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ANNUAL REPORT
December 31, 1999
[PHOTO]
[PHOTO]
SALOMON BROTHERS
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ASSET MANAGEMENT
[_] ASIA GROWTH FUND
[_] INTERNATIONAL EQUITY FUND
[_] SMALL CAP GROWTH FUND
SALOMON BROTHERS
- --------------------------------------------- [_] LARGE CAP GROWTH FUND
[_] CAPITAL FUND
[_] INVESTORS VALUE FUND
[_] BALANCED FUND
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For almost a century, Salmon Brothers has provided serious investors with advice
and resources help them reach their financial goals.
Salomon Brothers offers...
Quality Service
Scope of Choice
An Information Advantage
We offer cutting-edge solutions and investment programs delivered through
financial advisors. Our rich tradition and unparalleled expertise provides
access to innovative ideas and extensive resources.
We wish to extend our sincere thanks for investing with us. Technology, new
innovations and business opportunities have changed the financial world over the
years -- but one constant remains: our commitment to serve your investment
needs.
BRIDGING WALL STREET OPPORTUNITIES TO YOUR FINANCIAL FUTURE
RICH TRADITION
Bold initiative, determination and market foresight have defined the Salomon
Brothers name for nearly a century.
GLOBAL RESOURCES
We have access to one of the world's largest financial institutions, creating a
global web of resources comprised of 170,000 employees in over 100 countries.
INVESTMENT EXPERTISE
Averaging over 16 years of professional industry experience, our seasoned
portfolio management team consistently demonstrates a disciplined institutional
approach to money management.
PERFORMANCE
We believe that a true measure of performance extends beyond short-term time
frames to long-term outcomes, quality of management, quality of relationship and
quality of thought.
INFORMATION ADVANTAGE
We offer a global information advantage to investors and their advisors --
providing the benefits of a world of rapid knowledge acquisition.
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Table of Contents
A MESSAGE FROM THE CHAIRMAN .......................................... 2
SALOMON BROTHERS INVESTMENT SERIES
ASIA GROWTH FUND ................................................... 7
INTERNATIONAL EQUITY FUND .......................................... 14
SMALL CAP GROWTH FUND .............................................. 17
LARGE CAP GROWTH FUND .............................................. 22
CAPITAL FUND ....................................................... 26
INVESTORS VALUE FUND ............................................... 32
BALANCED FUND ...................................................... 38
SCHEDULES OF INVESTMENTS ............................................. 43
STATEMENTS OF ASSETS AND LIABILITIES ................................. 68
STATEMENTS OF OPERATIONS ............................................. 70
STATEMENTS OF CHANGES IN NET ASSETS .................................. 72
NOTES TO FINANCIAL STATEMENTS ........................................ 75
FINANCIAL HIGHLIGHTS ................................................. 89
REPORT OF INDEPENDENT ACCOUNTANTS .................................... 100
TAX INFORMATION ...................................................... 101
DIRECTORS AND OFFICERS OF
SALOMON BROTHERS INVESTMENT SERIES ................................. IBC
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[PICTURE]
Heath B. McLendon
Chairman
SALOMON BROTHERS INVESTMENT SERIES
A Message From the Chairman
DEAR SHAREHOLDER:
We are pleased to provide the annual report for the Salomon Brothers Investment
Series -- Asia Growth Fund, International Equity Fund, Small Cap Growth Fund,
Large Cap Growth Fund, Capital Fund, Investors Value Fund and Balanced Fund
("Funds") for the year ended December 31, 1999. Interviews with the various Fund
managers appear after each market commentary. We hope you find this report
useful and informative.
Below is a chart showing each Fund's Class A shares return for the year ended
December 31, 1999 with and without sales charges.
THE PERFORMANCE OF THE FUNDS1
Class A Shares Total Return for the Year Ended December 31, 1999:
WITHOUT WITH
SALES CHARGES2 SALES CHARGES3
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Asia Growth Fund 94.92% 83.62%
International Equity Fund
(since inception 10/25/99) 24.90 17.72
Small Cap Growth Fund 57.52 48.43
Large Cap Growth Fund
(since inception 10/25/99) 11.80 5.37
Capital Fund 23.11 16.03
Investors Value Fund 11.47 5.08
Balanced Fund 3.21 (2.72)
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1 Please note that the returns for the Asia Growth Fund, International Equity
Fund, Small Cap Growth Fund, Large Cap Growth Fund and Balanced Fund
include the effects of fee waivers. Had these fee waiver policies not been
in effect, the returns for these Funds would have been lower. It is Salomon
Brothers Asset Management's intention to continue this policy. However,
there can be no assurance that these fee waivers will remain in effect.
2 These total return figures assume reinvestment of all dividends and do not
reflect the deduction of sales charges for each Fund's Class A shares.
3 These total return figures assume reinvestment of all dividends and reflect
the deduction of the maximum front-end sales charge for each Fund's Class A
shares of 5.75%.
Both columns of data represent past performance, which is not indicative of
future results. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. This shareholder report has been prepared for the
information of shareholders of the Funds and is not authorized for use unless
preceded or accompanied by a current prospectus. The prospectus contains
information regarding each Fund's sales charges, expenses, objectives, policies,
risks, management and performance. To obtain a copy of the prospectus, please
call your Financial Advisor directly or call 1-800-725-6666. Please read it
carefully before you invest or send money.
2
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MARKET COMMENTARY
Many of the world's financial markets fell a year ago, following Russia's
unexpected debt defaults, a major hedge fund crisis and a currency devaluation
in Brazil. Meanwhile, economic upheavals in Asia were also causing serious
international repercussions. Yet, by the end of the period, many global stock
and bond markets experienced a dramatic reversal of fortune.
Recently released economic data from the U.S. Commerce Department provided the
first concrete evidence that the U.S. economy may have been structurally
transformed in an extremely positive way during the period. In fact, recent data
suggests to us that the economy has actually been growing stronger than had been
previously thought. The term "new economic era" may explain to a large extent
the changes in stock market valuations that have occurred over the past several
years. While short-term market fluctuations may be expected as a result of
future Federal Reserve Board ("Fed") monetary policy decisions, we are guardedly
optimistic about our economic future.
In other parts of the world, growth picked up in Europe and Asia, where a great
deal of corporate restructuring is taking place. Europe's new economy has
contributed to the consolidation of businesses and the creation of even stronger
and more competitive European companies. We continue to see the amazing
resilience of the economies of Southeast Asia, as the region returns to economic
stability and growth -- albeit at a slower, yet more sustainable, rate.
The globalization of financial markets has also continued as the New York Stock
Exchange and NASDAQ add more foreign stocks for trading. Investors today have
more investment options than ever before as trading hours expand, allowing for
broader investor participation and pursuit of investment opportunities.
In addition, the combination of stronger economic growth abroad and the
potential for double-digit earnings gains in overseas stock markets make a
compelling case for buying international stocks today. During the past two years
in particular the United States has been the driver for global market growth,
reaping the benefits of a robust economy, low interest rates and benign
inflation. Today, other regions in the world are poised to benefit from
similarly positive economic conditions. Indeed, despite still-anemic conditions
in Japan, other countries in Asia, Europe and Latin America are taking up the
mantle, employing preemptive monetary policies and keeping inflation for the
most part well contained.
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The fundamentals that typically drive the stock markets are changes in interest
rates and changes in earnings. Given that global interest rates are likely to
trend slightly higher during the coming year -- or at best might move sideways
- -- stock markets are not likely to receive any meaningful boost from positive
moves in interest rates. We believe that in the face of accelerating economic
growth rates around the world, low inflation and U.S. dollar weakness, this
valuation gap is likely to narrow, with international stocks possibly doing
better than their U.S. counterparts in the coming year.
We have become increasingly selective within the technology sector. We believe
that the recent surge in this sector has been driven more by momentum than by
fundamentals. With a stronger global economy, demand for technology should
remain robust, but we are emphasizing better-quality companies with clear
earnings visibility, reasonably priced companies and special situations.
SALOMON BROTHERS ASSET MANAGEMENT UPDATE
We at Salomon Brothers Asset Management are pleased to announce the launch of
two new mutual funds during the period. Effective October 25, 1999, the
International Equity Fund and Large Cap Growth Fund were introduced into the
Salomon Brothers Investment Series Family. We believe that both of these new
products bring outstanding investment opportunities to today's discriminating
investors and round out our menu of offerings.
Also, two Funds in the Salomon Brothers Investment Series changed their names
during the reporting period. The Salomon Brothers Total Return Fund was renamed
the Salomon Brothers Balanced Fund and the Salomon Brothers Investors Fund was
renamed the Salomon Brothers Investors Value Fund. Effective September 1, 1999,
the Board of Directors approved changing the names to more clearly identify the
Funds' specified objectives. Please note that these name changes in no way
reflect a shift in either objective or strategy. The name changes were made to
make it easier for investors to understand each Fund's investment style.
Here is a brief list of some other noteworthy events that took place at Salomon
Brothers Asset Management the past year.
.A Warm Welcome to Phillip Meserve -- Former President of Pilgrim Baxter &
Associates, Phil Meserve has recently joined Salomon Brothers as Managing
Director and Head of Non-Proprietary Distribution. Mr. Meserve is well
known in the industry for helping to establish and build a more
client-focused financial intermediary network in the early to mid-1990s.
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.A Unique Investment Style -- Looking for a fund that has identified and
owned some of the best performing stocks out there? Salomon Brothers
Capital Fund taps into a variety of market capitalizations, in search of
the best stock opportunities. The Fund's managers are widely recognized for
the Fund's unique investment style. Barron's, a leading business weekly,
recently profiled the Fund's portfolio managers, Ross Margolies and Robert
Donahue, describing them as "true bottom-up investors focusing on
individual companies," while Morningstar, Inc. refers to manager Ross
Margolies as "one of the smartest fund managers around."4
On behalf of everyone here at Salomon Brothers Asset Management, we would like
to thank you for your continued confidence in the Salomon Brothers Investment
Series. We look forward to helping you pursue your financial goals in the new
century.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman and President
January 24, 2000
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4 Source: Barron's, "Nonconformists," 11/13/99. Source: Morningstar, "The
Pick of the Mid-Blend Category," 10/12/99. Past performance is not
indicative of future results. The principal value and investment returns
will fluctuate, and investors' shares, when redeemed, may be worth more or
less than their original cost. Please read each fund's prospectus carefully
before you invest or send money.
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THE INTERNET AGE: RESHAPING GLOBAL OPPORTUNITIES
The Internet revolution continues to affect a wide range of businesses around
the world. The Internet has created numerous new online services and products
while altering the business plans of many leading industrial and consumer
service companies.
Much of the recent strength in technology- and communications-related stocks has
been derived from glowing prospects for the future growth of the Internet. The
Internet has driven these sectors to such a degree that if the Internet did not
exist, these areas would not be as highly valued. The future potential for
weakness in the current narrow leadership of large-cap growth stocks may come
through the new Internet.
We think that the power of many Internet stocks has come from their seeming
ability to raise almost unlimited capital at a relatively reasonable cost for
possibly infinite growth opportunities. Higher interest rates would likely alter
the cost of and access to capital and, consequently, produce a setback for
Internet stock prices. Such a setback might be thought of as a correction of
high valuation rather than as a significant change in the future growth
potential of the Internet.
A recent technology conference raised compelling arguments why the technology
and communications industries may continue to be great performers in the years
ahead. Although near-term challenges persist, we continue to believe that the
Internet will remain a powerful driver of stock share prices. The Internet is
gaining 2.5 million users per month, and many of these people will become active
online consumers. Moreover, Dell, a global computer systems company, estimates
that 15% of all U.S. Gross Domestic Product ("GDP") could soon come from
Internet electronic commerce. And there are no shortage of companies willing to
provide the systems and services necessary to facilitate online transactions.
Yet, if long-term rates move meaningfully higher in 2000, we believe a
significant correction of the divergent stock market is likely to occur. The
broader market may, in the process of this correction, show some degree of
relative strength, because many of these stocks have already been in a two-year
bear market.
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[PICTURE]
INVESTMENT OBJECTIVE AND STRATEGY
The Salomon Brothers Asia Growth Fund seeks long-term capital appreciation. The
Fund invests at least 65% of total assets in the equity and equity-related
securities of Asian companies. Areas considered for investments include, but are
not limited to, China, Hong Kong, Indonesia, Korea, Philippines, Singapore,
Taiwan, Malaysia, Thailand and the Indian sub-continent. In seeking to achieve
its objective, the Fund will allocate its assets among countries and industries
believed by the portfolio managers to be most likely to benefit from positive
regional economic trends.
THE FUND MANAGERS
Managed by an investment team out of the Hong Kong office.
SALOMON BROTHERS
Asia Growth Fund
PERFORMANCE UPDATE
The Asia Growth Fund's ("Fund") Class A shares without sales charge returned
94.92% for the year ended December 31, 1999. This compares very favorably to the
Morgan Stanley Capital International All Country Asia Free Ex-Japan Index's
("MSCI Ex-Japan Index") total return of 61.95% for the same period. (The MSCI
Ex-Japan Index consists of the equity total returns for Europe and Southeast
Asia.)
MARKET REVIEW AND PORTFOLIO HIGHLIGHTS
Asian markets roared back in 1999 after struggling to find their footing the
prior year. With evidence of economic recovery surpassing most estimates,
foreign capital returned to the various economies and financial markets in Asia.
Along with appreciating currencies and lower interest rates, these strong money
flows helped support the cyclical upturn of Asia-Pacific region and boosted
their stock markets in the process.
In our view, the Asian market rallies were driven mainly by two factors:
liquidity and growth. A significant improvement in liquidity conditions during
the year boosted share prices as renewed confidence among local investors led to
a shift of money out of savings accounts and into their local stock markets.
Foreign investors were not far behind, allocating funds from the U.S. and Europe
to the Asia-Pacific region. Along with improved liquidity, growth in the region
was also one of the principal drivers of the market. At the beginning of the
year, most analysts had forecasted a slowdown in the global economies, but
economic indicators continued to surprise on the upside, proving their forecasts
to be too pessimistic. All of this led to further upgrades in GDP and corporate
earnings estimates. As a result, Asia's markets, which were initially thought to
be expensive, became more attractive as earnings revisions were adjusted
upwards.
Many other positive developments in Asia also emerged in the past year. Asia
offset recent high-profile concerns like the Daewoo debt problem and the saber
rattling in China over the Taiwan Straits. Despite the debt problems at Daewoo,
which suggested to us that Korea has a long way to go in getting its financial
house in order, the country did make significant strides in getting rid of debt
and progress in restructuring the chaebols. (Chaebol is an economic system
whereby the central government selects a few companies to grow and prosper by
granting them preferential treatment.)
As a result, select Korean companies continued to show huge improvements in
earnings. In Indonesia, the free, peaceful and credible outcome of elections
resulted in easing political tensions. Moreover, the success of the U.S.-China
trade relations, which ensures China's entry into the World Trade Organization
("WTO"), also improved investor sentiment and led to buying in northern Asian
stocks. Perhaps most important, Japan finally started to show signs of emerging
from a decade of economic stagnation.
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The Fund's emphasis on stock selection was the main contributor for its strong
performance against its benchmark. In particular, the Fund exhibited
exceptionally strong performance in the fourth quarter of 1999. (Of course, past
performance is not indicative of future results.) This was attributable to
factors such as:
.A major asset allocation call in late September/early October to overweight
Hong Kong and South Korea markets;
.The decision to overweight the telecommunication sector in the region;
.Selective stock picks in Hong Kong, Singapore, South Korea and India.
The accumulation of blue-chip companies such as HSBC Holdings, Hutchison Whampoa
Ltd. and SHK Properties in late September as the Hang Seng Index consolidated to
a more attractive level, also contributed to Fund performance. Not only was it
well timed, it confirmed our view that both Hutchison and HSBC should be core
holdings in the Hong Kong portfolio due to their global presence and
diversification.
China Telecom remained the largest holding in Hong Kong. The Fund's managers
believed and continue to believe that its growth, particularly from acquisitions
in new provinces, should prove to be positive over time. The Fund remained
overweight in South Korea for most of the year given the benefits from the
country's emergence from recession. A widening current account surplus,
continued inflow of foreign direct investment and net buying from portfolio
investors, resulted in the Korean Stock Market ("KOSPI") being the best
performing regional market year-to-date (in local currency terms).
The Fund concentrated on telecommunication shares in Korea, such as SK Telecom
and Korea Telecom given their inexpensive valuations versus their regional peers
and the competitive brand names of the two. Additionally, the Fund held onto the
good quality banks like Shinhan Bank and Housing & Commercial Bank due to their
limited exposure to the Daewoo Group of companies. Samsung Electronics was also
a significant holding within the Fund toward the second half of 1999, as the
managers held onto the positive view of the semiconductor cycle. The Fund was
exposed to Daewoo Securities at the beginning of the year, as it was the most
inexpensive in the sector. This holding was later sold due to the continuous
worries of the Daewoo group's debt situation.
In Singapore, the Fund remained overweighted in banks and contract manufacturers
throughout the year. The Fund owned Overseas Union Bank since the fourth quarter
of 1998, benefiting from the its cheaper valuation relative to its peers. In
addition, given the sector's consolidation trend, the bank was also a possible
merger and acquisition target. The Fund also gained with Development Bank of
Singapore ("DBS") as it emerged as Singapore's strongest and largest financial
institution. DBS Bank's continuous regional expansion plans generated the
highest return on equity among its peers.
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India was one of the Fund's best performers in 1999. This was mainly
attributable to stock selection, particularly in the software sector. Satyam
Computers, a software manufacturer, was consistently in the top 10 and the
Fund's largest position in India. The latest set of the company's results
remained positive and strong export growth prospects are expected to continue.
The company also unlocked value through its 60.5% stake in Satyam Infoway, which
made its debut on NASDAQ in October. By holding Satyam Infoway, the Fund has
gained over 800% since its IPO debut on this position alone.
During most of the year, the Fund took the view of underweighting most Southeast
Asian markets including Indonesia, the Philippines and Thailand as well as
having an underweight stance in Taiwan. To date, this strategy proved to be
prudent as the north Asian counterparts (except Taiwan due to the specific
earthquake situation), Korea, Singapore and India outperformed the smaller
markets.
MARKET OUTLOOK
U.S. interest rates and U.S. market direction was the region's focus for most of
1999. In 2000 the Fund's investment team believes that there will be a possible
de-coupling of Asian markets with the U.S. and a shift of focus to Japan.
Signals of a bottom in the Japanese economic slump are particularly encouraging.
A recovery in Japan seems to confirm Asia's economic revival. On the trade
front, the move away from dependence on the U.S. and Europe toward a more
self-sustained trade (intraregionally) dynamic has further positive implications
on the sustainability of regional growth. Furthermore, there is some evidence of
a return of the Asian consumer suggesting that the domestic engine may
contribute to the broadening of growth. As such, the region's macro economic
landscape, with Japan as the cornerstone, should continue to support stock
markets.
Restructuring, sustainable growth and the ability to create value for company
shareholders will remain the Fund's major investment themes going into 2000.
Stronger companies emerging from the past downturn through successful
restructuring should see the return of pricing power, improved margins and
greater profitability. The new technology evolution (including e-commerce and
outsourcing) will also be a key Fund emphasis. This will include new ways of
doing business through Internet-related activities, especially within the
telecommunications industry. Overall, the positive opinion on the region's stock
markets remains. With the help of a Japanese recovery and the return of economic
growth to the region, Asian financial assets should continue to perform well.
(Of course, past performance is not indicative of future results.)
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ASIA GROWTH FUND --
Fundamental Analysis and Broad-Based Quantitative Techniques
Salomon Brothers Asia Growth Fund has been focusing on companies based primarily
in China, Hong Kong, Indonesia, South Korea, the Philippines, Singapore, Taiwan
and Thailand. The Fund's management team believes that the recent changes in the
Asian economy provide excellent long-term capital appreciation opportunities.
Crystal Chan, a member of the management team, explains how they strive to
create a portfolio responsive to the changes taking place throughout Asia.
Q: Although you do not invest in Japan, it seems to influence the performance of
the Fund. Please explain how the recent rebound in the Japanese market has
affected the Fund and how it may influence the long-term success of the
Asia/Pacific region.
The recent rally in Japanese stocks suggests to us that, at the very least, the
Japanese economy may have bottomed out. Should this be the case, and there is
increasing evidence to support economic recovery, the impact on the region is
clearly positive. First, the timing of a recovery of Japan, after a long period
of stagnation, could not be better for neighboring economies that are finally
recovering from the 1997 crisis and are still highly dependent on exports to the
U.S. and Europe. If the U.S. economy moderates as a result of the interest rate
increases, a stronger Japan should provide the region with a support to exports
that may have otherwise slowed.
Recent data suggests that intraregional trade among Asian countries has picked
up substantially. Japan is the largest regional trading partner for most Asian
countries and any economic revival in Japan will have positive repercussions on
the region. In addition, the Japanese stock market rally should have a positive
impact on investor sentiment, particularly Japanese investor sentiment. Outside
observers have long lamented the inertia among Japanese consumers and have
argued that it will take a pickup in domestic demand to get the Japanese economy
on the path to sustained recovery. The renewed confidence resulting from the
material increase in stock prices may be just the boost that will get local
Japanese consumers to spend more.
Q: How will the recent trade agreement between the U.S. and China impact the
Asia/Pacific region?
The true significance of the U.S.-China trade agreement lies mostly in the fact
that China may finally be part of the WTO and as such should enjoy increased
trade flows to and from countries within the organization. China has long
struggled to get on an even trade playing field with the rest of the developed
countries and having this status calls for increased transparency and more
stringent rules which should benefit China's external trade balances.
Furthermore, having a financial infrastructure that the rest of the world is
comfortable with should also coax foreign direct investors ("FDIs") back into
the country. Lastly, increased trade and increased FDI flows should be a support
in what has been a faltering economy and as such, reduce the risk of local
currency devaluation. With the specter of a devalued yuan (China's currency),
the region and its markets have a better chance at continued economic recovery.
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Q: The Asia Growth Fund's investment team monitors overall risk by evaluating
how the Fund responds to changes in economic conditions, and emphasizes
individual security risk through careful scrutiny of each company's management
and financials. Please describe your stock selection process.
The stock selection process of the Salomon Brothers Asset Management team in
Asian stocks combines both fundamental analysis with broad-based quantitative
techniques within a risk management framework. The process begins with a
systematic screening processes that seeks undervalued companies on a
pan-regional basis. Companies are screened by market capitalization, management
quality, transparency, earnings/dividend history over a full business cycle and
their respective competitive positions.
Evaluation of input from regular meetings with the management of over 100
companies annually forms the basis of our fundamental analysis. Cash flow
dynamics (i.e., emphasis on cash flow return on investment) is of particular
importance in our fundamental analysis process. Lastly, valuations of companies
the Fund may potentially invest in are tested by their price-to-earnings (P/E)
ratio (the price of a stock divided by its earnings per share), price-to-book
(P/B) ratio (the price of a stock divided by the net asset value of a company's
securities), yield (return on an investor's capital investment), price-to-cash
flow (P/CF) ratio, P/E-to-growth ratio, etc. Quantitative analysis includes the
timing of buying and selling a security by identifying their overbought/oversold
signals, the scoring of companies according to their earnings/price momentums as
well as focusing on risk management to help minimize volatility. A portfolio is
then built, supplemented by systematic portfolio monitoring with a strict
quantitative overlay.
Q: The past few years have been a difficult time for many international money
managers because of higher global market volatility. How do you manage money in
these kinds of challenging markets?
Discipline and risk controls are very important to us in managing money during
volatile times. The Asia Growth Fund maintained its focus on stock selection by
owning securities we believed were attractive on a pan-regional and sector
basis. This involves a bottom-up approach within the nonbench-mark stocks. We
conducted continuous visits with management for corporate updates and earnings
expectations. Stocks were also closely monitored for price movements affecting
our valuation targets. A risk management discipline is also implemented for
rapid price movements, especially during volatile times.
11
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Q: How will the changing role of Asia in the global economy influence your
investment decisions in the Fund?
The Asian financial crisis of 1997 and its subsequent spread to other parts of
the world only served to highlight Asia's increasing impact on the global
economy. More recently, evidence that global economies have become more
inextricably linked to Asian markets has been underscored by the listing of
Asian technology stocks on NASDAQ.
From an investment standpoint, China's entry into the WTO also underscores the
importance of both developed and emerging markets. Overall, we think that the
worst of the economic downturn is over and Asian companies' aggressive
participation in the recovery can only bode well for the region's long-term
prospects.
In 2000, we believe that there will be a greater focus on the Japanese stock
market. Given the backdrop of a Japanese recovery, the return of growth to the
region and the closer alignment of many Asian corporations with global
companies, we remain bullish on select Asian stocks.
Crystal, thank you for speaking with us today.
12
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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.
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HISTORICAL PERFORMANCE (unaudited)
ASIA GROWTH FUND -- CLASS A, B, 2 and O SHARES
Comparison of $10,000 Investment in the Fund with MSCI AC Asia Free Ex-Japan
Index
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[GRAPH]
[PLOT POINTS TO COME]
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
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Portfolio Highlights#
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Composition of portfolio as of December 31, 1999
[PIE CHART]
[PLOT POINTS TO COME]
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Average Annual Total Returns for Period Through December 31, 1999
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Class A Shares Without Sales Charges With Sales Charges*
................................................................................
Since Inception (5/6/96) 8.03% 6.30%
3 year 8.04% 5.93%
1 year 94.92% 83.62%
................................................................................
Class B Shares
................................................................................
Since Inception (5/6/96) 7.24% 6.55%
3 year 7.25% 6.37%
1 year 93.30% 88.30%
................................................................................
Class 2 Shares
................................................................................
Since Inception (5/6/96) 7.27% 6.98%
3 year 7.29% 6.95%
1 year 93.30% 90.51%
................................................................................
Class O Shares
................................................................................
Since Inception (5/6/96) 8.29% 8.29%
3 year 8.30% 8.30%
1 year 95.11% 95.11%
================================================================================
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Breakdown By Country#
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Hong Kong 29.1%
South Korea 22.5%
Taiwan 16.1%
Singapore 13.6%
India 10.9%
Malaysia 2.7%
Thailand 2.7%
Indonesia 1.6%
China 0.8%
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Portfolio holdings may vary.
See page 42 for all footnotes.
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INVESTMENT OBJECTIVE AND STRATEGY
The International Equity Fund seeks long-term capital growth by investing in
equity securities of non-U.S. issuers throughout the world. Moreover, the Fund
seeks to achieve its investment objective by investing primarily in equity
securities and equity-related companies that participate in growth industries
and can deliver sustainable above-average growth in earnings over a two to
three-year time horizon.
Under normal market conditions, the Fund is generally diversified among a number
of different countries by investing at least 65% of its total assets in at least
three countries. Our primary focus is on sustainable growth companies. The
companies in which the Fund invests show strong earnings growth visibility;
however, we try to seek out those companies that are not selling at an excessive
premium to the market.
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THE FUND MANAGERS
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The Fund is managed by Citibank,N.A., through its Citibank Global Asset
Management ("CGAM") division.
SALOMON BROTHERS
International Equity Fund
MARKET REVIEW AND PORTFOLIO HIGHLIGHTS
Since its inception on October 25, 1999, the International Equity Fund's
("Fund") Class A shares without sales charges returned 24.90%.
We tend not to have stock favorites, but rather maintain an equally weighted
portfolio concentrated in approximately 41 stocks. Moreover, we expect the Fund
to have relatively low portfolio turnover of about 15% to 20% per year.
If we had to cite one outstanding performer in our portfolio, it would be
Finnish cellular phone maker Nokia. This company fits our criteria of
sustainable growth (or unit volume growth) irrespective of economic conditions.
Five years ago, there were 26 million cellular handsets around the world. Today,
that figure has leaped to 275 million, and is estimated to reach an astounding 1
billion by 2002. Given that Nokia is the leading producer of cellular handsets
in the world, we think the company is strategically positioned to capitalize on
this growing trend.
MARKET OUTLOOK
The U.S. stock market has outperformed its overseas counterparts since 1995,
posting enviable returns of roughly 20% per year through 1999 as measured by the
Standard & Poor's 500 Index ("S&P 500"). (The S&P 500 is a market
capitalization-weighted measure of 500 common stocks.) During the past two
years, in particular, the U.S. has been the economic driver for global markets,
reaping the benefits of robust economic growth, low interest rates and benign
inflation. Today, other regions in the world are poised to benefit from
similarly positive economic conditions. We believe that this pickup in economic
growth need not be accompanied by a pickup in inflation. Indeed, central banks
and financial institutions in Japan, Asia, Europe and Latin America have been
employing preemptive monetary policies and keeping inflation well contained. In
our view, this positive backdrop for global stocks should continue into 2000.
Moreover, the global economy should enjoy a healthy start in the new millennium.
