[GRAPHIC OMITTED]
Smith Barney
Small Cap Blend
Fund, Inc.
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ANNUAL REPORT
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December 31, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day(R).
<PAGE>
Smith Barney Small Cap
Blend Fund, Inc.
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The Smith Barney Small Cap Blend Fund, Inc. ("Fund") seeks long-term capital
appreciation by investing primarily in the common stock of companies with
relatively small market capitalizations.
Smith Barney Small Cap Blend Fund, Inc.
Average Annual Total Returns
December 31, 1998
Without Sales Charges(1)
---------------------------------------------
Class A(2) Class B Class L(3)
================================================================================
One-Year (1.31)% (2.07)% (1.99)%
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Five-Year 12.53 N/A N/A
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Since Inception+ 10.04 9.22 9.74
================================================================================
Without Sales Charges(1)
---------------------------------------------
Class A(2) Class B Class L(3)
================================================================================
One-Year (6.24)% (6.91)% (3.96)%
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Five-Year 11.38 N/A N/A
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Since Inception+ 9.40 6.73 9.04
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, and does not reflect the deduction of the applicable sales charges
with respect to Class A and L shares or the applicable contingent deferred
sales charges ("CDSC") with respect to Class B and L shares. Prior to June
23, 1997, dividends were reinvested according to the Fund's reinvestment
plan, thereafter at net asset value.
(2) The Fund converted from a closed-end fund to an open-end fund on June 23,
1997. Prior to that date, its shares were traded on the American Stock
Exchange. As of June 23, 1997, all existing shares were converted to Class
A shares. The total returns noted for Class A shares may have been
different if the Fund had been an open-end fund from inception. Current
total return information for Class A shares through June 23, 1997 is based
on net asset value while it was a closed-end fund. Closed-end funds are
not subject to the same legal requirements as open-end funds, especially
with respect to liquidity requirements.
(3) On June 12, 1998, Class C shares were renamed Class L shares.
(4) Assumes reinvestment of all dividends and capital gain distributions, if
any. Prior to June 23, 1997 dividends were reinvested according to the
Fund's reinvestment plan, thereafter at net asset value. In addition,
Class A and L shares reflect the deduction of the current maximum initial
sales charge of 5.00% and 1.00%, respectively; and Class B shares reflect
the deduction of a 5.00% CDSC, which applies if shares are redeemed within
one year from purchase and declines thereafter by 1.00% per year until no
CDSC is incurred. In addition, Class L shares reflect the deduction of a
1.00% CDSC, which applies if shares are redeemed within the first year of
purchase. All figures represent past performance and are not a guarantee
of future results. Investment returns and principal value will fluctuate,
and redemption value may be more or less than the original cost.
+ Inception dates for Class A, B and L shares are January 23, 1990, June 25,
1997 and June 24, 1997, respectively. The Fund operated as a closed-end
fund until June 23, 1997.
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FUND HIGHLIGHT
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In the management of this Fund, we do not try to time the market by moving in
and out of stocks and into cash. Neither do we try to guess which industry
groups will set the world on fire based on economic expectations. Moreover, we
do not favor one kind of stock-selection style at the expense of others. While
any one of these approaches may work from time to time, they may tend to run hot
and cold. Periods of good performance can be followed by dry spells. With the
Small Cap Blend Fund, our goal is to deliver more consistent performance
relative to the market for small-cap stock investing.
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WHAT'S INSIDE
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Shareholder Letter............................................ 1
Historical Performance........................................ 3
Smith Barney Small Cap Blend Fund, Inc.
at a Glance................................................... 5
Schedule of Investments....................................... 6
Statement of Assets and Liabilities.......................... 11
Statement of Operations...................................... 12
Statements of Changes in Net Assets.......................... 13
Notes to Financial Statements................................ 14
Financial Highlights......................................... 18
Tax Information.............................................. 19
Independent Auditors' Report................................. 20
Additional Shareholder Information........................... 21
<PAGE>
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Shareholder Letter
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[PHOTO OMITTED] [PHOTO OMITTED]
HEATH B. SANDIP A.
MCLENDON BHAGAT, CFA
Chairman Vice President
Dear Shareholder:
We are pleased to provide you with the annual report for the Smith Barney Small
Cap Blend Fund, Inc. ("Fund") for the year ended December 31, 1998. A detailed
summary of performance and current holdings can be found in the sections that
follow.
A Style Pure Fund
The Smith Barney Small Cap Blend Fund is a Style Pure Fund. The mutual funds in
the Style Pure Series are Smith Barney Mutual Funds that are the basic building
blocks of asset allocation. Except for maintaining minimal amounts of cash or
under extraordinary market conditions, each Style Pure Series Fund is totally
invested 100% of the time within its designated asset class and its designated
investment style.
Performance Update and Investment Strategy
For the year ended December 31, 1998, the Fund's Class A shares returned a
negative 1.31% without sales charges. In comparison, the Russell 2000 Index had
a return of a negative 2.55% during the same period. (The Russell 2000 Index is
a broad-based index representing small-sized U.S. companies.) Through its stated
focus on small-cap stocks, the Small Cap Blend Fund performed in line with the
Russell 2000 Index. As we discuss in greater detail in the following sections,
small-capitalization stocks continued to lag their large-cap counterparts during
the reporting period and the Fund's performance reflected this trend of
small-cap underperformance.
In the management of this Fund, we do not try to time the market by moving in
and out of stocks and into cash. Neither do we try to guess which industry
groups will set the world on fire based on economic expectations. Moreover, we
do not favor one kind of stock-selection style at the expense of others. While
any one of these approaches may work from time to time, they may tend to run hot
and cold. Periods of good performance can be followed by dry spells. With the
Smith Barney Small Cap Blend Fund, our goal is to deliver more consistent
performance relative to the market for small-cap stock investing.
