,259 1,681,592 $ 1,681,592
============= ============= ============= =============
<CAPTION>
Class C
- ----------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1997 December 31, 1996
------------------------------------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asia Growth Fund
Sold ....................... 217,343 $ 2,305,240 34,069 $ 333,338
Issued as reinvestment ..... 922 9,436 19 190
Redeemed ................... (21,244) (182,822) (10,334) (96,316)
------------ ------------ ------------ ------------
Net increase ............... 197,021 $ 2,131,854 23,754 $ 237,212
============ ============ ============ ============
Capital Fund
Sold ....................... 109,650 $ 2,436,155 6,531 $ 130,425
Issued as reinvestment ..... 11,358 235,649 -- --
Redeemed ................... (14,069) (317,877) -- --
------------ ------------ ------------ ------------
Net increase ............... 106,939 $ 2,353,927 6,531 $ 130,425
============ ============ ============ ============
Investors Fund
Sold ....................... 439,633 $ 9,018,876 100,645 $ 1,851,974
Issued as reinvestment ..... 52,227 1,051,559 5,651 103,990
Redeemed ................... (38,639) (806,220) (20,916) (401,484)
------------ ------------ ------------ ------------
Net increase ............... 453,221 $ 9,264,215 85,380 $ 1,554,480
============ ============ ============ ============
Total Return Fund
Sold ....................... 1,375,162 $ 17,585,566 278,826 $ 3,090,704
Issued as reinvestment ..... 57,799 748,828 7,242 82,831
Redeemed ................... (120,112) (1,556,687) (37,410) (415,533)
------------ ------------ ------------ ------------
Net increase (decrease) .... 1,312,849 $ 16,777,707 248,658 $ 2,758,002
============ ============ ============ ============
High Yield Bond Fund
Sold ....................... 5,448,642 $ 64,363,903 1,118,377 $ 12,586,569
Issued as reinvestment ..... 239,406 2,811,246 29,193 330,589
Redeemed ................... (386,476) (4,558,875) (73,411) (817,122)
------------ ------------ ------------ ------------
Net increase (decrease) .... 5,301,572 $ 62,616,274 1,074,159 $ 12,100,036
============ ============ ============ ============
Strategic Bond Fund
Sold ....................... 1,482,086 $ 16,180,280 425,748 $ 4,594,269
Issued as reinvestment ..... 70,686 770,915 13,409 144,660
Redeemed ................... (126,672) (1,376,182) (55,475) (595,794)
------------ ------------ ------------ ------------
Net increase (decrease) .... 1,426,100 $ 15,575,013 383,682 $ 4,143,135
============ ============ ============ ============
U.S. Government Income Fund
Sold ....................... 54,593 $ 553,880 16,846 $ 170,867
Issued as reinvestment ..... 815 8,233 103 1,029
Redeemed ................... (23,641) (237,165) (1,471) (14,586)
------------ ------------ ------------ ------------
Net increase ............... 31,767 $ 324,948 15,478 $ 157,310
============ ============ ============ ============
National Intermediate Municipal
Sold ....................... 7,578 $ 79,000 18,942 $ 195,000
Issued as reinvestment ..... 948 9,844 368 3,788
Redeemed ................... (5,227) (54,881) -- --
------------ ------------ ------------ ------------
Net increase ............... 3,299 $ 33,963 19,310 $ 198,788
============ ============ ============ ============
New York Municipal Money Fund
Sold ....................... -- -- 25,000 $ 25,000
Issued as reinvestment ..... -- -- -- --
Redeemed ................... -- -- -- --
------------ ------------ ------------ ------------
Net increase ............... -- -- 25,000 $ 25,000
============ ============ ============ ============
Cash Management Fund
Sold ....................... 18,049,799 $ 18,049,799 1,086,079 $ 1,086,079
Issued as reinvestment ..... 9,406 9,406 4,192 4,192
Redeemed ................... (16,687,911) (16,687,911) (837,929) (837,929)
------------ ------------ ------------ ------------
Net increase ............... 1,371,294 $ 1,371,294 252,342 $ 252,342
============ ============ ============ ============
<CAPTION>
Class O
- --------------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1997 December 31, 1996
---------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asia Growth Fund
Sold ....................... 52,094 $ 522,908 12,221 $ 121,183
Issued as reinvestment ..... 126 1,288 37 387
Redeemed ................... (9,331) (68,355) (400) (4,092)
------------- ------------- ------------- -------------
Net increase ............... 42,889 $ 455,841 11,858 $ 117,478
============= ============= ============= =============
Capital Fund
Sold ....................... 1,515,840 $ 32,432,466 1,669,366 $ 33,303,396
Issued as reinvestment ..... 1,233,042 25,695,916 1,304,403 24,802,608
Redeemed ................... (1,324,112) (29,078,312) (1,619,111) (32,449,133)
------------- ------------- ------------- -------------
Net increase ............... 1,424,770 $ 29,050,070 1,354,658 $ 25,656,871
============= ============= ============= =============
Investors Fund
Sold ....................... 327,714 $ 6,684,983 350,444 $ 6,256,570
Issued as reinvestment ..... 2,676,551 54,132,073 2,822,018 50,986,119
Redeemed ................... (1,648,238) (34,427,926) (1,570,151) (28,301,671)
------------- ------------- ------------- -------------
Net increase ............... 1,356,027 $ 26,389,130 1,602,311 $ 28,941,018
============= ============= ============= =============
Total Return Fund
Sold ....................... 71,228 $ 868,205 17,355 $ 195,012
Issued as reinvestment ..... 5,513 71,451 456 5,295
Redeemed ................... (1,766) (22,464) (425,004) (4,943,754)
------------- ------------- ------------- -------------
Net increase (decrease) .... 74,975 $ 917,192 (407,193) $ (4,743,447)
============= ============= ============= =============
High Yield Bond Fund
Sold ....................... 154,852 $ 1,805,306 32,418 $ 371,211
Issued as reinvestment ..... 16,452 193,506 495 5,673
Redeemed ................... (2,315) (27,026) (744,326) (8,131,320)
------------- ------------- ------------- -------------
Net increase (decrease) .... 168,989 $ 1,971,786 (711,413) $ (7,754,436)
============= ============= ============= =============
Strategic Bond Fund
Sold ....................... 28,853 $ 314,650 1,757 $ 18,841
Issued as reinvestment ..... 807 9,043 59 642
Redeemed ................... (323,232) (3,501,050) (575,895) (6,250,061)
------------- ------------- ------------- -------------
Net increase (decrease) .... (293,572) $ (3,177,357) (574,079) $ (6,230,578)
============= ============= ============= =============
U.S. Government Income Fund
Sold ....................... 4,476 $ 45,019 6,017 $ 60,175
Issued as reinvestment ..... 674 6,756 276 2,757
Redeemed ................... (1) (10) (1) (10)
------------- ------------- ------------- -------------
Net increase ............... 5,149 $ 51,765 6,292 $ 62,922
============= ============= ============= =============
National Intermediate Municipal
Sold ....................... 116,992 $ 1,204,429 18,217 $ 184,880
Issued as reinvestment ..... 3,593 37,613 24 241
Redeemed ................... (2,962) (30,563) -- --
------------- ------------- ------------- -------------
Net increase ............... 117,623 $ 1,211,479 18,241 $ 185,121
============= ============= ============= =============
New York Municipal Money Fund
Sold ....................... 305,993,355 $ 305,993,355 310,065,551 $ 310,065,551
Issued as reinvestment ..... 8,071,455 8,071,455 6,167,495 6,167,495
Redeemed ................... (282,366,561) (282,366,561) (269,050,082) (269,050,082)
------------- ------------- ------------- -------------
Net increase ............... 31,698,249 $ 31,698,249 47,182,964 $ 47,182,964
============= ============= ============= =============
Cash Management Fund
Sold ....................... 84,489,946 $ 84,489,946 51,041,652 $ 51,041,652
Issued as reinvestment ..... 471,121 471,121 342,904 342,904
Redeemed ................... (79,314,497) (79,314,497) (43,843,474) (43,843,474)
------------- ------------- ------------- -------------
Net increase ............... 5,646,570 $ 5,646,570 7,541,082 $ 7,541,082
============= ============= ============= =============
</TABLE>
84 & 85
<PAGE>
Notes to Financial Statements
(continued)
At December 31, 1997, Salomon Brothers owned approximately the following
percentages of total shares outstanding of the following Funds:
Asia Growth Fund ......................................................... 26%
U.S. Government Income Fund .............................................. 70%
National Intermediate Municipal Fund ..................................... 73%
4. Portfolio Activity
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, for the year ended December 31, 1997, were as follows:
Purchases Sales
Asia Growth Fund ............................. $ 46,251,685 $ 33,935,550
============ ============
Capital Fund ................................. $252,487,358 $253,386,584
============ ============
Investors Fund ............................... $403,453,674 $375,139,203
============ ============
Total Return Fund
U.S. Government Securities ................. $ 39,315,583 $ 18,793,127
Other Investments .......................... 117,952,887 47,722,137
------------ ------------
$157,268,470 $ 66,515,264
============ ============
High Yield Bond Fund ......................... $634,125,787 $286,361,300
============ ============
Strategic Bond Fund
U.S. Government Securities ................. $ 63,360,613 $ 52,497,265
Other Investments .......................... 79,097,009 39,553,374
------------ ------------
$142,457,622 $ 92,050,639
============ ============
U.S. Government Income Fund
U.S. Government Securities ................. $ 34,760,382 $ 30,099,046
============ ============
National Intermediate Municipal Fund ......... $ 2,637,563 $ 145,000
============ ============
Transactions in options written for the Funds during the year ended December 31,
1997 were as follows:
<TABLE>
<CAPTION>
Capital Fund Investors Fund
------------------------- -------------------------
Number Number
of Premiums of Premiums
Contracts Received Contracts Received
------------------------- -------------------------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1996 .......... -- -- -- --
Options written ................................... (2,075) $(347,525) (500) $ (85,617)
Options terminated in closing purchase transactions 1,325 238,446 250 25,874
Options expired ................................... 750 109,079 -- --
Options exercised ................................. -- -- 250 59,743
--------- --------- --------- ---------
Options outstanding at December 31, 1997 .......... -- -- -- --
========= ========= ========= =========
</TABLE>
86
<PAGE>
Notes to Financial Statements
(continued)
5. Portfolio Investment Risks
Credit and Market Risk. Funds that invest in high yield and emerging market
instruments are subject to certain credit and market risks. The yields of high
yield and emerging market debt obligations reflect, among other things,
perceived credit risk. The Funds' investment in securities rated below
investment grade typically involve risks not associated with higher rated
securities including, among others, greater risk of timely and ultimate payment
of interest and principal, greater market price volatility and less liquid
secondary market trading. The consequences of political, social, economic or
diplomatic changes may have disruptive effects on the market prices of
investments held by the Funds. The Funds' investment in non-dollar denominated
securities may also result in foreign currency losses caused by devaluations and
exchange rate fluctuations.