Growth is likely to rise above the long-term average in 2000 and 2001, after
monetary stimulus helped overcome the financial crisis of 1997-1998 without a
serious threat of a resurgence in global inflation. The outlook for global
growth has improved, reflecting evidence that increased capacity in the U.S.
should spread elsewhere in the industrialized world.
We believe that the Fund is well-positioned to take advantage of the growth of
the markets. Large capitalization growth stocks, in our opinion, should continue
to perform well in the year to come. We believe that our focus on industry
leaders in high-growth industries such as telecommunications, technology, health
care and retailing should benefit the Fund over the long term.
14
<PAGE>
INTERNATIONAL EQUITY FUND --
Looking to Participate in the Success of Global Markets
The financial world has evolved into a global marketplace in which buyers and
sellers of investments readily trade beyond their national boundaries. In fact,
foreign markets represent over half of the world's capitalization and are driven
by widely varying economies and growth rates. Henry de Vismes, a member of the
Fund's investment team, shares his insights on the wealth of opportunities
offered by global companies in some of the world's most dynamic markets.
Q: Henry, most mutual funds today take a value approach to investing in
international stocks, whereas your team has adopted a growth strategy. Please
explain why you have taken this approach.
The primary focus of the International Equity Fund is to identify and own
sustainable growth companies. We think the Fund's recent solid returns are
primarily due to investors who have been willing to pay a premium for visibility
of earnings growth. We think the companies we own demonstrate that strong
earnings growth visibility. However, we generally tend to seek out those
companies that are not selling at a premium. We usually do not have stock
favorites, but rather maintain an equally weighted portfolio concentrated in
approximately 41 stocks. In addition, we expect the Fund to have relatively low
portfolio turnover of about 15%-20% per year.
Q: Why do you think investors own international stocks?
We believe one of the most important benefits of owning international stocks is
diversification, which benefits investors by spreading out holdings over a wide
variety of regions, industries and companies. Although this does not ensure
against market loss, this strategy can help reduce the risks inherent in owning
any one single investment.
In fact, according to the Investment Company Institute (June 30, 1999), the
mutual fund trade organization, the average U.S. investor has less than 10%
exposure to international markets.
Q: Henry, please describe your investment strategy.
We primarily identify those companies we wish to invest in through bottom-up
evaluation. (Bottom-up investing is an asset management style that de-emphasizes
the significance of economic and market cycles, focusing instead on the analysis
of individual stocks.) Secondly, we employ a disciplined investment approach,
investing in solid names and established growth sectors. Lastly, we seek to
maintain a relatively low turnover of approximately 20% in the Fund's portfolio.
This benefits tax-conscious investors looking for tax efficiency and can be a
significant long-term advantage.
Henry, thank you for spending some time with us today.
15
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Highlights#
- --------------------------------------------------------------------------------
Composition of portfolio as of December 31,1999
[PIE CHART]
Common Stock 10%
- --------------------------------------------------------------------------------
Breakdown By Country#
- --------------------------------------------------------------------------------
Japan 34.5%
.............................
United Kingdom 22.3%
.............................
Netherlands 10.5%
.............................
Spain 7.0%
.............................
Finland 6.4%
.............................
Italy 5.0%
.............................
Ireland 4.1%
.............................
Canada 3.2%
.............................
Switzerland 2.6%
.............................
Germany 2.3%
.............................
France 2.1%
=============================
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
Cumulative Total Returns for Period Through December 31, 1999
- --------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
................................................................................
Since Inception (10/25/99) 24.90% 17.72%
................................................................................
Class B Shares
................................................................................
Since Inception (10/25/99) 24.70% 19.70%
................................................................................
Class 2 Shares
................................................................................
Since Inception (10/25/99) 24.60% 22.37%
................................................................................
Class O Shares
................................................................................
Since Inception (10/25/99) 24.90% 24.90%
================================================================================
See page 42 for all footnotes.
16
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
The Small Cap Growth Fund seeks long-term growth of capital. The Fund invests
primarily in equity securities of companies with market capitalizations at the
time of purchase similar to that of the companies included in the Russell 2000
Index ("small cap companies"). The Russell 2000 Index includes companies with
market capitalizations below the top 1,000 of stocks of the equity market. Under
normal conditions, the Fund will invest at least 65% of its total assets in
equity securities of small cap companies. This revised investment strategy
became effective as of February 25, 1999.
- --------------------------------------------------------------------------------
THE FUND MANAGERS
- --------------------------------------------------------------------------------
The Fund is managed by an experienced team of portfolio managers.
SALOMON BROTHERS
Small Cap Growth Fund
PERFORMANCE UPDATE
The Small Cap Growth Fund's ("Fund") Class A shares without sales charges
returned 57.52% for the year ended December 31, 1999. In comparison, the Russell
2000 Index returned 21.26% for the same time period. (The Russell 2000 Index
measures the performance of the 2,000 smallest companies in the Russell 3000
Index, which represents approximately 8% of the total market capitalization of
the Russell 3000 Index.)
MARKET OVERVIEW & PORTFOLIO HIGHLIGHTS
As previously noted, small-cap stocks, as measured by the Russell 2000 Index,
returned 21.62% and did slightly better than large-cap stocks, as measured by
the Standard & Poor's 500 Index ("S&P 500") which returned 21.03% for the year
ended December 31, 1999. (The S&P 500 is a market capitalization-weighted
measure of common stocks.) The performance of the small-cap sector was driven by
the technology and communications sectors, which posted exceptional returns in
1999.
The Fund uses a bottom-up approach to identifying what the managers believe are
high-quality companies expected to deliver sustainable revenue and earnings
growth. (Bottom-up investing is an asset management style that de-emphasizes the
significance of economic and market cycles, focusing instead on the analysis of
individual stocks.) Ideally, companies should be in the early stages of
sustainable high growth driven by new products, technology or consolidation
within an industry. The Fund continues to look for such opportunities in the
technology, communications and consumer sectors and has recently begun to
increase weightings in the health care sector.
The Fund's outperformance relative to its benchmark in 1999 was due in large
part to stock selection in the technology, telecom and consumer sectors. One key
contributor to performance was Oak Industries (subsequently acquired by Corning
in early 2000), a leading vendor of optical components used in
telecommunications networking equipment. As a critical element of the Internet's
physical infrastructure, we believe the optical components market should
continue to grow well in excess of 100% per year due to high demand from
Internet and data service providers for higher bandwidth, optic-based equipment.
We maintain positions in several companies poised to benefit from the continued
rapid growth of the Internet's overall infrastructure.
MARKET OUTLOOK
We believe that the small-cap growth market may broaden somewhat beyond the
narrow focus on technology and telecommunications stocks in 2000. However, in
our opinion, these two sectors should continue to provide market leadership. We
are maintaining the Fund's strategy of focusing on quality, high-growth
companies with powerful franchises and strong market positions. We firmly
believe that our investment style can offer investors the potential for
significant long-term price appreciation. (Of course, past performance is not
indicative of future results.)
17
<PAGE>
SMALL CAP GROWTH FUND -- A Bottom-Up Team Approach
The small-cap stock sector is fast, dynamic and complex. Salomon Brothers Asset
Management has developed an approach to help meet these challenges -- exploiting
the knowledge of a team of seasoned specialists, rather than concentrating
investment decisions with one portfolio manager. As experts in their respective
industries, the Fund's team chooses, monitors and sells securities. Matthew
Ziehl, a member of the investment team, explains the advantages of this team
approach and why he believes small-cap stocks deserve a place in many
portfolios.
Q: Matt, please explain why Salomon Brothers Asset Management ("SBAM") has
adopted a team approach and how that has affected your investment strategy.
We believe that placing full decision-making authority with a proven team of
experienced sector analysts can result in better performance. Each of our sector
allocations are managed as individual portfolios, with each sector specialist
having complete control. We believe our team is made up of sector experts with
extensive knowledge of industry fundamentals, who understand competitive
positioning of both small and large companies within a sector, and who are
better able to identify and manage the risks that often accompany owning these
types of aggressive growth opportunities.
The team approach for the Small Cap Growth Fund is consistent with Salomon
Brothers Asset Management's overall stock investing philosophy. We give our top
sector managers a greater amount of latitude and that is what we believe sets us
apart from many of our competitors.
Q: How would you characterize your investment philosophy?
In our view, solid expertise, extensive resources and hard work can help create
an information advantage through fundamental analysis. This is especially true
in the small cap stock arena, where meaningful information can be spotty and
delivery is often inefficient. In the small cap universe, we focus on emerging
growth stocks, as these companies have the opportunity to become tomorrow's
large companies. Our approach in understanding the business and industry gives
us a unique advantage in what is often an inefficiently priced market.
18
<PAGE>
Q: Describe how you pick stocks.
We employ a bottom-up fundamental research to identify high-quality,
small-growth companies that in our view, are expected to deliver sustainable
revenue and earnings growth. (Bottom-up investing is an asset management style
that de-emphasizes the significance of economic and market cycles, focusing
instead on the analysis of individual stocks.) The Small Cap Growth Fund targets
overall earnings growth at least equal to that of the Russell 2000 Growth
Index.1 We allow for flexibility in that we don't think it's necessary to impose
rigid boundaries in terms of sector weightings versus our benchmark.
We tend to focus on companies with strong, or significantly improving,
financials: rising revenues and margins, return on equity, strong balance sheets
and the ability to internally fund their growth plans through operating cash
flow. However, we do consider exceptions where we find outstanding growth
opportunities and expect solid future profits, particularly in exciting emerging
technologies such as the Internet.
As growth investors, we are willing to "pay up" for the right fundamentals, but
generally we try to buy a company's stock at a price-to-earning (P/E) ratio at
or below its earnings growth rate. (P/E ratio shows the multiple of earnings at
which a stock sells, determined by dividing current stock price by current
earnings per share.) We will sell on any material deterioration in fundamentals,
or in those cases where stock appreciation causes an extreme overvaluation.
Q: How do you find the companies that can survive in a highly competitive global
marketplace?
We seek to identify winning small cap companies based on three key criteria: the
business, the financials and the management. Here are some of the types of
questions we ask in our investment process:
. Business: Does this company have a competitive advantage? Is it a first
mover, and does it have a key patent or a sustainably better product or
service, customer contracts or other barrier(s) to stop a competitive
entry? What is the company's market share? How concentrated or fragmented
is the industry, and is the industry economically sensitive?
. Financials: Does the company have a strong balance sheet and business model
that can support that growth?
. Management: This consideration is critically important in small caps. Does
senior management have the vision and experience to succeed, and a
significant personal ownership stake to keep them highly motivated?
- ---------------
1 The Russell 2000 Growth Index is a capitalization-weighted index composed
of the stocks of the Russell 2000 Index with higher price-to-book ratios
and higher forecasted growth values relative to the Russell 2000 as a
whole.
19
<PAGE>
Q: Matt, what type of guidance can you offer today's investors, specifically as
it relates to small cap stock investing?
Investing in small cap stocks should be viewed as a long-term process. It may
often be difficult to determine when is the best time to invest in these types
of securities. Yet, in our view, current market conditions are quite positive
for owning small cap stocks over time. Though some high-growth sectors such as
Internet-related technology stocks have achieved lofty valuations, many cap
stocks remain attractively valued despite generally delivering on earnings
expectations. Relative to large caps, most small cap valuations are still close
to their 20-year lows. (Please note that investing in small-cap companies
involves a substantial risk of loss. Growth securities typically are sensitive
to market movements because their market prices tend to reflect future
expectations. When it appears those expectations will not be met, the prices of
growth securities typically fall.)
Since small cap stocks are not highly correlated to the S&P 500 Index, they
enable investors to achieve broader portfolio diversification which may lessen
risk when large cap stocks perform poorly.
Within the small cap universe, we believe that emerging growth stocks generally
provide better opportunities for long-term appreciation than value stocks
because these emerging growth companies exhibit faster-than-average gains in
sales and earnings with the potential to sustain or accelerate this growth going
forward. Emerging growth companies tend to be the innovators and pioneers,
challenging incumbent giants or driving the growth of new markets and new
products.
Matt, thank you for discussing small cap stock opportunities with us.
20
<PAGE>
The following graph depicts the performance of the Small Cap Growth Fund versus
the Russell 2000 Index. It is important to note that the Small Cap 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.
- --------------------------------------------------------------------------------
Portfolio Highlights#
- --------------------------------------------------------------------------------
Composition of portfolio as of December 31, 1999
[GRAPH]
[PLOT POINTS TO COME]
- -----------------------------
Top Holdings
- -----------------------------
Siebel Systems,Inc.
- -----------------------------
Network Appliance,Inc.
- -----------------------------
Oak Industries Inc.
- -----------------------------
Legato Systems,Inc.
- -----------------------------
Insight Enterprises,Inc.
- -----------------------------
Newport Corp.
- -----------------------------
Sawtek Inc.
- -----------------------------
Commerce One, Inc.
- -----------------------------
Digital Microwave Corp.
- -----------------------------
QRS Corp.
=============================
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE (unaudited)
SMALL CAP GROWTH FUND -- CLASS A,B,2 and O SHARES
Comparison of $10,000 Investment in the Fund with Russell 2000 Index
- --------------------------------------------------------------------------------
[GRAPH]
Russell 2000
Date Class A Class B Class 2 Class 0 Index
7/1/98 9,425 10,000 9,800 10,000 10,000
Dec-98 10,924 11,050 11,346 11,600 9,288
Jun-99 12,705 12,870 13,157 13,510 10,150
Dec-99 17,207 17,635 17,887 18,317 11,261
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, 1999
- --------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
- --------------------------------------------------------------------------------
Since Inception (7/1/98) 49.32% 43.55%
1 year 57.52% 48.43%
- --------------------------------------------------------------------------------
Class B Shares
- --------------------------------------------------------------------------------
Since Inception (7/1/98) 48.11% 45.92%
1 year 56.15% 51.15%
- --------------------------------------------------------------------------------
Class 2 Shares
- --------------------------------------------------------------------------------
Since Inception (7/1/98) 48.28% 47.30%
1 year 56.28% 53.67%
- --------------------------------------------------------------------------------
Class O Shares
- --------------------------------------------------------------------------------
Since Inception (7/1/98) 49.65% 49.65%
1 year 57.90% 57.90%
================================================================================
See page 42 for all footnotes.
21
<PAGE>
PERFORMANCE OBJECTIVE AND STRATEGY
The Large Cap Growth Fund seeks long-term growth of capital by investing in the
equity securities of U.S. large cap issuers that, at the time of purchase, have
market capitalizations within the top 1,000 stocks of publicly traded companies
listed in the United States stock markets.
The Fund's equity securities consist primarily of common stocks. The Fund may
also invest in preferred stocks, warrants and securities convertible into common
stocks. The Fund may also invest up to 15% of its assets in securities of
foreign issuers.
THE FUND MANAGERS
The Fund is managed by Citibank,N.A., through its Citibank Global Asset
Management (CGAM) division.
SALOMON BROTHERS
Large Cap Growth Fund
PERFORMANCE UPDATE
Since its inception on October 25, 1999, the Large Cap Growth Fund's ("Fund")
Class A shares without sales charges returned 11.80%.
MARKET REVIEW & PORTFOLIO HIGHLIGHTS
In the fourth quarter of 1999, the large cap growth market, as represented by
the Standard & Poor's 500 Index ("S&P 500"), rallied following a weak third
quarter. (The S&P 500 is a market capitalization-weighted measure of 500 common
stocks.) The growth stock sector continued to dominate the performance of the
overall markets, outperforming the value sector, as represented by the S&P/Barra
Value Index. (The growth sector consists of those stocks of corporations that
are exhibiting or are expected to exhibit faster-than-average growth within
their industry. The value sector consists of securities of companies that are
believed to be undervalued in the market. The S&P/Barra Value Index is a
capitalization-weighted index composed of stocks of the S&P 500 with higher
book-to-price ratios relative to the S&P 500 as a whole.)
Our primary strategy is to focus on those companies with the best relative
revenue and earnings growth. Since the inception of the Fund, we favored
companies in sectors we believed would benefit from the global economic
recovery. In the energy services sector, we added Transocean Sedco Forex, in the
commercial services sector we added Omnicom and Interpublic Group and in the
producer manufacturing sector, we added Danaher. Although no guarantees can be
made, we are confident these companies should positively contribute to the
performance of the Fund.
In addition, we have maintained an overweight position in technology stocks such
as Sun Microsystems, Microsoft and Maxim. In our opinion, these companies are
market leaders with favorable prospects that should provide capital appreciation
potential.
MARKET OUTLOOK
We believe rising corporate profitability coupled with technology-driven
business opportunities and low inflation should benefit both the U.S. and the
global economy. However, we do expect that the Federal Reserve Board ("Fed")
will raise interest rates in 2000 to insure that inflation remains contained.1
We believe that our focus on fundamental analysis of individual companies in an
effort to uncover opportunities that are making profits today should benefit the
Fund in the long term.
- -------------------
1 On February 2, 2000, the Fed raised interest rates 0.25% to 5.75% after
this commentary was written.
22
<PAGE>
LARGE CAP GROWTH FUND --
Keying In on Earnings Consistency, Profitability and Balance Sheet Strength
Major U.S. companies have dominated the world's economic landscape for a decade
in a global marketplace that has promoted free trade. Domestic firms with
competitive products, first-rate managements and established brands have
penetrated new foreign markets and increased their market share. As a result,
many of these companies have experienced consistent growth for years. In the
following interview, Brian O'Toole explains how the new Salomon Brothers Large
Cap Growth Fund has looked to capitalize on these large cap opportunities.
Q: Brian, the Large Cap Growth Fund was introduced on October 25, 1999. How have
you managed the Fund since it began?
Our investment emphasis has been on companies whose earnings and sales growth
rates have exceeded that of the S&P 500 over the last five years. We look for
such quality indicators as earnings consistency, profitability and balance sheet
strength. Once we identify this core universe of stocks, we then focus on those
companies whose sales and earnings rates are either improving or increasing at a
relatively faster rate than the S&P 500.
Q: Where do you see the best opportunities in large cap growth stocks going
forward?
Despite the outstanding returns this past year, we believe a wealth of
opportunity still exists in technology. We have overweighted this sector versus
our benchmark. We think that many U.S. companies may be well-positioned to take
advantage of the ongoing global economic recovery.
For example, the strong growth in demand for cellular phones has accelerated
demand for component parts of wireless phones. We expect improved sales and
earnings growth rates for our holdings in this industry. We also own several
companies that make analog semiconductors for wireless communication equipment,
and we believe they are well-positioned to benefit from growing cellular phone
use in the future.
Q: Many economists have called the growing U.S. economy a 'bubble' waiting to
burst. Have large cap growth stocks seen their peak?
We continue to see strong U.S. economic growth, albeit under the influence of
opposing market forces. Growth in earnings for the S&P 500 is estimated to be a
solid 13% for 1999. However this positive development is countered by the
potentially detrimental effects of rising rates. We believe that the outstanding
performance by many large-cap stocks over the past several years may in fact
prove to be sustainable. The caveat for investors: we expect market returns for
large caps to be close to or slightly below their historical averages.
23
<PAGE>
Q: Brian, how has the recent global economic recovery affected your investment
strategy?
In our view, sustainable recoveries in many global economies have benefited
companies both inside and outside the U.S. Global economic recovery has been
further supported by strong demand for Internet applications, servers, and data
storage and communications equipment. We believe this recovery could act as a
catalyst for a rebound in industrial large-cap stocks, for which we have already
begun to see some encouraging signs.
Brian, thank you for your time.
24
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Highlights#
- --------------------------------------------------------------------------------
Composition of portfolio as of December 31,1999
[CHART]
[PLOT POINTS TO COME]
- --------------------------------------------------------------------------------
Top Holdings
- --------------------------------------------------------------------------------
General Electric Co.
- --------------------------------------------------------------------------------
Microsoft Corp.
- --------------------------------------------------------------------------------
Cisco Systems,Inc.
- --------------------------------------------------------------------------------
Wal-Mart Stores,Inc.
- --------------------------------------------------------------------------------
Exxon Mobil Corp.
- --------------------------------------------------------------------------------
International Business
Machines Corp.
- --------------------------------------------------------------------------------
Lucent Technologies Inc.
- --------------------------------------------------------------------------------
American International
Group, Inc.
- --------------------------------------------------------------------------------
SBC Communications
Inc.
- --------------------------------------------------------------------------------
Intel Corp.
================================================================================
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
Cumulative Total Returns for Period Through December 31, 1999
- --------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
- --------------------------------------------------------------------------------
Since Inception (10/25/99) 11.80% 5.37%
- --------------------------------------------------------------------------------
Class B Shares
- --------------------------------------------------------------------------------
Since Inception (10/25/99) 11.70% 6.70%
- --------------------------------------------------------------------------------
Class 2 Shares
- --------------------------------------------------------------------------------
Since Inception (10/25/99) 11.60% 9.50%
- --------------------------------------------------------------------------------
Class O Shares
- --------------------------------------------------------------------------------
Since Inception (10/26/99) 11.80% 11.80%
================================================================================
See page 42 for all footnotes.
25
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
The Capital Fund seeks capital appreciation through investments primarily in
common stocks or securities convertible into common stocks that are believed to
have above-average capital 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 MANAGERS
[PHOTO]
Ross S. Margolies,
Managing Director and Portfolio Manager at Salomon Brothers Asset Management
Inc, has 19 years of investment industry experience in the equity, convertible
and high yield markets. Mr. Margolies is primarily responsible for day-to-day
Fund management.
[PHOTO]
Robert M. Donahue, Jr.,
Director and Co-Portfolio Manager at Salomon Brothers Asset Management Inc, has
7 years of investment industry experience. Mr. Donahue assists in the day-to-day
management of the Fund.
SALOMON BROTHERS
Capital Fund
PERFORMANCE UPDATE
The Capital Fund's ("Fund") Class A shares returned 23.11% without sales charges
for the year ended December 31, 1999. In comparison, the Russell 3000 Index
returned 20.90% and the Standard & Poor's 500 Index ("S&P 500") returned 21.03%
for the same time period. (The Russell 3000 Index measures the performance of
the 3,000 largest U.S. companies based on total market capitalization, which
represents approximately 98% of the investable U.S. equity market. The S&P 500
is a market capitalization-weighted measure of 500 common stocks.)
The Fund seeks capital appreciation through investment in securities that the
manager believes have above-average capital appreciation potential. The Fund
invests primarily in equity securities of U.S. companies. These companies may
range in size from established large capitalization companies (over $5 billion
in market capitalization) to small capitalization companies (less than $1
billion in market capitalization) at the beginning of their life cycles.
We are proud to report that the Fund's Class A shares recently received a
four-star (out of a possible five stars) rating from Morningstar Inc.1 for the
one-year period ended December 31, 1999. In addition, the Fund's Class O shares
received a four-star rating for the one-year period, a four-star rating for the
three-year period, a five-star rating for the five-year period and a three-star
rating for the ten-year period ended December 31, 1999.
PERFORMANCE OVERVIEW & INVESTMENT STRATEGY
The Fund's investment strategy is known as a broad market strategy. We attempt
to find the best opportunities across the market, wherever they may be. It is an
"all cap" or "multicap" strategy in that we invest in large-, small- and mid-
size companies. It is also known as a "style neutral" or "blend" portfolio in
that we purchase both growth and value stocks. In fact, one of our primary goals
is to find out of favor value stocks that blossom into growth stocks. These
include some of our biggest winners because we buy them when they are
inexpensive and hold them through the entire period of appreciation as the
market recognizes their true potential. We believe two of the key advantages of
our investment strategy is that because we own some stocks from most categories,
we can have winners under most market conditions and this strategy creates a
unique, diversified portfolio of stocks that few other mutual funds will own. Of
course, this diversification does not ensure against market loss.
- -----------------
1 Morningstar, Inc. proprietary ratings reflect historical risk adjusted
performance as of December 31, 1999. Ratings are loan-adjusted, updated
monthly and subject to change. Morningstar ratings are calculated from each
fund's three, five and ten-year average annual returns (if applicable) in
excess of 90-day Treasury bill returns with appropriate fee adjustment and
a risk factor that reflect fund performance below 90-day T-bill returns.
Other share classes may vary. The highest Morningstar rating is five stars;
the lowest is one star. The top 10% of the funds in a broad asset class
receive five stars; the next 22.5% receives four stars, the next 35%
receives three stars, the next 22.5% receives two stars and the next 10%
receive one star. For the one- three- five- and ten-year periods, there
were 254, 158, 115 and 48 funds, respectively, in the Mid-Cap Blend class.
26
<PAGE>
Our core investment style is a bottom-up stock picking strategy. We focus on
understanding a company's business, its strategy, its competitive position and
its industry. We also determine if management is credible and has the right team
to lead the company. Our financial analysis focuses on the company's resources
to meet its goals, the consistency of the numbers to determine their quality
(for instance, are receivables growing much faster than sales, a sign that
current sales may overstate the long-term trend) and is used as a framework for
valuation and risk assessment. These and other factors are totaled up to make a
judgement -- considering all factors is the risk and reward trade-off favorable
enough for us to make an investment.
As portfolio managers, we have a role in addition to stock picking; we need to
put all the individual security selections into a portfolio that meets a set of
investment objectives. We use tools such as diversification and position
weighting to determine exactly how much of each security to own in the
portfolio. For instance, in the Fund our best ideas generally get very high
weightings, as much as 5% of the portfolio on occasion. This strategy, known as
high position concentration, can generate above-market returns when executed
properly. (Of course, past performance is not indicative of future results.) At
the same time we try to factor in excess risk. A good idea that has a very high
risk profile will get lower weighting, such as 1% of the portfolio, in order to
diversify risk and dampen portfolio volatility. And while no guarantees can be
made, in this way we can take individual risks on behalf of our shareholders
without creating an overly risky portfolio.
MARKET OVERVIEW AND OUTLOOK
The 1999 stock market will go down in history as one of the most unusual markets
of all time. After recovering from the effects of the 1998 Asian economic
crisis, the stock market soared to new heights and featured increased
volatility. During the beginning of the year, the stock market was very narrow
with only a small group of blue-chip growth stocks appreciating. In mid April,
we experienced a violent rotation into undervalued broad market stocks. By the
end of the year, while the market broadening continued to help some stocks, most
of the market's focus had shifted to the NASDAQ-listed technology companies.
During 1999, market indices such as the S&P 500, and the Russell 3000 were up
over 20%; the NASDAQ increased by roughly 85% led by both blue-chip and
speculative technology issues.
The most fundamental change in the market that we observed in 1999 was that all
of the historical rules of security analysis were discarded. Particularly in the
Internet sector, the market rewarded concepts over profits. In many cases, the
market focused on issues such as potential customers instead of profitable sales
to actual customers. We believe that while the market seems to think that
profitability and cash flow are no longer important, the strategy of "buying
sales" (i.e., losing money on sales in order to establish a market share
position) is as old as commerce itself. The only difference this time is that
the market is ignoring the fact that in the end companies need to generate cash
flow and profits in order to thrive.
How does one invest in this environment? The biggest adjustment to our process
in 1999 has been to increase our focus on the Internet. The development of the
Internet is one of those events that will change the way we live and work
forever. It is as fundamental a change as the development of telephones or the
harnessing of electricity. This happens regularly throughout history and we are
living through one of those times right now.
27
<PAGE>
When you look closely at the Fund's portfolio you will see that little of your
money is invested in traditional Internet companies (the so-called "dot.coms").
We find the long-term risk and reward proposition in most of these companies to
be very unattractive. In our opinion, most of them do not have sustainable
business models (i.e., they will always lose money) while others have valuations
that assume they will be the only survivors in the eventual shakeout. You will
see a lot of the portfolio invested in companies that can benefit from or build
the Internet such as Seagate (disk drives and software for storage as well as
indirect exposure with partial ownership of companies such as Veritas),
Federated Department Stores (a leader in the "clicks and mortar" e-commerce
strategy and owner of several valuable Internet businesses) and GTE (merging
with Bell Atlantic, the combined company is expected to be the leading U.S.
wireless company also offering telecom services such as local, long distance and
high-speed Internet access).
It is our strong belief that going forward the leading established companies
that embrace today's new technologies should emerge as the dominant and most
profitable companies in the economy. Their stocks should recognize this over
time. On the other hand, we believe the stock market will eventually lose
patience with those traditional Internet companies that cannot transform
themselves into growth companies with enough profits to support their stock
price.
Going forward, we expect many companies to reap the benefits of their current
investments in technology. We also expect many technology companies to continue
to grow as they innovate. There will also be a maturing in the technology
sector, as it has become a bigger part of the market and economy than the energy
sector was in 1980. We believe that during the next decade the technology sector
will not go the way of the energy sector. However, the two share a common
factor. The early 1980s expectations of oil prices soaring to $100 per barrel
led to extreme valuations for these companies and a gold rush effect of too much
capital being put into the sector. Eventually the laws of large numbers and
diminishing returns caught up to the sector. The cost of energy became too large
of an input into the economy and people figured out ways to utilize it more
efficiently at the same time that capacity was expanding rapidly. With
technology companies representing about 30% of the S&P 500, similar long-term
risks exist in the technology sector. This is partly offset by the fact that
technology investments improve productivity while higher energy prices are
merely increased costs. We keep these factors in mind even when we are only
forecasting out a year, as stock prices discount the long-term prospects of
companies.