In the quantitative stock selection model employed in the Fund, we ask three
basic questions about the small-cap companies we follow: "Are earnings growing
at a steady and consistent pace?" "Is the stock valuation attractive relative to
potential earnings growth and when compared with other similar companies?" And,
finally, "Is the recent price trend likely to persist?" If the answer to all of
these questions is "yes," we then apply fundamental research based on our
understanding of each company's business prospects and management. If a stock
passes all of these tests, then it is likely to be overweighted in the Fund's
portfolio relative to the Russell 2000 Index.
To briefly review our investment style, the Fund is managed to achieve two broad
investment objectives. First, the Fund seeks to provide investors with reliable
exposure to the small-cap universe. Second, the Fund seeks to achieve consistent
outperformance relative to this broad universe. The Fund attempts to fulfill
both of these missions at the same timeby combining the reliability of relative
performance tied to an index and the value-added benefits of active management.
The performance of the U.S. stock market in 1998 proved yet again that interest
rate changes and liquid-
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Smith Barney Small Cap Blend Fund, Inc. 1
<PAGE>
ity flows may have a more dominant influence on stock prices than most other
factors. In a year where earnings growth was close to zero, most measures of the
U.S. stock market rose by over 20%. Declining interest rates, which fell from
5.9% to 5.1%, have triggered a significant expansion in the market P/E multiple.
The upward pressure on stock prices has been further amplified by strong money
flows as yields on alternative investments have dwindled.
A notable aspect of the stock market performance in 1998 was the divergence in
returns across different styles and segments of the market. While the S&P 500
Index rose by roughly 28% in 1998, the Russell 2000 Index of smaller companies
actually declined by roughly a negative 2.5%. The gain in large-company growth
stocks of 38.7% was well ahead of the 15.4% advance of large-company value
stocks and almost out of sight compared to small-company value stocks which fell
by a negative 6.5%.
This remarkable spread in relative performance between large- and small-cap
stocks and growth and value styles can best be understood in the context of
business cycle investing and the unfolding global economic crisis. It is now
commonly perceived that the U.S. economy is in the later stages of a muted
economic cycle. As overall earnings growth becomes scarce, investors are more
willing to reward stable growth companies with higher valuations. The flight to
quality precipitated by global turmoil has worked against riskier asset classes
such as small-cap stocks. The combination of meager overall earnings growth and
the flight to quality trend has worked in favor of large-cap stocks and against
small-cap stocks.
Our stock selection process in 1998 was favorable in the technology sector where
our positions in Internet stocks such as Lycos and Excite, software companies
like Legato Systems and networking companies such as Network Appliance paid off
handsomely. We also benefited in the health care sector from our larger
positions in Watson Pharmaceuticals and Arterial Vascular. Our most
disappointing performance came in the consumer services and energy sectors. The
near-recession panic of the third quarter took a heavy toll on retailers such as
Mail-Well, United Stationers and Men's Warehouse. Falling oil prices put
significant selling pressure on energy stocks where our positions in Ensco
International and Marine Drilling hurt performance.
The sustained underperformance of small-cap stocks has dramatically improved
their valuation levels compared to large-cap stocks. At a more fundamental
level, small-cap stocks have also seen more upward earnings revisions than
large-cap stocks. Despite these attractive fundamentals, we believe that the key
to the prospects for small-cap stocks remain at the macro level. Continued
easing by central banks may help the stock market in general and small-cap
stocks in particular. Small-cap stocks perform well in the early stages of the
economic cycle and the recent Fed action promotes the likelihood of an eventual
economic and earnings recovery.
Thank you for investing in the Smith Barney Small Cap Blend Fund. We encourage
you to visit our Web site at www.smithbarney.com. In closing, we look forward to
helping you pursue your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Sandip A. Bhagat, CFA
Heath B. McLendon Sandip A. Bhagat, CFA
Chairman Vice President
January 27, 1999
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2 1998 Annual Report to Shareholders
<PAGE>
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Historical Performance -- Class A Shares(1)
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<TABLE>
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(2)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/98 $13.68 $13.35 $0.00 $0.16 (1.31)%
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 12.30 13.68 0.04 1.98 28.25
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/96 12.15 12.30 0.04 2.00 20.56
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/95 11.78 12.15 0.11 1.94 18.90
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/94 12.50 11.78 0.05 0.09 (4.36)
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/93 11.49 12.50 0.01 0.00 8.90
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/92 10.34 11.49 0.05 0.00 11.71
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12/31/91 9.32 10.34 0.14 0.79 22.69
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/90 11.12 9.32 0.37 0.00 (12.66)+
====================================================================================================================================
Total $0.81 $6.96
====================================================================================================================================
</TABLE>
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Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(2)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/98 $13.52 $13.09 $0.00 $0.16 (2.07)%
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/97 13.34 13.52 0.01 1.98 16.73+
====================================================================================================================================
Total $0.01 $2.14
====================================================================================================================================
</TABLE>
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Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(2)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/98 $13.51 $13.09 $0.00 $0.16 (1.99)%
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/97 13.24 13.51 0.01 1.98 17.53+
====================================================================================================================================
Total $0.01 $2.14
====================================================================================================================================
</TABLE>
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Historical Performance -- Class Y Shares
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<TABLE>
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Total(2)
Year Ended of Year of Year Dividends Distributions Returns(2)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/98 $13.63 $13.34 $0.03 $0.16 (0.80)%
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/97 13.87 13.63 0.04 0.00 (1.42)+
====================================================================================================================================
Total $0.07 $0.16
====================================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
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Smith Barney Small Cap Blend Fund, Inc. 3
<PAGE>
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Average Annual Total Returns
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<TABLE>
<CAPTION>
Without Sales Charges(2)
--------------------------------------------------------------
Class A(1) Class B Class L Class Y
===================================================================================================================
<S> <C> <C> <C> <C>
Year Ended 12/31/98 (1.31)% (2.07)% (1.99)% (0.80)%
- ------------------------------------------------------------------------------------------------------------------
Five Years Ended 12/31/98 12.53 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Inception* through 12/31/98 10.04 9.22 9.74 (1.84)
===================================================================================================================
<CAPTION>
With Sales Charges(3)
--------------------------------------------------------------
Class A(1) Class B Class L Class Y
===================================================================================================================
<S> <C> <C> <C> <C>
Year Ended 12/31/98 (6.24)% (6.91)% (3.96)% (0.80)%
- ------------------------------------------------------------------------------------------------------------------
Five Years Ended 12/31/98 11.38 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Inception* through 12/31/98 9.40 6.73 9.04 (1.84)
===================================================================================================================
</TABLE>
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Cumulative Total Returns
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Without Sales Charges(2)
================================================================================
Class A (Inception* through 12/31/98) 135.25%
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Class B (Inception* through 12/31/98) 14.32
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Class L (Inception* through 12/31/98) 15.18
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Class Y (Inception* through 12/31/98) (2.21)
================================================================================
(1) The Fund converted from a closed-end fund to an open-end fund on June 23,
1997. Prior to that date, its shares were traded on the American Stock
Exchange. As of June 23, 1997, all existing shares were converted to a
Class A shares. The total returns noted for Class A shares may have been
different if the Fund had been an open-end fund from inception. All
historical performance information for Class A shares through June 23,
1997 is based on net asset value while it was a closed-end fund.