The Cash Management Fund and New York Municipal Money Fund invest in money
market instruments maturing in thirteen months or less whose short-term credit
ratings are within the highest ratings categories of two nationally recognized
statistical rating organizations ("NRSROs") or if rated by only one NRSRO, that
NRSRO, or, if not rated, are believed by the investment manager to be of
comparable quality. The New York Municipal Money Fund pursues its investment
objective by investing at least 80% of its net assets in obligations that are
exempt from federal income taxes and at least 65% of its net assets in
obligations that are exempt from personal income taxes of the State and City of
New York. Because the New York Municipal Money Fund invests primarily in
obligations of the State and City of New York, it is more susceptible to factors
adversely affecting issuers of such obligations than a fund that is more
diversified.
Financial Instruments with Off-Balance Sheet Risk. Certain Funds enter into
forward foreign currency contracts ("forward contracts") to facilitate
settlement of foreign currency denominated portfolio transactions or to manage
foreign currency exposure associated with foreign currency denominated
securities. Forward contracts involve elements of market risk in excess of the
amounts reflected in the Statements of Assets and Liabilities. The Funds bear
the risk of an unfavorable change in the foreign exchange rate underlying the
forward contract. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities markets
and the possibility of political or economic instability.
Funds that enter into mortgage dollar rolls are subject to the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a mortgage dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the dollar roll may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities.
Consistent with their objective to seek high current income, the High Yield Bond
Fund and the Strategic Bond Fund may invest in instruments whose values and
interest rates may be linked to foreign currencies, interest rates, indices or
some other financial indicator. The value at maturity or interest rates for
these instruments will increase or decrease according to the change in the
indicator to which it is indexed. These securities are generally more volatile
in nature and the risk of loss of principal is greater.
A risk in writing a call option is that the Fund may forego the opportunity of
profit if the market price of the underlying security increases and the option
is exercised. The risk in writing a put option is that the Fund may incur a loss
if the market price of the underlying security decreases and the option is
exercised. In addition, there is the risk that the Fund may not be able to enter
into a closing transaction because of an illiquid secondary market.
In connection with purchasing participations, the Fund generally will have no
right to enforce compliance by the borrower, and the Fund may not benefit
directly from any collateral supporting the loan in which it has purchased the
participation. As a result, the Fund will assume the credit risk of both the
borrower and the lender that is selling the participation. In the event of the
insolvency of the lender selling the participation, the Fund may be treated as a
general creditor of the lender and may not benefit from any set-off between the
lender and the borrower.
87
<PAGE>
Notes to Financial Statements
(concluded)
6. Tax Information
At December 31, 1997, the Asia Growth Fund, National Intermediate Municipal
Fund, New York Municipal Money Fund, and Cash Management Fund had net capital
loss carry-forwards available to offset future capital gains as follows:
National New York
Asia Intermediate Municipal Cash
Year of Growth Municipal Money Management
Expiration Fund Fund Fund Fund
- --------------------------------------------------------------------------------
1999 ............ -- -- $ 64,677 $ 894
2000 ............ -- -- 94,778 396
2001 ............ -- -- -- 409
2002 ............ -- -- 65,321 415
2003 ............ -- -- -- --
2004 ............ -- -- -- 10
2005 ............ $2,724,760 $ 2,529 13,552 42
---------- ---------- ---------- ----------
$2,724,760 $ 2,529 $ 238,328 $ 2,166
========== ========== ========== ==========
During the year ended December 31, 1997, as permitted under Federal income tax
regulations, the U.S. Government Income Fund and Cash Management Fund have
elected to defer $545 and $34, respectively, of Post-October net capital losses
to the next taxable year. The Capital Fund, Investors Fund, and Total Return
Fund have also elected to defer $3, $240, and $295, respectively, of
Post-October net foreign currency losses to the next taxable year.
At December 31, 1997, paid-in-capital, undistributed net investment income and
accumulated net realized gain (loss) on investments have been adjusted for
current period book/tax differences which arose principally from differing
book/tax treatments of foreign currency transactions and gains of securities of
certain corporations designated as "passive foreign investment companies." The
Capital Fund, Investors Fund, and U.S. Government Income Fund reclassified
$1,301, $1,980, and $58,733, respectively, from undistributed net investment
income to accumulated net realized gain (loss) on investments. The Asia Growth
Fund, Investors Fund, Total Return Fund, Strategic Bond Fund, and National
Intermediate Municipal Fund reclassified $5,857, $200,064, $1,417, $300,810, and
$25, respectively, from accumulated net realized gain (loss) on investments to
undistributed net investment income. The Asia Growth Fund, Strategic Bond Fund
and National Intermediate Municipal Fund reclassified ($8,924), ($1,595) and
($6,734), respectively, from undistributed net investment income to
paid-in-capital. Net investment income (loss), net realized gain (loss) on
investments and net assets were not affected by these reclassifications.