During 1999, our broad market strategy yielded attractive results despite it not
being in favor. We attribute this to a combination of owning stocks in most
categories (we participated in the major trends and market rotations) and our
valuation discipline (reducing losses when we made mistakes). We believe our
overweighting of our strongest ideas historically has been a big contributor.
This year however, this strategy generated mixed results with top investments
such as Rogers Cantel doing well while our tobacco stocks (which we have
virtually eliminated) did poorly.
Expect the Fund to consistently apply its investment strategy in the future. We
will invest in both users and manufacturers of technology when we believe their
risk reward/ratios are favorable. Most of all, we will look for the best
opportunities that we can find, regardless of the part of the market they are
in.
28
<PAGE>
CAPITAL FUND--
The Advantages of a Broad Market Strategy
Strong growth potential and investment style flexibility are two aspects of
broad market investing. The Salomon Brothers Capital Fund's managers believe the
best places to invest will probably change over time. Lead portfolio manager
Ross Margolies explains how his team explores the entire stock market in their
search for outstanding growth opportunities.
Q: Ross, please describe your investment process.
A: Our investment process focuses on a bottom-up stock selection process that
takes advantage of our sector specialists' proprietary fundamental research. We
look for attractive risk and reward situations, overweighting the ones that we
deem are most attractive and where we have very high confidence in their
outlooks. We are also willing to give management time to execute their strategy.
From a portfolio point of view, we avoid strategies such as market timing or
sector rotation and generally keep cash levels in the Fund between 0% to 10%.
Q: How do you manage the tradeoff between income and appreciation?
A: While the Fund can generate a small amount of income, it is incidental to its
main investment objective. We focus strictly on managing for total return and
helping to manage risk in the portfolio, generally downplaying the Fund's income
potential.
Q: How have you positioned the Fund to perform if the current bull market in
stocks ends?
A: While the Capital Fund has performed well in the bull market, it has done so
with large concentrations of holdings in out-of-favor sectors. Generally our
holdings in these sectors have had positive fundamentals and attractive
valuations. On the other hand, the current bull market has favored a narrow
group of growth and momentum stocks, generally not the type of stocks we own. If
the market goes down for these stocks we think the Fund should be very well
positioned. If all stocks decline, our holdings will as well. However, our
valuation and fundamental disciplines should help provide us with some support
in this type of environment.
Q: What type of guidance can you offer today's investors in light of the recent
relative underperformance of bonds?
Over the long term, stocks have outperformed bonds such as U.S. Treasuries. When
bonds underperform as dramatically as they have over the past 15 months, there
is usually a catch-up period where they outperform stocks for a period of time.
This comes from stocks going down or bonds going up. (Please keep in mind that
investments in stocks carry additional risks, particularly compared to U.S.
Treasuries which are backed by the full faith and credit of the U.S.
government.)
29
<PAGE>
Q: Why do you think the Capital Fund is an appropriate choice for investors who
have just started building up the stock side of their portfolio?
The Capital Fund offers broad market exposure, and that can be a benefit to new
investors to the stock market. That is because the Fund offers the convenience
of one-stop shopping for growth and value styles and large-cap and small-cap
stocks. Additionally, compared to most funds that have performed well over the
past five years, the Capital Fund tends to own a different group of stocks that
we believe have above-average capital appreciation potential.
Q: How would you define yourself as an investment manager - growth, value or
contrarian?
As managers, we defy the usual categorizations. Our strategy is to look for the
very best opportunities in the market, wherever they may be found. Our focus is
on identifying attractive risk and reward situations and then weighing them in
the portfolio so that overall risk is minimized through diversification. The
portfolio holds a mixture of growth and value stocks, large-cap and small-cap
names. There is a contrarian element to the strategy, but it is generally with
the goal of finding things like value stocks that have the potential to become
strong growth companies. We're trying to run a flexible, all-market fund.
Another one of our goals in the Fund is to meet or beat the broad market indices
such as the Russell 3000/1/ or Wilshire 5000/2/ on an annual basis. Over longer
periods of time, we hope to also beat the S&P 500, which performs similarly to
the broad market indices over time. Of course, there is no guarantee that we
will always be successful with that strategy.
Q: What do you see as a significant investment "theme" going forward?
We are bottom-up investors focused on individual companies. While we do not
invest in themes, it is clear that the impact of the Internet must be considered
in each and every individual investment. When selecting stocks we require our
companies to not be adversely affected by the Internet (i.e., not in front of a
freight train) and hopefully benefit (i.e., using the Internet to facilitate
incremental sales or cost savings.) Often our holdings, while rarely the
"dot.coms," are builders, suppliers or users of the Internet.
Ross, thank you for speaking with us today.
--------
1 Russell 3000(R) Index measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
2 The Wilshire 5000 Total Market Index measures the performance of all U.S.
headquartered equity securities with readily available price data. It is
widely considered the best measure of the entire U.S. stock market.
30
<PAGE>
HISTORICAL PERFORMANCE (unaudited) CAPITAL FUND -- CLASS A,B and 2 SHARES
Comparison of $10,000 Investment in the Fund with Russell 3000 Index
[GRAPH]
Russell 3000
Date Class A Class B Class 2 Index
11/1/96 9,425 10,000 9,900 10,000
Dec-96 10,154 10,763 10,660 10,576
Dec-97 12,836 13,519 13,389 13,938
Dec-98 15,876 16,273 16,415 17,303
Dec-99 19,546 19,957 20,051 20,919
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
HISTORICAL PERFORMANCE (unaudited) CAPITAL FUND -- CLASS O SHARES Comparison of
$10,000 Investment in the Fund with Russell 3000 Index
[GRAPH]
Class 0 Russell 3000 Index
Dec-89 10,000 10,000
Dec-90 9,094 9,494
Dec-91 12,134 12,690
Dec-92 12,706 13,918
Dec-93 14,887 15,431
Dec-94 12,780 15,459
Dec-95 17,238 21,149
Dec-96 22,984 25,764
Dec-97 29,134 33,954
Dec-98 36,078 42,151
Dec-99 44,535 50,960
Past performance is not predictive of future performance.
The graphs above depict the performance of the Capital Fund and the Russell 3000
Index.It is important to note that the Capital Fund is a professionally managed
mutual fund while the index is not available for investment and is unmanaged.
The comparisons are shown for illustrative purposes only.
- --------------------------------------------------------------------------------
Portfolio Hilights#
- --------------------------------------------------------------------------------
Composition of portfolio as of December 31,1999
[CHART]
[ILLEGIBLE]
- --------------------------------------------------------------------------------
Top Stock Holdings
- --------------------------------------------------------------------------------
Seagate Technology,Inc.
Federated Department
Stores,Inc.
Nabisco Group Holdings
Corp.
Hormel Foods Corp.
Costco Wholesale Corp.
Safeway,Inc.
Devon Energy Co.
Rogers Cantel Mobile
Communications Inc.
Delhaize America,Inc.
Bell Atlantic Corp.
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
Average Annual Total Returns for Period Through December 31, 1999
- --------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
Since Inception (11/1/96) 25.92% 23.59%
3 year 24.40% 21.97%
1 year 23.11% 16.03%
Class B Shares
Since Inception (11/1/96) 24.99% 24.40%
3 year 23.47% 22.81%
1 year 22.22% 17.22%
Class 2 Shares
Since Inception (11/1/96) 24.98% 24.59%
3 year 23.43% 23.02%
1 year 22.15% 19.92%
Class O Shares
10 year 16.11% 16.11%
5 year 28.36% 28.36%
3 year 24.67% 24.67%
1 year 23.44% 23.44%
See page 42 for all footnotes.
<PAGE>
[GRAPHIC]
INVESTMENT OBJECTIVE AND STRATEGY
The Salomon Brothers Investors Value Fund's primary investment objective is to
seek long-term growth of capital. Current income is a secondary objective. The
Fund invests primarily in common stocks of large-capitalization stocks
representing well-known companies which the manager believes have good growth
potential at reasonable prices.
THE FUND MANAGERS
John B. Cunningham,
Director and Portfolio Manager at Salomon Brothers Asset Management Inc, has 11
years of financial industry experience. Mr.Cunningham is responsible for the
day-to-day management of the Fund.
Ross S.Margolies,
Managing Director and Portfolio Manager at Salomon Brothers Asset Management
Inc,has 19 years of investment industry experience in the equity, convertible
and high yield markets. Mr.Margolies plays a back-up role in the day-to-day Fund
management.
SALOMON BROTHERS
Investors Value Fund
PERFORMANCE UPDATE
The Investors Value Fund's ("Fund") Class A shares returned 11.47% without sales
charges for the year ended December 31, 1999. In comparison, the Standard &
Poor's 500 Index ("S&P 500") returned 21.03% for the same time period. (The S&P
500 is a market capitalization-weighted measure of 500 common stocks.)
MARKET REVIEW AND PORTFOLIO HIGHLIGHTS
The U.S. stock market finished its fifth consecutive year of returns in excess
of 20% with the S&P 500 returning 21.03%. Once again, large-cap growth stocks,
particularly in the technology sector, dominated the market's performance. The
major market indices performed quite well despite increasing interest rates
throughout the year. At the beginning of 1999, the 30-year U.S. Treasury Bond
yielded 5.1%; by year-end, the yield had increased to 6.5%.
During the second quarter of 1999, higher interest rates in the U.S. caused
investors to take profits in the technology sector and look beyond the narrow
group of stocks that had driven the market's performance. Investors shifted into
cyclical stocks as a result of improving worldwide economic growth. This
rotation into value stocks proved fleeting, however, as growth stocks returned
to the forefront again in the third quarter. As interest rates continued to
increase, investors sought companies exhibiting strong unit growth, particularly
technology stocks. Market breadth narrowed once again. The focus on technology
stocks gained considerable momentum during the fourth quarter. As a result of
the tech sector's strong performance throughout the year, technology stocks now
account for 30% of the S&P 500, up from 19% a year ago.
Market returns in 1999 were narrowly distributed. In fact, only half the stocks
in the S&P 500 had a positive return for the year. Just seven stocks accounted
for half of the S&P 500's performance; these stocks included Microsoft, Cisco,
GE, Wal-Mart, Oracle, Nortel and Qualcomm. Large-cap growth stocks, driven by
the technology sector, significantly outperformed their large-cap value peers.
Morningstar's large-cap growth category returned 36.0% versus 5.9% for the
large-cap value category. The Fund comfortably outperformed its large-cap value
peers, returning 11.7% for Class O shares, but lagged the broad market.
In 1999, the S&P 500's performance was predominately led by technology; the
consumer staples, health care, transportation and utility sectors had negative
returns for the year. The Fund benefited from its technology holdings, but our
underweight position penalized our relative performance. Within technology,
3Com, Corning, Hewlett-Packard, Alcatel and Texas
32
<PAGE>
Instruments led the Fund's performance. Other significant contributors included
Liberty Media, Hughes Electronics and Morgan Stanley Dean Witter. The Fund's
tobacco holdings, which have subsequently been reduced, held back performance
during the period.
In 2000, we expect the U.S. economy to begin to slow as a result of recent and
anticipated interest rate increases by the Federal Reserve Board. With interest
rates and commodity prices going up and corporate profits and Gross Domestic
Product growth expected to slow, stock market returns may not be as buoyant as
in recent years. Given the significant weighting of the technology sector in the
S&P 500, the performance of technology stocks should have an important impact on
the market's overall performance. We do expect market breadth to improve this
year, which we are already beginning to see. In a broader market, careful stock
selection will become more important than sector momentum. Given our strong team
of analysts, we believe the Investors Value Fund can benefit from this
anticipated increased market breadth. (Of course, no guarantees can be made that
the Fund will perform well in the future.)
33
<PAGE>
INVESTORS VALUE FUND --
Seeking High-Quality Companies with Strong Management
The Salomon Brothers Investors Value Fund builds on the principles of value
investing that were formulated by notable value investing pioneers such as
Benjamin Graham and David Dodd. Almost seven decades ago, these forefathers of
value investing taught the importance of evaluating a company based on its
fundamental worth and the belief that the market will eventually recognize true
value. Portfolio manager Jack Cunningham discusses his value investing style.
Q: Jack, how would you characterize your investment philosophy?
We use a bottom-up approach with respect to stock selection. (Bottom-up
investing is an investing style that focuses on the fundamental strength of
individual securities.) In particular, we look for high-quality companies with
good managements, attractive valuations and catalysts for stock price
appreciation. We support our extensive fundamental analysis with proprietary
quantitative risk management tools to help us manage risk.
Q: Please describe your stock selection process.
Our stock selection process relies heavily on our own internal team of analysts
for stock recommendations. We have more than a dozen analysts who focus on
specific sectors of the market. When an analyst recommends a stock, the team
then carefully reviews the company's operating characteristics, financial
stability, management quality and valuation. Based on the strength of the
fundamentals, a decision is then made whether to invest in a particular stock.
Q: Your investment process also emphasizes growth at a reasonable price
("GARP"). How does this GARP strategy work to help you achieve the Fund's
objectives?
We seek to position the Fund to have a comparable growth rate with the S&P 500
while looking to identify those companies with solid growth potential at
reasonable values. We seek to achieve this relationship by paying particular
attention to the price of new stock purchases. By identifying favorable entry
points, we believe we can maintain our value focus while still finding stocks
with attractive growth characteristics. That said, we also try to ensure that
the Fund remains firmly in the large-cap value universe.
Q: As manager, you try to find beaten-down companies whose earnings have staying
power over time. How do you select the companies best positioned to survive in a
highly competitive global marketplace?
We seek to identify high-quality companies with strong management teams. Every
now and then, stocks of high-quality companies may be temporarily oversold.
These are situations that we try to take advantage of. We rely on our team of
analysts to help us determine whether a stock has been
34
<PAGE>
temporarily oversold or whether the company has longer-term problems. When we
carefully review a stock with our analysts, we focus on the company's operating
characteristics and how that company is positioned versus its competitors over
both the short term and long term.
Q: The Fund's name recently changed from "Investors Fund" to "Investors Value
Fund." Has that affected your investment approach?
The name change from "Investors Fund" to "Investors Value Fund" has not affected
our investment approach. The team and style remain in place. The word "Value"
was added simply to more clearly identify the Fund's investment style as that of
a value fund.
Q: How has recent higher market volatility and the outstanding performance of
select large cap growth stocks affected your strategy?
Higher market volatility often presents us with more opportunities to buy stocks
at more favorable prices. We constantly have a number of stocks on our radar
screen. If a stock falls down to an attractive price level and the company's
fundamentals are still intact, we will generally take advantage of that buying
opportunity.
As far as the market's recent focus on large-cap growth stocks, we remain
committed to our value discipline. The major market indices performed quite well
again in 1999, but market breadth was quite narrow. In looking beyond the narrow
group of market leaders, we continue to find attractively valued stocks. We do
expect market breadth to improve in 2000, signs of which we are already
beginning to see. (Of course, no guarantees can be given that this will
continue.) In a broader market, stock selection should become more important
than sector momentum.
Q: How have you positioned the Fund to perform if the bull market in stocks
ends?
By focusing on the valuation aspect of stocks within the portfolio, the
Investors Value Fund should be well-positioned relative to the broad market in
the event that we see a downturn in the market. If the bull market ends,
individual stock selection should become even more crucial.
Q: With the worst seemingly over in Asia, and the U.S. economy continuing to
show strength, where do you see the most compelling value opportunities in 2000?
Currently, we are overweight in consumer staples, financials and energy.
Recently, we have added to consumer staples names like Safeway, a major
35
<PAGE>
grocery retailer, and Ralston Purina, one of the world's largest producers of
pet foods and batteries. We have also modestly increased our financials
weighting due to attractive valuations. If we see a correction in select
technology names, we will look to increase our weighting in that sector as well.
Q: What type of guidance can you offer today's investors, specifically regarding
value stocks as investment opportunities?
Value stocks offer an important diversification benefit for any investor's
portfolio. Given the current valuations of many leading growth stocks, we
believe that now may be an opportune time for investors to increase their
allocation to value funds.
Value stocks offer exposure to a class of stocks that may outperform the broad
market at certain times or under certain market conditions. Given the difficulty
of timing the market, we believe that value stocks can contribute to a
well-diversified portfolio's performance over the long run.
Jack, thank you for spending some time with us today.
36
<PAGE>
HISTORICAL PERFORMANCE (unaudited)
INVESTORS VALUE FUND -- CLASS A, B and 2 SHARES
Comparison of $10,000 Investment in the Fund with S&P 500 Index
Date Class A Class B Class 2 S&P 500 Index
1/3/95 9,425 10,000 9,900 10,000
Dec-95 12,756 13,450 13,316 13,753
Dec-96 16,620 17,381 17,211 16,910
Dec-97 20,972 21,774 21,549 22,550
Dec-98 24,156 24,576 24,624 28,999
Dec-97 26,926 27,306 27,252 35,098
Past performance is not predictive of future performance. Performance above
reflects returns after deduction of applicable maximum sales charge.
HISTORICAL PERFORMANCE (unaudited)
INVESTORS VALUE FUND -- CLASS O SHARES
Comparison of $10,000 Investment in the Fund with S&P 500 Index
Date Class O S&P 500 Index
Dec-89 10,000 10,000
Dec-90 9,351 9,689
Dec-91 12,092 12,634
Dec-92 12,989 13,596
Dec-93 14,961 14,964
Dec-94 14,773 15,160
Dec-95 20,001 20,849
Dec-96 26,113 25,634
Dec-97 33,026 34,183
Dec-98 38,125 43,959
Dec-99 42,596 53,204
Past performance is not predictive of future performance.
The graphs above depict the performance of the Investors Value Fund versus the
S&P 500 Index.It is important to note that the Investors Value Fund is a
professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparisons are shown for illustrative purposes
only.
Portfolio Highlights#
Composition of portfolio as of December 31,1999
[CHART]
Average Annual Total Returns for Period Through December 31, 1999
Class A Shares Without Sales Charges With Sales Charges*
- -------------------------------------------------------------------------------
Since Inception (1/3/95) 23.39% 21.93%
3 year 17.45% 15.16%
1 year 11.47% 5.08%
- -------------------------------------------------------------------------------
Class B Shares
- -------------------------------------------------------------------------------
Since Inception (1/3/95) 22.46% 22.28%
3 year 16.53% 15.79%
1 year 10.57% 5.90%
- -------------------------------------------------------------------------------
Class 2 Shares
- -------------------------------------------------------------------------------
Since Inception (1/3/95) 22.48% 22.23%
3 year 16.56% 16.17%
1 year 10.67% 8.64%
- -------------------------------------------------------------------------------
Class O Shares
- -------------------------------------------------------------------------------
10 year 15.59% 15.59%
5 year 23.59% 23.59%
3 year 17.72% 17.72%
1 year 11.73% 11.73%
- -------------------------------------------------------------------------------
See page 42 for all footnotes.
Top Stock Holdings
- ----------------------------
Morgan Stanley Dean
Witter & Co.
- ----------------------------
The News Corp. Ltd. ADR
- ----------------------------
The Bank of New York
Co., Inc.
- ----------------------------
Alcatel SA ADR
- ----------------------------
Hewlett-Packard Co.
- ----------------------------
Safeway Inc.
- ----------------------------
Seagate Technology, Inc.
- ----------------------------
International Business
Machines Corp.
- ----------------------------
Bell Atlantic Corp.
- ----------------------------
International Paper Co.
- ----------------------------
Portfolio holdings may vary.
37
<PAGE>
[GRAPHIC]
INVESTMENT OBJECTIVE AND STRATEGY
The Balanced Fund, formerly known as the Total Return Fund, seeks to obtain
above average income (compared to a portfolio invested in equity securities).
The Fund's secondary objective is to take advantage of opportunities for growth
of capital and income. The Fund invests in a broad range of equity and
fixed-income securities of both U.S. and foreign issuers. The Fund varies its
allocations between equity and fixed income securities depending on the
manager's view of economic and market conditions, fiscal and monetary policy,
and security values. However, under normal market conditions at least 40% of the
Fund's assets are allocated to equity securities.
The Fund's equity investments have been in large-capitalization stocks that are
paying dividends greater than the S&P 500 Index average. With assets allocated
to investment-grade, high-yield and convertible securities, the bond portion of
the Fund's portfolio is distributed across a broader range of fixed income
instruments than most balanced funds. The Fund's strategic approach in the bond
market tends to raise its income potential and the variety of its bond holdings
also provides diversification benefits that the portfolio manager believes could
help to limit its volatility.
THE FUND MANAGER
George J. Williamson,
Director and Portfolio Manager at Salomon Brothers Asset Management Inc, has 41
years of investment industry experience in the equity markets. Mr. Williamson is
primarily responsible for day-to-day Fund management.
SALOMON BROTHERS
Balanced Fund
PERFORMANCE UPDATE
For the year ended December 31, 1999, the Balanced Fund's ("Fund") Class A
shares, without sales charges, returned 3.21%. In comparison, the Standard &
Poor's 500 Index ("S&P 500") returned 21.03% for the same time period. (The S&P
500 is a market capitalization-weighted measure of 500 widely held common
stocks.)
MARKET REVIEW AND HIGHLIGHTS
During 1999, the common stock segment of the Fund's portfolio was gradually
repositioned toward an increased emphasis on high-quality, large growth
companies and a significant number of the cyclical holdings were sold.
Holdings either added or increased to the Fund's portfolio include: Coca-Cola,
Merck, Pfizer, and IBM. These holdings have benefited the Fund's performance and
we believe these companies should continue to perform well. We eliminated the
Fund's holdings in Vulcan Materials, Alcoa, International Paper, and Weyheuser.
The stock and bond ratio was being maintained at approximately 50/50. The bond
sector is comprised of approximately 12% convertible issues, 17% high-yield
bonds and 19% U.S. Treasury and investment-grade bonds. The yield of the overall
portfolio is currently 5.1%.
Economic conditions were bolstered by the monetary ease applied by the Federal
Reserve Board in 1998. Then there was a Fed shift toward higher rates in 1999.
Stock market performance was dominated by very high priced multiple technology
stocks. Going forward, we look for moderate growth in the U.S. and a gradual
improvement overseas along with a trend toward moderately higher interest rates.
During the current year we believe that conditions will tend to favor
high-quality growth companies which will participate in the expected worldwide
economic improvement. The largest stock holdings in order of size are: Bell
Canada Enterprises (owns 40% of Nortel Networks), Suncor Energy, IBM, Exxon
Mobil, Union Pacific, CIGNA, Bell Atlantic, SBC Communications, Avon Products
and Marsh & McLennan.
38
<PAGE>
BALANCED FUND --
Bringing Stock & Bond Opportunities Together
Historically, a balanced approach has helped investors enjoy stock market growth
potential, generate potential income, manage risk and cushion stock market
declines. The Salomon Brothers Balanced Fund utilizes a strategic combination of
stocks and bonds that do not perform in sync -- offering investors the benefits
of diversification. While investing in a mix of stocks and bonds can bring added
benefits, it may also involve above-average risks, including limited
marketability of portfolio securities. Please note that this diversification
does not ensure against market loss. Portfolio Manager George Williamson
discusses how his balanced strategy creates a portfolio that may be appropriate
for investors seeking a more stable approach to growth.
Q: George, how would you characterize your investment philosophy?
Our investment philosophy can be characterized by the growth at a reasonable
price ("GARP") approach. We seek long-term, high-quality growth stocks at prices
that we think make sense.
Q: Describe your stock and bond selection process.
Our selection process consists of continuous review of a large number of
companies that fit the criteria of a strong company in a growth industry. We
attempt to bring together Salomon Brothers' renowned bond market expertise in
the context of a large cap stock strategy.
Q: Please discuss the Fund's name change. Will it affect your investment
approach?
While the Fund's name changed from "Total Return Fund" to "Balanced Fund," it
has not affected our investment approach. The team and the style orientation
remain in place. A more appropriate name for the Fund might be the Balanced
Income Fund. We own some income-producing stocks and seek to maintain a 50%
stock to 50% bond ratio.
Q: Describe what you mean by a "balanced" approach to investing.
Through the Balanced Fund, investors gain exposure to a variety of asset classes
including large capitalization stocks, high-yield bonds and convertible
securities. Our balanced approach to investing can provide individuals with the
potential to receive both income and growth with less volatility than a
portfolio comprised only of stocks.
Our stock and bond research teams combine their insights across disciplines,
creating what we think is "the right mix." Intensive research led us to conclude
that we could potentially enhance the Fund by exploring unique investments such
as high-yield bonds and convertible securities. These types of securities can
help diversify the Fund, while increasing the potential for both higher returns
and income.
39
<PAGE>
Q: How do you manage the tradeoff between income and performance?
While this is one of the most difficult aspects of portfolio management, it is
attainable as long as our investors understand the process. Our yield restricts
performance to some extent but fits a big niche. We're more conservative
investors, but we still like to own solid growth companies.
In addition, we diversify across asset classes in an attempt to increase the
Fund's income potential as well as to help limit downside risk. Most bonds are
income-producing securities, and, therefore, provide the Fund with a consistent
income stream. We seek to create additional income by investing in stocks that
have strong potential for sustained dividend growth as well.
Q: We have noticed an increased appearance of "well-known names" in the Fund's
portfolio. What do you find compelling about these brand name companies?
Well-known companies tend to be dominant companies in growth industries.
Customers know and are comfortable with these businesses and they tend to lead
the market over time. (Past performance is not indicative of future results.)
Q: What role does a balanced fund play in a well-diversified portfolio?
The Salomon Brothers Balanced Fund may be an excellent alternative for investors
who want income and who want to own some great growth companies. Also, the
convertible bond portion of the Fund offers investors the opportunity for both
capital appreciation and income.
George, thank you for your insights.
40
<PAGE>
The following graph depicts the performance of the Balanced Fund versus the
Salomon Smith Barney Broad Investment-Grade Bond Index1,the Standard & Poor's
500 Stock Index and 50% Salomon Smith Barney Broad Investment-Grade Bond Index
and 50% Standard & Poor's 500 Stock Index. It is important to note that the Fund
is a professionally managed mutual fund while the indexes are not available for
investment and are unmanaged. The comparison is shown for illustrative purposes
only.
- --------------------------------------------------------------------------------
Portfolio Highlights#
- --------------------------------------------------------------------------------
Composition of portfolio as of December 31,1999
[CHART]
[ILLEGIBLE]
- --------------------------------------------------------------------------------
Top Stock Holdings
- --------------------------------------------------------------------------------
BCE Inc.
................................................................................
Suncor Energy,Inc.
................................................................................
International Business
Machines Corp.
................................................................................
Exxon Mobil Corp.
................................................................................
Union Pacific Corp.
................................................................................
Bell Atlantic Corp.
................................................................................
SBC Communications Inc.
................................................................................
CIGNA Corp.
................................................................................
Avon Products,Inc.
................................................................................
Marsh & McLennan
Cos.Inc.
- ----------------------------
Portfolio holdings may vary.
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE (unaudited)
BALANCED FUND -- CLASS A,B,2 and O SHARES
Comparison of $10,000 Investment in the Fund with Salomon Smith Barney Broad
Investment-Grade Bond Index ("BIG"),Standard & Poor's 500 Stock Index and 50%
Salomon Smith Barney Broad Investment-Grade Bond and 50% Standard & Poor's 500
Stock Index
- --------------------------------------------------------------------------------
[GRAPH]
S&P 500 S&P Big
Date Class A Class B Class 2 Class 0 Index Index Blend
9/13/95 9,425 10,000 9,900 10,000 10,000 10,000 10,000
Dec-95 10,052 10,644 10,548 10,689 10,602 10,434 10,518
Dec-96 11,894 12,498 12,389 12,724 13,035 10,811 11,923
Dec-97 14,159 14,766 14,633 15,181 17,383 11,852 14,618
Dec-98 15,059 15,276 15,433 16,178 22,355 12,886 17,620
Dec-97 15,546 15,755 15,807 16,734 27,056 12,779 19,918
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, 1999
- --------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
................................................................................
Since Inception (9/11/95) 12.32% 10.79%
3 year 9.33% 7.20%
1 year 3.21% -2.72%
................................................................................
Class B Shares
................................................................................
Since Inception (9/11/95) 11.46% 11.13%
3 year 8.48% 7.62%
1 year 2.42% -2.46%
................................................................................
Class 2 Shares
................................................................................
Since Inception (9/11/95) 11.47% 11.22%
3 year 8.46% 8.09%
1 year 2.41% 0.44%
................................................................................
Class O Shares
................................................................................