Closed-end funds are not subject to the same legal requirements as
open-end funds, especially to liquidity requirements.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, and does not reflect the deduction of the applicable sales charges
with respect to Class A and L shares or the applicable contingent deferred
sales charges ("CDSC") with respect to Class B and L shares. Prior to June
23, 1997, dividends were reinvested according to the Fund's dividend
reinvestment plan, thereafter, at net asset value.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any. Prior to June 23, 1997, dividends were reinvested according to the
Fund's dividend reinvestment plan, thereafter at net asset value. In
addition, Class A and L shares reflect the deduction of the current
maximum sales charge of 5.00% and 1.00%, respectively; Class B shares
reflect the deduction of a 5.00% CDSC, which applies if shares are
redeemed within one year from purchase and declines thereafter by 1.00%
per year until no CDSC is incurred. Class L shares also reflect the
deduction of a 1.00% CDSC, which applies if shares are redeemed within the
first year of purchase.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B, L and Y shares are January 23, 1990, June
25, 1997, June 24, 1997 and October 17, 1997, respectively.
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4 1998 Annual Report to Shareholders
<PAGE>
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Smith Barney Small Cap Blend Fund, Inc. at a Glance (unaudited)
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Growth of $10,000 Invested in Class A Shares of the Smith Barney Small Cap Blend
Fund, Inc. vs. Russell 2000 Index and Russell 2500 Index+
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[The following table was depicted as a line chart in the printed material.]
[PLOT POINTS TO COME]
Smith Barney
Small Cap Russell Russell
Blend Fund Inc 2000 Index++ 2500 Index++
-------------- ---------- ----------
1/23/90
12/90
12/91
12/92
12/93
12/94
12/95
12/96
12/97
12/31/98
+ Hypothetical illustration of $10,000 invested in the Fund at inception on
January 23, 1990, assuming reinvestment of dividends and capital gains, if
any, through December 31, 1998. As of June 23, 1997, all existing shares
became Class A shares. The Fund operated as a closed-end mutual fund until
June 23, 1997. Prior to that date, its shares were traded on the American
Stock Exchange, and dividends were eligible for reinvestment through the
Fund's dividend reinvestment plan; since that time, dividends have been
reinvested at net asset value. Current total return information is based
on net asset value while it was a closed-end fund. For purposes of this
illustration, the current maximum front-end sales charge for Class A
shares of 5.00% has been used to compute the initial account value at
inception. Closed-end funds are not subject to the same legal requirements
as open-end funds, especially with respect to liquidity requirements;
therefore, the performance indicated above may have been different had the
Fund been an open-end fund since inception. The Russell 2000 Index is
comprised of 2000 of the smallest stocks in the Russell 3000 Index. The
Russell 2500 Index is comprised of 2,500 of the smallest stocks in the
Russell 3000 Index. The Russell 3000 Index is composed of 3,000 of the
largest U.S. companies by market capitalization. The index is unmanaged
and is not subject to the same management and trading expenses as a mutual
fund. The performance of the Fund's other classes may be greater or less
than the Class A shares' performance indicated on this chart, depending on
whether greater or lesser sales charges and fees were incurred by
shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No
adjustment has been made for shareholder tax liability on dividends or
capital gains.
++ It is the opinion of management that the Russell 2000 Index more
accurately reflects the current composition of the Smith Barney Small Cap
Blend Fund, Inc. than the Russell 2500 Index. In the future reporting, the
Russell 2000 Index will be used as a basis of comparison of total return
performance rather than the Russell 2500 Index.
Industry Diversification of Common Stock*
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[The following table was depicted as a line chart in the printed material.]
Autos & Transportation 5.2%
Consumer Discretionary 20.0%
Consumer Staples 1.9%
Financial Services 13.9%
Health Care 10.4%
Integrated Oil 0.7%
Materials & Processing 7.9%
Other Energy 1.5%
Producer Durables 5.8%
Real Estate 6.6%
Technology 20.2%
Utilities 5.9%
Top Ten Holdings*
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1. Legato Systems, Inc. 1.4%
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2. International Network Services 1.1
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3. Network Appliance, Inc. 1.1
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4. Comverse Technology, Inc. 1.0
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5. Dycom Industries, Inc. 1.0
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6. VISX, Inc. 0.9
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7. Semtech Corp. 0.9
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8. Briggs & Stratton Corp. 0.9
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9. Lycos, Inc. 0.8
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10. Vitesse Semiconductor Corp. 0.8
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* As a percentage of total common stock.