At December 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held in each
Fund were as follows:
<TABLE>
<CAPTION>
Net
Gross Gross Unrealized
Aggregate Unrealized Unrealized Appreciation
Cost Appreciation (Depreciation) (Depreciation)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asia Growth Fund ...................................... $ 16,624,492 $ 377,246 $(3,479,717) $ (3,102,471)
Capital Fund .......................................... 145,166,371 35,470,147 (9,768,281) 25,701,866
Investors Fund ........................................ 462,354,514 236,522,312 (9,774,400) 226,747,912
Total Return Fund ..................................... 137,220,480 15,048,621 (1,736,665) 13,311,956
High Yield Bond Fund .................................. 527,745,157 17,571,308 (9,391,228) 8,180,080
Strategic Bond Fund ................................... 80,181,133 1,898,596 (642,081) 1,256,515
U.S. Government Income Fund ........................... 13,594,476 228,831 (5,199) 223,632
National Intermediate Municipal Fund .................. 13,097,102 717,785 -- 717,785
</TABLE>
88
<PAGE>
(This page intentionally left blank)
89
<PAGE>
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Asia Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------------------------------
Year Period Year Period
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1997 1996(a) 1997 1996(a)
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............... $ 10.32 $ 10.00 $ 10.31 $ 10.00
------- ------- ------- -------
Net investment income (loss)ss ..................... 0.03 0.05 (0.05) 0.01
Net gain (loss) on investments
(both realized and unrealized) ................... (2.59) 0.47 (2.57) 0.46
------- ------- ------- -------
Total from investment operations ................. (2.56) 0.52 (2.62) 0.47
------- ------- ------- -------
Dividends from net investment income ............... (0.03) (0.05) 0.00 (0.01)
Distributions from net realized gain on investments (0.25) (0.15) (0.25) (0.15)
------- ------- ------- -------
Total dividends and distributions ................ (0.28) (0.20) (0.25) (0.16)
------- ------- ------- -------
Net asset value, end of period ..................... $ 7.48 $ 10.32 $ 7.44 $ 10.31
======= ======= ======= =======
Net assets, end of period (thousands) .............. $ 6,491 $ 3,693 $ 5,738 $ 3,163
Total return* ...................................... -25.6% +5.2% -26.1% +4.7%
Ratios to average net assets:
Expenses ......................................... 1.24% 1.24%** 1.99% 1.99%**
Net investment income ............................ 0.27% 0.90%** -0.48% 0.20%**
Portfolio turnover rate ............................ 294% 119% 294% 119%
Average Broker Commission Rate ..................... $0.0052 $0.0052 $0.0052 $0.0052
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ ($0.23) ($0.18) ($0.30) ($0.23)
Expense ratio .................................. 3.81% 5.50%** 4.56% 6.25%**
<CAPTION>
Asia Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Class C Class O
------------------------------------------------------------------------
Year Period Year Period
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1997 1996(a) 1997 1996(a)
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............... $ 10.30 $ 10.00 $ 10.32 $ 10.00
------- ------- ------- -------
Net investment income (loss)ss ..................... (0.05) 0.01 0.05 0.07
Net gain (loss) on investments
(both realized and unrealized) ................... (2.56) 0.45 (2.59) 0.46
------- ------- ------- -------
Total from investment operations ................. (2.61) 0.46 (2.54) 0.53
------- ------- ------- -------
Dividends from net investment income ............... 0.00 (0.01) (0.03) (0.06)
Distributions from net realized gain on investments (0.25) (0.15) (0.25) (0.15)
------- ------- ------- -------
Total dividends and distributions ................ (0.25) (0.16) (0.28) (0.21)
------- ------- ------- -------
Net asset value, end of period ..................... $ 7.44 $ 10.30 $ 7.50 $ 10.32
======= ======= ======= =======
Net assets, end of period (thousands) .............. $ 1,643 $ 246 $ 412 $ 124
Total return* ...................................... -26.0% +4.6% -25.3% +5.3%
Ratios to average net assets:
Expenses ......................................... 1.99% 2.00%** 0.99% 0.99%**
Net investment income ............................ -0.47% 0.08%** 0.51% 1.21%**
Portfolio turnover rate ............................ 294% 119% 294% 119%
Average Broker Commission Rate ..................... $0.0052 $0.0052 $0.0052 $0.0052
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ ($0.30) ($0.20) ($0.20) ($0.18)
Expense ratio .................................. 4.56% 6.26%** 3.56% 5.25%**
</TABLE>
<TABLE>
<CAPTION>
Capital Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
----------------------------------------------------------------
Year Period Year Period
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1997 1996(b) 1997 1996(b)
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 19.88 $ 21.98 $ 19.90 $ 21.98
------- ------- ------- -------
Net investment income (loss) ...................... 0.00 0.01+ (0.07) (0.02)+
Net gain (loss) on investments
(both realized and unrealized) .................. 5.10 1.54 5.01 1.56
------- ------- ------- -------
Total from investment operations ................ 5.10 1.55 4.94 1.54
------- ------- ------- -------
Dividends from net investment income .............. -- (0.15) -- (0.12)
Distributions from net realized gain on investments (3.83) (3.50) (3.83) (3.50)
Distributions in excess of net realized gains ..... -- -- --
------- ------- ------- -------
Total dividends and distributions ............... (3.83) (3.65) (3.83) (3.62)
------- ------- ------- -------
Net asset value, end of period .................... $ 21.15 $ 19.88 $ 21.01 $ 19.90
======= ======= ======= =======
Net assets, end of period (thousands) ............. $ 5,589 $ 344 $ 3,820 $ 219
Total return* ..................................... +26.4% +7.7% +25.6% +7.6%
Ratios to average net assets:
Expenses ........................................ 1.46% 1.88%** 2.20% 2.73%**
Net investment income ........................... -0.10% 0.18%** -0.94% -0.66%**
Portfolio turnover rate ........................... 159% 191% 159% 191%
Average Broker Commission Rate .................... $0.0644 $0.0586 $0.0644 $0.0586
<CAPTION>
Capital Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Class C Class O
-----------------------------------------------------------------------------------
Year Period
Ended Ended Year Ended December 31,
December 31, December 31, ------------------------------------------------------
1997 1996(b) 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 19.91 $ 21.98 $ 19.88 $ 18.67 $ 15.62 $ 20.80 $ 19.64
------- ------- -------- -------- -------- ------- --------
Net investment income (loss) ...................... (0.06) (0.02)+ 0.05 0.13+ 0.14 0.03 0.028
Net gain (loss) on investments
(both realized and unrealized) .................. 5.00 1.57 5.13 5.70 5.27 (2.87) 3.242
------- ------- -------- -------- -------- ------- --------
Total from investment operations ................ 4.94 1.55 5.18 5.83 5.41 (2.84) 3.27
------- ------- -------- -------- -------- ------- --------
Dividends from net investment income .............. -- (0.12) -- (0.15) (0.14) (0.03) (0.035)
Distributions from net realized gain on investments (3.83) (3.50) (3.83) (4.47) (2.22) (1.51) (2.075)
Distributions in excess of net realized gains ..... -- -- -- -- -- -- (0.80)
------- ------- -------- -------- -------- ------- --------
Total dividends and distributions ............... (3.83) (3.62) (3.83) (4.62) (2.36) (2.34) (2.11)
------- ------- -------- -------- -------- ------- --------
Net asset value, end of period .................... $ 21.02 $ 19.91 $ 21.23 $ 19.88 $ 18.67 $ 15.62 $ 20.80
======= ======= ======== ======== ======== ======= ========
Net assets, end of period (thousands) ............. $ 2,385 $ 130 $175,470 $135,943 $102,429 $86,704 $113,905
Total return* ..................................... +25.6% +7.7% +26.8% +33.3% +34.9% -14.2% +17.2%
Ratios to average net assets:
Expenses ........................................ 2.21% 2.45%** 1.22% 1.38% 1.36% 1.30% 1.31%
Net investment income ........................... -0.91% -0.50%** 0.26% 0.67% 0.74% 0.12% 0.13%
Portfolio turnover rate ........................... 159% 191% 159% 191% 217% 152% 104%
Average Broker Commission Rate .................... $0.0644 $0.0586 $ 0.0644 $ 0.0586 N/A N/A N/A
</TABLE>
(a) May 6, 1996, commencement of investment operations, through December 31,
1996.
(b) November 1, 1996, commencement of investment operations, through December
31, 1996.
+ Per share information calculated using the average shares outstanding
method, which more accurately represents amounts.
* Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the ex-dividend date, and a sale at net asset value on the last
day of each period reported. Initial sales charge or contingent deferred
sales charge is not reflected in the calculation of total return. Total
return calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
90 & 91
<PAGE>
Financial Highlights
(continued)
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Investors Fund
- --------------------------------------------------------------------------------------------------------
Class A
--------------------------------------------------
Year Ended December 31,
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ................ $18.89 $16.62 $13.61
------------- ------------- -------------
Net investment income ............................. 0.16 0.19 0.19
Net gain (loss) on investments
(both realized and unrealized) .................. 4.64 4.63 4.55
------------- ------------- -------------
Total from investment operations ................ 4.80 4.82 4.74
------------- ------------- -------------
Dividends from net investment income .............. (0.21) (0.22) (0.23)
Distributions from net realized gain on investments (2.37) (2.33) (1.50)
------------- ------------- -------------
Total dividends and distributions ............... (2.58) (2.55) (1.73)
------------- ------------- -------------
Net asset value, end of year ...................... $21.11 $18.89 $16.62
============= ============= =============
Net assets, end of period (thousands) ............. $57,105 $10,905 $441
Total return* ..................................... +26.2% +30.3% +35.3%
Ratios to average net assets:
Expenses ........................................ 0.95% 1.06% 0.94%
Net investment income ........................... 0.86% 0.94% 1.41%
Portfolio turnover rate ........................... 62% 58% 86%
Average Broker Commission Rate .................... $0.0601 $0.0593 N/A
<CAPTION>
Investors Fund
- --------------------------------------------------------------------------------------------------------
Class B
--------------------------------------------------
Year Ended December 31,
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ................ $18.86 $16.61 $13.61
------------- ------------- -------------
Net investment income ............................. 0.04 0.08 0.10
Net gain (loss) on investments
(both realized and unrealized) .................. 4.58 4.60 4.54
------------- ------------- -------------
Total from investment operations ................ 4.62 4.68 4.64
------------- ------------- -------------
Dividends from net investment income .............. (0.11) (0.10) (0.14)
Distributions from net realized gain on investments (2.37) (2.33) (1.50)
------------- ------------- -------------
Total dividends and distributions ............... (2.48) (2.43) (1.64)
------------- ------------- -------------
Net asset value, end of year ...................... $21.00 $18.86 $16.61
============= ============= =============
Net assets, end of period (thousands) ............. $49,786 $9,433 $716
Total return* ..................................... +25.3% +29.2% +34.5%
Ratios to average net assets:
Expenses ........................................ 1.70% 1.82% 1.71%
Net investment income ........................... 0.12% 0.21% 0.63%
Portfolio turnover rate ........................... 62% 58% 86%
Average Broker Commission Rate .................... $0.0601 $0.0593 N/A
<CAPTION>
Investors Fund
- --------------------------------------------------------------------------------------------------------
Class C
--------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ................ $18.86 $16.61 $13.61
------------- ------------- -------------
Net investment income ............................. 0.04 0.07 0.09
Net gain (loss) on investments
(both realized and unrealized) .................. 4.59 4.60 4.55
------------- ------------- -------------
Total from investment operations ................ 4.63 4.67 4.64
------------- ------------- -------------
Dividends from net investment income .............. (0.11) (0.09) (0.14)
Distributions from net realized gain on investments (2.37) (2.33) (1.50)
------------- ------------- -------------
Total dividends and distributions ............... (2.48) (2.42) (1.64)
------------- ------------- -------------
Net asset value, end of year ...................... $21.01 $18.86 $16.61
============= ============= =============
Net assets, end of period (thousands) ............. $11,701 $1,959 $306
Total return* ..................................... +25.2% +29.3% +34.5%
Ratios to average net assets:
Expenses ........................................ 1.70% 1.80% 1.68%
Net investment income ........................... 0.13% 0.23% 0.66%
Portfolio turnover rate ........................... 62% 58% 86%
Average Broker Commission Rate .................... $0.0601 $0.0593 N/A
<CAPTION>
Investors Fund
- ----------------------------------------------------------------------------------------------------------------------------
Class O
----------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................ $18.90 $16.61 $13.63 $15.60 $16.10
---------- ---------- ---------- ---------- ----------
Net investment income ............................. 0.24 0.25 0.27 0.27 0.32
Net gain (loss) on investments
(both realized and unrealized) .................. 4.60 4.62 4.48 (0.48) 2.03
---------- ---------- ---------- ---------- ----------
Total from investment operations ................ 4.84 4.87 4.75 (0.21) 2.35
---------- ---------- ---------- ---------- ----------
Dividends from net investment income .............. (0.24) (0.25) (0.27) (0.27) (0.33)
Distributions from net realized gain on investments (2.37) (2.33) (1.50) (1.49) (2.52)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ............... (2.61) (2.58) (1.77) (1.76) (2.85)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ...................... $21.13 $18.90 $16.61 $13.63 $15.60
========== ========== ========== ========== ==========
Net assets, end of period (thousands) ............. $608,401 $518,361 $428,950 $348,214 $386,147
Total return* ..................................... +26.5% +30.6% +35.4% -1.3% +15.1%
Ratios to average net assets:
Expenses ........................................ 0.69% 0.76% 0.69% 0.69% 0.68%
Net investment income ........................... 1.15% 1.36% 1.67% 1.75% 1.90%
Portfolio turnover rate ........................... 62% 58% 86% 66% 79%
Average Broker Commission Rate .................... $0.0601 $0.0593 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Total Return Fund
- ----------------------------------------------------------------------------------------------------------
Class A
---------------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $11.82 $10.55 $10.00
------------ ------------ ------------
Net investment income+ ............................. 0.55 0.54 0.15
Net gain on investments
(both realized and unrealized) ................... 1.65 1.35 0.52
------------ ------------ ------------
Total from investment operations ................. 2.20 1.89 0.67
------------ ------------ ------------
Dividends from net investment income ............... (0.53) (0.52) (0.11)
Distributions from net realized gain on investments (0.36) (0.10) (0.01)
------------ ------------ ------------
Total dividends and distributions ................ (0.89) (0.62) (0.12)
------------ ------------ ------------
Net asset value, end of period ..................... $13.13 $11.82 $10.55
============ ============ ============
Net assets, end of period (thousands) .............. $53,024 $21,109 $3,658
Total return* ...................................... +19.1% +18.3% +6.7%
Ratios to average net assets:
Expenses ......................................... 0.77% 0.75% 0.74%**
Net investment income ............................ 4.29% 4.81% 4.82%**
Portfolio turnover rate ............................ 70% 76% 16%
Average Broker Commission Rate ..................... $0.0596 $0.0534 N/A
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.49 $0.44 $0.13
Expense ratio .................................. 1.24% 1.61% 1.45%**
<CAPTION>
Total Return Fund
- ----------------------------------------------------------------------------------------------------------
Class B
---------------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $11.82 $10.54 $10.00
------------ ------------ ------------
Net investment income+ ............................. 0.45 0.45 0.13
Net gain on investments
(both realized and unrealized) ................... 1.65 1.35 0.51
------------ ------------ ------------
Total from investment operations ................. 2.10 1.80 0.64
------------ ------------ ------------
Dividends from net investment income ............... (0.44) (0.42) (0.09)
Distributions from net realized gain on investments (0.36) (0.10) (0.01)
------------ ------------ ------------
Total dividends and distributions ................ (0.80) (0.52) (0.10)
------------ ------------ ------------
Net asset value, end of period ..................... $13.12 $11.82 $10.54
============ ============ ============
Net assets, end of period (thousands) .............. $87,549 $28,043 $5,378
Total return* ...................................... +18.2% +17.4% +6.4%
Ratios to average net assets:
Expenses ......................................... 1.52% 1.50% 1.49%**
Net investment income ............................ 3.54% 4.06% 4.06%**
Portfolio turnover rate ............................ 70% 76% 16%
Average Broker Commission Rate ..................... $0.0596 $0.0534 N/A
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.39 $0.36 $0.11
Expense ratio .................................. 1.99% 2.36% 2.19%**
<CAPTION>
Total Return Fund
- ----------------------------------------------------------------------------------------------------------
Class C
---------------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $11.85 $10.56 $10.00
------------ ------------ ------------
Net investment income+ ............................. 0.45 0.46 0.14
Net gain on investments
(both realized and unrealized) ................... 1.65 1.35 0.51
------------ ------------ ------------
Total from investment operations ................. 2.10 1.81 0.65
------------ ------------ ------------
Dividends from net investment income ............... (0.44) (0.42) (0.08)
Distributions from net realized gain on investments (0.36) (0.10) (0.01)
------------ ------------ ------------
Total dividends and distributions ................ (0.80) (0.52) (0.09)
------------ ------------ ------------
Net asset value, end of period ..................... $13.15 $11.85 $10.56
============ ============ ============
Net assets, end of period (thousands) .............. $21,085 $3,445 $445
Total return* ...................................... +18.1% +17.5% +6.5%
Ratios to average net assets:
Expenses ......................................... 1.52% 1.50% 1.51%**
Net investment income ............................ 3.52% 4.07% 4.26%**
Portfolio turnover rate ............................ 70% 76% 16%
Average Broker Commission Rate ..................... $0.0596 $0.0534 N/A
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.39 $0.36 $0.11
Expense ratio .................................. 1.99% 2.36% 2.22%**
<CAPTION>
Total Return Fund
- ----------------------------------------------------------------------------------------------------------
Class O
---------------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $11.88 $10.57 $10.00
------------ ------------ ------------
Net investment income+ ............................. 0.59 0.57 0.17
Net gain on investments
(both realized and unrealized) ................... 1.65 1.39 0.52
------------ ------------ ------------
Total from investment operations ................. 2.24 1.96 0.69
------------ ------------ ------------
Dividends from net investment income ............... (0.56) (0.55) (0.11)
Distributions from net realized gain on investments (0.36) (0.10) (0.01)
------------ ------------ ------------
Total dividends and distributions ................ (0.92) (0.65) (0.12)
------------ ------------ ------------
Net asset value, end of period ..................... $13.20 $11.88 $10.57
============ ============ ============
Net assets, end of period (thousands) .............. $1,227 $213 $4,494
Total return* ...................................... +19.3% +19.0% +6.9%
Ratios to average net assets:
Expenses ......................................... 0.52% 0.50% 0.51%**
Net investment income ............................ 4.60% 5.13% 5.30%**
Portfolio turnover rate ............................ 70% 76% 16%
Average Broker Commission Rate ..................... $0.0596 $0.0534 N/A
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.53 $0.47 $0.15
Expense ratio .................................. 1.00% 1.36% 1.22%**
</TABLE>
(a) September 11, 1995, commencement of investment operations, through
December 31, 1995.
+ Per share information calculated using the average shares outstanding
method, which more accurately represents amounts.
* Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the payable date, and a sale at net asset value on the last day
of each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
92 & 93
<PAGE>
Financial Highlights
(continued)
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
High Yield Bond Fund
- --------------------------------------------------------------------------------------------------
Class A
-------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $11.54 $10.53 $10.00
----------- ----------- -----------
Net investment income .............................. 1.06 1.10 0.92
Net gain on investments
(both realized and unrealized) ................... 0.38 1.11 0.67
----------- ----------- -----------
Total from investment operations ................. 1.44 2.21 1.59
----------- ----------- -----------
Dividends from net investment income ............... (1.05) (1.10) (0.91)
Distributions from net realized gain on investments (0.19) (0.10) (0.15)
----------- ----------- -----------
Total dividends and distributions ................ (1.24) (1.20) (1.06)
----------- ----------- -----------
Net asset value, end of period ..................... $11.74 $11.54 $10.53
=========== =========== ===========
Net assets, end of period (thousands) .............. $169,721 $65,935 $10,789
Total return* ...................................... +13.0% +21.9% +16.6%
Ratios to average net assets:
Expenses ......................................... 1.24% 1.24% 1.24%**
Net investment income ............................ 8.66% 9.38% 10.58%**
Portfolio turnover rate ............................ 79% 85% 109%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $1.04 $1.09 $0.87
Expense ratio .................................. 1.34% 1.50% 1.80%**
<CAPTION>
High Yield Bond Fund
- --------------------------------------------------------------------------------------------------
Class B
-------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $11.53 $10.53 $10.00
----------- ----------- -----------
Net investment income .............................. 0.98 1.02 0.85
Net gain on investments
(both realized and unrealized) ................... 0.37 1.11 0.68
----------- ----------- -----------
Total from investment operations ................. 1.35 2.13 1.53
----------- ----------- -----------
Dividends from net investment income ............... (0.98) (1.03) (0.85)
Distributions from net realized gain on investments (0.19) (0.10) (0.15)
----------- ----------- -----------
Total dividends and distributions ................ (1.17) (1.13) (1.00)
----------- ----------- -----------
Net asset value, end of period ..................... $11.71 $11.53 $10.53
=========== =========== ===========
Net assets, end of period (thousands) .............. $329,672 $106,797 $10,108
Total return* ...................................... +12.2% +21.2% +15.7%
Ratios to average net assets:
Expenses ......................................... 1.99% 1.99% 1.96%**
Net investment income ............................ 7.90% 8.49% 9.53%**
Portfolio turnover rate ............................ 79% 85% 109%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.97 $1.01 $0.80
Expense ratio .................................. 2.09% 2.24% 2.51%**
<CAPTION>
High Yield Bond Fund
- --------------------------------------------------------------------------------------------------
Class C
-------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $11.52 $10.53 $10.00
----------- ----------- -----------
Net investment income .............................. 0.99 1.02 0.85
Net gain on investments
(both realized and unrealized) ................... 0.36 1.10 0.68
----------- ----------- -----------
Total from investment operations ................. 1.35 2.12 1.53
----------- ----------- -----------
Dividends from net investment income ............... (0.98) (1.03) (0.85)
Distributions from net realized gain on investments (0.19) (0.10) (0.15)
----------- ----------- -----------
Total dividends and distributions ................ (1.17) (1.13) (1.00)
----------- ----------- -----------
Net asset value, end of period ..................... $11.70 $11.52 $10.53
=========== =========== ===========
Net assets, end of period (thousands) .............. $76,042 $13,773 $1,274
Total return* ...................................... +12.2% +21.1% +15.8%
Ratios to average net assets:
Expenses ......................................... 1.99% 1.99% 1.98%**
Net investment income ............................ 7.87% 8.43% 9.61%**
Portfolio turnover rate ............................ 79% 85% 109%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.98 $1.01 $0.80
Expense ratio .................................. 2.08% 2.24% 2.54%**
<CAPTION>
High Yield Bond Fund
- --------------------------------------------------------------------------------------------------
Class O
-------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $11.53 $10.54 $10.00
----------- ----------- -----------
Net investment income .............................. 1.08 1.16 0.95
Net gain on investments
(both realized and unrealized) ................... 0.40 1.05 0.67
----------- ----------- -----------
Total from investment operations ................. 1.48 2.21 1.62
----------- ----------- -----------
Dividends from net investment income ............... (1.07) (1.12) (0.93)
Distributions from net realized gain on investments (0.19) (0.10) (0.15)
----------- ----------- -----------
Total dividends and distributions ................ (1.26) (1.22) (1.08)
----------- ----------- -----------
Net asset value, end of period ..................... $11.75 $11.53 $10.54
=========== =========== ===========
Net assets, end of period (thousands) .............. $2,386 $393 $7,854
Total return* ...................................... +13.4% +22.0% +16.8%
Ratios to average net assets:
Expenses ......................................... 0.99% 0.99% 1.00%**
Net investment income ............................ 8.93% 10.64% 10.59%**
Portfolio turnover rate ............................ 79% 85% 109%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $1.07 $1.13 $0.90
Expense ratio .................................. 1.09% 1.24% 1.55%**
</TABLE>
<TABLE>
<CAPTION>
Strategic Bond Fund
- --------------------------------------------------------------------------------------------------
Class A
-------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.83 $10.53 $10.00
---------- ---------- ----------
Net investment income .............................. 0.76+ 0.87+ 0.84
Net gain on investments
(both realized and unrealized) ................... 0.41 0.55 0.78
---------- ---------- ----------
Total from investment operations ................. 1.17 1.42 1.62
---------- ---------- ----------
Dividends from net investment income ............... (0.89) (0.94) (0.85)
Dividends in excess of net investment income ....... -- (0.01) --
Distributions from net realized gain on investments (0.17) (0.17) (0.24)
---------- ---------- ----------
Total dividends and distributions ................ (1.06) (1.12) (1.09)
---------- ---------- ----------
Net asset value, end of period ..................... $10.94 $10.83 $10.53
========== ========== ==========
Net assets, end of period (thousands) .............. $17,150 $8,345 $513
Total return* ...................................... +11.2% +14.1% +16.8%
Ratios to average net assets:
Expenses ......................................... 1.24% 1.24% 1.23%**
Net investment income ............................ 6.99% 8.09% 9.51%**
Portfolio turnover rate ............................ 184% 122% 161%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.73 $0.79 $0.76
Expense ratio .................................. 1.53% 1.98% 2.11%**
<CAPTION>
Strategic Bond Fund
- --------------------------------------------------------------------------------------------------
Class B
-------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.82 $10.53 $10.00
---------- ---------- ----------
Net investment income .............................. 0.67+ 0.79+ 0.76
Net gain on investments
(both realized and unrealized) ................... 0.41 0.53 0.79
---------- ---------- ----------
Total from investment operations ................. 1.08 1.32 1.55
---------- ---------- ----------
Dividends from net investment income ............... (0.80) (0.85) (0.78)
Dividends in excess of net investment income ....... -- (0.01) --
Distributions from net realized gain on investments (0.17) (0.17) (0.24)
---------- ---------- ----------
Total dividends and distributions ................ (0.97) (1.03) (1.02)
---------- ---------- ----------
Net asset value, end of period ..................... $10.93 $10.82 $10.53
========== ========== ==========
Net assets, end of period (thousands) .............. $47,921 $14,291 $1,879
Total return* ...................................... +10.4% +13.0% +16.1%
Ratios to average net assets:
Expenses ......................................... 1.99% 1.98% 1.97%**
Net investment income ............................ 6.12% 7.34% 8.75%**
Portfolio turnover rate ............................ 184% 122% 161%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.64 $0.71 $0.69
Expense ratio .................................. 2.28% 2.73% 2.85%**
<CAPTION>
Strategic Bond Fund
- --------------------------------------------------------------------------------------------------
Class C
-------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.82 $10.53 $10.00
---------- ---------- ----------
Net investment income .............................. 0.66+ 0.78+ 0.77
Net gain on investments
(both realized and unrealized) ................... 0.43 0.54 0.78
---------- ---------- ----------
Total from investment operations ................. 1.09 1.32 1.55
---------- ---------- ----------
Dividends from net investment income ............... (0.80) (0.85) (0.78)
Dividends in excess of net investment income ....... -- (0.01) --
Distributions from net realized gain on investments (0.17) (0.17) (0.24)
---------- ---------- ----------
Total dividends and distributions ................ (0.97) (1.03) (1.02)
---------- ---------- ----------
Net asset value, end of period ..................... $10.94 $10.82 $10.53
========== ========== ==========
Net assets, end of period (thousands) .............. $20,220 $4,575 $411
Total return* ...................................... +10.5% +13.1% +16.1%
Ratios to average net assets:
Expenses ......................................... 1.99% 1.98% 1.99%**
Net investment income ............................ 6.09% 7.26% 8.77%**
Portfolio turnover rate ............................ 184% 122% 161%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.63 $0.70 $0.70
Expense ratio .................................. 2.28% 2.72% 2.87%**
<CAPTION>
Strategic Bond Fund
- --------------------------------------------------------------------------------------------------
Class O
-------------------------------------------
Period
Year Ended December 31, Ended
----------------------------- December 31,
1997 1996 1995(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.82 $10.53 $10.00
---------- ---------- ----------
Net investment income .............................. 0.78+ 0.92 0.87
Net gain on investments
(both realized and unrealized) ................... 0.41 0.51 0.77
---------- ---------- ----------
Total from investment operations ................. 1.19 1.43 1.64
---------- ---------- ----------
Dividends from net investment income ............... (0.91) (0.96) (0.87)
Dividends in excess of net investment income ....... -- (0.01) --
Distributions from net realized gain on investments (0.17) (0.17) (0.24)
---------- ---------- ----------
Total dividends and distributions ................ (1.08) (1.14) (1.11)
---------- ---------- ----------
Net asset value, end of period ..................... $10.93 $10.82 $10.53
========== ========== ==========
Net assets, end of period (thousands) .............. $649 $3,817 $9,763
Total return* ...................................... +11.5% +14.2% +17.0%
Ratios to average net assets:
Expenses ......................................... 0.96% 1.00% 0.99%**
Net investment income ............................ 7.22% 8.65% 9.74%**
Portfolio turnover rate ............................ 184% 122% 161%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.75 $0.84 $0.79
Expense ratio .................................. 1.25% 1.74% 1.87%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
+ Per share information calculated using the average shares outstanding
method, which more accurately represents amounts.
* Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the payable date, and a sale at net asset value on the last day
of each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
94 & 95
<PAGE>
Financial Highlights
(continued)
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
U.S. Government Income Fund
- ------------------------------------------------------------------------------------------------
Class A
-----------------------------------------
Period
Year Ended December 31, Ended
-------------------------- December 31,
1997 1996 1995(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.07 $10.32 $10.00
--------- --------- ---------
Net investment income .............................. 0.58 0.54 0.49
Net gain (loss) on investments
(both realized and unrealized) ................... 0.19 (0.19) 0.43
--------- --------- ---------
Total from investment operations ................. 0.77 0.35 0.92
--------- --------- ---------
Dividends from net investment income ............... (0.54) (0.54) (0.49)
Distributions from net realized gain on investments (0.10) (0.06) (0.10)
Distributions in excess of net realized gain
on investments ................................... -- -- (0.01)
--------- --------- ---------
Total dividends and distributions ................ (0.64) (0.60) (0.60)
--------- --------- ---------
Net asset value, end of period ..................... $10.20 $10.07 $10.32
========= ========= =========
Net assets, end of period (thousands) .............. $1,320 $1,188 $278
Total return* ...................................... +7.9% +3.6% +9.5%
Ratios to average net assets:
Expenses ......................................... 0.85% 0.84% 0.85%**
Net investment income ............................ 5.77% 5.22% 5.67%**
Portfolio turnover rate ............................ 261% 365% 230%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.47 $0.38 $0.40
Expense ratio .................................. 2.02% 2.21% 1.90%**
<CAPTION>
U.S. Government Income Fund
- ------------------------------------------------------------------------------------------------
Class B
-----------------------------------------
Period
Year Ended December 31, Ended
-------------------------- December 31,
1997 1996 1995(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.06 $10.32 $10.00
--------- --------- ---------
Net investment income .............................. 0.51 0.46 0.43
Net gain (loss) on investments
(both realized and unrealized) ................... 0.19 (0.20) 0.43
--------- --------- ---------
Total from investment operations ................. 0.70 0.26 0.86
--------- --------- ---------
Dividends from net investment income ............... (0.46) (0.46) (0.43)
Distributions from net realized gain on investments (0.10) (0.06) (0.10)
Distributions in excess of net realized gain
on investments ................................... -- -- (0.01)
--------- --------- ---------
Total dividends and distributions ................ (0.56) (0.52) (0.54)
--------- --------- ---------
Net asset value, end of period ..................... $10.20 $10.06 $10.32
========= ========= =========
Net assets, end of period (thousands) .............. $2,531 $1,266 $572
Total return* ...................................... +7.2% +2.7% +8.8%
Ratios to average net assets:
Expenses ......................................... 1.60% 1.59% 1.60%**
Net investment income ............................ 4.96% 4.51% 4.85%**
Portfolio turnover rate ............................ 261% 365% 230%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.39 $0.30 $0.34
Expense ratio .................................. 2.77% 2.96% 2.64%**
<CAPTION>
U.S. Government Income Fund
- ------------------------------------------------------------------------------------------------
Class C
-----------------------------------------
Period
Year Ended December 31, Ended
-------------------------- December 31,
1997 1996 1995(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.05 $10.32 $10.00
--------- --------- ---------
Net investment income .............................. 0.51 0.46 0.43
Net gain (loss) on investments
(both realized and unrealized) ................... 0.19 (0.21) 0.43
--------- --------- ---------
Total from investment operations ................. 0.70 0.25 0.86
--------- --------- ---------
Dividends from net investment income ............... (0.46) (0.46) (0.43)
Distributions from net realized gain on investments (0.10) (0.06) (0.10)
Distributions in excess of net realized gain
on investments ................................... -- -- (0.01)
--------- --------- ---------
Total dividends and distributions ................ (0.56) (0.52) (0.54)
--------- --------- ---------
Net asset value, end of period ..................... $10.19 $10.05 $10.32
========= ========= =========
Net assets, end of period (thousands) .............. $751 $422 $273
Total return* ...................................... +7.0% +2.7% +8.8%
Ratios to average net assets:
Expenses ......................................... 1.59% 1.60% 1.60%**
Net investment income ............................ 4.94% 4.51% 4.92%**
Portfolio turnover rate ............................ 261% 365% 230%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.39 $0.31 $0.34
Expense ratio .................................. 2.76% 2.97% 2.64%**
<CAPTION>
U.S. Government Income Fund
- ------------------------------------------------------------------------------------------------
Class O
-----------------------------------------
Period
Year Ended December 31, Ended
-------------------------- December 31,
1997 1996 1995(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.06 $10.32 $10.00
--------- --------- ---------
Net investment income .............................. 0.61 0.56 0.52
Net gain (loss) on investments
(both realized and unrealized) ................... 0.18 (0.20) 0.42
--------- --------- ---------
Total from investment operations ................. 0.79 0.36 0.94
--------- --------- ---------
Dividends from net investment income ............... (0.56) (0.56) (0.52)
Distributions from net realized gain on investments (0.10) (0.06) (0.10)
Distributions in excess of net realized gain
on investments ................................... -- -- --
--------- --------- ---------
Total dividends and distributions ................ (0.66) (0.62) (0.62)
--------- --------- ---------
Net asset value, end of period ..................... $10.19 $10.06 $10.32
========= ========= =========
Net assets, end of period (thousands) .............. $9,553 $9,375 $9,552
Total return* ...................................... +8.1% +3.7% +9.7%
Ratios to average net assets:
Expenses ......................................... 0.60% 0.60% 0.60%**
Net investment income ............................ 6.01% 5.53% 5.92%**
Portfolio turnover rate ............................ 261% 365% 230%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.49 $0.41 $0.42
Expense ratio .................................. 1.77% 1.97% 1.64%**
</TABLE>
<TABLE>
<CAPTION>
National Intermediate Municipal Fund
- ------------------------------------------------------------------------------------------------
Class A
-----------------------------------------
Period
Year Ended December 31, Ended
-------------------------- December 31,
1997 1996 1995(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.35 $10.43 $10.00
---------- ---------- ----------
Net investment income .............................. 0.48 0.48 0.40
Net gain (loss) on investments
(both realized and unrealized) ................... 0.28 (0.06) 0.46
---------- ---------- ----------
Total from investment operations ................. 0.76 0.42 0.86
---------- ---------- ----------
Dividends from net investment income ............... (0.48) (0.48) (0.40)
Distributions in excess of net investment income ... -- -- --
Distributions from net realized gain on investments (0.01) (0.02) (0.03)
---------- ---------- ----------
Total dividends and distributions ................ (0.49) (0.50) (0.43)
---------- ---------- ----------
Net asset value, end of period ..................... $10.62 $10.35 $10.43
========== ========== ==========
Net assets, end of period (thousands) .............. $1,063 $696 $569
Total return* ...................................... +7.5% +4.2% +8.7%
Ratios to average net assets:
Expenses ......................................... 0.75% 0.75% 0.75%**
Net investment income ............................ 4.53% 4.62% 4.63%**
Portfolio turnover rate ............................ 1% 19% 29%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.36 $0.35 $0.32
Expense ratio .................................. 1.82% 2.02% 1.71%**
<CAPTION>
National Intermediate Municipal Fund
- ------------------------------------------------------------------------------------------------
Class B
-----------------------------------------
Period
Year Ended December 31, Ended
-------------------------- December 31,
1997 1996 1995(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.33 $10.42 $10.00
---------- ---------- ----------
Net investment income .............................. 0.40 0.40 0.34
Net gain (loss) on investments
(both realized and unrealized) ................... 0.28 (0.06) 0.45
---------- ---------- ----------
Total from investment operations ................. 0.68 0.34 0.79
---------- ---------- ----------
Dividends from net investment income ............... (0.40) (0.41) (0.34)
Distributions in excess of net investment income ... (0.01) -- --
Distributions from net realized gain on investments (0.01) (0.02) (0.03)
---------- ---------- ----------
Total dividends and distributions ................ (0.42) (0.43) (0.37)
---------- ---------- ----------
Net asset value, end of period ..................... $10.59 $10.33 $10.42
========== ========== ==========
Net assets, end of period (thousands) .............. $1,295 $702 $432
Total return* ...................................... +6.7% +3.4% +8.0%
Ratios to average net assets:
Expenses ......................................... 1.50% 1.50% 1.50%**
Net investment income ............................ 3.75% 3.88% 3.85%**
Portfolio turnover rate ............................ 1% 19% 29%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.28 $0.27 $0.25
Expense ratio .................................. 2.57% 2.77% 2.45%**
<CAPTION>
National Intermediate Municipal Fund
- ------------------------------------------------------------------------------------------------
Class C
-----------------------------------------
Period
Year Ended December 31, Ended
-------------------------- December 31,
1997 1996 1995(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.33 $10.42 $10.00
---------- ---------- ----------
Net investment income .............................. 0.40 0.40 0.34
Net gain (loss) on investments
(both realized and unrealized) ................... 0.28 (0.06) 0.45
---------- ---------- ----------
Total from investment operations ................. 0.68 0.34 0.79
---------- ---------- ----------
Dividends from net investment income ............... (0.40) (0.41) (0.34)
Distributions in excess of net investment income ... (0.01) -- --
Distributions from net realized gain on investments (0.01) (0.02) (0.03)
---------- ---------- ----------
Total dividends and distributions ................ (0.42) (0.43) (0.37)