Since Inception (9/11/95) 12.70% 12.70%
3 year 9.56% 9.56%
1 year 3.42% 3.42%
- --------------------------------------------------------------------------------
See page 42 for all footnotes.
41
<PAGE>
FOOTNOTES
1 The Salomon Smith Barney 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, 1998, the combined Index returns are for the period October 1,
1995 through December 31, 1999.
* Class A and 2 shares reflect the deduction of the maximum 5.75% and 1.00%
sales charges respectively. Class B and 2 shares reflect the maximum
contingent deferred sales charge of 5.00% and 1.00%, respectively. Class O
shares have no initial or contingent deferred sales charge.
# As a % of total investments.
N/A Not Available.
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 2) and the contingent deferred sales charge (Class B and 2). 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 for certain Funds reflect a voluntary expense
cap imposed by Salomon Brothers Asset Management Inc 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.
42
<PAGE>
Schedules of Investments
December 31, 1999
Salomon Brothers Asia Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCK -- 93.3%
China -- 0.8%
1,850,000 Guangzhou Pharmaceutical Co. Ltd., Class H Shares..... $ 192,770
-----------
Hong Kong -- 29.1%
130,000 Cable & Wireless HKT Ltd.............................. 375,442
34,000 Cheung Kong (Holdings) Ltd. .......................... 431,916
314,000 China Merchants Holdings International Co. Ltd. ...... 258,519
270,000 China Resources Enterprise Ltd. ...................... 432,430
124,000 China Telecom (Hong Kong) Ltd. (a).................... 775,249
671,000 First Pacific Co. Ltd. ............................... 517,913
290,000 Giordano International Ltd............................ 298,449
250,000 Global Tech (Holdings) Ltd. .......................... 289,444
114,000 Guoco Group Ltd. ..................................... 347,565
553,600 HKR International Ltd................................. 388,128
39,200 HSBC Holdings PLC..................................... 549,662
36,000 Hutchison Whampoa Ltd................................. 523,316
1,100,000 Kin Yat Holdings Ltd.................................. 162,732
180,000 Li & Fung Ltd......................................... 451,534
62,000 Television Broadcasts Ltd. ........................... 422,718
68,000 Wing Hang Bank Ltd.................................... 232,687
1,100,000 Yanzhou Coal Mining Co. Ltd., Class H Shares.......... 304,238
-----------
6,761,942
-----------
India -- 7.3%
22,000 Bajaj Auto Ltd. GDR................................... 209,000
19,000 Reliance Industries Ltd. GDR (a)...................... 266,000
3,000 Satyam Infoway Ltd. ADR (a)........................... 465,000
18,000 State Bank of India GDR............................... 222,300
29,500 Tata Engineering and Locomotive Co. Ltd. GDR.......... 154,875
15,000 Videsh Sanchar Nigam Ltd. GDR......................... 372,000
-----------
1,689,175
-----------
Indonesia -- 1.2%
113,000 PT Hanjaya Mandala Sampoerna Tbk...................... 282,897
-----------
Malaysia -- 2.7%
122,000 AMMB Holdings Berhad ................................. 292,196
146,000 Gamuda Berhad......................................... 324,700
-----------
616,896
-----------
Singapore -- 11.4%
56,000 City Developments Ltd................................. 327,731
72,000 Datacraft Asia Ltd.................................... 597,600
42,000 DBS Group Holdings Ltd................................ 688,235
226,000 MediaRing.com Ltd. (a)................................ 244,177
85,000 NatSteel Electronics Ltd.............................. 448,979
32,000 Singapore Airlines Ltd................................ 363,025
-----------
2,669,747
-----------
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Asia Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
- -----------------------------------------------------
South Korea -- 22.0%
6,200 Dongwon Securities Co...... $ 133,479
14,100 H&CB....................... 446,045
23,909 Hyundai Electronics
Industries Co............. 506,332
4,200 Hyundai Motor Co. Ltd...... 66,432
27,818 Hyundai Motor Co. Ltd. GDR
(a)....................... 299,043
2,500 Korea Telecom Corp......... 393,233
4,800 Korea Telecom Corp. ADR.... 358,800
4,000 Korea Thrunet Co., Ltd.,
Class A Shares............ 271,500
8,000 L.G. Chemical Ltd.......... 252,372
3,428 Pohang Iron & Steel Co.,
Ltd. (b).................. 409,484
3,800 Samsung Electronics........ 888,224
2,200 Serome Technology Inc.
(a)....................... 467,838
59,500 Shinhan Bank............... 643,101
-----------
5,135,883
-----------
Taiwan -- 16.1%
130,000 Acer Peripherals Inc....... 538,422
82,000 Advanced Semiconductor
Engineering Inc. (a)...... 292,595
106,600 Cathay Life Insurance Co.,
Ltd....................... 256,413
368,000 Chinatrust Commercial
Bank...................... 427,934
133,208 Compal Electronics Inc..... 447,734
60,000 Hon Hai Precision Industry
Co., Ltd. (a)............. 447,304
81,444 President Chain Store
Corp...................... 359,372
118,670 Taiwan Semiconductor
Manufacturing Co. (a)..... 631,384
94,000 United Microelectronics
Corp., Ltd................ 335,414
-----------
3,736,572
-----------
Thailand -- 2.7%
28,000 Advanced Info Service
Public Co. Ltd. (b)....... 469,826
380,000 National Finance Public Co.
Ltd. (b).................. 168,989
-----------
638,815
-----------
TOTAL COMMON STOCK
(Cost -- $15,524,086)...... 21,724,697
-----------
<CAPTION>
Face
Amount
----------
<C> <S> <C>
EQUITY-LINKED NOTES -- 5.8%
India -- 3.6%
$ 8,000 Satyam Computer Services
Ltd., Series B, Equity-
Linked Note, due 3/31/02
(d)....................... 828,000
-----------
Singapore -- 2.2%
188,385 Overseas Union Bank,
Equity-Linked Note, due
1/6/02 (c)................... 523,151
-----------
TOTAL EQUITY-LINKED NOTES
(Cost -- $392,188)............ 1,351,151
-----------
</TABLE>
See Notes to Financial Statements.
44
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Asia Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warrants Security Value
<C> <S> <C>
- -----------------------------------------------------
WARRANTS -- 0.4%
Indonesia -- 0.4%
3,202,896 PT Bank Panin Indonesia,
Expires 6/26/00 (a)
(Cost -- $79,518)............$ 83,483
-----------
<CAPTION>
Rights
----------
<C> <S> <C>
RIGHTS -- 0.5%
South Korea -- 0.5%
792 Serome Technology Inc.,
Subscription Rights (a)(e)
(Cost -- $0)................. 114,206
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $15,995,792*)........$23,273,537
===========
</TABLE>
- ------
(a) Non-income producing security.
(b) Foreign shares.
(c) The current principal amount of these notes is equivalent to 152,600 shares
of Overseas Union Bank. Redemption proceeds will be determined at the date
of redemption based on change in (1) the value of the shares of Overseas
Union Bank and (2) the exchange rate between the U.S. Dollar and Singapore
Dollar. Interest on the note is equal to the amount of dividends paid on
the underlying shares of Overseas Union Bank.
(d) The current principal amount of these notes is equivalent to 314,960 shares
of Satyam Computer. Redemption proceeds will be determined at the date of
redemption based on change in the value of the shares of Satyam Computer.
Interest on the notes is equal to the amount of dividends paid on the un-
derlying shares of Satyam Computer.
(e) Subscription rights issued on December 31, 1999 at terms of 36 rights for
every 100 shares of Serome Technology common stock held. The rights are ex-
ercisable for 1 ordinary share each at a subscription price of 77,900KRW.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this schedule:
ADR -- American Depository Receipt.
GDR -- Global Depository Receipt.
KRW -- South Korean Won.
See Notes to Financial Statements.
45
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCK -- 100%
Canada -- 3.2%
6,200 CGI Group Inc., Class A Shares......................... $ 265,438
----------
Finland -- 6.4%
1,200 Nokia Corp., Sponsored ADR............................. 228,000
4,500 Sonera Group........................................... 308,520
----------
536,520
----------
France -- 2.1%
2,500 Axa, Sponsored ADR..................................... 177,500
----------
Germany -- 2.3%
2,500 Adidas - Salomon AG.................................... 187,646
----------
Ireland -- 4.1%
7,100 Allied Irish Banks PLC, Sponsored ADR.................. 149,987
6,400 Elan Corp. PLC, Sponsored ADR.......................... 188,800
----------
338,787
----------
Italy -- 5.0%
9,800 Luxottica Group S.p.A., Sponsored ADR.................. 172,112
22,200 Telecom Italia Mobile S.p.A. .......................... 248,043
----------
420,155
----------
Japan -- 34.5%
6,000 Canon, Inc............................................. 237,589
13 DDI Corp............................................... 177,509
500 Fast Retailing Co. .................................... 202,867
5,000 Fujitsu Ltd............................................ 227,251
500 Fujitsu Support and Services Inc. ..................... 244,319
11 Nippon Telegraph and Telephone Corp.................... 187,750
9 NTT Data Corp.......................................... 206,281
800 Ryohin Keikaku Co...................................... 160,031
900 Secom Co., Ltd., Unsponsored ADR....................... 197,503
1,000 Seven-Eleven Japan Co., Ltd. .......................... 158,003
480 Shohkoh Fund & Co., Ltd. .............................. 189,369
1,000 Sony Corp.............................................. 295,523
1,000 TDK Corp............................................... 137,618
1,000 Trend Micro Inc........................................ 251,634
----------
2,873,247
----------
Netherlands -- 10.5%
1,800 ASM Lithography Holding N.V............................ 204,750
3,200 ING Groep N.V., Sponsored ADR.......................... 195,200
8,300 Koninklijke Ahold N.V., Sponsored ADR.................. 248,481
1,500 STMicroelectronics N.V., NY Shares..................... 227,156
----------
875,587
----------
Spain -- 7.0%
16,900 Banco Santander Central Hispano SA..................... 191,380
2,650 Telefonica SA, Sponsored ADR........................... 208,853
42,300 Telepizza SA........................................... 178,992
----------
579,225
----------
Switzerland -- 2.6%
1,800 ABB Ltd................................................ 220,029
----------
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
- --------------------------------------------------------------------------------
United Kingdom -- 22.3%
64,400 Ashtead Group PLC...................................... $ 176,215
15,100 Cobham PLC............................................. 188,915
39,400 Invensys PLC........................................... 213,073
16,500 Johnson Matthey PLC.................................... 173,801
14,700 Lloyds TSB Group PLC................................... 183,436
15,300 Misys PLC.............................................. 232,911
15,900 Provident Financial PLC................................ 174,539
47,400 Rentokil Initial PLC................................... 172,549
15,700 Shire Pharmaceuticals Group PLC........................ 156,757
3,700 Vodafone AirTouch PLC, Sponsored ADR................... 183,150
----------
1,855,346
----------
TOTAL INVESTMENTS -- 100%
(Cost -- $6,667,641*).................................. $8,329,480
==========
</TABLE>
- ------
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depository Receipt.
See Notes to Financial Statements.
47
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Small Cap Growth Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
COMMON STOCK -- 86.7%
Basic Industries -- 3.3%
100,000 The Geon Co. ...................................... $ 3,250,000
125,000 OM Group, Inc...................................... 4,304,687
175,000 Steel Dynamics, Inc. (a) .......................... 2,789,063
------------
10,343,750
------------
Communications -- 10.3%
36,500 Cox Radio, Inc., Class A Shares (a)................ 3,640,875
95,000 Electric Lightwave, Inc., Class A Shares (a)....... 1,781,250
70,000 Entercom Communications Corp. (a).................. 4,620,000
147,000 GST Telecommunications, Inc. (a)................... 1,332,187
132,000 ICG Communications, Inc. (a)....................... 2,475,000
50,000 Intermedia Communications, Inc. (a)................ 1,940,625
Metromedia Fiber Network, Inc., Class A Shares
100,000 (a)................................................ 4,793,750
50,000 Pac-West Telecomm, Inc. (a)........................ 1,325,000
40,000 Pegasus Communications Corp. (a)................... 3,910,000
Rogers Cantel Mobile Communications Inc., Class B
77,800 Shares (a)......................................... 2,829,975
46,500 WinStar Communications, Inc. (a)................... 3,481,688
------------
32,130,350
------------
Consumer -- 14.7%
100,000 Abercrombie & Fitch Co., Class A Shares (a)........ 2,668,750
50,000 Charles River Associates Inc. (a).................. 1,675,000
25,000 Coca-Cola Bottling Consolidated.................... 1,184,375
125,000 Cost Plus, Inc. (a)................................ 4,453,125
35,000 Cutter & Buck Inc. (a)............................. 529,375
160,000 DeVry, Inc. (a).................................... 2,980,000
35,000 Dura Automotive Systems, Inc. (a).................. 610,312
60,000 eCollege.com (a)................................... 656,250
40,000 FactSet Research Systems Inc....................... 3,185,000
165,000 Fossil, Inc. (a)................................... 3,815,625
40,000 Maximus, Inc. (a).................................. 1,357,500
150,000 Michael Foods, Inc................................. 3,693,750
50,000 On Assignment, Inc. (a)............................ 1,493,750
160,000 The Profit Recovery Group International, Inc. (a).. 4,250,000
55,000 QRS Corp. (a)...................................... 5,737,188
Sinclair Broadcast Group, Inc., Class A Shares
122,000 (a)................................................ 1,488,781
95,000 Station Casinos, Inc. (a).......................... 2,131,563
60,000 Trex Co., Inc. (a)................................. 1,605,000
50,000 Williams-Sonoma, Inc. (a).......................... 2,300,000
------------
45,815,344
------------
Energy -- 3.6%
150,000 Newfield Exploration Co. (a)....................... 4,012,500
5,000 Paradigm Geophysical Ltd. (a)...................... 24,531
200,000 Pogo Producing Co.................................. 4,100,000
50,000 Rowan Cos. Inc. (a)................................ 1,084,375
38,000 SEACOR SMIT Inc. (a)............................... 1,966,500
------------
11,187,906
------------
Financial Services -- 4.6%
65,000 Banknorth Group, Inc. ............................. 1,738,750
75,000 Commerce Bancorp, Inc. ............................ 3,032,812
</TABLE>
See Notes to Financial Statements.
48
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Small Cap Growth Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
Financial Services -- 4.6% (continued)
100,000 Legg Mason, Inc.................................... $ 3,625,000
110,000 Protective Life Corp............................... 3,499,375
90,000 Westamerica Bancorporation......................... 2,514,375
------------
14,410,312
------------
Health Care -- 3.8%
110,000 Alpharma Inc., Class A Shares (a).................. 3,382,500
31,900 COR Therapeutics, Inc. (a)......................... 857,312
Health Management Associates, Inc., Class A Shares
100,000 (a)................................................ 1,337,500
26,000 IDEC Pharmaceuticals Corp. (a)..................... 2,554,500
135,000 MedQuist Inc. (a).................................. 3,484,688
5,000 Vertex Pharmaceuticals Inc. (a).................... 175,000
------------
11,791,500
------------
Real Estate -- 0.8%
40,000 Cousins Properties, Inc. .......................... 1,357,500
41,800 PS Business Parks, Inc. ........................... 950,950
------------
2,308,450
------------
Technology -- 45.6%
43,500 Applied Micro Circuit Corp. (a).................... 5,535,375
147,000 ASM International N.V. (a)......................... 3,381,000
200,000 Brooktrout Inc. (a)................................ 3,712,500
30,000 Commerce One, Inc. (a)............................. 5,895,000
108,000 Concord Communications, Inc. (a)................... 4,792,500
245,000 Digital Microwave Corp. (a)........................ 5,742,188
22,000 Drugstore.com, Inc. (a)............................ 796,125
60,100 Engage Technologies, Inc. (a)...................... 3,606,000
75,000 Exar Corp. (a)..................................... 4,415,625
60,000 Inet Technologies, Inc. (a)........................ 4,192,500
195,000 Insight Enterprises, Inc. (a)...................... 7,921,875
150,000 Keane, Inc. (a).................................... 4,762,500
24,900 The Knot, Inc. (a)................................. 210,094
120,000 Legato Systems, Inc. (a)........................... 8,257,500
75,000 Micro Linear Corp. (a)............................. 642,187
300,000 Micron Electronics, Inc. (a)....................... 3,337,500
25,000 MTI Technology Corp. (a)........................... 921,875
140,000 Network Appliance, Inc. (a)........................ 11,628,750
154,800 Newport Corp. ..................................... 7,082,100
100,000 Oak Industries Inc. (a)............................ 10,612,500
42,000 Ortel Corp. (a).................................... 5,040,000
225,000 PairGain Technologies, Inc. (a).................... 3,192,188
13,200 PlanetRx.com, Inc. (a)............................. 191,400
70,000 Polycom, Inc. (a).................................. 4,458,125
229,000 S3 Inc. (a)........................................ 2,647,813
100,000 Sawtek Inc. (a).................................... 6,656,250
160,000 Siebel Systems, Inc. (a)........................... 13,440,000
90,000 Technology Solutions Co. (a)....................... 2,947,500
18,500 TranSwitch Corp. (a)............................... 1,342,405
60,500 Visual Networks, Inc. (a).......................... 4,794,625
------------
142,156,000
------------
TOTAL COMMON STOCK
(Cost -- $166,852,156)............................. 270,143,612
------------
</TABLE>
See Notes to Financial Statements.
49
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Small Cap Growth Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Contracts Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
PURCHASED PUT OPTIONS (a) -- 0.1%
Cost Plus Inc.:
100 Expires 2/19/00, exercise price $30................ $ 6,875
150 Expires 2/19/00, exercise price $35................ 44,062
IDEC Pharmaceuticals, Expires 1/22/00, exercise
400 price $55.......................................... 5,000
Metromedia Fiber Network, Inc.:
350 Expires 1/22/00, exercise price $22.50............. 4,375
1,150 Expires 1/22/00, exercise price $25................ 14,375
Williams-Sonoma, Inc., Expires 1/22/00, exercise
500 price $50.......................................... 268,750
------------
TOTAL PURCHASED PUT OPTIONS
(Cost -- $965,288)................................. 343,437
------------
SUB-TOTAL INVESTMENTS
(Cost -- $167,817,444)............................. 270,487,049
------------
<CAPTION>
Face
Amount
-----------
<C> <S> <C>
REPURCHASE AGREEMENT -- 13.2%
$41,277,000 State Street Bank & Trust Co., 3.000% due 1/3/00;
Proceeds at maturity -- $41,287,319; (Fully
collateralized by U.S. Treasury Notes, 8.500% due
2/15/20; Market value -- $42,105,825) (Cost --
$41,277,000)..................................... 41,277,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $209,094,444*)............................ $311,764,049
============
</TABLE>
- ------
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
50
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Large Cap Growth Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCK -- 100%
Broadcasting & Publishing -- 1.2%
1,650 Gannett Co., Inc. ....................................... $ 134,578
-----------
Business Services -- 3.1%
4,250 Automatic Data Processing, Inc........................... 228,969
1,255 Lexmark International Group, Inc. (a).................... 113,577
-----------
342,546
-----------
Commercial Services -- 3.0%
3,800 The Interpublic Group of Cos., Inc....................... 219,212
1,110 Omnicom Group Inc........................................ 111,000
-----------
330,212
-----------
Communications -- 3.0%
2,770 Bell Atlantic Corp....................................... 170,528
3,430 BellSouth Corp. ......................................... 160,567
-----------
331,095
-----------
Computers -- 8.5%
3,220 Dell Computer Corp. (a).................................. 164,220
650 EMC Corp. (a)............................................ 71,013
3,030 Intel Corp............................................... 249,407
3,310 International Business Machines Corp. ................... 357,480
1,110 Sun Microsystems, Inc. (a)............................... 85,956
-----------
928,076
-----------
Consumer Non-Cyclicals -- 3.8%
3,310 The Coca-Cola Co. ....................................... 192,808
1,990 The Procter & Gamble Co. ................................ 218,029
-----------
410,837
-----------
Drugs & Health Care -- 12.0%
1,390 Amgen Inc. (a)........................................... 83,487
3,570 Bristol-Myers Squibb Co.................................. 229,149
910 Eli Lilly & Co. ......................................... 60,515
2,400 Johnson & Johnson........................................ 223,500
1,170 Medtronic, Inc. ......................................... 42,632
3,680 Merck & Co., Inc. ....................................... 246,790
3,990 Pfizer Inc. ............................................. 129,426
3,900 Schering-Plough Corp. ................................... 164,531
1,620 Warner-Lambert Co. ...................................... 132,739
-----------
1,312,769
-----------
Electronics -- 1.3%
2,360 Emerson Electric Co. .................................... 135,405
-----------
Entertainment -- 0.5%
1,140 Carnival Corp. .......................................... 54,506
-----------
Finance -- 7.9%
1,090 American Express Co. .................................... 181,213
2,760 Associates First Capital Corp............................ 75,728
2,430 The Bank of New York Co., Inc. .......................... 97,200
1,960 The Chase Manhattan Corp. ............................... 152,267
</TABLE>
See Notes to Financial Statements.
51
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Large Cap Growth Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- --------------------------------------------------------------------------------
Finance -- 7.9% (continued)
2,430 Concord EFS, Inc. (a).................................... $ 62,573
1,400 Fannie Mae............................................... 87,412
1,400 Golden West Financial Corp. ............................. 46,900
5,810 MBNA Corp. .............................................. 158,322
-----------
861,615
-----------
Industrial Manufacturing & Processing -- 13.1%
2,150 Danaher Corp............................................. 103,738
4,500 General Electric Co...................................... 696,375
1,380 Illinois Tool Works Inc.................................. 93,236
2,440 Johnson Controls, Inc. .................................. 138,775
2,400 Solectron Corp. (a)...................................... 228,300
4,460 Tyco International Ltd................................... 173,382
-----------
1,433,806
-----------
Insurance -- 3.8%
2,640 American International Group, Inc........................ 285,450
1,315 Marsh & McLennan Cos., Inc. ............................. 125,829
-----------
411,279
-----------
Oil & Gas -- 6.2%
4,510 Exxon Mobil Corp......................................... 363,337
6,500 Global Marine Inc. (a)................................... 108,062
1,670 Schlumberger Ltd......................................... 93,937
3,443 Transocean Sedco Forex Inc............................... 115,997
-----------
681,333
-----------
Retail -- 8.2%
2,700 Bed Bath & Beyond Inc. (a)............................... 93,825
3,180 The Home Depot, Inc...................................... 218,029
840 Kohl's Corp. (a)......................................... 60,637
530 Lowe's Cos., Inc......................................... 31,668
2,350 Ross Stores, Inc......................................... 42,153
5,760 Wal-Mart Stores, Inc..................................... 398,160
1,710 Walgreen Co.............................................. 50,017
-----------
894,489
-----------
Software -- 8.1%
380 BMC Software, Inc. (a)................................... 30,376
5,740 Microsoft Corp. (a)...................................... 670,145
1,340 Oracle Corp. (a)......................................... 150,164
1,450 PeopleSoft, Inc. (a)..................................... 30,903
-----------
881,588
-----------
Technology -- 11.4%
850 Altera Corp. (a)......................................... 42,128
1,910 America Online, Inc. (a)................................. 144,086
4,800 Cisco Systems, Inc. (a).................................. 514,200
800 Linear Technology Corp................................... 57,250
4,390 Lucent Technologies Inc.................................. 328,427
1,600 Maxim Integrated Products, Inc. (a)...................... 75,500
400 Microchip Technology Inc. (a)............................ 27,375
890 Tellabs, Inc. (a)........................................ 57,127
-----------
1,246,093
-----------
</TABLE>
See Notes to Financial Statements.
52
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Large Cap Growth Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- --------------------------------------------------------------------------------
Telecommunications -- 4.9%
3,220 AT&T Corp................................................ $ 163,415
1,530 GTE Corp................................................. 107,961
5,330 SBC Communications Inc................................... 259,838
-----------
531,214
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $10,122,746*)................................... $10,921,441
===========
</TABLE>
- ------
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
53
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Capital Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
COMMON STOCK -- 90.0%
Basic Industries -- 8.7%
250,000 AK Steel Holding Corp.............................. $ 4,718,750
250,000 Crown Cork & Seal Co., Inc. ....................... 5,593,750
175,000 The Geon Co. ...................................... 5,687,500
90,000 International Paper Co............................. 5,079,375
500,000 LTV Corp. ......................................... 2,062,500
100,000 Olin Corp. ........................................ 1,981,250
150,000 OM Group, Inc...................................... 5,165,625
------------
30,288,750
------------
Capital Goods -- 1.1%
1,000,000 Harnischfeger Industries, Inc...................... 406,250
60,000 Ingersoll-Rand Co.................................. 3,303,750
------------
3,710,000
------------
Communications -- 8.8%
100,000 Bell Atlantic Corp. ............................... 6,156,250
70,000 GTE Corp. ......................................... 4,939,375
67,500 MCI WorldCom, Inc. (a)............................. 3,581,719
40,000 NTL Inc. (a)....................................... 4,990,000
Rogers Cantel Mobile Communications Inc., Class B
200,000 Shares (a)......................................... 7,275,000
75,000 SBC Communications Inc............................. 3,656,250
------------
30,598,594
------------
Consumer Cyclicals -- 8.6%
100,000 Costco Wholesale Corp. (a)......................... 9,125,000
225,000 Federated Department Stores, Inc. (a).............. 11,376,563
466,286 Fine Host Corp. (a)(b)............................. 4,373,074
300,000 Primedia Inc. (a).................................. 4,950,000
------------
29,824,637
------------
Consumer Non-Cyclicals -- 23.9%
100,000 AT&T Corp. - Liberty Media, Class A Shares (a)..... 5,675,000
50,000 Delhaize America, Inc., Class A Shares............. 1,015,625
300,000 Delhaize America, Inc., Class B Shares............. 6,262,500
75,000 Hannaford Bros. Co. ............................... 5,198,438
175,000 Hearst-Argyle Television, Inc. (a)................. 4,659,375
250,000 Hormel Foods Corp.................................. 10,156,250
250,000 John B. Sanfilippo & Son, Inc. (a)................. 1,000,000
250,000 Michael Foods, Inc................................. 6,156,250
1,050,000 Nabisco Group Holdings Corp. ...................... 11,156,250
150,000 The News Corp. Ltd. ADR............................ 5,015,625
350,000 The Pepsi Bottling Group, Inc. .................... 5,796,875
125,000 Philip Morris Cos., Inc. .......................... 2,898,438
255,000 Safeway, Inc. (a).................................. 9,068,438
Sinclair Broadcast Group, Inc., Class A Shares
300,000 (a)................................................ 3,660,938
350,000 Tyson Foods, Inc., Class A Shares.................. 5,687,500
------------
83,407,502
------------
Energy -- 10.5%
150,000 Conoco Inc. ....................................... 3,731,250
275,000 Devon Energy Co. .................................. 9,040,625
275,000 Paradigm Geophysical Ltd. (a)...................... 1,349,219
</TABLE>
See Notes to Financial Statements.
54
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Capital Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- --------------------------------------------------------------------------------
Energy -- 10.5% (continued)
375,000 R&B Falcon Corp. (a)................................ $ 4,968,750
100,000 Suncor Energy, Inc.................................. 4,175,000
475,000 Tesoro Petroleum Corp. (a).......................... 5,492,188
150,000 Tosco Corp. ........................................ 4,078,125
200,000 Valero Energy Corp. ................................ 3,975,000
------------
36,810,157
------------
Financial Services -- 8.6%
150,000 The Bank of New York Co., Inc....................... 6,000,000
100,000 Comerica, Inc....................................... 4,668,750
100,000 FleetBoston Financial Group, Inc.................... 3,481,250
50,000 Goldman Sachs Group, Inc............................ 4,709,375
100,000 Mercantile Bankshares Corp.......................... 3,193,750
216,000 Peoples Heritage Financial Group, Inc. ............. 3,253,500
150,000 Protective Life Corp................................ 4,771,875
------------
30,078,500
------------
Health Care -- 1.6%
125,000 Pharmacia & Upjohn, Inc............................. 5,625,000
------------
Technology -- 17.2%
100,000 3Com Corp. (a)...................................... 4,700,000
175,000 Advanced Micro Devices, Inc. (a).................... 5,064,063
100,000 Amdocs Ltd. (a)..................................... 3,450,000
25,000 Comverse Technology, Inc. (a)....................... 3,618,750
125,000 Cypress Semiconductor Corp. (a)..................... 4,046,875
200,000 Digital Microwave Corp. (a)......................... 4,687,500
30,000 International Business Machines Corp................ 3,240,000
175,000 Newbridge Networks Corp. (a)........................ 3,948,438
60,000 Plantronics, Inc. (a)............................... 4,293,750
450,000 S3 Inc. (a)......................................... 5,203,125
270,000 Seagate Technology, Inc. (a)........................ 12,571,870
325,000 SpeedFam-IPEC, Inc. (a)............................. 4,204,688
25,000 Technology Solutions Co. (a)........................ 818,750
------------
59,847,809
------------
Transportation/Service -- 1.0%
50,000 United Parcel Service, Inc.......................... 3,450,000
------------
TOTAL COMMON STOCK
(Cost -- $259,716,280).............................. 313,640,949
------------
<CAPTION>
Face
Amount
-----------
<C> <S> <C>
CONVERTIBLE CORPORATE BONDS -- 1.3%
Consumer Cyclicals -- 1.3%
Sunbeam Corp.:
$25,000,000 Zero coupon due 3/25/18 (c)......................... 3,875,000
5,000,000 Zero coupon due 3/25/18............................. 775,000
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost -- $6,094,204)................................ 4,650,000
------------
</TABLE>
See Notes to Financial Statements.