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Smith Barney Small Cap Blend Fund, Inc. 5
<PAGE>
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Schedule of Investments December 31, 1998
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 94.8%
Autos & Transportation -- 4.9%
51,000 Airborne Freight Corp. $ 1,839,188
31,600 Arvin Industries, Inc. 1,317,325
44,000 Avondale Industries, Inc.* 1,276,000
32,800 CNF Transportation, Inc. 1,232,050
61,200 Mesaba Holdings, Inc.* 1,262,249
35,400 Motivepower Industries, Inc.* 1,139,437
39,800 Navistar International Corp.* 1,134,300
45,800 SkyWest, Inc. 1,497,087
43,200 Superior Industries International, Inc. 1,201,500
67,550 Swift Transportation Co., Inc.* 1,893,511
- --------------------------------------------------------------------------------
13,792,647
- --------------------------------------------------------------------------------
Consumer Discretionary -- 19.0%
25,400 Abacus Direct Corp.* 1,155,700
22,100 Abercrombie & Fitch Co.* 1,563,575
37,300 Action Performance Companies, Inc.*+ 1,319,487
52,900 ADVO Inc.* 1,395,237
44,200 AnnTaylor Stores Corp.*+ 1,743,137
37,600 Apollo Group, Inc., Class A Shares* 1,273,700
45,300 Bed Bath & Beyond, Inc.* 1,545,862
68,600 Bob Evans Farms, Inc. 1,787,887
29,800 Brinker International, Inc.* 860,475
77,300 The Cato Corporation, Class A Shares 760,922
17,000 CMGI Inc.*+ 1,810,500
32,300 Coach USA, Inc.* 1,120,406
49,000 Complete Business Solutions* 1,659,875
30,340 Consolidated Graphics, Inc.* 2,049,846
30,900 Cort Business Services Corp.* 749,325
26,900 Cox Radio, Inc.* 1,136,525
50,300 Daisytek International Corp.* 955,700
54,400 Data Processing Resources Corp.* 1,591,200
82,900 Family Dollar Stores, Inc. 1,823,800
76,930 Foodmaker, Inc.* 1,697,268
60,900 Fossil, Inc.* 1,750,875
52,100 Furniture Brands International, Inc.* 1,419,725
47,300 Guitar Center, Inc.* 1,164,763
22,800 Heftel Broadcasting Corp., Class A Shares* 1,122,900
54,300 International Game Technology 1,320,168
22,900 Jacor Communications Inc.*+ 1,474,187
15,900 Lason, Inc.* 925,181
71,200 Mail-Well, Inc.* 814,350
47,180 The Men's Wearhouse, Inc.* 1,497,965
30,100 Meredith Corp. 1,140,038
38,100 Pacific Sunwear of California, Inc.* 623,887
29,100 Pillowtex Corp. 778,425
42,300 Renters Choice, Inc.* 1,343,025
52,531 Romac International Inc.* 1,168,815
39,700 Safeskin Corp.*+ 957,763
56,900 Silverleaf Resorts, Inc.* 529,881
35,600 Snyder Communications, Inc.*+ 1,201,500
See Notes to Financial Statements.
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6 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1998
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Consumer Discretionary -- 19.0% (continued)
60,350 Sonic Corp.* $ 1,501,205
46,600 Speedway Motorsports, Inc.* 1,328,100
60,800 Trans World Entertainment Corp.* 1,159,000
41,500 United Stationers, Inc.* 1,079,000
59,600 Vistana, Inc.* 834,400
- --------------------------------------------------------------------------------
53,135,580
- --------------------------------------------------------------------------------
Consumer Staples -- 1.8%
25,800 Canandaigua Brands, Inc.* 1,491,562
44,700 Earthgrains Company 1,382,906
42,700 IBP Inc. 1,243,638
51,000 Pilgrim's Pride Corp. 1,016,812
- --------------------------------------------------------------------------------
5,134,918
- --------------------------------------------------------------------------------
Energy -- 1.4%
49,300 Barrett Resources Corp.* 1,183,200
83,800 ENSCO International, Inc. 895,613
95,100 Marine Drilling Companies, Inc.* 731,081
51,300 Newfield Exploration Co.* 1,070,888
- --------------------------------------------------------------------------------
3,880,782
- --------------------------------------------------------------------------------
Financial Services -- 13.2%
35,775 Associated Banc-Corp 1,223,058
21,200 Astoria Financial Corp. 969,900
61,910 Brenton Banks, Inc. 1,036,993
24,900 CCB Financial Corp. 1,419,300
23,000 CMAC Investment Corp.+ 1,056,563
22,800 Centura Banks, Inc. 1,695,750
34,100 City National Corp. 1,419,413
47,800 Dime Bancorp, Inc. 1,263,713
70,800 Doral Financial Corp. 1,566,450
64,800 Eaton Vance Corp. 1,352,700
59,300 Enhance Financial Services Group, Inc.+ 1,779,000
38,900 EVEREN Capital Corp.+ 884,975
32,500 Everest Reinsurance Holdings, Inc. 1,265,468
48,970 Fidelity National Financial, Inc.+ 1,493,585
25,400 Financial Security Assurance Holdings, Ltd.+ 1,377,950
53,000 Firstfed Financial Corp.* 947,375
36,600 GBC Bancorp 942,450
43,800 HCC Insurance Holdings, Inc. 771,975
25,750 Liberty Financial Companies, Inc. 695,250
33,660 Medical Assurance, Inc.* 1,112,884
38,500 Mercantile Bankshares Corp. 1,482,250
28,266 Mutual Risk Management, Ltd.+ 1,105,907
80,700 National Commerce Bancorporation 1,518,169
71,500 Peoples Heritage Financial Group, Inc. 1,430,000
97,775 Republic Bancorp, Inc. 1,332,184
47,300 20th Century Industries 1,096,768
51,500 United Bankshares, Inc. 1,364,750
36,400 Westamerica Bancorporation 1,337,700
31,600 Zions Bancorporation 1,971,050
- --------------------------------------------------------------------------------
36,913,530
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Small Cap Blend Fund, Inc. 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1998
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Health Care -- 9.9%
8,584 Allergan, Inc. $ 555,814
31,200 Alpharma, Inc. 1,101,750
25,900 Arterial Vascular Engineering, Inc.*+ 1,359,750
46,300 Bergen Brunswig Corp. Class A 1,614,713
34,300 Bindley Western Industries, Inc. 1,689,275
34,800 CareMatrix Corporation*+ 1,065,750
27,500 Centocor, Inc.* 1,240,937
37,600 Curative Health Services, Inc.* 1,259,600
252,080 Gensia Sicor Inc.* 1,142,238
9,000 IDEC Pharmaceuticals Corp.*+ 423,000
52,600 Medical Manager Corp.* 1,650,325
16,200 MiniMed, Inc.* 1,696,950
58,900 Protein Design Labs, Inc.* 1,369,424
52,490 QuadraMed Corp.*+ 1,076,044
39,300 Renal Care Group, Inc.* 1,132,331
51,500 Res-Care, Inc.*+ 1,271,406
60,500 Roberts Pharmaceutical Corp.* 1,315,875
36,500 Trigon Healthcare, Inc.* 1,361,906
28,200 VISX, Inc.* 2,465,738
22,200 Watson Pharmaceuticals, Inc.* 1,395,825