---------- ---------- ----------
Net asset value, end of period ..................... $10.59 $10.33 $10.42
========== ========== ==========
Net assets, end of period (thousands) .............. $514 $468 $271
Total return* ...................................... +6.7% +3.4% +8.0%
Ratios to average net assets:
Expenses ......................................... 1.50% 1.50% 1.50%**
Net investment income ............................ 3.81% 3.88% 3.85%**
Portfolio turnover rate ............................ 1% 19% 29%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.28 $0.27 $0.25
Expense ratio .................................. 2.57% 2.77% 2.46%**
<CAPTION>
National Intermediate Municipal Fund
- ------------------------------------------------------------------------------------------------
Class O
-----------------------------------------
Period
Year Ended December 31, Ended
-------------------------- December 31,
1997 1996 1995(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.34 $10.43 $10.00
---------- ---------- ----------
Net investment income .............................. 0.50 0.50 0.42
Net gain (loss) on investments
(both realized and unrealized) ................... 0.28 (0.07) 0.46
---------- ---------- ----------
Total from investment operations ................. 0.78 0.43 0.88
---------- ---------- ----------
Dividends from net investment income ............... (0.50) (0.50) (0.42)
Distributions in excess of net investment income ... -- -- --
Distributions from net realized gain on investments (0.01) (0.02) (0.03)
---------- ---------- ----------
Total dividends and distributions ................ (0.51) (0.52) (0.45)
---------- ---------- ----------
Net asset value, end of period ..................... $10.61 $10.34 $10.43
========== ========== ==========
Net assets, end of period (thousands) .............. $11,286 $9,786 $9,675
Total return* ...................................... +7.8% +4.3% +9.0%
Ratios to average net assets:
Expenses ......................................... 0.50% 0.50% 0.50%**
Net investment income ............................ 4.79% 4.88% 4.86%**
Portfolio turnover rate ............................ 1% 19% 29%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.39 $0.37 $0.34
Expense ratio .................................. 1.57% 1.77% 1.46%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
* Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the payable date, and a sale at net asset value on the last day
of each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
96 & 97
<PAGE>
Financial Highlights
(concluded)
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
New York Municipal Money Fund
- ---------------------------------------------------------------------------------------
Class A
--------------------------------
Year Period
Ended Ended
December 31, December 31,
1997 1996 (a)
--------------------------------
<S> <C> <C>
Net asset value, beginning of period ............... $1.000 $1.000
------------ ------------
Net investment income .............................. 0.034 0.006
Dividends from net investment income ............... (0.034) (0.006)
------------ ------------
Net asset value, end of period ..................... $1.000 $1.000
============ ============
Net assets, end of period (thousands) .............. $3,808 $360
Total return* ...................................... +3.5% +0.6%
Ratios to average net assets:
Expenses ......................................... 0.50% 0.38%**
Net investment income ............................ 3.39% 3.56%**
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ -- $0.006
Expense ratio .................................. -- 0.39%**
<CAPTION>
New York Municipal Money Fund
- ---------------------------------------------------------------------------------------
Class B
--------------------------------
Year Period
Ended Ended
December 31, December 31,
1997 1996 (a)
--------------------------------
<S> <C> <C>
Net asset value, beginning of period ............... $1.000 $1.000
------------ ------------
Net investment income .............................. 0.034 0.006
Dividends from net investment income ............... (0.034) (0.006)
------------ ------------
Net asset value, end of period ..................... $1.000 $1.000
============ ============
Net assets, end of period (thousands) .............. $25 $25
Total return* ...................................... +3.5% +0.6%
Ratios to average net assets:
Expenses ......................................... 0.43% 0.40%**
Net investment income ............................ 3.32% 3.40%**
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ -- $0.006
Expense ratio .................................. -- 0.41%**
<CAPTION>
New York Municipal Money Fund
- ---------------------------------------------------------------------------------------
Class C
--------------------------------
Year Period
Ended Ended
December 31, December 31,
1997 1996 (a)
--------------------------------
<S> <C> <C>
Net asset value, beginning of period ............... $1.000 $1.000
------------ ------------
Net investment income .............................. 0.034 0.006
Dividends from net investment income ............... (0.034) (0.006)
------------ ------------
Net asset value, end of period ..................... $1.000 $1.000
============ ============
Net assets, end of period (thousands) .............. $25 $25
Total return* ...................................... +3.5% +0.6%
Ratios to average net assets:
Expenses ......................................... 0.47% 0.40%**
Net investment income ............................ 3.40% 3.40%**
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ -- $0.006
Expense ratio .................................. -- 0.41%**
<CAPTION>
Class O
----------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $1.000 $1.000 $1.000 $1.000 $1.000
---------- ---------- ---------- ---------- ----------
Net investment income .............................. 0.034 0.032 0.037 0.027 0.023
Dividends from net investment income ............... (0.034) (0.032) (0.037) (0.027) (0.023)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ..................... $1.000 $1.000 $1.000 $1.000 $1.000
========== ========== ========== ========== ==========
Net assets, end of period (thousands) .............. $305,419 $273,734 $226,549 $269,788 $262,413
Total return* ...................................... +3.5% +3.3% +3.7% +2.7% +2.3%
Ratios to average net assets:
Expenses ......................................... 0.47% 0.53% 0.43% 0.41% 0.41%
Net investment income ............................ 3.39% 3.25% 3.67% 2.63% 2.31%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ -- $0.032 $0.037 -- --
Expense ratio .................................. -- 0.53% 0.45% -- --
</TABLE>
<TABLE>
<CAPTION>
Cash Management Fund
- ---------------------------------------------------------------------------------------------------
Class A
--------------------------------------------
Year Ended December 31,
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $1.000 $1.000 $1.000
----------- ----------- -----------
Net investment income .............................. 0.051 0.050 0.044
Dividends from net investment income ............... (0.051) (0.050) (0.044)
----------- ----------- -----------
Net asset value, end of period ..................... $1.000 $1.000 $1.000
=========== =========== ===========
Net assets, end of period (thousands) .............. $18,246 $8,175 $1,756
Total return* ...................................... +5.2% +5.1% +4.5%
Ratios to average net assets:
Expenses ......................................... 0.55% 0.55% 0.55%
Net investment income ............................ 5.11% 4.95% 5.42%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.049 $0.047 $0.037
Expense ratio .................................. 0.70% 0.82% 1.35%
<CAPTION>
Cash Management Fund
- ---------------------------------------------------------------------------------------------------
Class B
--------------------------------------------
Year Ended December 31,
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $1.000 $1.000 $1.000
----------- ----------- -----------
Net investment income .............................. 0.051 0.050 0.043
Dividends from net investment income ............... (0.051) (0.050) (0.043)
----------- ----------- -----------
Net asset value, end of period ..................... $1.000 $1.000 $1.000
=========== =========== ===========
Net assets, end of period (thousands) .............. $4,151 $3,920 $2,238
Total return* ...................................... +5.2% +5.1% +4.4%
Ratios to average net assets:
Expenses ......................................... 0.55% 0.55% 0.55%
Net investment income ............................ 5.10% 4.95% 5.38%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.049 $0.047 $0.037
Expense ratio .................................. 0.70% 0.82% 1.34%
<CAPTION>
Cash Management Fund
- ---------------------------------------------------------------------------------------------------
Class C
--------------------------------------------
Year Ended December 31,
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $1.000 $1.000 $1.000
----------- ----------- -----------
Net investment income .............................. 0.051 0.050 0.043
Dividends from net investment income ............... (0.051) (0.050) (0.043)
----------- ----------- -----------
Net asset value, end of period ..................... $1.000 $1.000 $1.000
=========== =========== ===========
Net assets, end of period (thousands) .............. $1,806 $435 $183
Total return* ...................................... +5.2% +5.1% +4.4%
Ratios to average net assets:
Expenses ......................................... 0.55% 0.55% 0.55%
Net investment income ............................ 5.16% 4.95% 5.40%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.049 $0.047 $0.036
Expense ratio .................................. 0.70% 0.82% 1.34%
<CAPTION>
Cash Management Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Class O
-----------------------------------------------------------------------------
Year Ended December 31,
1997 1996 1995 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............... $1.000 $1.000 $1.000 $1.000 $1.000
----------- ----------- ----------- ----------- -----------
Net investment income .............................. 0.051 0.050 0.055 0.038 0.027
Dividends from net investment income ............... (0.051) (0.050) (0.055) (0.038) (0.027)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period ..................... $1.000 $1.000 $1.000 $1.000 $1.000
=========== =========== =========== =========== ===========
Net assets, end of period (thousands) .............. $19,872 $14,225 $6,684 $19,127 $15,049
Total return* ...................................... +5.2% +5.1% +5.6% +3.9% +2.7%
Ratios to average net assets:
Expenses ......................................... 0.55% 0.55% 0.55% 0.61% 0.65%
Net investment income ............................ 5.10% 4.95% 5.46% 3.79% 2.68%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ................ $0.049 $0.047 $0.047 $0.036 $0.025
Expense ratio .................................. 0.70% 0.82% 1.34% 0.81% 0.85%
</TABLE>
(a) November 1, 1996, commencement of investment operations, through December
31, 1996.
* Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the payable date, and a sale at net asset value on the last day
of each period reported. Total return calculated for a period of less than
one year is not annualized.
** Annualized.
See accompanying notes to financial statements
98 & 99
<PAGE>
Report of Independent Accountants
To the Boards of Directors and Shareholders of
Salomon Brothers Cash Management Fund
Salomon Brothers New York Municipal Money Market Fund
Salomon Brothers National Intermediate Municipal Fund
Salomon Brothers U.S. Government Income Fund
Salomon Brothers High Yield Bond Fund
Salomon Brothers Strategic Bond Fund
Salomon Brothers Total Return Fund
Salomon Brothers Asia Growth Fund
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios 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 Cash
Management Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon
Brothers National Intermediate Municipal Fund, Salomon Brothers U.S. Government
Income Fund, Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic
Bond Fund, Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth Fund
(eight of the portfolios constituting Salomon Brothers Series Funds Inc),
Salomon Brothers Investors Fund Inc and Salomon Brothers Capital Fund Inc
(hereafter referred to as the "Funds") at December 31, 1997, the results of each
of their operations, the changes in each of their net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted 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, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 23, 1998
100
<PAGE>
Shareholder Voting Results
(unaudited)
The Funds held a Special Meeting of Stockholders on January 14, 1998. The
following table provides information concerning the matters voted on at the
meeting:
Proposal 1
Approval of new management contract between SBAM and the Fund.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asia Growth Fund .............................................. 1,107,467 1,657 20,752
Capital Fund .................................................. 5,336,079 20,045 44,242
Investors Fund ................................................ 17,697,135 491,672 840,731
Total Return Fund ............................................. 6,960,968 64,438 337,695
High Yield Bond Fund .......................................... 31,798,917 252,585 944,785
Strategic Bond Fund ........................................... 4,594,740 46,323 196,684
National Intermediate Municipal Fund .......................... 1,078,291 5 153
U.S. Government Income Fund ................................... 1,150,485 4,991 9,825
New York Municipal Money Market Fund .......................... 133,011,343 2,851,331 3,927,102
Cash Management Fund .......................................... 30,016,741 19,655 275,544
</TABLE>
Proposal 2
Approval of new subadvisory agreement between SBAM and SBAM Limited.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Strategic Bond Fund ........................................... 4,596,018 45,992 195,737
</TABLE>
Proposal 4
Approval of a new subadvisory agreement between SBAM and SBAM AP.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asia Growth Fund .............................................. 1,109,566 2,722 17,588
</TABLE>
Proposal 5
Election of directors to the Board of Directors to hold office until their
successors are duly elected and qualified.
<TABLE>
<CAPTION>
Capital Fund Votes For Votes Withheld
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles F. Barber ............................................. 5,390,598 32,325
Andrew L. Breech .............................................. 5,388,072 34,952
Thomas W. Brock ............................................... 5,390,870 32,053
Carol L. Colman ............................................... 5,389,254 33,670
William R. Dill ............................................... 5,385,258 37,665
Michael S. Hyland ............................................. 5,387,880 35,043
Clifford M. Kirtland, Jr. ..................................... 5,391,361 31,662
Robert W. Lawless ............................................. 5,388,102 34,821
Louis P. Mattis ............................................... 5,388,145 34,779
Thomas F. Schlafly ............................................ 5,389,780 33,144
</TABLE>
Proposal 6
Ratification of the selection of Price Waterhouse LLP as the Fund's independent
accountants.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Fund .................................................. 5,390,696 8,241 23,986
</TABLE>
101
<PAGE>
The Salomon Brothers Investment Series
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
DISTRIBUTOR
Salomon Brothers Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
DIVIDEND DISBURSING AND TRANSFER AGENT
First Data Investor Services Group, Inc.
53 State Street
Boston, Massachusetts 02109-2873
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Directors
CHARLES F. BARBER
Consultant; formerly Chairman; ASARCO Incorporated
ANDREW L. BREECH*,***
President, Dealer Operating Control Service Inc.
THOMAS W. BROCK*,***
Chairman, Managing Director and Chief Executive Officer, Salomon Brothers
Asset Management Inc; Managing Director and member of the Management
Board, Salmon Brothers Inc
CAROL L. COLMAN
President, Colman Consulting Co., Inc.
DANIEL P. CRONIN**
Vice President-General Counsel,
Pfizer International Inc.
WILLIAM R. DILL*,***
Consultant; formerly President, Boston Architectural Center; formerly
President, Anna Maria College
HEATH B. MCLENDON
Chairman and President;
Managing Director, Smith Barney Inc.
President, Smith Barney Mutual Fund Management Inc.;
Chairman, 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.
and Graphic Industries, Inc.; formerly Chairman, Cox Communications, Inc.
ROBERT W. LAWLESS*,***
President and Chief Executive Officer, University of Tulsa; formerly
President and Chief Executive Officer, Texas Tech University and Tech
University Health Sciences Center
LOUIS P. MATTIS*,***
Consultant; formerly Chairman and President, Sterling Winthrop Inc.
THOMAS F. SCHLAFLY*,***
Of counsel to Peper, Martin, Jensen, Maichel & Hetlage (law firm),
President, The Saint Louis Brewery, Inc.
Officers
HEATH B. MCLENDON
Chairman and President
JAMES E. CRAIGE**
Executive Vice President
RICHARD E. DAHLBERG
Executive Vice President
THOMAS K. FLANAGAN**
Executive Vice President
GIAMPAOLO G. GUARNIERI**
Executive Vice President
STEPHEN GUTERMAN**
Executive Vice President
ROSS S. MARGOLIES***
Executive Vice President
MAUREEN O'CALLAGHAN**
Executive Vice President
BETH A. SEMMEL**
Executive Vice President
ALLAN R. WHITE, III*,**
Executive Vice President
MARYBETH WHYTE**
Executive Vice President
PETER J. WILBY**
Executive Vice President
ELIZA LAU**
Vice President
PAMELA P. MILUNOVICH*
Vice President
NANCY A. NOYES**
Vice President
ALAN M. MANDEL
Treasurer
NOEL B. DAUGHERTY
Secretary
JENNIFER G. MUZZEY
Assistant Secretary
JANET S. TOLCHIN
Assistant Treasurer
- --------------------------------------------------------------------------------
* Only on the Salomon Brothers Investors Fund Inc
** Only on the Salomon Brothers Series Funds Inc
*** Only on the Salomon Brothers Capital Fund Inc