55
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Capital Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
CORPORATE BONDS -- 1.6%
Basic Industries -- 0.0%
Breed Technologies Inc., 9.250% due 4/15/08
$2,500,000 (a)(d)............................................. $ 75,000
------------
Capital Goods -- 1.5%
Harnischfeger Industries, Inc.:
9,000,000 8.700% due 6/15/22 (a)(d).......................... 3,690,000
3,500,000 7.250% due 12/15/25 (a)(d)......................... 1,435,000
------------
5,125,000
------------
Financial Services -- 0.1%
ContiFinancial Corp.:
875,000 7.500% due 3/15/02................................. 105,000
2,625,000 8.125% due 8/15/03................................. 315,000
------------
420,000
------------
TOTAL CORPORATE BONDS
(Cost -- $6,437,609)............................... 5,620,000
------------
<CAPTION>
Contracts
-----------
<C> <S> <C>
PURCHASED PUT OPTIONS -- 0.1%
Amazon.com, Inc., Expires 1/22/00, exercise price
10,000 $80................................................ 90,000
Rite Aid Corp., Expires 1/22/00, exercise price
50,000 $10................................................ 20,313
S&P 500 Index Option, Expires 1/22/00, exercise
25,000 price $1,425....................................... 356,250
------------
TOTAL PURCHASED PUT OPTIONS
(Cost -- $542,550)................................. 466,563
------------
SUB-TOTAL INVESTMENTS
(Cost -- $272,790,643)............................. 324,377,512
------------
<CAPTION>
Face
Amount
-----------
<C> <S> <C>
REPURCHASE AGREEMENT -- 7.0%
$24,359,000 State Street Bank & Trust Co., 3.000% due 1/3/00;
Proceeds at maturity -- $24,365,088; (Fully
collateralized by U.S. Treasury Notes, 9.125% due
5/15/18; Market value -- $24,849,825) (Cost --
$24,359,000)..................................... 24,359,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $297,149,643*)............................ $348,736,512
============
</TABLE>
- ------
(a) Non-income producing security.
(b) Security valued in accordance with fair valuation procedures.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(d) Security is currently in default.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depository Receipt.
See Notes to Financial Statements.
56
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Investors Value Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCK -- 92.3%
Basic Industries -- 3.7%
160,000 Alcoa, Inc.......................................... $ 13,280,000
280,000 International Paper Co.............................. 15,802,500
------------
29,082,500
------------
Capital Goods -- 4.3%
230,000 Honeywell International Inc......................... 13,268,125
200,000 Ingersoll-Rand Co................................... 11,012,500
260,000 Tyco International Ltd.............................. 10,107,500
------------
34,388,125
------------
Communication Services -- 8.0%
258,000 Bell Atlantic Corp.................................. 15,883,125
48,000 General Motors Corp., Class H Shares................ 4,608,000
215,000 GTE Corp............................................ 15,170,937
247,500 MCI WorldCom, Inc. (a).............................. 13,132,969
295,000 SBC Communications Inc.............................. 14,381,250
------------
63,176,281
------------
Consumer Cyclicals -- 4.8%
130,000 Costco Wholesale Corp. (a).......................... 11,862,500
170,000 Dayton Hudson Corp.................................. 12,484,375
275,000 Federated Department Stores, Inc. (a)............... 13,904,688
------------
38,251,563
------------
Consumer Non-Cyclicals -- 17.1%
250,000 AT&T Corp. - Liberty Media, Class A Shares.......... 14,187,500
325,000 Coca-Cola Enterprises Inc........................... 6,540,625
208,000 Delhaize America, Inc., Class A Shares.............. 4,225,000
122,000 Delhaize America, Inc., Class B Shares.............. 2,546,750
1,125,000 Nabisco Group Holdings Corp......................... 11,953,125
584,900 The News Corp. Ltd. ADR............................. 19,557,594
830,000 The Pepsi Bottling Group, Inc....................... 13,746,875
405,000 Philip Morris Cos. Inc.............................. 9,390,938
216,700 R.J. Reynolds Tobacco Holdings, Inc................. 3,819,338
520,000 Ralston Purina Group................................ 14,495,000
470,000 Safeway Inc. (a).................................... 16,714,375
643,500 Tyson Foods, Inc., Class A Shares................... 10,456,875
135,000 Viacom Inc., Class B Shares (a)..................... 8,159,063
------------
135,793,058
------------
Energy -- 9.2%
150,000 Amerada Hess Corp................................... 8,512,500
110,000 Atlantic Richfield Co............................... 9,515,000
252,000 Burlington Resources Inc............................ 8,331,750
486,300 Conoco Inc., Class A Shares......................... 12,035,925
205,000 Royal Dutch Petroleum Co. ADR....................... 12,389,688
220,000 Total Fina SA ADR................................... 15,235,000
290,000 USX - Marathon Group................................ 7,159,375
------------
73,179,238
------------
</TABLE>
See Notes to Financial Statements.
57
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Investors Value Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- --------------------------------------------------------------------------------
Financial Services -- 18.4%
85,600 American Express Co.................................. $ 14,231,000
115,000 American General Corp................................ 8,725,625
251,600 Associates First Capital Corp........................ 6,903,275
465,000 The Bank of New York Co., Inc........................ 18,600,000
190,000 The Chase Manhattan Corp............................. 14,760,625
275,000 Comerica Inc......................................... 12,839,063
332,367 FleetBoston Financial Corp........................... 11,570,526
185,000 Freddie Mac.......................................... 8,706,562
125,000 The Goldman Sachs Group, Inc......................... 11,773,438
275,000 Household International, Inc......................... 10,243,750
148,000 Morgan Stanley Dean Witter & Co...................... 21,127,000
198,750 UnumProvident Corp................................... 6,372,422
------------
145,853,286
------------
Health Care -- 7.5%
220,000 Abbott Laboratories.................................. 7,988,750
185,000 American Home Products Corp.......................... 7,295,938
240,000 Becton, Dickinson and Co............................. 6,420,000
200,000 Eli Lilly and Co..................................... 13,300,000
175,000 Merck & Co., Inc..................................... 11,735,937
289,000 Pharmacia & Upjohn, Inc.............................. 13,005,000
------------
59,745,625
------------
Technology -- 15.5%
235,000 3Com Corp. (a)....................................... 11,045,000
405,000 Alcatel SA ADR....................................... 18,225,000
275,000 Compuware Corp. (a).................................. 10,243,750
100,000 Corning Inc.......................................... 12,893,750
150,000 Hewlett-Packard Co................................... 17,090,625
134,000 Intel Corp........................................... 11,029,875
148,000 International Business Machines Corp................. 15,984,000
350,000 Seagate Technology, Inc. (a)......................... 16,296,875
110,000 Texas Instruments Inc................................ 10,656,250
------------
123,465,125
------------
Transportation -- 2.4%
280,000 Canadian National Railway Co......................... 7,367,500
270,000 Canadian Pacific Ltd................................. 5,821,875
86,000 Union Pacific Corp................................... 3,751,750
28,800 United Parcel Service, Inc., Class B Shares.......... 1,987,200
------------
18,928,325
------------
Utilities -- 1.4%
125,100 The Coastal Corp..................................... 4,433,232
206,400 The Williams Cos., Inc............................... 6,308,100
------------
10,741,332
------------
TOTAL COMMON STOCK
(Cost -- $541,596,352)............................... 732,604,458
------------
</TABLE>
See Notes to Financial Statements.
58
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Investors Value Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 1.1%
Telecommunications & Utilities -- 1.1%
NTL Inc., Sub. Notes:
$ 1,750,000 7.000% due 12/15/08................................ $ 4,628,750
3,950,000 5.750% due 12/15/09 (b)............................ 4,266,000
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost -- $5,700,000)............................... 8,894,750
------------
<CAPTION>
Contracts
-----------
<C> <S> <C>
PURCHASED PUT OPTIONS -- 0.1%
85,600 American Express Co., Expires 1/22/00, exercise
price $150........................................ 123,050
160,000 Texas Instruments Inc., Expires 1/22/00, exercise
price $57.50...................................... 14,880
Tyco International Ltd.:
172,800 Expires 1/22/00, exercise price $40.00............. 518,400
87,200 Expires 1/22/00, exercise price $42.50............. 408,750
------------
TOTAL PURCHASED PUT OPTIONS
(Cost -- $2,133,457)............................... 1,065,080
------------
SUB-TOTAL INVESTMENTS
(Cost -- $549,429,809)............................. 742,564,288
------------
<CAPTION>
Face Amount
-----------
<C> <S> <C>
REPURCHASE AGREEMENT -- 6.5%
$51,867,000 State Street Bank & Trust Co., 3.000% due 1/3/00;
Proceeds at maturity -- $51,867,000; (Fully
collateralized by U.S. Treasury Bonds, 8.875% due
2/15/19; Market value -- $52,909,106) (Cost --
$51,867,000)..................................... 51,867,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $601,296,809*)............................ $794,431,288
============
</TABLE>
- ------
(a) Non-income producing security.
(b) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depository Receipt.
See Notes to Financial Statements.
59
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Balanced Fund
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCK -- 50.6%
Basic Industries -- 0.9%
218,600 USEC Inc............................................. $ 1,530,200
------------
Capital Goods -- 2.0%
20,726 Cooper Industries, Inc. (a).......................... 838,108
36,000 Pitney Bowes Inc..................................... 1,739,250
37,000 Stone & Webster, Inc................................. 622,062
------------
3,199,420
------------
Communications -- 9.2%
20,000 AT&T Corp. .......................................... 1,015,000
80,000 BCE Inc. (a)......................................... 7,215,000
40,000 Bell Atlantic Corp. (a).............................. 2,462,500
28,000 GTE Corp. ........................................... 1,975,750
50,000 SBC Communications Inc............................... 2,437,500
------------
15,105,750
------------
Consumer Cyclicals -- 3.1%
8,705 DaimlerChrysler AG................................... 681,166
19,500 Eastman Kodak Co..................................... 1,291,875
27,428 Fine Host Corp. (b)+................................. 257,234
20,240 Hollinger International Inc., Class A Shares......... 261,855
6,000 J.C. Penney Co., Inc................................. 119,625
33,150 The May Department Stores Co......................... 1,069,087
48,000 Sears, Roebuck & Co.................................. 1,461,000
------------
5,141,842
------------
Consumer Non-Cyclicals -- 4.7%
70,000 Avon Products, Inc. (a).............................. 2,310,000
13,000 The Coca-Cola Co..................................... 757,250
50,000 Delhaize America, Inc., Class B Shares............... 1,043,750
10,000 H.J. Heinz Co. ...................................... 398,125
20,000 Hormel Foods Corp.................................... 812,500
6,000 McDonald's Corp. .................................... 241,875
8,000 PepsiCo, Inc......................................... 282,000
10,000 Philip Morris Cos. Inc. ............................. 231,875
45,000 Ralston Purina Group................................. 1,254,375
40,000 Rite Aid Corp........................................ 447,500
------------
7,779,250
------------
Energy -- 9.4%
25,000 Amerada Hess Corp. (a)............................... 1,418,750
30,436 BP Amoco PLC......................................... 1,805,235
41,482 Exxon Mobil Corp. ................................... 3,341,894
50,000 Halliburton Co. ..................................... 2,012,500
16,000 Royal Dutch Petroleum Co. ADR........................ 967,000
20,000 Schlumberger Ltd. ................................... 1,125,000
95,000 Suncor Energy, Inc................................... 3,966,250
12,000 Texaco Inc........................................... 651,750
3,872 Transocean Sedco Forex Inc........................... 130,438
------------
15,418,817
------------
Financial Services -- 5.4%
30,000 The Allstate Corp.................................... 720,000
1,945 American International Group, Inc.................... 210,303
9,000 Bank of America Corp................................. 451,688
</TABLE>
See Notes to Financial Statements.
60
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Balanced Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
Financial Services -- 5.4% (continued)
18,000 The Chubb Corp. .................................... $ 1,013,625
30,000 CIGNA Corp. ........................................ 2,416,875
20,000 First Union Corp.................................... 656,250
30,000 Fleet Financial Group, Inc.......................... 1,044,375
23,000 Marsh & McLennan Cos., Inc. ........................ 2,200,813
5,700 Nationwide Financial Services, Inc., Class A
Shares............................................. 159,244
------------
8,873,173
------------
Health Care -- 3.7%
42,000 American Home Products Corp. ....................... 1,656,375
26,000 Bausch & Lomb Inc. ................................. 1,779,375
4,000 Johnson & Johnson................................... 372,500
8,000 Merck & Co., Inc.................................... 536,500
10,000 Monsanto Co......................................... 356,250
30,000 Pfizer Inc. ........................................ 973,125
10,000 Pharmacia & Upjohn, Inc............................. 450,000
------------
6,124,125
------------
Real Estate Investment Trust -- 5.8%
67,500 Arden Realty, Inc................................... 1,354,219
35,000 Bedford Property Investors, Inc..................... 597,188
55,000 Brandywine Realty Trust............................. 900,625
45,000 Duke-Weeks Realty Corp. ............................ 877,500
65,000 Glenborough Realty Trust Inc. ...................... 869,375
46,950 JDN Realty Corp..................................... 757,069
75,000 Mid-Atlantic Realty Trust........................... 754,688
84,000 New Plan Excel Realty Trust......................... 1,328,250
18,000 Prentiss Properties Trust........................... 378,000
35,000 Reckson Associates Realty Corp...................... 717,500
30,000 Sun Communities, Inc................................ 965,625
------------
9,500,039
------------
Technology -- 2.3%
31,000 International Business Machines Corp. .............. 3,348,000
15,000 Xerox Corp. ........................................ 340,312
------------
3,688,312
------------
Transportation -- 2.8%
60,000 Canadian National Railway Co. ...................... 1,578,750
60,000 Union Pacific Corp.................................. 2,617,500
6,200 United Parcel Service, Inc., Class B Shares......... 427,800
------------
4,624,050
------------
Utilities -- 1.3%
40,000 Edison International................................ 1,047,500
45,000 Reliant Energy, Inc................................. 1,029,375
------------
2,076,875
------------
TOTAL COMMON STOCK
(Cost -- $75,095,620)............................... 83,061,853
------------
CONVERTIBLE PREFERRED STOCK -- 4.4%
Basic Industries -- 0.6%
30,000 Crown Cork & Seal, 4.500%........................... 622,500
7,000 International Paper Capital Trust, 5.250%........... 381,500
------------
1,004,000
------------
</TABLE>
See Notes to Financial Statements.
61
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Balanced Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
Communications -- 1.1%
20,000 MCI WorldCom, Inc., $2.25........................... $ 1,026,250
5,000 Sprint Corp., 8.250%................................ 371,250
7,500 UnitedGlobalCom, Series D, 7.000%................... 468,750
------------
1,866,250
------------
Consumer Cyclicals -- 0.4%
12,500 Wendy's Financing Series, 5.000%.................... 598,438
------------
Consumer Non-Cyclicals -- 0.1%
5,000 Ralston Purina Co., 7.000%.......................... 182,813
------------
Energy -- 1.4%
30,000 Kerr-McGee Corp., 5.500%............................ 990,000
15,000 Pogo Trust I, 6.500%................................ 738,750
20,000 Tesoro Petroleum Corp., 7.250%...................... 240,000
7,500 Tosco Financing Trust, 5.750%....................... 357,186
------------
2,325,936
------------
Technology -- 0.3%
15,000 Amdocs (TRACES) Trust Automatic Common Exchange
Securities, 6.750% due 9/11/02..................... 481,875
------------
Transportation -- 0.3%
12,000 Canadian National Railway Co., 5.250%............... 504,000
TCR Holding (b):
321 Class B Shares...................................... 3
177 Class C Shares...................................... 2
466 Class D Shares...................................... 5
964 Class E Shares...................................... 9
------------
504,019
------------
Utilities -- 0.2%
6,000 El Paso Energy Capital Trust I, 4.750%.............. 302,250
------------
TOTAL CONVERTIBLE PREFERRED STOCK
(Cost -- $6,715,482)................................ 7,265,581
------------
<CAPTION>
Rights
----------
<C> <S> <C>
RIGHTS -- 0.0%
Real Estate Investment Trust -- 0.0%
70,000 Excel Realty Trust, Inc., Expires 5/1/08............ 0
65,000 Glenborough Realty Trust Inc., Expires 7/20/08...... 0
------------
TOTAL RIGHTS
(Cost -- $0)........................................ 0
------------
<CAPTION>
Face
Amount
----------
<C> <S> <C>
CORPORATE BONDS -- 17.5%
Basic Industries -- 2.0%
$ 200,000 Berry Plastics Corp., 12.250% due 4/15/04........... 205,000
125,000 Breed Technologies Inc., 9.250% due 4/15/08 (b)(e).. 3,750
250,000 Federal-Mogal Co., 7.500% due 1/15/09............... 226,563
125,000 Hexcel Corp., 9.750% due 1/15/09.................... 105,000
125,000 Huntsman Corp., 9.500% due 7/1/07 (c)............... 119,375
125,000 Indesco International Inc., 9.750% due 4/15/08...... 56,250
250,000 Millar Western Forest Products, 9.875% due 5/15/08.. 250,000
250,000 P&L Coal Holdings Corp., 9.625% due 5/15/08......... 243,750
1,100,000 Praxair Inc., 6.150% due 4/15/03.................... 1,051,875
</TABLE>
See Notes to Financial Statements.
62
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Balanced Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
Basic Industries -- 2.0% (continued)
$ 200,000 Radnor Holdings Inc., 10.000% due 12/1/03........... $ 200,500
1,000,000 Raytheon Co., 6.150% due 11/1/08.................... 885,000
------------
3,347,063
------------
Capital Goods -- 0.1%
125,000 Jordan Industries Inc., 10.375% due 8/1/07.......... 123,750
------------
Consumer Cyclicals -- 1.2%
250,000 Cole National Group Inc., 8.625% due 8/15/07........ 190,000
100,000 Collins & Airman Floor Coverings Inc., 10.000% due
1/15/07............................................ 98,250
250,000 HMH Properties, 7.875% due 8/1/08................... 223,750
250,000 Musicland Group Inc., 9.875% due 3/15/08............ 228,750
250,000 Prime Hospitality Corp., 9.750% due 4/1/07.......... 243,750
50,000 Revlon Consumer Products, 8.625% due 2/1/08......... 25,500
1,000,000 Staples Inc., 7.125% due 8/15/07.................... 960,000
------------
1,970,000
------------
Consumer Non-Cyclicals -- 3.1%
350,000 American Safety Razor Co., 9.875% due 8/1/05........ 344,750
250,000 Ameriserve Food Distributors Inc., 10.125% due
7/15/07............................................ 90,000
500,000 Aristar Inc., 7.250% due 6/15/06.................... 488,125
250,000 B&G Foods Inc., 9.625% due 8/1/07................... 223,125
250,000 Delta Beverage Group Inc., 9.750% due 12/15/03...... 247,500
1,500,000 Fremont General Corp., 7.700% due 3/17/04........... 1,453,125
125,000 French Fragrances Inc., 10.375% due 5/15/07......... 121,250
250,000 Harrahs Operating Co., Inc., 7.875% due 12/15/05.... 241,250
130,000 Hines Horticulture, Inc., 11.750% due 10/15/05...... 134,550
250,000 Home Interiors & Gifts Inc., 10.125% due 6/1/08..... 213,750
250,000 North Atlantic Trading Co., 11.000% due 6/15/04..... 228,750
250,000 Park Place Entertainment Corp., 7.875% due
12/15/05........................................... 240,000
125,000 Simmons Co., Series B, 10.250% due 3/15/09.......... 121,250
1,000,000 Spieker Properties, Inc., 7.250% due 5/1/09......... 931,250
------------
5,078,675
------------
Energy -- 0.3%
250,000 Bellwether Exploration, Co., 10.875% due 4/1/07..... 229,375
200,000 Benton Oil & Gas Co., 11.625% due 5/1/03............ 140,000
150,000 Clark R&M Inc., 8.875% due 11/15/07................. 90,750
------------
460,125
------------
Financial/Leasing -- 3.8%
ContiFinancial Corp.:
125,000 7.500% due 3/15/02.................................. 15,000
125,000 8.125% due 4/1/08................................... 15,000
1,000,000 Countrywide Home Loan, 6.250% due 4/15/09........... 898,750
325,000 DVI Inc., 9.875% due 2/1/04......................... 319,719
1,300,000 Ford Motor Credit Corp., 7.375% due 10/28/09........ 1,287,000
780,000 Merrill Lynch & Co., 6.000% due 11/15/04............ 739,050
250,000 Motors & Gears Inc., 10.750% due 11/15/06........... 240,312
1,250,000 Paine Webber Group Inc., 7.625% due 12/1/09......... 1,217,187
1,250,000 Sears Roebuck Acceptance Corp., 7.000% due 6/15/07.. 1,182,813
250,000 Williams Scotsman, 9.875% due 6/1/07................ 242,500
------------
6,157,331
------------
Health Care -- 0.1%
1,000 Fresenius Medical Care Capital Trust I, 9.000% due
12/1/06............................................ 96,250
------------
</TABLE>
See Notes to Financial Statements.
63
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Balanced Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
Housing Related -- 0.1%
$ 250,000 CB Richard Ellis Services, 8.875% due 6/1/06........ $ 226,250
------------
Manufacturing -- 0.8%
125,000 Alvey Systems Inc., 11.375% due 1/31/03............. 129,375
250,000 Axiohm Transaction Solution, Inc., 9.750% due
10/1/07 (b)(e)..................................... 57,500
250,000 Hayes Lemmerz International Inc., 8.250% due
12/15/08........................................... 230,000
250,000 High Voltage Engineering Inc., 10.500% due 8/15/04.. 221,250
250,000 Navistar International, 8.000% due 2/1/08........... 240,625
200,000 Packard BioScience Co., 9.375% due 3/1/07........... 174,500
250,000 Polymer Group, Inc., 9.000% due 7/1/07.............. 245,000
------------
1,298,250
------------
Media -- 3.4%
1,725,000 A.H. Belo Corp., 7.250% due 9/15/27................. 1,515,844
200,000 Adelphia Communications, 10.500% due 7/15/04........ 209,250
250,000 Centennial Cellular Corp., 10.750% due 12/15/08..... 269,375
150,000 Century Communications, zero coupon due 1/15/08..... 66,750
200,000 CSC Holdings, Inc., 10.500% due 5/15/16............. 223,000
250,000 Diamond Cable Communications PLC, (Zero coupon until
12/15/00, 11.750% thereafter) due 12/15/05......... 237,500
250,000 Falcon Holding Group L.P., 8.375% due 4/15/10....... 252,500
250,000 FrontierVision Holdings, 11.000% due 10/15/06....... 265,625
250,000 Granite Broadcasting Corp., 8.875% due 5/15/08...... 243,125
850,000 GTE Corp., 6.940% due 4/15/28....................... 768,188
250,000 Hollinger International Publishing, 9.250% due
3/15/07............................................ 248,125
125,000 ICG Holdings Inc., (Zero coupon until 9/15/00,
13.500% thereafter) due 9/15/05.................... 108,750
175,000 Intermedia Communication Inc., 8.600% due 6/1/08.... 161,875
375,000 LIN Holdings Corp., (Zero coupon until 3/1/03,
10.000% thereafter) due 3/1/08..................... 255,937
300,000 Metronet Communications, (Zero coupon until 6/15/03,
9.950% thereafter) due 6/15/08..................... 236,250
400,000 NTL Inc., 5.750% due 12/15/09....................... 362,000
250,000 Rogers Communications, Inc., 8.875% due 7/15/07..... 254,063
------------
5,678,157
------------
Services & Other -- 2.1%
250,000 Allied Waste Industries, Inc., 7.875% due 1/1/09.... 221,875
1,350,000 Comdisco, Inc., 6.000% due 1/30/02.................. 1,306,125
250,000 Iron Mountain Inc., 10.125% due 10/1/06............. 256,250
250,000 Loomis Fargo & Co., 10.000% due 1/15/04............. 246,250
250,000 Pierce Leahy Corp., 11.125% due 7/15/06............. 267,500
225,000 Protection One, Inc., 8.125% due 1/15/09 (c)........ 108,562
125,000 Safety-Kleen Corp., 9.250% due 6/1/08............... 124,063
1,200,000 Service Corp. International, 6.000% due 12/15/05.... 909,000
------------
3,439,625
------------
Telecommunication & Utilities -- 0.1%
250,000 Calpine Corp., 8.750% due 7/15/07................... 251,563
------------
Transportation -- 0.4%
250,000 Enterprises Shipholding, 8.875% due 5/1/08.......... 150,000
200,000 Holt Group, 9.750% due 1/15/06...................... 135,000
150,000 Teekay Shipping Corp., 8.320% due 2/1/08............ 135,000
400,000 TFM, (Zero coupon until 6/15/02, 11.750% thereafter)
due 6/15/09........................................ 257,000
------------
677,000
------------
TOTAL CORPORATE BONDS
(Cost -- $31,755,595)............................... 28,804,039
------------
</TABLE>
See Notes to Financial Statements.
64
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Balanced Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 8.4%
Communications -- 0.1%
$ 100,000 Rogers Communication Inc., 2.000% due 11/26/05...... $ 87,000
------------
Consumer Cyclicals -- 0.6%
900,000 Costco Wholesale Corp., zero coupon due 8/19/17..... 958,500
------------
Consumer Non-Cyclicals -- 0.6%
400,000 Interpublic Group Co. Inc., 1.870% due 6/1/06 (c)... 454,500
1,500,000 Network Associates Inc., zero coupon due 2/13/18.... 566,250
------------
1,020,750
------------
Data Technology/Information Services -- 3.2%
750,000 Advanced Micro Devices, 6.000% due 5/15/05.......... 719,063
1,500,000 Aspect Communications Corp., zero coupon due 8/10/18
(c)................................................ 600,000
250,000 Exodus Communications, Inc., 4.750% due 7/15/08
(c)................................................ 346,562
750,000 Integrated Process Equipment, 6.250% due 9/15/04.... 540,938
500,000 Micron Technology Inc., 7.000% due 7/1/04........... 645,625
1,250,000 Quantum Corp., 7.000% due 8/1/04.................... 950,000
400,000 S3 Inc., 5.750% due 10/1/03......................... 373,500
1,000,000 Solectron Corp., zero coupon due 1/27/19 (c)........ 756,250
250,000 Wind River System Inc., 5.000% due 8/1/02........... 316,875
------------
5,248,813
------------
Energy -- 0.9%
500,000 Diamond Offshore Drill, 3.750% due 2/15/07.......... 507,500
1,000,000 Friede Goldman Halter, 4.500% due 9/15/04........... 620,000
400,000 Kerr-McGee Corp., 7.500% due 5/15/14................ 371,500
------------
1,499,000
------------
Financial Services -- 0.7%
500,000 Bell Atlantic Financial Services, 5.750% due 4/1/03
(c)................................................ 526,250
750,000 Credit Suisse First Boston Corp., 1.000% due
4/7/05............................................. 571,875
------------
1,098,125
------------
Health Care -- 0.9%
400,000 Alpharma Inc., 3.000% due 6/1/06 (c)................ 431,000
250,000 Centocor, Inc., 4.750% due 2/15/05 (c).............. 334,062
HEALTHSOUTH Corp.:
150,000 3.250% due 4/1/03................................... 116,437
350,000 3.250% due 4/1/03 (c)............................... 271,688
750,000 Roche Holdings Inc., zero coupon due 5/6/12 (c)..... 378,750
------------
1,531,937
------------
Manufacturing -- 0.2%
500,000 Mark IV Industries, 4.750% due 11/1/04.............. 408,126
------------
Media & Telecommunications -- 1.2%
250,000 Commscope Inc., 4.000% due 12/15/06 (c)............. 271,562
750,000 DSC Communications Corp., 7.000% due 8/1/04......... 787,500
800,000 NTL Inc., 5.750% due 12/15/09 (c)................... 864,000
------------
1,923,062
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost -- $12,957,790)............................... 13,775,313
------------
</TABLE>
See Notes to Financial Statements.