45,000 Xomed Surgical Products, Inc.* 1,440,000
- --------------------------------------------------------------------------------
27,628,651
- --------------------------------------------------------------------------------
Integrated Oil -- 0.7%
30,800 Murphy Oil Corp. 1,270,500
26,900 Ultramar Diamond Shamrock Corp. 652,325
- --------------------------------------------------------------------------------
1,922,825
- --------------------------------------------------------------------------------
Materials & Processing -- 7.5%
77,800 AK Steel Holding Corp. 1,828,300
50,500 AptarGroup, Inc. 1,417,156
16,700 Bowater Incorporated+ 692,006
57,000 Crompton & Knowles Corp. 1,179,187
37,400 The Dexter Corp. 1,175,763
50,700 IMCO Recycling, Inc. 782,681
77,530 International Specialty Products, Inc.* 1,051,501
34,400 Lone Star Industries, Inc. 1,266,350
20,700 The Mead Corp. 606,768
70,600 NL Industries, Inc. 1,001,638
25,100 OM Group, Inc. 916,150
37,600 Reliance Steel & Aluminum Co. 1,038,700
31,000 Simpson Manufacturing Co., Inc.* 1,160,563
64,400 Solutia Inc. 1,440,950
21,500 Southdown, Inc.+ 1,272,531
71,700 Tower Automotive, Inc.* 1,788,019
42,200 Tredegar Industries, Inc. 949,500
26,200 USG Corp. 1,334,563
- --------------------------------------------------------------------------------
20,902,326
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1998
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Producer Durables -- 5.5%
50,900 Allied Waste Industries, Inc.* $ 1,202,513
37,000 Astec Industries, Inc.* 2,058,125
1,400 The B.F. Goodrich Co. 50,225
45,600 Briggs & Stratton Corp. 2,274,300
55,900 C&D Technologies, Inc. 1,537,250
34,600 Centex Corp. 1,559,163
36,900 Cordant Technologies, Inc. 1,383,750
37,000 Gulfstream Aerospace Corp.*+ 1,970,250
43,500 Jacobs Engineering Group, Inc.* 1,772,625
61,400 Lennar Corp. 1,550,350
- --------------------------------------------------------------------------------
15,358,551
- --------------------------------------------------------------------------------
Real Estate -- 6.2%
35,800 Arden Realty Inc. 830,113
42,924 Avalonbay Communities, Inc. 1,470,146
28,200 Cousins Properties, Inc. 909,450
44,500 EastGroup Properties, Inc. 820,469
93,000 Equity Inns Inc. 895,125
37,800 First Industrial Realty Trust, Inc. 1,013,513
60,600 Glenborough Realty Trust Inc. 1,234,725
26,200 Health Care Property Investors, Inc. 805,650
61,500 Liberty Property Trust 1,514,438
30,600 Mid-America Apartment Communities, Inc. 694,238
40,100 NVR, Inc.* 1,912,269
62,600 Nationwide Health Properties, Inc. 1,349,813
74,800 Prime Retail, Inc. 733,975
66,230 Reckson Associates Realty Corp.+ 1,469,478
36,400 Regency Realty Corp. 809,900
25,700 Spieker Properties, Inc. 889,863
- --------------------------------------------------------------------------------
17,353,165
- --------------------------------------------------------------------------------
Technology -- 19.1%
23,600 Advent Software, Inc.* 1,112,150
17,500 Altera Corp.* 1,065,313
68,100 CIBER Inc.* 1,902,544
15,200 Citrix Systems Inc.*+ 1,475,350
48,100 Computer Horizons Corp.* 1,280,663
43,500 Computer Task Group, Inc. 1,179,938
31,700 Comsat Corp. 1,141,200
37,700 Comverse Technology, Inc.*+ 2,676,700
15,100 DST Systems, Inc.*+ 861,644
44,600 Dycom Industries, Inc.* 2,547,775
31,600 Envoy Corp.* 1,840,700
52,900 Esterline Technologies* 1,150,575
31,500 Excite, Inc.*+ 1,324,969
45,100 GeoTel Communications Corp.* 1,679,975
52,350 IMRglobal Corp.* 1,541,053
44,600 International Network Services* 2,965,900
38,290 Keane, Inc.*+ 1,529,207
55,060 Legato Systems, Inc.* 3,630,519
40,400 Lycos, Inc.*+ 2,244,725
65,100 Network Appliance, Inc.* 2,929,500
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Small Cap Blend Fund, Inc. 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1998
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Technology -- 19.1% (continued)
32,600 Novellus Systems, Inc.*+ $ 1,613,700
52,700 Progress Software Corp.* 1,778,625
24,400 Sanmina Corp.* 1,525,000
67,100 Semtech Corp.* 2,407,213
34,930 Sterling Commerce, Inc.* 1,571,850
27,500 Symbol Technologies, Inc. 1,758,281
32,400 Tech Data Corp.* 1,304,100
35,600 Tekelec* 589,625
46,500 Vitesse Semiconductor Corp.* 2,121,563
49,300 Xircom, Inc.* 1,676,200
17,000 Xlinix, Inc.*+ 1,107,125
- --------------------------------------------------------------------------------
53,533,682
- --------------------------------------------------------------------------------
Utilities -- 5.6%
20,700 BEC Energy 852,581
60,040 Calpine Corp.* 1,516,010
29,200 CILCORP, Inc. 1,786,675
37,600 Connecticut Energy Corp. 1,146,800
162,380 El Paso Electric Co.* 1,420,825
59,300 MDU Resources Group, Inc. 1,560,331
30,600 New Jersey Resources Corp. 1,208,700
61,400 SkyTel Communications, Inc.* 1,358,475
41,300 Southwest Gas Corp. 1,109,938
23,800 Teligent, Inc.*+ 684,250
50,100 UGI Corp. 1,189,875
76,700 Western Wireless Corp., Class A Shares* 1,687,400
- --------------------------------------------------------------------------------
15,521,860
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $242,440,660) 265,078,517
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
U.S. TREASURY BILLS -- 0.2%
$ 490,000 U.S. Treasury Bills, due 3/18/99++
(Cost -- $485,482) 485,664
================================================================================
REPURCHASE AGREEMENT -- 5.0%
14,041,000 Morgan Stanley Dean Witter & Co., 4.650% dated
12/31/98 due 1/4/99; Proceeds at maturity -
$14,048,255; (Fully collateralized by U.S. Treasury
Notes, 6.000% to 6.500% due 7/15/99 to 8/15/27;
Market value -- $14,387,318)(Cost -- $14,041,000) 14,041,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $256,967,142**) $279,605,181
================================================================================
* Non-income producing security.
+ A portion of the security is on loan (See Note 7).
++ Security is segregated by the custodian for futures contracts commitments.
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (Cost -- $256,967,142) $ 279,605,181
Collateral for securities loaned (Note 7) 31,972,478
Receivable for securities sold 3,630,777