65
<PAGE>
Schedules of Investments
(continued)
Salomon Brothers Balanced Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 14.2%
U.S. Treasury Notes:
$1,200,000 5.750% due 8/15/03.................................. $ 1,175,820
1,500,000 6.125% due 8/15/07.................................. 1,463,850
2,215,000 6.000% due 8/15/09.................................. 2,147,265
2,100,000 6.625% due 2/15/27 (a).............................. 2,082,801
Federal Home Loan Mortgage Corporation (FHLMC):
2,000,000 6.250% due 7/15/04.................................. 1,955,000
672,593 8.000% due 7/1/20................................... 686,045
220,489 6.500% due 3/1/26................................... 208,087
2,500,000 6.500% due 8/13/27 (d)(f)........................... 2,357,800
208,950 Gold, 6.500% due 3/1/26............................. 197,197
291,469 Gold, 6.500% due 5/1/26............................. 275,074
Federal National Mortgage Corporation (FNMA):
25,662 6.500% due 10/1/10.................................. 24,917
161,661 6.500% due 10/1/11.................................. 156,962
402,143 6.500% due 4/1/13................................... 390,453
266,657 6.500% due 5/1/13................................... 258,906
445,390 6.500% due 7/1/13................................... 432,443
765,209 9.000% due 1/1/24................................... 797,012
59,083 7.000% due 9/1/25................................... 57,144
133,487 6.500% due 12/1/25.................................. 125,853
205,721 7.000% due 3/1/26................................... 198,970
379,066 6.500% due 6/1/26................................... 357,388
285,069 7.000% due 3/1/27................................... 275,714
647,718 7.000% due 11/1/28.................................. 626,460
1,760,000 6.500% due 11/15/28 (d)(f).......................... 1,658,237
568,818 7.000% due 2/1/29................................... 550,151
44,653 7.000% due 3/1/29................................... 43,188
931,452 7.000% due 4/1/29................................... 900,882
1,460,000 6.000% due 9/1/30 (d)(f)............................ 1,335,900
2,475,000 8.000% due 11/1/30 (d)(f)........................... 2,493,563
------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(Cost -- $24,128,576)............................... 23,233,082
------------
ASSET-BACKED SECURITIES -- 4.9%
Financial/Leasing -- 4.9%
2,500,000 Contimortgage Home Equity Loan Trust, Series 1998-2,
Class A3, 6.130% due 3/15/13....................... 2,481,250
2,275,000 Ford Credit Auto Owner Trust, Series 1999-B, Class
A4, 5.800% due 6/15/02............................. 2,245,852
751,341 Green Tree Financial Corp., Series 1997-6, Class A8,
7.070% due 1/15/29................................. 719,879
1,500,000 LB Commercial Conduit Mortgage Trust, Series 1998-
C1, Class A2, 6.780% due 4/15/09................... 1,431,113
1,100,000 NationsBank Credit Card Master Trust, Series 1995-I,
Class A, 6.450% due 4/15/03........................ 1,101,496
------------
TOTAL ASSET-BACKED SECURITIES
(Cost -- $8,086,094)................................ 7,979,590
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $158,739,157*)............................. $164,119,458
============
</TABLE>
- ------
(a) All or part of the security is segregated as collateral for mortgage dollar
rolls/TBAs.
(b) Non-income producing security.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(d) Mortgage dollar roll.
(e) Security is currently in default.
(f) Security is issued on a to-be-announced ("TBA") basis.
+ Security valued in accordance with fair valuation procedures.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depository Receipt.
See Notes to Financial Statements.
66
<PAGE>
[This page intentionally left blank]
67
<PAGE>
Statements of Assets and Liabilities
December 31, 1999
<TABLE>
<CAPTION>
Asia International
Growth Equity
Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at cost (excluding repurchase
agreements) ...................................... $15,995,792 $ 6,667,641
=========== ===========
Investments, at value ............................. $23,273,537 $ 8,329,480
Repurchase agreements, at value and cost........... -- --
Foreign currency, at value++....................... 21,382 --
Cash............................................... 172,276 1,625,529
Receivable for securities and options sold......... -- --
Receivable for Fund shares sold.................... 45,794 166,300
Dividends and interest receivable.................. -- 3,703
Receivable from manager............................ -- 21,629
Deferred organization costs........................ 30,260 --
Other assets....................................... 658 --
----------- -----------
Total Assets....................................... 23,543,907 10,146,641
----------- -----------
LIABILITIES:
Payable for open forward foreign currency
contracts......................................... 82,567 --
Payable for Fund shares purchased.................. 72,609 --
Service and distribution fees payable.............. 13,234 4,787
Administration fees payable........................ 6,564 639
Management fees payable............................ -- --
Payable for securities and options purchased....... -- --
Options written (Note 4)........................... -- --
Payable to bank.................................... -- --
Dividends payable.................................. -- --
Payable for foreign currency, at value++........... -- 152
Accrued expenses................................... 29,610 37,084
Other liabilities.................................. 3,148 --
----------- -----------
Total Liabilities.................................. 207,732 42,662
----------- -----------
Total Net Assets.................................... $23,336,175 $10,103,979
=========== ===========
NET ASSETS:
Par value of shares of capital stock............... $ 1,866 $ 810
Capital paid in excess of par value................ 20,857,387 8,506,814
Undistributed net investment income................ -- --
Accumulated net realized gain (loss) on security
transactions and options.......................... (4,718,355) (65,459)
Net unrealized appreciation of investments,
options, and foreign currencies................... 7,195,277 1,661,814
----------- -----------
Total Net Assets................................... $23,336,175 $10,103,979
=========== ===========
Shares Outstanding:
Class A............................................. 561,134 203,157
=========== ===========
Class B............................................. 858,781 309,770
=========== ===========
Class 2............................................. 340,744 195,862
=========== ===========
Class O............................................. 105,260 101,012
=========== ===========
Net Asset Value:
Class A Shares
Net asset value*................................... $12.67 $12.49
=========== ===========
Maximum offering price per share (based on maximum
sales charge of 5.75%)............................ $13.44 $13.25
=========== ===========
Class B Shares
Net asset value and offering price per share*...... $12.41 $12.47
=========== ===========
Class 2 Shares
Net asset value*................................... $12.41 $12.46
=========== ===========
Maximum offering price per share (based on maximum
sales charge of 1.00%)............................ $12.54 $12.59
=========== ===========
Class O Shares
Net asset value, offering price and redemption
price per share................................... $12.76 $12.49
=========== ===========
</TABLE>
++Foreign currency at cost for the Asia Growth and International Equity Funds
is $21,282 and $154, respectively.
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See Notes to Financial Statements.
68
<PAGE>
<TABLE>
<CAPTION>
Small Cap Large Cap Investors
Growth Growth Capital Value Balanced
Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$167,817,444 $10,122,746 $272,790,643 $549,429,809 $158,739,157
============ =========== ============ ============ ============
$270,487,049 $10,921,441 $324,377,512 $742,564,288 $164,119,458
41,277,000 -- 24,359,000 51,867,000 --
-- -- -- -- --
440 139,759 673 387 --
-- -- 1,258,833 3,029,589 9,054,581
377,449 413,423 836,093 1,692,363 39,686
14,535 8,770 348,872 1,201,014 1,354,786
-- 24,621 -- -- --
-- -- -- -- 13,313
-- -- 5,025 3,081 1,864
- ------------ ----------- ------------ ------------ ------------
312,156,473 11,508,014 351,186,008 800,357,722 174,583,688
- ------------ ----------- ------------ ------------ ------------
-- -- -- -- --
652,688 1,069 607,524 630,230 968,430
144,941 4,931 88,808 91,300 112,045
59,536 679 -- -- 68,326
197,867 -- 220,168 866,901 39,459
3,009,371 -- 520,011 152,665 11,564,674
1,446,375 -- -- 3,088,400 --
-- -- -- -- 6,108,406
-- -- 41,822 684,888 81,411
-- -- -- -- --
79,308 36,911 77,244 135,946 103,153
373,676 -- -- -- 5,603
- ------------ ----------- ------------ ------------ ------------
5,963,762 43,590 1,555,577 5,650,330 19,051,507
- ------------ ----------- ------------ ------------ ------------
$306,192,711 $11,464,424 $349,630,431 $794,707,392 $155,532,181
============ =========== ============ ============ ============
$ 17,872 $ 1,026 $ 13,847 $ 38,474,293 $ 12,171
161,989,362 10,639,703 272,081,818 529,589,001 147,515,846
-- -- -- 1,480,261 179,672
42,543,211 25,000 25,947,897 32,684,369 2,444,191
101,642,266 798,695 51,586,869 192,479,468 5,380,301
- ------------ ----------- ------------ ------------ ------------
$306,192,711 $11,464,424 $349,630,431 $794,707,392 $155,532,181
============ =========== ============ ============ ============
9,708,079 185,205 1,178,932 1,585,682 2,762,723
============ =========== ============ ============ ============
7,321,521 559,048 3,204,717 4,001,350 7,651,075
============ =========== ============ ============ ============
838,267 110,603 997,207 873,876 1,643,858
============ =========== ============ ============ ============
3,844 171,394 8,466,373 32,013,385 113,393
============ =========== ============ ============ ============
$17.23 $11.18 $25.29 $20.70 $12.81
============ =========== ============ ============ ============
$18.28 $11.86 $26.83 $21.96 $13.59
============ =========== ============ ============ ============
$17.01 $11.17 $24.86 $20.43 $12.76
============ =========== ============ ============ ============
$17.04 $11.16 $24.90 $20.46 $12.79
============ =========== ============ ============ ============
$17.21 $11.27 $25.15 $20.67 $12.92
============ =========== ============ ============ ============
$17.29 $11.18 $25.43 $20.69 $12.88
============ =========== ============ ============ ============
</TABLE>
See Notes to Financial Statements.
69
<PAGE>
Statements of Operations
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Asia International
Growth Equity
Fund Fund(a)
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.......................................... $ 212,165 $ 5,082
Interest........................................... 5,042 --
Less: Foreign withholding tax...................... (15,213) (514)
----------- ----------
Total Investment Income............................ 201,994 4,568
----------- ----------
EXPENSES:
Management fees (Note 2)........................... 130,437 11,496
Distribution and service fees (Note 2)............. 111,573 8,455
Shareholder and system servicing fees.............. 87,226 4,400
Registration fees.................................. 51,157 9,050
Custody............................................ 44,166 1,200
Amortization of deferred organization costs........ 22,495 --
Audit and legal.................................... 21,105 17,000
Administration fees (Note 2)....................... 11,201 639
Shareholder communications......................... 6,960 8,000
Directors' fees.................................... 2,920 150
Other.............................................. 9,420 350
----------- ----------
Total Expenses..................................... 498,660 60,740
Less: Management fee waiver and expense
reimbursement (Note 2)............................ (225,641) (33,125)
----------- ----------
Net Expenses....................................... 273,019 27,615
----------- ----------
Net Investment Income (Loss)........................ (71,025) (23,047)
----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
OPTIONS,
FOREIGN CURRENCIES AND FUTURES CONTRACTS (NOTES 1
AND 4):
Realized Gain (Loss) From:
Security transactions ............................. 5,104,294 (46,077)
Options written.................................... 106,575 --
Options purchased.................................. 213,986 --
Futures contracts.................................. 8,161 --
Foreign currency transactions...................... (305,371) (6,488)
----------- ----------
Net Realized Gain (Loss)........................... 5,127,645 (52,565)
----------- ----------
Change in Unrealized Appreciation of (Note 7):
Security transactions.............................. 6,505,900 1,661,839
Options............................................ 8 --
Foreign currency transactions...................... (21,067) (25)
----------- ----------
Net Change in Unrealized Appreciation.............. 6,484,841 1,661,814
----------- ----------
Net Gain (Loss) on Investments, Options, Foreign
Currencies and Futures Contracts................... 11,612,486 1,609,249
----------- ----------
Increase in Net Assets From Operations.............. $11,541,461 $1,586,202
=========== ==========
</TABLE>
- ------
(a) For the period from October 25, 1999 (commencement of operations) to Decem-
ber 31, 1999.
See Notes to Financial Statements.
70
<PAGE>
<TABLE>
<CAPTION>
Small Cap Large Cap Investors
Growth Growth Capital Value Balanced
Fund Fund(a) Fund Fund Fund
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 229,359 $ 9,616 $ 3,364,001 $ 11,763,650 $ 3,048,924
828,178 4,822 1,958,480 2,944,375 5,748,314
-- -- (11,686) (220,310) (41,455)
- ----------- -------- ----------- ------------ -----------
1,057,537 14,438 5,310,795 14,487,715 8,755,783
- ----------- -------- ----------- ------------ -----------
974,700 10,193 2,249,402 4,071,946 1,016,948
722,781 7,986 661,255 1,092,093 1,516,096
193,354 3,850 194,137 467,783 272,750
46,348 7,900 74,165 69,593 62,025
6,640 3,100 32,698 36,500 22,987
-- -- -- -- 19,122
50,884 17,000 93,375 111,325 71,315
60,919 679 -- -- 92,450
63,502 8,000 62,075 157,827 100,200
2,972 150 72,790 80,550 4,185
7,492 250 47,065 66,810 39,216
- ----------- -------- ----------- ------------ -----------
2,129,592 59,108 3,486,962 6,154,427 3,217,294
(41,511) (34,814) -- -- (406,903)
- ----------- -------- ----------- ------------ -----------
2,088,081 24,294 3,486,962 6,154,427 2,810,391
- ----------- -------- ----------- ------------ -----------
(1,030,544) (9,856) 1,823,833 8,333,288 5,945,392
- ----------- -------- ----------- ------------ -----------
66,192,141 31,908 56,244,230 116,227,028 5,686,848
(3,477,360) -- 747,507 (610,460) --
(2,896,823) -- (4,321,494) 977,053 --
-- -- -- -- --
-- -- -- -- --
- ----------- -------- ----------- ------------ -----------
59,817,958 31,908 52,670,243 116,593,621 5,686,848
- ----------- -------- ----------- ------------ -----------
12,298,599 798,695 5,860,636 (35,787,177) (6,394,670)
(1,027,339) -- -- (655,011) --
-- -- -- -- --
- ----------- -------- ----------- ------------ -----------
11,271,260 798,695 5,860,636 (36,442,188) (6,394,670)
- ----------- -------- ----------- ------------ -----------
71,089,218 830,603 58,530,879 80,151,433 (707,822)
- ----------- -------- ----------- ------------ -----------
$70,058,674 $820,747 $60,354,712 $ 88,484,721 $ 5,237,570
=========== ======== =========== ============ ===========
</TABLE>
See Notes to Financial Statements.
71
<PAGE>
Statements of Changes in Net Assets
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Asia International
Growth Equity
Fund Fund(a)
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)....................... $ (71,025) $ (23,047)
Net realized gain (loss)........................... 5,127,645 (52,565)
Increase (decrease) in net unrealized
appreciation...................................... 6,484,841 1,661,814
----------- -----------
Increase in Net Assets From Operations............. 11,541,461 1,586,202
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1):
Net investment income.............................. -- --
Net realized gains................................. -- --
----------- -----------
Decrease in Net Assets From Distributions to
Shareholders...................................... -- --
----------- -----------
FUND SHARE TRANSACTIONS (NOTE 3):
Net proceeds from sale of shares................... 10,011,999 8,572,752
Net asset value of shares issued in connection with
the transfer of the
Smith Barney Special Equities Fund's net assets
(Note 7).......................................... -- --
Net asset value of shares issued for reinvestment
of dividends...................................... -- --
Cost of shares reacquired.......................... (11,502,640) (54,975)
----------- -----------
Increase (Decrease) in Net Assets From Fund Share
Transactions...................................... (1,490,641) 8,517,777
----------- -----------
Increase (Decrease) in Net Assets................... 10,050,820 10,103,979
NET ASSETS:
Beginning of year.................................. 13,285,355 --
----------- -----------
End of year*....................................... $23,336,175 $10,103,979
=========== ===========
* Includes undistributed net investment income of:.. -- --
=========== ===========
</TABLE>
- ------
(a) For the period from October 25, 1999 (commencement of operations) to Decem-
ber 31, 1999.
See Notes to Financial Statements.
72
<PAGE>
<TABLE>
<CAPTION>
Small Cap Large Cap Investors
Growth Growth Capital Value Balanced
Fund Fund(a) Fund Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ (1,030,544) $ (9,856) $ 1,823,833 $ 8,333,288 $ 5,945,392
59,817,958 31,908 52,670,243 116,593,621 5,686,848
11,271,260 798,695 5,860,636 (36,442,188) (6,394,670)
- ------------ ----------- ------------- ------------- ------------
70,058,674 820,747 60,354,712 88,484,721 5,237,570
- ------------ ----------- ------------- ------------- ------------
-- -- (1,849,337) (6,828,571) (5,885,312)
(15,769,257) -- (31,567,292) (130,292,981) (3,078,669)
- ------------ ----------- ------------- ------------- ------------
(15,769,257) -- (33,416,629) (137,121,552) (8,963,981)
- ------------ ----------- ------------- ------------- ------------
60,948,260 10,678,278 160,442,564 165,971,086 22,079,863
240,911,211 -- -- -- --
14,807,084 -- 30,557,033 107,998,294 7,468,826
(73,356,791) (34,601) (103,368,446) (225,363,002) (73,529,930)
- ------------ ----------- ------------- ------------- ------------
243,309,764 10,643,677 87,631,151 48,606,378 (43,981,241)
- ------------ ----------- ------------- ------------- ------------
297,599,181 11,464,424 114,569,234 (30,453) (47,707,652)
8,593,530 -- 235,061,197 794,737,845 203,239,833
- ------------ ----------- ------------- ------------- ------------
$306,192,711 $11,464,424 $ 349,630,431 $ 794,707,392 $155,532,181
============ =========== ============= ============= ============
-- -- -- $1,480,261 $179,672
============ =========== ============= ============= ============
</TABLE>
See Notes to Financial Statements.
73
<PAGE>
Statements of Changes in Net Assets
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Small Cap Investors
Asia Growth Capital Value Balanced
Growth Fund Fund(a) Fund Fund Fund
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 169,293 $ (27,601) $ 1,882,174 $ 7,859,877 $ 7,144,769
Net realized gain
(loss)................ (6,576,500) (319,961) 23,114,686 96,281,183 3,663,439
Change in net
unrealized
appreciation
(depreciation)........ 2,818,104 1,581,980 19,906,306 2,173,574 (1,563,026)
----------- ---------- ------------ ------------- -------------
Increase (Decrease) in
Net Assets From
Operations............ (3,589,103) 1,234,418 44,903,166 106,314,634 9,245,182
----------- ---------- ------------ ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE
1):
Net investment income.. -- -- (2,235,195) (6,966,393) (7,141,006)
Net realized gain...... -- -- (26,331,355) (68,615,411) (4,430,359)
----------- ---------- ------------ ------------- -------------
Decrease in Net Assets
From Distributions to
Shareholders.......... -- -- (28,566,550) (75,581,804) (11,571,365)
----------- ---------- ------------ ------------- -------------
FUND SHARE TRANSACTIONS
(NOTE 3):
Net proceeds from sale
of shares............. 12,424,912 8,329,212 77,386,504 132,178,850 81,251,618
Net asset value of
shares issued for
reinvestment of
dividends............. -- -- 27,162,873 60,303,086 9,838,523
Cost of shares
reacquired............ (9,833,339) (970,100) (73,088,593) (155,469,772) (48,409,828)
----------- ---------- ------------ ------------- -------------
Increase in Net Assets
From
Fund Share
Transactions.......... 2,591,573 7,359,112 31,460,784 37,012,164 42,680,313
----------- ---------- ------------ ------------- -------------
Increase (Decrease) in
Net Assets............. (997,530) 8,593,530 47,797,400 67,744,994 40,354,130
NET ASSETS:
Beginning of year...... 14,282,885 -- 187,263,797 726,992,851 162,885,703
----------- ---------- ------------ ------------- -------------
End of year*........... $13,285,355 $8,593,530 $235,061,197 $ 794,737,845 $ 203,239,833
=========== ========== ============ ============= =============
* Includes undistributed
(overdistributed) net
investment income of:.. $(48,614) -- $25,504 $122,469 $150,615
=========== ========== ============ ============= =============
</TABLE>
- ------
(a) For the period from July 1, 1998 (commencement of operations) to December
31, 1998.
See Notes to Financial Statements.
74
<PAGE>
Notes to Financial Statements
1. Organization and Significant Accounting Policies
The Salomon Brothers Investment Series ("Investment Series") consists of cer-
tain portfolios of the Salomon Brothers Series Funds Inc ("Series Fund"), the
Salomon Brothers Investors Value Fund Inc ("Investors Value Fund"), formerly
known as Salomon Brothers Investors Fund Inc, and the Salomon Brothers Capital
Fund Inc ("Capital Fund").
Salomon Brothers Asia Growth Fund ("Asia Growth Fund"), Salomon Brothers Inter-
national Equity Fund ("International Equity Fund"), Salomon Brothers Small Cap
Growth Fund ("Small Cap Growth Fund"), Salomon Brothers Large Cap Growth Fund
("Large Cap Growth Fund") and Salomon Brothers Balanced Fund ("Balanced Fund"),
formerly known as Salomon Brothers Total Return Fund, are separate investment
portfolios of the Series Fund, an open-end management investment company, in-
corporated in Maryland on April 17, 1990. The Series Funds consist of these
portfolios and seven other separate investment portfolios: Salomon Brothers
High Yield Bond Fund, Salomon Brothers Strategic Bond Fund, Salomon Brothers
National Intermediate Municipal Fund, Salomon Brothers U.S. Government Income
Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon Brothers
Cash Management Fund and Salomon Brothers Institutional Money Market Fund. The
financial statements and financial highlights for the other portfolios are pre-
sented in separate shareholder reports.
The Investors Value Fund is a diversified open-end management investment com-
pany incorporated in Maryland on April 2, 1958 and the Capital Fund is 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 2 and Class O shares, each with their own expense structure.
Each Fund has a specific investment objective:
<TABLE>
<CAPTION>
Fund: Objective
<S> <C>
Asia Growth Fund........ To seek long-term capital appreciation.
International Equity To seek long-term capital growth.
Fund...................
Small Cap Growth Fund... To obtain long-term growth of capital.
Large Cap Growth Fund... To seek long-term growth of capital.
Capital Fund............ 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.
Investors Value Fund.... To seek long-term growth of capital. Secondarily to seek current income.
Balanced Fund........... To obtain above average income (compared to a portfolio entirely
invested in equity securities). Secondarily to take advantage of
opportunities for growth of capital and income.
</TABLE>
Costs incurred in connection with certain Fund's organization, which were
payable to Salomon Brothers Asset Management Inc ("SBAM"), have been deferred
and are being amortized by such Funds over a 60 month period from the date the
Fund commenced investment operations. A summary of those expenditures that
remain as of December 31, 1999 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Expiration of Amortization Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
Asia Growth Fund............................. May 2001 $30,260
Balanced Fund................................ September 2000 $13,313
</TABLE>
The following is a summary of significant accounting policies followed by the
Funds 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.
75
<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 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.
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 approximately 2:30 p.m. Eastern time (and at
approximately 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. Certain Funds may enter into futures contracts, which
involves paying or receiving variation margin, which will be 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 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.
(d) Mortgage Rolls. The Balanced Fund may enter into mortgage "dollar rolls"
in which the 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 monthly balance of dollar rolls
outstanding during the year ended December 31, 1999 was approximately
$6,146,000, for the Balanced Fund.
76
<PAGE>
Notes to Financial Statements
(continued)
(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 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, the custodian delivers 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. The Funds did not enter
into any transactions in reverse repurchase agreements during the year ended
December 31, 1999.
(g) Foreign Currency Translation. The accounting records of each Fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities 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. Certain Funds 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 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.
At December 31, 1999, the Asia Growth Fund had the following open forward cur-
rency contracts:
<TABLE>
<CAPTION>
Settlement Local Market Unrealized
Asia Growth Fund Date Currency Value Loss
- ------------------ ---------- ------------- ----------- ----------
To Sell:
<S> <C> <C> <C> <C>
Hong Kong Dollar 1/12/00 13,279,040 $ 1,708,157 $ (8,157)
Hong Kong Dollar 4/26/00 20,028,750 2,575,416 (4,727)
New Taiwan Dollar 1/31/00 32,603,350 1,038,721 (9,737)
Singapore Dollar 1/31/00 1,607,485 966,695 (3,840)
South Korean Won 1/31/00 2,137,980,000 1,879,543 (56,106)
--------
$(82,567)
========
</TABLE>
(i) Loan Participations. The Balanced 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").
In connection with purchasing loan participations, the Fund generally will
have no right to enforce compliance by the borrower with the terms of the loan
agreement relating to the loan, nor any rights of set-off against 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 partic-
ipation. In the event of the insolvency of the lender selling the participa-
tion, 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.
77
<PAGE>
Notes to Financial Statements
(continued)
(j) Federal Income Taxes. Each 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 or excise tax provision is
required for such Funds.
(k) Dividends and Distributions to Shareholders. Dividends from net investment
income for the Balanced 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, Small Cap Growth Fund and
the Capital Fund are declared on an annual basis. Dividends from net investment
income for the Investors Value 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.
(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 Funds 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
service and distribution fees), 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.
2. Management Fee and Other Agreements
Each Fund retains SBAM, a wholly owned subsidiary of Salomon Brothers Holding
Co., Inc., which, in turn, is wholly owned by Salomon Smith Barney Holdings,
Inc. ("SSBH"), to act as investment manager of each Fund, subject to the super-
vision by the Board of Directors of each Fund. SBAM furnishes the Investment
Series with office space and certain services and facilities required for con-
ducting the business of the Investment Series and pays the compensation of its
officers. The management fee for these services for each Fund (except the Capi-
tal Fund and Investors Value Fund) is payable monthly and is based on the fol-
lowing annual percentages of each Fund's average daily net assets: 0.90% for
the International Equity Fund, 0.80% for the Asia Growth Fund and Small Cap
Growth Fund, 0.55% for the Balanced Fund and 0.75% for the Large Cap 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-0.75%; next $200 million-0.625%; ex-
cess over $400 million-0.50%. SBAM Ltd., an affiliate of SBAM, provides certain
advisory and administrative services for the benefit of Asia Growth Fund. SBAM
Ltd. is compensated by SBAM at no additional expense to the Asia Growth Fund.
SBAM has retained Salomon Brothers Asia Pacific Ltd. ("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. SBAM has retained
Citibank, N.A., ("Citibank") as sub-adviser to the International Equity Fund
and the Large Cap Growth Fund.
78
<PAGE>
Notes to Financial Statements
(continued)
The Investors Value Fund pays SBAM a base fee subject to an increase or de-
crease depending on the extent, if any, to which the investment performance of
the Investors Value Fund exceeds or is exceeded by the investment record of the
Standard & Poor's 500 Index of Composite Stocks ("S&P 500 Index"). The base fee
is paid quarterly based on the following annual rates:
<TABLE>
<CAPTION>
Average Daily Net Assets Annual Fee Rate
- -------------------------------------------------------------------------------
<S> <C>
First $350 million............................................. 0.650%
Next $150 million.............................................. 0.550%
Next $250 million.............................................. 0.525%
Next $250 million.............................................. 0.500%
Over $1 billion................................................ 0.450%
</TABLE>
The performance adjustment is paid quarterly based on a rolling one year peri-
od. A performance adjustment will only be made after the investment performance
of the Investors Value 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 Value 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 0.01% (annualized). The maximum annual adjust-
ment is 0.10% which would occur if the Investors Value Fund's performance ex-
ceeds or is exceeded by the S&P 500 Index by ten or more percentage points. For
the rolling one year periods ended March 31, June 30, September 30 and December
31, 1999, the S&P 500 Index exceeded the Investors Value Fund's performance by
approximately 14.84%, 5.37%, 7.37% and 10.35%, respectively. As a result, base
management fees were decreased, in aggregate, by $648,058 for the year ended
December 31, 1999.
For the year ended December 31, 1999, SBAM waived management fees of $130,437,
$11,496, $41,511, $10,193 and $406,903, for the Asia Growth Fund, International
Equity Fund, Small Cap Growth Fund, Large Cap Growth Fund and Balanced Fund,
respectively, and voluntarily absorbed expenses of $95,204, $21,629 and $24,621
for the Asia Growth Fund, International Equity Fund and Large Cap Growth Fund,
respectively.
SBAM also acts as administrator for each of the Funds. SBAM has delegated its
responsibilities as administrator to SSB Citi Fund Management LLC ("SSBC"),
formerly known as SSBC Fund Management Inc., an affiliate of SBAM, pursuant to
a Sub-Administration Agreement between SBAM and SSBC.