Receivable for Fund shares sold 3,188,895
Dividends and interest receivable 299,562
Receivable from broker 298,448
- -------------------------------------------------------------------------------------------------
Total Assets 318,995,341
- -------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities loaned (Note 7) 31,972,478
Payable for Fund shares redeemed 3,264,907
Payable for securities purchased 2,134,088
Dividends payable 450,899
Investment advisory fee payable 130,221
Administration fee payable 20,658
Payable to bank 11,712
Distribution fee payable 8,716
Accrued expenses 89,637
- -------------------------------------------------------------------------------------------------
Total Liabilities 38,083,316
- -------------------------------------------------------------------------------------------------
Total Net Assets $ 280,912,025
=================================================================================================
NET ASSETS:
Par value of capital shares $ 21,105
Capital paid in excess of par value 270,446,285
Overdistributed net investment income (2,083)
Accumulated net realized loss on security transactions and futures contracts (13,047,321)
Net unrealized appreciation of investments and futures contracts 23,494,039
- -------------------------------------------------------------------------------------------------
Total Net Assets $ 280,912,025
=================================================================================================
Shares Outstanding:
Class A 3,202,507
--------------------------------------------------------------------------------------------
Class B 1,798,487
--------------------------------------------------------------------------------------------
Class L 542,625
--------------------------------------------------------------------------------------------
Class Y 15,561,140
--------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 13.35
--------------------------------------------------------------------------------------------
Class B* $ 13.09
--------------------------------------------------------------------------------------------
Class L** $ 13.09
--------------------------------------------------------------------------------------------
Class Y (and redemption price) $ 13.34
--------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $ 14.05
--------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $ 13.22
=================================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if
shares are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if
shares are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Small Cap Blend Fund, Inc. 11
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Years Ended December 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 2,252,287
Interest 555,490
- --------------------------------------------------------------------------------
Total Investment Income 2,807,777
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 1,321,762
Distribution fees (Note 2) 348,939
Administration fees (Note 2) 203,348
Registration fees 199,888
Shareholder and system servicing fees 90,463
Shareholder communications 77,354
Audit and legal 70,725
Custody 43,233
Directors' fees 2,437
Other 5,834
- --------------------------------------------------------------------------------
Total Expenses 2,363,983
- --------------------------------------------------------------------------------
Net Investment Income 443,794
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 3 AND 5):
Realized Loss From :
Security transactions (excluding short-term securities): (11,726,003)
Futures contracts (1,257,871)
- --------------------------------------------------------------------------------
Net Realized Loss (12,983,874)
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments
and Futures Contracts:
Beginning of year 9,586,611
End of year 23,494,039
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 13,907,428
- --------------------------------------------------------------------------------
Net Gain on Investments and Futures Contracts 923,554
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 1,367,348
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
=====================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 443,794 $ 172,932
Net realized gain (loss) (12,983,874) 9,590,820
Increase in net unrealized appreciation 13,907,428 5,188,816
- -----------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 1,367,348 14,952,568
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (441,036) (474,795)
Net realized gains (2,410,101) (7,596,619)
- -----------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (2,851,137) (8,071,414)
- -----------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 181,707,409 127,943,629
Net asset value of shares issued for reinvestment of dividends 557,713 2,945,999
Cost of shares reacquired (66,067,232) (24,484,001)+
- -----------------------------------------------------------------------------------------------------
Increase in Net Assets From Fund Share Transactions 116,197,890 106,405,627
- -----------------------------------------------------------------------------------------------------
Increase in Net Assets 114,714,101 113,286,781
NET ASSETS:
Beginning of year 166,197,924 52,911,143
- -----------------------------------------------------------------------------------------------------
End of year* $ 280,912,025 $ 166,197,924
=====================================================================================================
* Includes overdistributed net investment income of: $ (2,083) $ (302,965)
=====================================================================================================
</TABLE>
+ Amount reported is net of $452,851 in redemption fees charged through
December 31, 1997.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Small Cap Blend Fund, Inc. 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Small Cap Blend Fund, Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended. On June 23,
1997, the Fund became a diversified, open-end management investment company.