Each Fund has an agreement with CFBDS, Inc. to distribute its shares pursuant
to a multiple pricing system. Each class (except for Class O) of each Fund is
authorized pursuant to a services and distribution plan applicable to that
class of shares ("Class A Plan," the "Class B Plan," and the "Class 2 Plan,"
collectively, the "Plans") adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("1940 Act"), to pay the distributor an annual
service fee with respect to Class A, Class B, and Class 2 shares of the appli-
cable Funds at the rate of 0.25% of the value of the average daily net assets
of the respective class. The distributor is paid an annual distribution fee
with respect to Class B and Class 2 shares of each Fund at a rate of 0.75% of
the value of the average net assets of the respective class. Class O shares are
not subject to a service and distribution plan fee.
79
<PAGE>
Notes to Financial Statements
(continued)
For the year ended December 31, 1999, total service and distribution plan fees
were as follows:
<TABLE>
<CAPTION>
Class A Class B Class 2
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Asia Growth Fund.................................. $ 12,894 $ 69,355 $ 29,324
International Equity Fund......................... 767 4,400 3,288
Small Cap Growth Fund............................. 165,083 492,167 65,531
Large Cap Growth Fund............................. 782 5,439 1,765
Capital Fund...................................... 48,646 474,046 138,563
Investors Value Fund.............................. 104,048 809,731 178,314
Balanced Fund..................................... 105,860 1,146,250 263,986
</TABLE>
SSB received $160,006 as its portion of the front-end sales charge on sales of
Class A and Class 2 shares of the Funds during the year ended December 31,
1999. In addition, contingent deferred sales charges of $1,676,341 were paid to
SSB in connection with redemptions of certain Class B and Class 2 shares of the
Funds during the year ended December 31, 1999.
Brokerage commissions of $390, $48, $12,018, $31,716 and $2,400 were paid by
the Small Cap Growth Fund, Large Cap Growth Fund, Capital Fund, Investors Value
Fund and Balanced Fund, respectively, to SSB.
3. Capital Stock
At December 31, 1999, the Series Funds had 10,000,000,000 shares of authorized
capital stock, par value $0.001 per share. The Investors Value 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
$0.001 per share.
At December 31, 1999, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class 2 Class O
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asia Growth Fund.............. $ 7,507,327 $ 9,288,325 $ 3,233,215 $ 830,386
International Equity Fund..... 2,151,789 3,310,872 2,035,155 1,009,808
Small Cap Growth Fund......... 79,809,800 68,808,701 13,340,568 48,165
Large Cap Growth Fund......... 1,881,341 5,911,056 1,134,047 1,714,285
Capital Fund.................. 27,754,403 75,225,497 23,549,024 145,566,741
Investors Value Fund.......... 30,278,054 84,064,070 18,221,531 435,499,639
Balanced Fund................. 31,092,576 94,679,250 21,036,208 719,983
</TABLE>
80
<PAGE>
[This page intentionally left blank]
81
<PAGE>
Notes to Financial Statements
(continued)
Transactions in Fund shares for the periods indicated were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares
--------------------------------------------------- --------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1999 December 31, 1998
------------------------- ------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------- ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asia Growth Fund
Shares sold..... 820,575 $ 6,496,399 644,747 $ 4,589,532 248,887 $ 2,263,544 551,800 $ 3,774,829
Shares issued as
reinvestment... -- -- -- -- -- -- -- --
Shares
reacquired..... (933,537) (7,350,231) (838,184) (5,281,391) (208,794) (1,808,793) (504,342) (2,733,147)
---------- ------------- ---------- ------------ ---------- ------------ ---------- ------------
Net increase
(decrease)..... (112,962) $ (853,832) (193,437) $ (691,859) 40,093 $ 454,751 47,458 $ 1,041,682
========== ============= ========== ============ ========== ============ ========== ============
International
Equity Fund++
Shares sold..... 206,248 $ 2,188,694 -- -- 311,181 $ 3,331,375 -- --
Shares issued as
reinvestment... -- -- -- -- -- -- -- --
Shares
reacquired..... (3,091) (34,984) -- -- (1,411) (16,452) -- --
---------- ------------- ---------- ------------ ---------- ------------ ---------- ------------
Net increase.... 203,157 $ 2,153,710 -- -- 309,770 $ 3,314,923 -- --
========== ============= ========== ============ ========== ============ ========== ============
Small Cap Growth
Fund+
Shares sold..... 3,555,893 $ 51,019,503 329,207 $ 3,219,491 524,385 $ 7,351,719 362,365 $ 3,593,593
Shares issued as
reinvestment... 526,908 8,114,385 -- -- 393,936 5,995,706 -- --
Shares
reacquired..... (4,086,563) (59,269,935) (52,616) (492,123) (903,160) (12,735,817) (29,018) (260,138)
---------- ------------- ---------- ------------ ---------- ------------ ---------- ------------
Net increase
(decrease)..... (3,762) $ (136,047) 276,591 $ 2,727,368 15,161 $ 611,608 333,347 $ 3,333,455
========== ============= ========== ============ ========== ============ ========== ============
Large Cap Growth
Fund**
Shares sold..... 185,594 $ 1,886,240 -- -- 559,621 $ 5,918,430 -- --
Shares issued as
reinvestment... -- -- -- -- -- -- -- --
Shares
reacquired..... (389) (4,223) -- -- (573) (6,199) -- --
---------- ------------- ---------- ------------ ---------- ------------ ---------- ------------
Net increase.... 185,205 $ 1,882,017 -- -- 559,048 $ 5,912,231 -- --
========== ============= ========== ============ ========== ============ ========== ============
Capital Fund
Shares sold..... 2,967,781 $ 72,928,143 1,503,276 $ 33,851,010 2,285,827 $ 54,969,564 793,021 $ 17,537,460
Shares issued as
reinvestment... 94,159 2,307,965 52,857 1,157,551 234,097 5,627,409 73,532 1,587,598
Shares
reacquired..... (2,381,429) (58,529,687) (1,321,984) (29,738,105) (300,374) (7,193,379) (63,204) (1,368,847)
---------- ------------- ---------- ------------ ---------- ------------ ---------- ------------
Net increase
(decrease)..... 680,511 $ 16,706,421 234,149 $ 5,270,456 2,219,550 $ 53,403,594 803,349 $ 17,756,211
========== ============= ========== ============ ========== ============ ========== ============
Investors Value
Fund
Shares sold..... 5,354,430 $ 123,724,267 3,918,021 $ 86,842,842 1,026,823 $ 22,981,206 1,420,194 $ 31,363,902
Shares issued as
reinvestment... 224,846 4,752,407 221,667 4,765,235 563,323 11,763,229 257,589 5,451,926
Shares
reacquired..... (6,305,947) (145,389,814) (4,532,732) (99,576,589) (1,026,065) (22,477,257) (611,446) (12,896,539)
---------- ------------- ---------- ------------ ---------- ------------ ---------- ------------
Net increase
(decrease)..... (726,671) $ (16,913,140) (393,044) $ (7,968,512) 564,081 $ 12,267,178 1,066,337 $ 23,919,289
========== ============= ========== ============ ========== ============ ========== ============
Balanced Fund
Shares sold..... 399,441 $ 5,355,740 1,507,893 $ 20,207,179 953,569 $ 12,729,518 3,408,556 $ 45,832,192
Shares issued as
reinvestment... 143,632 1,891,102 220,181 2,903,310 342,656 4,494,019 415,586 5,451,096
Shares
reacquired..... (1,705,708) (22,625,269) (1,840,113) (24,371,605) (2,884,560) (37,918,767) (1,259,486) (16,619,670)
---------- ------------- ---------- ------------ ---------- ------------ ---------- ------------
Net increase
(decrease)..... (1,162,635) $ (15,378,427) (112,039) $ (1,261,116) (1,588,335) $(20,695,230) 2,564,656 $ 34,663,618
========== ============= ========== ============ ========== ============ ========== ============
</TABLE>
* Effective September 14, 1998, Class C shares of each Fund were redesignated
as Class 2 shares.
++ Inception date for Class A, Class B, Class 2 and Class O shares is October
25, 1999.
+ Fund's commencement of operations was July 1, 1998.
** Inception date for Class A, Class B, and Class 2 shares is October 25, 1999.
Inception date for Class O shares is October 26, 1999.
82
<PAGE>
Notes to Financial Statements
(continued)
<TABLE>
<CAPTION>
Class 2 Shares* Class O Shares
- ---------------------------------------------- ------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1999 December 31, 1998
- ---------------------- ---------------------- ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount Shares Amount
- -------- ----------- --------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
147,895 $ 1,200,786 401,276 $ 2,652,216 5,260 $ 51,271 181,197 $ 1,408,335
-- -- -- -- -- -- -- --
(164,067) (1,326,680) (265,260) (1,639,540) (106,929) (1,016,937) (29,140) (179,261)
- -------- ----------- --------- ----------- ---------- ----------- ---------- -----------
(16,172) $ (125,894) 136,016 $ 1,012,676 (101,669) $ (965,666) 152,057 $ 1,229,074
======== =========== ========= =========== ========== =========== ========== ===========
196,159 $ 2,041,831 -- -- 101,012 $ 1,010,852 -- --
-- -- -- -- -- -- -- --
(297) (3,539) -- -- -- -- -- --
- -------- ----------- --------- ----------- ---------- ----------- ---------- -----------
195,862 $ 2,038,292 -- -- 101,012 $ 1,010,852 -- --
======== =========== ========= =========== ========== =========== ========== ===========
197,644 $ 2,531,764 148,804 $ 1,458,618 3,013 $ 45,274 5,754 $ 57,510
45,657 695,814 -- -- 76 1,179 -- --
(93,401) (1,289,080) (21,550) (217,839) (5,000) (61,959) -- --
- -------- ----------- --------- ----------- ---------- ----------- ---------- -----------
149,900 $ 1,938,498 127,254 $ 1,240,779 (1,911) $ (15,506) 5,754 $ 57,510
======== =========== ========= =========== ========== =========== ========== ===========
112,907 $ 1,158,608 -- -- 171,394 $ 1,715,000 -- --
-- -- -- -- -- -- -- --
(2,304) (24,179) -- -- -- -- -- --
- -------- ----------- --------- ----------- ---------- ----------- ---------- -----------
110,603 $ 1,134,429 -- -- 171,394 $ 1,715,000 -- --
======== =========== ========= =========== ========== =========== ========== ===========
730,331 $17,642,431 171,556 $ 3,829,304 610,678 $14,902,426 990,632 $22,168,730
73,155 1,761,747 24,764 534,936 845,836 20,859,912 1,080,852 23,882,788
(87,015) (2,073,040) (29,054) (630,707) (1,472,035) (35,572,340) (1,853,841) (41,350,934)
- -------- ----------- --------- ----------- ---------- ----------- ---------- -----------
716,471 $17,331,138 167,266 $ 3,733,533 (15,521) $ 189,998 217,643 $ 4,700,584
======== =========== ========= =========== ========== =========== ========== ===========
255,985 $ 5,813,731 330,038 $ 7,292,396 559,610 $13,451,882 307,780 $ 6,679,710
126,655 2,649,796 65,256 1,380,833 4,176,379 88,832,862 2,267,226 48,705,092
(316,659) (6,892,616) (144,455) (3,106,164) (2,240,548) (50,603,315) (1,843,864) (39,890,480)
- -------- ----------- --------- ----------- ---------- ----------- ---------- -----------
65,981 $ 1,570,911 250,839 $ 5,567,065 2,495,441 $51,681,429 731,142 $15,494,322
======== =========== ========= =========== ========== =========== ========== ===========
292,789 $ 3,937,309 1,074,705 $14,613,070 4,263 $ 57,296 43,871 $ 599,177
76,114 1,000,856 105,246 1,384,093 6,257 82,849 7,575 100,024
(971,905) (12,812,858) (536,707) (7,047,231) (12,693) (173,036) (28,787) (371,322)
- -------- ----------- --------- ----------- ---------- ----------- ---------- -----------
(603,002) $(7,874,693) 643,244 $ 8,949,932 (2,173) $ (32,891) 22,659 $ 327,879
======== =========== ========= =========== ========== =========== ========== ===========
</TABLE>
83
<PAGE>
Notes to Financial Statements
(continued)
At December 31, 1999, Salomon Brothers Holding Co., Inc. owned approximately
the following percentages of total shares outstanding of the following Funds:
<TABLE>
<S> <C>
International Equity Fund................................................... 12%
Large Cap Growth Fund....................................................... 17%
</TABLE>
4. Investments
During the year ended December 31, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Asia Growth Fund..................................... $ 38,773,460 $ 39,626,711
============ ============
International Equity Fund............................ $ 6,801,706 $ 87,988
============ ============
Small Cap Growth Fund................................ $168,091,776 $213,530,792
============ ============
Large Cap Growth Fund................................ $ 10,837,564 $ 746,726
============ ============
Capital Fund......................................... $377,096,680 $330,577,341
============ ============
Investors Value Fund................................. $504,543,296 $577,109,715
============ ============
Balanced Fund:
U.S. Government Securities.......................... $ 16,675,227 $ 25,889,825
Other Investments................................... 47,950,238 71,763,802
------------ ------------
$ 64,625,465 $ 97,653,627
============ ============
</TABLE>
At December 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation Depreciation Appreciation
------------ ------------ ------------
<S> <C> <C> <C>
Asia Growth Fund....................... $ 7,667,596 $ (389,851) $ 7,277,745
International Equity Fund.............. 1,793,706 (131,867) 1,661,839
Small Cap Growth Fund.................. 108,138,172 (5,468,567) 102,669,605
Large Cap Growth Fund.................. 987,808 (189,113) 798,695
Capital Fund........................... 68,363,305 (16,776,436) 51,586,869
Investors Value Fund................... 227,970,290 (34,835,811) 193,134,479
Balanced Fund.......................... 19,670,891 (14,290,590) 5,380,301
</TABLE>
Transactions in options written for the Asia Growth Fund during the year ended
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received (Paid)
--------- ---------------
<S> <C> <C>
Options written,
outstanding at December
31, 1998............... 1 $ 746
Options written......... 135 556,299
Options terminated in
closing purchase
transactions........... (17) (449,485)
Options expired......... (119) (107,560)
---- --------
Options written,
outstanding at December
31, 1999............... 0 $ 0
==== ========
</TABLE>
84
<PAGE>
Notes to Financial Statements
(continued)
In addition, the written call option transactions for the Small Cap Growth Fund
which occurred during the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received (Paid)
--------- ---------------
<S> <C> <C>
Options written,
outstanding at December
31, 1998............... -- $ --
Options written......... 7,995 4,221,815
Options terminated in
closing purchase
transactions........... (5,135) (3,365,407)
Options expired......... (500) (79,747)
Options exercised....... (1,350) (357,625)
------ ----------
Options written,
outstanding at December
31, 1999............... 1,010 $ 419,036
====== ==========
</TABLE>
The following represents the written call options open at December 31, 1999:
<TABLE>
<CAPTION>
Number of Strike
Contracts Expiration Price Value
--------- ---------- ------ -----------
<C> <S> <C> <C> <C>
225 Cost Plus Inc..................... 2/19/00 $40.0 $ (33,750)
25 Cost Plus Inc..................... 2/19/00 45.0 (625)
260 IDEC Pharmaceutical............... 2/19/00 65.0 (880,750)
500 Metromedia Fiber Network, Inc..... 2/19/00 40.0 (531,250)
-----------
Total Call Options Written
(Premiums received -- $419,036)... $(1,446,375)
===========
</TABLE>
The following written put option transactions for the Small Cap Growth Fund
which occurred during the year ended December 31, 1999:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received (Paid)
--------- ---------------
<S> <C> <C>
Options written, outstanding at December 31, 1998.... 0 $ 0
Options written...................................... 225 201,818
Options expired...................................... (225) (201,818)
---- ---------
Options written, outstanding at December 31, 1999.... 0 $ 0
==== =========
</TABLE>
In addition, the written call option transactions for the Capital Fund which
occurred during the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received (Paid)
--------- ---------------
<S> <C> <C>
Options written,
outstanding at December
31, 1998............... 0 $ 0
Options written......... 3,957 1,080,744
Options expired......... (800) (170,014)
Options terminated in
closing purchase
transactions........... (3,157) (910,730)
------ ----------
Options written,
outstanding at December
31, 1999............... 0 $ 0
====== ==========
</TABLE>
85
<PAGE>
Notes to Financial Statements
(continued)
The following written put option transactions for the Capital Fund which oc-
curred during the year ended December 31, 1999:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received (Paid)
--------- ---------------
<S> <C> <C>
Options written,
outstanding at December
31, 1998............... 0 $ 0
Options written......... 3,397 655,027
Options expired......... (933) (140,496)
Options exercised....... (52) (26,068)
Options terminated in
closing purchase
transactions........... (2,412) (488,463)
------ -----------
Options written,
outstanding at December
31, 1999............... 0 $ 0
====== ===========
</TABLE>
In addition, the written call option transactions for the Investors Value Fund
which occurred during the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received (Paid)
--------- ---------------
<S> <C> <C>
Options written,
outstanding at December
31, 1998............... 0 $ 0
Options written......... 5,656 3,243,129
Options terminated in
closing purchase
transactions........... (1,100) (809,740)
------ -----------
Options written,
outstanding at December
31, 1999............... 4,556 $ 2,433,389
====== ===========
</TABLE>
The following represents the written call options open at December 31, 1999:
<TABLE>
<CAPTION>
Number of Strike
Contracts Expiration Price Value
--------- ---------- ------ -----------
<C> <S> <C> <C> <C>
856 American Express Co. ............. 1/22/00 $170.0 $ (379,850)
1,100 Texas Instruments Inc. ........... 1/22/00 75.0 (2,530,000)
1,728 Tyco International Ltd. .......... 1/22/00 45.0 (140,400)
872 Tyco International Ltd. .......... 1/22/00 47.5 (38,150)
-----------
Total Call Options Written (Premi-
ums received -- $2,433,389)...... $(3,088,400)
===========
</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.
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, certain Funds 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
(continued)
6. Tax Information
At December 31, 1999, the Asia Growth Fund had, for Federal income tax
purposes, a capital loss carry forward of approximately $4,701,000 available to
offset future capital gains through December 31, 2006. To the extent that these
carry forward losses are used to offset capital gains, it is probable that any
gains so offset will not be distributed.
The character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. At December 31, 1999, reclassifications were made to the
capital accounts of the Asia Growth Fund, International Equity Fund, Large Cap
Growth Fund, Investors Value Fund and Balanced Fund to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. A portion of overdistributed net investment income
amounting to $131,850 and $2,948 was reclassified to paid-in capital for the
Asia Growth Fund and Large Cap Growth Fund, respectively. In addition, a
portion of accumulated net investment loss and accumulated net realized gain
amounting to $10,153 and $154,985 was reclassified to paid-in capital for the
International Equity Fund and Small Cap Growth Fund, respectively. Net
investment income, net realized gains and net assets were not affected by these
changes.
7. Transfer of Net Assets
On July 16, 1999, the Small Cap Growth Fund acquired the assets and certain
liabilities of the Smith Barney Special Equities Fund Portfolio ("Special
Equities Fund") pursuant to a plan of reorganization approved by Special
Equities Fund shareholders on May 28, 1999. Total shares issued by the Small
Cap Growth Fund and the total net assets of the Special Equities Fund and Small
Cap Growth Fund on the date of the transfer were as follows.
<TABLE>
<CAPTION>
Shares Total Net Total Net
Issued by Assets of Assets of
the the Special the Small
Small Cap Equities Cap Growth
Acquired Fund Growth Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Special Equities Fund.................... 16,980,004 $240,911,211 $13,358,236
</TABLE>
The total net assets of the Special Equities Fund before acquisition included
unrealized appreciation of $88,789,026. Total net assets of the Small Cap
Growth Fund immediately after the transfer were $254,269,447. The transaction
was structured to qualify as a tax-free reorganization under the Internal
Revenue Code of 1986, as amended.
88
<PAGE>
Financial Highlights
For a share of each class of capital stock outstanding throughout each year
ended December 31:
Asia Growth Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Class A Shares
---------------------------------
1999 1998 1997 1996(1)
---------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year......... $6.50 $7.48 $10.32 $10.00
------- ------ ------ ------
Income (Loss) From Operations:
Net investment income (2)................. -- 0.10 0.03 0.05
Net realized and unrealized gain (loss)... 6.17 (1.08) (2.59) 0.47
------- ------ ------ ------
Total Income (Loss) From Operations........ 6.17 (0.98) (2.56) 0.52
------- ------ ------ ------
Less Distributions From:
Net investment income..................... -- -- (0.03) (0.05)
Net realized gains........................ -- -- (0.25) (0.15)
------- ------ ------ ------
Total Distributions........................ -- -- (0.28) (0.20)
------- ------ ------ ------
Net Asset Value, End of Year............... $12.67 $6.50 $7.48 $10.32
======= ====== ====== ======
Total Return (3)........................... 94.9% -13.1% -25.6% 5.2%++
Net Assets, End of Year (000s)............. $7,108 $4,385 $6,491 $3,693
Ratios to Average Net Assets:
Expenses.................................. 1.24% 1.24% 1.24% 1.24%+
Net investment income (loss).............. - 0.01% 1.48% 0.27% 0.90%+
Portfolio Turnover Rate.................... 248% 436% 294% 119%
Before applicable waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment loss per share and expense
ratios would have been:
Net investment loss per share (2)......... $(0.12) $(0.07) $(0.23) $(0.18)
Expense ratio............................. 2.62% 3.79% 3.81% 5.50%+
Asia Growth Fund
- -------------------------------------------------------------------------------
<CAPTION>
Class B Shares
---------------------------------
1999 1998 1997 1996(1)
---------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year......... $6.42 $7.44 $10.31 $10.00
------- ------ ------ ------
Income (Loss) From Operations:
Net investment income (loss) (2).......... (0.06) 0.05 (0.05) 0.01
Net realized and unrealized gain (loss)... 6.05 (1.07) (2.57) 0.46
------- ------ ------ ------
Total Income (Loss) From Operations........ 5.99 (1.02) (2.62) 0.47
------- ------ ------ ------
Less Distributions From:
Net investment income..................... -- -- -- (0.01)
Net realized gains........................ -- -- (0.25) (0.15)
------- ------ ------ ------
Total Distributions........................ -- -- (0.25) (0.16)
------- ------ ------ ------
Net Asset Value, End of Year............... $12.41 $6.42 $7.44 $10.31
======= ====== ====== ======
Total Return (3)........................... 93.3% -13.7% -26.1% 4.7%++
Net Assets, End of Year (000s)............. $10,658 $5,256 $5,738 $3,163
Ratios to Average Net Assets:
Expenses.................................. 1.99% 1.99% 1.99% 1.99%+
Net investment income (loss).............. -0.74% 0.77% -0.48% 0.20%+
Portfolio Turnover Rate.................... 248% 436% 294% 119%
Before applicable waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment loss per share and expense
ratios would have been:
Net investment loss per share (2)......... $(0.12) $(0.11) $(0.30) $(0.23)
Expense ratio............................. 3.39% 4.55% 4.56% 6.25%+
</TABLE>
- ------
(1) For the period from May 6, 1996 (inception date) to December 31, 1996.
(2) Per share amounts have been calculated using the average shares method.
(3) Total return is calculated assuming a $1,000 investment of 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. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
89
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31:
Asia Growth Fund
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares
---------------------------------
1999 1998(1) 1997 1996(2)
---------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year......... $ 6.42 $ 7.44 $10.30 $10.00
------ ------ ------ ------
Income (Loss) From Operations:
Net investment income (loss) (3).......... (0.06) 0.05 (0.05) 0.01
Net realized and unrealized gain (loss)... 6.05 (1.07) (2.56) 0.45
------ ------ ------ ------
Total Income (Loss) From Operations........ 5.99 (1.02) (2.61) 0.46
------ ------ ------ ------
Less Distributions From:
Net investment income..................... -- -- -- (0.01)
Net realized gains........................ -- -- (0.25) (0.15)
------ ------ ------ ------
Total Distributions........................ -- -- (0.25) (0.16)
------ ------ ------ ------
Net Asset Value, End of Year............... $12.41 $ 6.42 $ 7.44 $10.30
====== ====== ====== ======
Total Return (4)........................... 93.3% -13.7% -26.0% 4.6%++
Net Assets, End of Year (000s)............. $4,227 $2,291 $1,643 $246
Ratios to Average Net Assets:
Expenses.................................. 1.99% 1.99% 1.99% 2.00%+
Net investment income (loss).............. -0.76% 0.80% -0.47% 0.08%+
Portfolio Turnover Rate.................... 248% 436% 294% 119%
Before applicable waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment loss per share and expense
ratios would have been:
Net investment loss per share (3)......... $(0.11) $(0.11) $(0.30) $(0.20)
Expense ratio............................. 3.37% 4.55% 4.56% 6.26%+
Asia Growth Fund
- -------------------------------------------------------------------------------
<CAPTION>
Class O Shares
---------------------------------
1999 1998 1997 1996(2)
---------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year......... $ 6.54 $ 7.50 $10.32 $10.00
------ ------ ------ ------
Income (Loss) From Operations:
Net investment income (3)................. 0.02 0.12 0.05 0.07
Net realized and unrealized gain (loss)... 6.20 (1.08) (2.59) 0.46
------ ------ ------ ------
Total Income (Loss) From Operations........ 6.22 (0.96) (2.54) 0.53
------ ------ ------ ------
Less Distributions From:
Net investment income..................... -- -- (0.03) (0.06)
Net realized gains........................ -- -- (0.25) (0.15)
------ ------ ------ ------
Total Distributions........................ -- -- (0.28) (0.21)
------ ------ ------ ------
Net Asset Value, End of Year............... $12.76 $ 6.54 $ 7.50 $10.32
====== ====== ====== ======
Total Return (4)........................... 95.1% -12.8% -25.3% 5.3%++
Net Assets, End of Year (000s)............. $1,343 $1,354 $412 $124
Ratios to Average Net Assets:
Expenses.................................. 0.97% 0.99% 0.99% 0.99%+
Net investment income..................... 0.23% 1.90% 0.51% 1.21%+
Portfolio Turnover Rate.................... 248% 436% 294% 119%
Before applicable waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment loss per share and expense
ratios would have been:
Net investment loss per share (3)......... $(0.11) $(0.04) $(0.20) $(0.18)
Expense ratio............................. 2.32% 3.55% 3.56% 5.25%+
</TABLE>
- ------
(1) On September 14, 1998, Class C shares were renamed Class 2 shares.
(2) For the period from May 6, 1996 (inception date) to December 31, 1996.
(3) Per share amounts have been calculated using the average shares method.
(4) Total return is calculated assuming a $1,000 investment of 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. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
90
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout the period
ended December 31:
International Equity Fund
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
1999(1)
--------------------------------
Class A Class B Class 2 Class O
--------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Income (Loss) From Operations:
Net investment loss (2)................... (0.03) (0.04) (0.04) (0.02)
Net realized and unrealized gain.......... 2.52 2.51 2.50 2.51
------ ------ ------ ------
Total Income From Operations............... 2.49 2.47 2.46 2.49
------ ------ ------ ------
Less Distributions From:
Net investment loss....................... -- -- -- --
Net realized gains........................ -- -- -- --
------ ------ ------ ------
Total Distributions........................ -- -- -- --
------ ------ ------ ------
Net Asset Value, End of Period............. $12.49 $12.47 $12.46 $12.49
====== ====== ====== ======
Total Returns (3)++........................ 24.9% 24.7% 24.6% 24.9%
Net Assets, End of Period (000s)........... $2,538 $3,863 $2,441 $1,262
Ratios to Average Net Assets+:
Expenses.................................. 1.75% 2.50% 2.50% 1.50%
Net investment loss....................... -1.39% -2.30% -2.13% -0.83%
Portfolio Turnover Rate.................... 1% 1% 1% 1%
Before applicable waiver of management fee
and expenses absorbed by SBAM, net
investment loss per share and expense
ratios would have been:
Net investment loss per share (2)......... $(0.05) $(0.05) $(0.05) $(0.05)
Expense ratio+............................ 4.36% 5.11% 5.09% 4.05%
</TABLE>
- ------
(1) For the period from October 25, 1999 (inception date) to December 31, 1999.
(2) Per share amounts have been calculated using the average shares method.
(3) Total return is calculated assuming a $1,000 investment of 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. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
91
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31:
Small Cap Growth Fund
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
Class A Shares Class B Shares
------------------------------------
1999 1998(1) 1999 1998(1)
------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $ 11.59 $ 10.00 $ 11.55 $ 10.00
-------- ------- -------- -------
Income (Loss) From Operations:
Net investment loss (2).......... (0.07) (0.02) (0.17) (0.06)
Net realized and unrealized
gain............................ 6.63 1.61 6.55 1.61
-------- ------- -------- -------
Total Income From Operations...... 6.56 1.59 6.38 1.55
-------- ------- -------- -------
Less Distributions From:
Net investment income............ -- -- -- --
Net realized gains............... (0.92) -- (0.92) --
-------- ------- -------- -------
Total Distributions............... (0.92) -- (0.92) --
-------- ------- -------- -------
Net Asset Value, End of Year...... $ 17.23 $ 11.59 $ 17.01 $ 11.55
======== ======= ======== =======
Total Return (3).................. 57.5% 15.9%++ 56.2% 15.5%++
Net Assets, End of Year (000s).... $167,281 $3,205 $124,560 $3,850
Ratios to Average Net Assets:
Expenses......................... 1.37% 1.50%+ 2.12% 2.25%+
Net investment loss.............. -0.52% -0.51%+ -1.23% -1.21%+
Portfolio Turnover Rate........... 142% 96% 142% 96%
Before applicable waiver of
management fee, expenses absorbed
by SBAM and credits earned on
custodian cash balances, net
investment loss per share and
expense ratios would have been:
Net investment loss per share
(2)............................. $(0.08) $(0.06) $(0.17) $(0.10)
Expense ratio.................... 1.40% 2.30%+ 2.15% 3.05%+
Small Cap Growth Fund
- ------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares Class O Shares
------------------------------------
1999 1998(1)(4) 1999 1998(1)
------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $ 11.56 $ 10.00 $ 11.60 $ 10.00
-------- ------- -------- -------
Income (Loss) From Operations:
Net investment loss (2).......... (0.17) (0.06) (0.06) (0.01)
Net realized and unrealized
gain............................ 6.57 1.62 6.67 1.61
-------- ------- -------- -------
Total Income From Operations...... 6.40 1.56 6.61 1.60
-------- ------- -------- -------
Less Distributions From:
Net investment income............ -- -- -- --
Net realized gains............... (0.92) -- (0.92) --
-------- ------- -------- -------
Total Distributions............... (0.92) -- (0.92) --
-------- ------- -------- -------
Net Asset Value, End of Year...... $ 17.04 $ 11.56 $ 17.29 $ 11.60
======== ======= ======== =======
Total Return (3).................. 56.3% 15.6%++ 57.9% 16.0%++
Net Assets, End of Year (000s).... $14,285 $1,471 $67 $67
Ratios to Average Net Assets:
Expenses......................... 2.14% 2.25%+ 1.24% 1.25%+
Net investment loss.............. -1.22% -1.35%+ -0.49% -0.18%+
Portfolio Turnover Rate........... 142% 96% 142% 96%
Before applicable waiver of
management fee, expenses absorbed
by SBAM and credits earned on
custodian cash balances, net
investment loss per share and
expense ratios would have been:
Net investment loss per share
(2)............................. $(0.17) $(0.10) $(0.06) $(0.05)
Expense ratio.................... 2.18% 3.05%+ 1.27% 2.05%+
</TABLE>
- ------
(1) For the period from July 1, 1998 (inception date) to December 31, 1998.
(2) Per share amounts have been calculated using the average shares method.
(3) Total return is calculated assuming a $1,000 investment of 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. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
(4) On September 14, 1998, Class C shares were renamed Class 2 shares.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
92
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout the period
ended December 31:
Large Cap Growth Fund
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
1999
-------------------------------------
Class A(1) Class B(1) Class 2(1) Class O(2)
-------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Income (Loss) From Operations:
Net investment loss (3).......... (0.01) (0.02) (0.02) 0.00*
Net realized and unrealized
gain............................ 1.19 1.19 1.18 1.18
------ ------ ------ ------
Total Income From Operations...... 1.18 1.17 1.16 1.18
------ ------ ------ ------
Less Distributions From:
Net investment loss.............. -- -- -- --
Net realized gains............... -- -- -- --
------ ------ ------ ------
Total Distributions............... -- -- -- --
------ ------ ------ ------
Net Asset Value, End of Period.... $11.18 $11.17 $11.16 $11.18
====== ====== ====== ======
Total Returns (4)++............... 11.8% 11.7% 11.6% 11.8%
Net Assets, End of Period
(000's).......................... $2,070 $6,243 $1,234 $1,917
Ratios to Average Net Assets+:
Expenses......................... 1.44% 2.21% 2.19% 1.21%
Net investment loss.............. -0.37% -1.17% -1.14% -0.11%
Portfolio Turnover Rate........... 10% 10% 10% 10%
Before applicable waiver of
management fee and expenses
absorbed by SBAM net investment
income per share and expense
ratios would have been:
Net investment income per share
(3)............................. $(0.07) $(0.08) $(0.08) $(0.07)
Expense ratio+................... 4.02% 4.73% 4.71% 3.88%
</TABLE>
- ------
(1) For the period from October 25, 1999 (inception date) to December 31, 1999.
(2) For the period from October 26, 1999 (inception date) to December 31, 1999.
(3) Per share amounts have been calculated using the average shares method.
(4) Total return is calculated assuming a $1,000 investment of 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. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
* Amount represents less than $0.01 per share.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
93
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31:
Capital Fund
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Class A Shares
================================
1999 1998 1997 1996(1)
<S> <C> <C> <C> <C>
================================
Net Asset Value, Beginning of Year......... $ 22.92 $ 21.15 $19.88 $21.98
------- ------- ------ ------
Income From Operations:
Net investment income..................... 0.15* 0.14 -- 0.01*
Net realized and unrealized gain.......... 4.99 4.64 5.10 1.54
------- ------- ------ ------
Total Income From Operations............... 5.14 4.78 5.10 1.55
------- ------- ------ ------
Less Distributions From:
Net investment income..................... (0.18) (0.18) -- (0.15)
Net realized gains........................ (2.59) (2.83) (3.83) (3.50)
------- ------- ------ ------
Total Distributions........................ (2.77) (3.01) (3.83) (3.65)
------- ------- ------ ------
Net Asset Value, End of Year............... $ 25.29 $ 22.92 $21.15 $19.88
======= ======= ====== ======
Total Return (2)........................... 23.1% 23.7% 26.4% 7.7%++
Net Assets, End of Year (000s)............. $29,814 $11,425 $5,589 $344
Ratios to Average Net Assets:
Expenses.................................. 1.27% 1.34% 1.46% 1.88%+
Net investment income (loss).............. 0.61% 0.81% -0.10% 0.18%+
Portfolio Turnover Rate.................... 126% 141% 159% 191%
</TABLE>
Capital Fund
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Class B Shares
----------------------------------
1999 1998 1997 1996(1)
=================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year........ $ 22.63 $ 21.01 $19.90 $21.98
------- ------- ------ ------
Income (Loss) From Operations:
Net investment income (loss)............. (0.04)* 0.09 (0.07) (0.02)*
Net realized and unrealized gain......... 4.92 4.45 5.01 1.56
------- ------- ------ ------
Total Income From Operations.............. 4.88 4.54 4.94 1.54
------- ------- ------ ------
Less Distributions From:
Net investment income.................... (0.06) (0.09) -- (0.12)
Net realized gains....................... (2.59) (2.83) (3.83) (3.50)
------- ------- ------ ------
Total Distributions....................... (2.65) (2.92) (3.83) (3.62)
------- ------- ------ ------
Net Asset Value, End of Year.............. $ 24.86 $ 22.63 $21.01 $19.90
======= ======= ====== ======
Total Return (2).......................... 22.2% 22.6% 25.6% 7.6%++
Net Assets, End of Year (000s)............ $79,678 $22,294 $3,820 $219
Ratios to Average Net Assets:
Expenses................................. 2.02% 2.09% 2.20% 2.73%+
Net investment income (loss)............. -0.16% 0.17% -0.94% -0.66%+
Portfolio Turnover Rate................... 126% 141% 159% 191%
</TABLE>
- ------
(1) For the period from November 1, 1996 (inception date) to December 31, 1996.
(2) Total return is calculated assuming a $1,000 investment of 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. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
94
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31:
Capital Fund
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Class 2 Shares
=================================
1999 1998(1) 1997 1996(2)
=================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year........ $22.69 $21.02 $19.91 $21.98
------- ------ ------ ------
Income (Loss) From Operations:
Net investment income (loss)............. (0.04)* 0.07 (0.06) (0.02)*
Net realized and unrealized gain......... 4.91 4.47 5.00 1.57
------- ------ ------ ------
Total Income From Operations.............. 4.87 4.54 4.94 1.55
------- ------ ------ ------
Less Distributions From:
Net investment income.................... (0.07) (0.04) (3.83) (0.12)
Net realized gains....................... (2.59) (2.83) -- (3.50)
------- ------ ------ ------
Total Distributions....................... (2.66) (2.87) (3.83) (3.62)
------- ------ ------ ------
Net Asset Value, End of Year.............. $24.90 $22.69 $21.02 $19.91
======= ====== ====== ======
Total Return (3).......................... 22.2% 22.6% 25.6% 7.7%++
Net Assets, End of Year (000s)............ $24,830 $6,369 $2,385 $130
Ratios to Average Net Assets:
Expenses................................. 2.02% 2.09% 2.21% 2.45%+
Net investment income (loss)............. -0.18% 0.09% -0.91% -0.50%+
Portfolio Turnover Rate................... 126% 141% 159% 191%
</TABLE>
Capital Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Class O Shares
================================================
1999 1998 1997 1996 1995
================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year.................... $22.99 $21.23 $19.88 $18.67 $15.62
-------- -------- -------- -------- --------
Income From Operations:
Net investment income...... 0.22* 0.21 0.05 0.13* 0.14
Net realized and unrealized
gain ..................... 5.00 4.62 5.13 5.70 5.27
-------- -------- -------- -------- --------
Total Income From
Operations................. 5.22 4.83 5.18 5.83 5.41
-------- -------- -------- -------- --------
Less Distributions From:
Net investment income...... (0.19) (0.24) -- (0.15) (0.14)
Net realized gains......... (2.59) (2.83) (3.83) (4.47) (2.22)
In excess of net realized
gains..................... -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions......... (2.78) (3.07) (3.83) (4.62) (2.36)
-------- -------- -------- -------- --------
Net Asset Value, End of
Year....................... $25.43 $22.99 $21.23 $19.88 $18.67
======== ======== ======== ======== ========
Total Return (3)............ 23.4% 23.8% 26.8% 33.3% 34.9%
Net Assets, End of Year
(000s)..................... $215,308 $194,973 $175,470 $135,943 $102,429
Ratios to Average Net
Assets:
Expenses................... 1.01% 1.08% 1.22% 1.38% 1.36%
Net investment income...... 0.91% 0.96% 0.26% 0.67% 0.74%
Portfolio Turnover Rate..... 126% 141% 159% 191% 217%
</TABLE>
- ------
(1) On September 14, 1998, Class C shares were renamed Class 2 shares.
(2) For the period from November 1, 1996 (inception date) to December 31, 1996.
(3) Total return is calculated assuming a $1,000 investment of 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. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++Total return is not annualized, as it may not be represntative of the total
return for the year.
+ Annualized.
95
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31:
Investors Value Fund
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Class A Shares
==========================================
1999 1998 1997 1996 1995(1)
==========================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................... $22.04 $21.11 $18.89 $16.62 $13.61
------- ------- ------- ------- ------
Income From Operations:
Net investment income (2)...... 0.21 0.19 0.16 0.19 0.19
Net realized and unrealized
gain.......................... 2.29 2.91 4.64 4.63 4.55
------- ------- ------- ------- ------
Total Income From Operations.... 2.50 3.10 4.80 4.82 4.74
------- ------- ------- ------- ------
Less Distributions From:
Net investment income.......... (0.13) (0.17) (0.21) (0.22) (0.23)
Net realized gains............. (3.71) (2.00) (2.37) (2.33) (1.50)
------- ------- ------- ------- ------
Total Distributions............. (3.84) (2.17) (2.58) (2.55) (1.73)
------- ------- ------- ------- ------
Net Asset Value, End of Year.... $20.70 $22.04 $21.11 $18.89 $16.62
======= ======= ======= ======= ======
Total Return (3)................ 11.5% 15.2% 26.2% 30.3% 35.3%++
Net Assets, End of Year (000s).. $32,817 $50,953 $57,105 $10,905 $441
Ratios to Average Net Assets:
Expenses....................... 0.87% 0.88% 0.95% 1.06% 0.94%+
Net investment income ......... 0.90% 0.87% 0.86% 0.94% 1.41%+
Portfolio Turnover Rate......... 66% 74% 62% 58% 86%
Investors Value Fund
- -------------------------------------------------------------------------------
<CAPTION>
Class B Shares
==========================================
1999 1998 1997 1996 1995(1)
==========================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................... $21.87 $21.00 $18.86 $16.61 $13.61
------- ------- ------- ------- ------
Income From Operations:
Net investment income (2)...... 0.04 0.05 0.04 0.08 0.10
Net realized and unrealized
gain.......................... 2.26 2.85 4.58 4.60 4.54
------- ------- ------- ------- ------
Total Income From Operations.... 2.30 2.90 4.62 4.68 4.64
------- ------- ------- ------- ------
Less Distributions From:
Net investment income.......... (0.03) (0.03) (0.11) (0.10) (0.14)
Net realized gains............. (3.71) (2.00) (2.37) (2.33) (1.50)
------- ------- ------- ------- ------
Total Distributions............. (3.74) (2.03) (2.48) (2.43) (1.64)
------- ------- ------- ------- ------
Net Asset Value, End of Year.... $20.43 $21.87 $21.00 $18.86 $16.61
======= ======= ======= ======= ======
Total Return (3)................ 10.6% 14.3% 25.3% 29.2% 34.5%++
Net Assets, End of Year (000s).. $81,759 $75,189 $49,786 $9,433 $716
Ratios to Average Net Assets:
Expenses....................... 1.61% 1.63% 1.70% 1.82% 1.71%+
Net investment income ......... 0.16% 0.18% 0.12% 0.21% 0.63%+
Portfolio Turnover Rate......... 66% 74% 62% 58% 86%
</TABLE>
- ------
(1) For the period from January 3, 1995 (inception date) to December 31, 1995.
(2) Per share amounts have been calculated using the average shares method.
(3) Total return is calculated assuming a $1,000 investment of 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. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
96
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31:
Investors Value Fund
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Class 2 Shares
------------------------------------------------
1999 1998(1) 1997 1996 1995(2)
<S> <C> <C> <C> <C> <C>
------------------------------------------------
Net Asset Value,
Beginning of Year...... $21.88 $21.01 $18.86 $16.61 $13.61
-------- -------- -------- -------- --------
Income From Operations:
Net investment income.. 0.03* 0.05 0.04 0.07 0.09
Net realized and
unrealized gain....... 2.30 2.84 4.59 4.60 4.55
-------- -------- -------- -------- --------
Total Income From
Operations............. 2.33 2.89 4.63 4.67 4.64
-------- -------- -------- -------- --------
Less Distributions From:
Net investment income.. (0.04) (0.02) (0.11) (0.09) (0.14)
Net realized gains..... (3.71) (2.00) (2.37) (2.33) (1.50)
-------- -------- -------- -------- --------
Total Distributions..... (3.75) (2.02) (2.48) (2.42) (1.64)
-------- -------- -------- -------- --------
Net Asset Value, End of
Year................... $20.46 $21.88 $21.01 $18.86 $16.61
======== ======== ======== ======== ========
Total Return (3)........ 10.7% 14.3% 25.2% 29.3% 34.5%++
Net Assets, End of Year
(000s)................. $17,883 $17,680 $11,701 $1,959 $306
Ratios to Average Net
Assets:
Expenses............... 1.61% 1.63% 1.70% 1.80% 1.68%+
Net investment income.. 0.15% 0.18% 0.13% 0.23% 0.66%+
Portfolio Turnover
Rate................... 66% 74% 62% 58% 86%
<CAPTION>
Class O Shares
------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
------------------------------------------------
Net Asset Value,
Beginning of Year...... $22.05 $21.13 $18.90 $16.61 $13.63
-------- -------- -------- -------- --------
Income From Operations:
Net investment income.. 0.26* 0.25 0.24 0.25 0.27
Net realized and
unrealized gain....... 2.31 2.90 4.60 4.62 4.48
-------- -------- -------- -------- --------
Total Income From
Operations............. 2.57 3.15 4.84 4.87 4.75
-------- -------- -------- -------- --------
Less Distributions From:
Net investment income.. (0.22) (0.23) (0.24) (0.25) (0.27)
Net realized gains..... (3.71) (2.00) (2.37) (2.33) (1.50)
-------- -------- -------- -------- --------
Total Distributions..... (3.93) (2.23) (2.61) (2.58) (1.77)
-------- -------- -------- -------- --------
Net Asset Value, End of
Year................... $20.69 $22.05 $21.13 $18.90 $16.61
======== ======== ======== ======== ========
Total Return (3)........ 11.7% 15.4% 26.5% 30.6% 35.4%
Net Assets, End of Year
(000s)................. $662,248 $650,916 $608,401 $518,361 $428,950
Ratios to Average Net
Assets:
Expenses............... 0.63% 0.63% 0.69% 0.76% 0.69%
Net investment income.. 1.16% 1.15% 1.15% 1.36% 1.67%
Portfolio Turnover
Rate................... 66% 74% 62% 58% 86%
</TABLE>
Investors Value Fund
- ------
(1) On September 14, 1998, Class C shares were renamed Class 2 shares.
(2) For the period from January 3, 1995 (inception date) to December 31, 1995.
(3) Total return is calculated assuming a $1,000 investment of 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. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
97
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31:
Balanced Fund
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Class A Shares
-------------------------------------------
1999 1998 1997 1996 1995(1)
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $13.11 $13.13 $11.82 $10.55 $10.00
------- -------- ------- ------- ------
Income (Loss) From Operations:
Net investment income (2)..... 0.50 0.56 0.55 0.54 0.15
Net realized and unrealized
gain (loss).................. (0.08) 0.26 1.65 1.35 0.52
------- -------- ------- ------- ------
Total Income From Operations... 0.42 0.82 2.20 1.89 0.67
------- -------- ------- ------- ------
Less Distributions From:
Net investment income......... (0.50) (0.55) (0.53) (0.52) (0.11)
Net realized gains............ (0.22) (0.29) (0.36) (0.10) (0.01)
------- -------- ------- ------- ------
Total Distributions............ (0.72) (0.84) (0.89) (0.62) (0.12)
------- -------- ------- ------- ------
Net Asset Value, End of Year... $12.81 $13.11 $13.13 $11.82 $10.55
======= ======== ======= ======= ======
Total Return (3)............... 3.2% 6.4% 19.1% 18.3% 6.7%++
Net Assets, End of Year
(000s)........................ $35,386 $51,443 $53,024 $21,109 $3,658
Ratios to Average Net Assets:
Expenses...................... 0.95% 0.85% 0.77% 0.75% 0.74%+
Net investment income......... 3.79% 4.17% 4.29% 4.81% 4.82%+
Portfolio Turnover Rate........ 34% 63% 70% 76% 16%
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 (2).................... $0.47 $0.51 $0.49 $0.44 $0.13
Expense ratio................. 1.17% 1.17% 1.24% 1.61% 1.45%+
<CAPTION>
Class B Shares
-------------------------------------------
1999 1998 1997 1996 1995(1)
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $13.08 $13.12 $11.82 $10.54 $10.00
------- -------- ------- ------- ------
Income (Loss) From Operations:
Net investment income (2)..... 0.40 0.45 0.45 0.45 0.13
Net realized and unrealized
gain (loss).................. (0.08) 0.26 1.65 1.35 0.51
------- -------- ------- ------- ------
Total Income From Operations... 0.32 0.71 2.10 1.80 0.64
------- -------- ------- ------- ------
Less Distributions From:
Net investment income......... (0.42) (0.46) (0.44) (0.42) (0.09)
Net realized gains............ (0.22) (0.29) (0.36) (0.10) (0.01)
------- -------- ------- ------- ------
Total Distributions............ (0.64) (0.75) (0.80) (0.52) (0.10)
------- -------- ------- ------- ------
Net Asset Value, End of Year... $12.76 $13.08 $13.12 $11.82 $10.54
======= ======== ======= ======= ======
Total Return (3)............... 2.4% 5.5% 18.2% 17.4% 6.4%++
Net Assets, End of Year
(000s)........................ $97,656 $120,816 $87,549 $28,043 $5,378
Ratios to Average Net Assets:
Expenses...................... 1.70% 1.60% 1.52% 1.50% 1.49%+
Net investment income......... 3.03% 3.41% 3.54% 4.06% 4.06%+
Portfolio Turnover Rate........ 34% 63% 70% 76% 16%
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 (2).................... $0.37 $0.41 $0.39 $0.36 $0.11
Expense ratio................. 1.92% 1.92% 1.99% 2.36% 2.19%+
</TABLE>
Balanced Fund
- ------
(1) For the period from September 11, 1995 (inception date) to December 31,
1995.
(2) Per share amounts have been calculated using the average shares method.
(3) Total return is calculated assuming a $1,000 investment of 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. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
98
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31:
Balanced Fund
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Class 2 Shares
-----------------------------------------
1999 1998(1) 1997 1996 1995(2)
-----------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................ $13.11 $13.15 $11.85 $10.56 $10.00
------- ------- ------- ------ ------
Income (Loss) From Operations:
Net investment income (3)....... 0.41 0.45 0.45 0.46 0.14
Net realized and unrealized gain
(loss)......................... (0.09) 0.26 1.65 1.35 0.51
------- ------- ------- ------ ------
Total Income From Operations..... 0.32 0.71 2.10 1.81 0.65
------- ------- ------- ------ ------
Less Distributions From:
Net investment income........... (0.42) (0.46) (0.44) (0.42) (0.08)
Net realized gains.............. (0.22) (0.29) (0.36) (0.10) (0.01)
------- ------- ------- ------ ------
Total Distributions.............. (0.64) (0.75) (0.80) (0.52) (0.09)
------- ------- ------- ------ ------
Net Asset Value, End of Year..... $12.79 $13.11 $13.15 $11.85 $10.56
======= ======= ======= ====== ======
Total Return (4)................. 2.4% 5.5% 18.1% 17.5% 6.5%++
Net Assets, End of Year (000s)... $21,030 $29,458 $21,085 $3,445 $445
Ratios to Average Net Assets:
Expenses........................ 1.70% 1.60% 1.52% 1.50% 1.51%+
Net investment income........... 3.04% 3.41% 3.52% 4.07% 4.26%+
Portfolio Turnover Rate.......... 34% 63% 70% 76% 16%
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
(3)............................ $0.38 $0.41 $0.39 $0.36 $0.11
Expense ratio................... 1.92% 1.92% 1.99% 2.36% 2.22%+
Balanced Fund
<CAPTION>
Class O Shares
-----------------------------------------
1999 1998 1997 1996 1995(2)
-----------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................ $13.18 $13.20 $11.88 $10.57 $10.00
------- ------- ------- ------ ------
Income (Loss) From Operations:
Net investment income (3) ...... 0.54 0.59 0.59 0.57 0.17
Net realized and unrealized gain
(loss)......................... (0.09) 0.26 1.65 1.39 0.52
------- ------- ------- ------ ------
Total Income From Operations..... 0.45 0.85 2.24 1.96 0.69
------- ------- ------- ------ ------
Less Distributions From:
Net investment income........... (0.53) (0.58) (0.56) (0.55) (0.11)
Net realized gains.............. (0.22) (0.29) (0.36) (0.10) (0.01)
------- ------- ------- ------ ------
Total Distributions.............. (0.75) (0.87) (0.92) (0.65) (0.12)
------- ------- ------- ------ ------
Net Asset Value, End of Year..... $12.88 $13.18 $13.20 $11.88 $10.57
======= ======= ======= ====== ======
Total Return (4)................. 3.4% 6.6% 19.3% 19.0% 6.9%++
Net Assets, End of Year (000s)... $1,460 $1,523 $1,227 $213 $4,494
Ratios to Average Net Assets:
Expenses........................ 0.70% 0.60% 0.52% 0.50% 0.51%+
Net investment income........... 4.00% 4.41% 4.60% 5.13% 5.30%+
Portfolio Turnover Rate.......... 34% 63% 70% 76% 16%
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
(3)............................ $0.51 $0.55 $0.53 $0.47 $0.15
Expense ratio................... 0.92% 0.92% 1.00% 1.36% 1.22%+
</TABLE>
- ------
(1) On September 14, 1998, Class C shares were renamed Class 2 shares.
(2) For the period from September 11, 1995 (inception date) to December 31,
1995.
(3) Per share amounts have been calculated using the average shares method.
(4) Total return is calculated assuming a $1,000 investment of 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. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
99
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Salomon Brothers Asia Growth Fund
Salomon Brothers International Equity Fund
Salomon Brothers Small Cap Growth Fund
Salomon Brothers Large Cap Growth Fund
Salomon Brothers Capital Fund
Salomon Brothers Investors Value Fund
Salomon Brothers Balanced Fund
In our opinion, the accompanying statements of assets and liabilities, includ-
ing the schedules 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 Asia Growth
Fund, Salomon Brothers International Equity Fund, Salomon Brothers Small Cap
Growth Fund, Salomon Brothers Large Cap Growth Fund, Salomon Brothers Balanced
Fund (five of the portfolios constituting Salomon Brothers Series Funds Inc),
Salomon Brothers Investors Value Fund and Salomon Brothers Capital Fund (here-
after referred to as the "Funds") at December 31, 1999, the results of each of
their operations for the year then ended, the changes in each of their net as-
sets for each of the two years in the period then ended and the financial high-
lights for each of the periods indicated, in conformity with accounting princi-
ples generally accepted in the United States. 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 au-
dits of these financial statements in accordance with auditing standards gener-
ally accepted in the United States 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 man-
agement, and evaluating the overall financial statement presentation. We be-
lieve that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 22, 2000
100
<PAGE>
Tax Information
(unaudited)
For Federal tax purposes, each Fund hereby designates for the fiscal year ended
December 31, 1999:
. Percentages of ordinary dividends paid as qualifying for the corporate
dividends received deduction:
<TABLE>
<S> <C>
Small Cap Growth Fund...................................... 1.13%
Capital Fund............................................... 9.29
Investors Value Fund....................................... 27.98
Balanced Fund.............................................. 25.17
. Total long-term capital gain distributions paid:
Small Cap Growth Fund...................................... $ 10,241,853
Capital Fund............................................... 2,971,755
Investors Value Fund....................................... 114,084,635
Balanced Fund.............................................. 2,254,704
</TABLE>
A total of 5.92% of the ordinary dividends paid by the Balanced Fund from net
investment income are derived from Federal obligations and may be exempt from
taxation at the state level.
101
<PAGE>
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<PAGE>
[This page intentionally left blank]
<PAGE>
[This page intentionally left blank]
<PAGE>
Salomon Brothers Investment Series
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIANS
PNC Bank, National Association
200 Stevens Drive Suite 440
Lester, Pennsylvania 19113
Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
18th Floor
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER AGENT
PFPC Global Fund Services
53 State Street
Boston, Massachusetts 02109-2873
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
Directors
CHARLES F. BARBER
Consultant; formerly Chairman; ASARCO Inc.
ANDREW L. BREECH*,***
President, Dealer Operating Control Service Inc.
CAROL L. COLMAN
Consultant, Colman Consulting
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,
Salomon Smith Barney Inc.; President and Director,
SSB Citi Fund Management LLC and Travelers
Investment Adviser, Inc.
CLIFFORD M. KIRTLAND, JR.*,***
Member of the Advisory Committee, Nero-Moseley
Partners; formerly Director, Oxford Industries, Inc., Shaw
Industries Inc., Graphic Industries, Inc. and CSX Corp.;
formerly Chairman, 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 Blackwell Sanders Peper Martin LLP (law
firm), President, The Saint Louis Brewery, Inc.
Officers
HEATH B. MCLENDON
Chairman and President
LEWIS E. DAIDONE
Executive Vice President and Treasurer
ROBERT E. AMODEO**
Executive Vice President
JAMES E. CRAIGE**
Executive Vice President
JOHN B. CUNNINGHAM*
Executive Vice President
THOMAS K. FLANAGAN**
Executive Vice President
ROGER LAVAN**
Executive Vice President
ROSS S. MARGOLIES***
Executive Vice President
MAUREEN O'CALLAGHAN**
Executive Vice President
DAVID J. SCOTT**
Executive Vice President
BETH A. SEMMEL**
Executive Vice President
PETER J. WILBY**
Executive Vice President
GEORGE J. WILLIAMSON**
Executive Vice President
THOMAS A. CROAK**
Vice President
ROBERT DONAHUE***
Vice President
NANCY A. NOYES**
Vice President
ANTHONY PACE
Controller
CHRISTINA T. SYDOR
Secretary
- --------------------------------------------------------------------------------
* Salomon Brothers Investors Value Fund Inc only
** Salomon Brothers Series Funds Inc only
*** Salomon Brothers Capital Fund Inc only
<PAGE>
[LOGO OF SALOMON BROTHERS ASSET MANAGEMENT]
SEVEN WORLD TRADE CENTER . NEW YORK, NEW YORK 10048
SBSEQANN 12/99