Prior to that date the Fund was a non-diversified, closed-end management
investment company and its shares were traded on the American Stock Exchange.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
a national securities exchange or on the Nasdaq National Market System are
valued at closing prices on such exchange or market; securities for which no
sales prices are reported are valued at the mean between the most recently
quoted bid and ask prices; (c) securities for which market quotations are not
available will be valued in good faith at fair value by or under the direction
of the Board of Directors; (d) securities maturing within 60 days or less are
valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (e) dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis; (f) dividends and
distributions to shareholders are recorded on the ex-dividend date; (g) gains or
losses on the sale of securities are calculated by using the specific
identification method; (h) direct expenses are charged to each class; management
fees and general fund expenses are allocated on the basis of relative net
assets; (i) the Fund intends to comply with the applicable provisions of the
Internal Revenue Code of 1986, as amended, pertaining to regulated investment
companies and to make distributions of taxable income sufficient to relieve it
from substantially all Federal income and excise taxes; (j) the character of
income and gains distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
December 31, 1998, reclassifications were made to the Fund's capital accounts to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets were not affected by this change; and (k) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
2. Management Agreement and Transactions with Affiliated Persons
Travelers Investment Management Company ("TIMCO"), a subsidiary of Salomon Smith
Barney Holdings Inc. ("SSBH"), acts as investment manager to the Fund. The Fund
pays TIMCO a fee calculated at the annual rate of 0.65% of the Fund's average
daily net assets. Prior to June 23, 1997, the investment management fee paid was
0.75%. This fee is calculated daily and paid monthly.
Mutual Management Corp. ("MMC"), another subsidiary of SSBH, acts as the Fund's
administrator. As compensation for its services, the Fund pays MMC a fee
calculated at the annual rate of 0.10% of the Fund's average daily net assets.
Prior to June 23, 1997, the Fund paid an administration fee of 0.25%. This fee
is calculated daily and paid monthly.
For the year ended December 31, 1998, Salomon Smith Barney Inc. ("SSB"), another
subsidiary of SSBH, was paid brokerage commissions of $51,249.
On October 8, 1998, CFBDS, Inc., became the Fund's distributor. Prior to that
date, SSB, was the Fund's distributor. SSB, as well as certain other
broker-dealers, continues to sell Fund shares to the public as a member of the
selling group.
On June 12, 1998, the Fund's Class C shares were renamed as Class L shares.
Effective June 15, 1998, Class L shares are being sold at net asset value plus a
- --------------------------------------------------------------------------------
14 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
maximum initial sales charge of 1.00%. Class L shares also have a 1.00%
contingent deferred sales charge ("CDSC"), which applies if redemption occurs
within the first year of purchase.
There is also a CDSC of 5.00% on Class B shares, which applies if redemption
occurs within one year from purchase and declines thereafter by 1.00% per year
until no CDSC is incurred. In certain cases, Class A shares also have a 1.00%
CDSC, which applies if redemption occurs within the first year of purchase. This
CDSC only applies to those purchases of Class A shares, which, when combined
with current holdings of Class A shares, equal or exceed $500,000 in the
aggregate. These purchases do not incur an initial sales charge.
For the year ended December 31, 1998, SSB received sales charges of
approximately $171,000 and $19,000 on sales of the Fund's Class A and Class L
shares, respectively. In addition, CDSCs paid to SSB were approximately:
Class A Class B Class L
================================================================================
CDSCs $ 4,000 $43,000 --
================================================================================
In addition, shareholders who held shares at the time of conversion to open-end
status on June 23, 1997, were subject to a 2.00% redemption fee until the end of
1997. For the year ended December 31, 1997, redemption fees paid to the Fund
were $452,851 for Class A shares.
Pursuant to a Distribution Plan, which became effective on June 23, 1997, the
Fund pays a service fee with respect to its Class A, B and L shares calculated
at the annual rate of 0.25% of the average daily net assets of each respective
class. In addition, the Fund also pays a distribution fee with respect to Class
B and L shares calculated at the annual rate of 0.75% of the average daily net
assets of each class.
For the year ended December 31, 1998, total Distribution Plan fees were as
follows:
Class A Class B Class L
================================================================================
Distribution Plan Fees $107,818 $193,723 $47,398
================================================================================
All officers and one director of the Fund are employees of SSB.
3. Investments
For the year ended December 31, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $357,221,894
- --------------------------------------------------------------------------------
Sales 253,398,519
================================================================================
At December 31, 1998, aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 34,843,505
Gross unrealized depreciation (12,205,466)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 22,638,039
================================================================================
4. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires daily maintenance of
the market value of the collateral in amounts at least equal to the repurchase
price.
5. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. Securities equal to the initial margin amount are segregated by the
custodian in the name of the broker. Additional securities are also segregated
up to the current market value of the futures contract. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking to market" on a daily basis to reflect
the market value of the contract at the end of each day's trading. Variation
margin payments are received or made and recognized as assets due from
- --------------------------------------------------------------------------------
Smith Barney Small Cap Blend Fund, Inc. 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
or liabilities due to the broker, depending upon whether unrealized gains or
losses are incurred. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the contract. The Fund enters into
such contracts to hedge a portion of its portfolio.
The Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At December 31, 1998, the Fund had the following open futures contracts:
# of Basis Market Unrealized
Purchased Contracts Contracts Expiration Value Value Gain
================================================================================
Mid Cap 400 70 3/99 $12,855,250 $13,711,250 $856,000
================================================================================
6. Option Contracts
Premiums paid when put or call options are purchased by the Fund, represent
investments, which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are greater
or less than the premium paid for the option. When the Fund exercises a put
option, it will realize a gain or loss from the sale of the underlying security
and the proceeds from such sale will be decreased by the premium originally
paid. When the Fund exercises a call option, the cost of the security which the
Fund purchases upon exercise will be increased by the premium originally paid.
At December 31, 1998, the Fund had no open purchased call or put option
contracts.
7. Lending of Portfolio Securities
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations, and receives a lenders fee. Fees earned by the Fund on securities
lending are recorded in interest income. Loans of securities by the Fund are
collateralized by cash, U.S. government securities or high quality money market
instruments that are maintained at all times in an amount at least equal to the
current market value of the securities loaned, plus a margin which may vary
depending on the type of securities loaned. The custodian establishes and
maintains the collateral in a segregated account. The Fund maintains exposure
for the risk of any losses in the investment of amounts received as collateral.
At December 31, 1998, the Fund loaned common stocks having a value of
$31,351,424 and holds the following collateral for loaned securities:
Security Description Value
================================================================================
Repurchase Agreements:
J.P. Morgan, 5.000% due 1/4/99 $ 2,115,517
Time Deposits:
Bank Brussels Lambert, 5.500% due 1/4/99 18,382,832
Rabobank Netherland, 7.750% due 1/4/99 3,094,720
Skandinaviska Enskilda Banken, 8.000% due 1/4/99 2,912,132
Societe Generale, 5.125% due 1/4/99 4,765,437
Suntrust Bank, 4.000% due 1/4/99 701,840
- --------------------------------------------------------------------------------
Total $31,972,478
================================================================================
For the year ended December 31, 1998, interest income earned by the Portfolio
from securities lending was $81,294.
- --------------------------------------------------------------------------------
16 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
8. Capital Shares
At December 31, 1998, the Fund had 400 million shares of capital stock
authorized with a par value of $0.001 per share. The Fund has the ability to
issue multiple classes of shares. Each share of a class represents an identical
interest in the Fund and has the same rights, except that each class bears
certain expenses specifically related to the distribution of its shares.
Effective June 12, 1998, the Fund adopted the renaming of existing Class C
shares as Class L shares.
At December 31, 1998, total paid-in capital amounted to the following for each
class:
Class A Class B Class L Class Y
================================================================================
Total Paid-in Capital $34,143,303 $25,075,354 $7,218,177 $204,030,556
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997+
------------------------------- -------------------------------
Shares Amount Shares Amount
====================================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 4,335,738 $ 55,812,933 674,438 $ 9,600,636
Shares issued on reinvestment 18,612 260,568 158,633 2,101,518
Shares redeemed (4,518,280) (57,908,518) (1,767,584) (23,585,099)++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease (163,930) $ (1,835,017) (934,513) $(11,882,945)
====================================================================================================================================
Class B
Shares sold 1,356,775 $ 18,169,322 908,111 $ 12,937,997
Shares issued on reinvestment 17,912 246,833 57,663 755,966
Shares redeemed (514,811) (6,660,668) (27,163) (374,336)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 859,876 $ 11,755,487 938,611 $ 13,319,627
====================================================================================================================================
Class L*
Shares sold 439,129 $ 5,656,882 241,885 $ 3,361,719
Shares issued on reinvestment 3,651 50,312 6,752 88,515
Shares redeemed (120,337) (1,498,046) (28,455) (441,253)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 322,443 $ 4,209,148 220,182 $ 3,008,981
====================================================================================================================================
Class Y
Shares sold 7,895,273 $102,068,272 7,672,217 $102,043,277
Shares issued on reinvestment -- -- -- --
Shares redeemed -- -- (6,350) (83,313)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 7,895,273 $102,068,272 7,665,867 $101,959,964
====================================================================================================================================
</TABLE>
+ For Class A, transactions are for the period from June 23, 1997 (date of
conversion to an open-end fund) to December 31, 1997. For Class B, L and
Y, transactions are for the period from inception to December 31, 1997.
Inception dates for Class B, L and Y are June 25, 1997, June 24, 1997 and
October 17, 1997, respectively.
++ Amount reported is net of $452,851 in redemption fees charged through
December 31, 1997.
* On June 12, 1998, Class C shares were renamed Class L shares.
9. Capital Loss Carryforward
At December 31, 1998 the Fund had, for Federal income tax purposes, a capital
loss carryforward of approximately $11,580,000, available to offset future
capital gains through December 31, 2006. To the extent that these carryforward
losses are used to offset capital gains, it is probable that the gains so offset
will not be distributed.
- --------------------------------------------------------------------------------
Smith Barney Small Cap Blend Fund, Inc. 17
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
Class A Shares(1) 1998(2) 1997 1996 1995 1994
=============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.68 $ 12.30 $ 12.15 $ 11.78 $ 12.50
- -------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.00* 0.04 0.05 0.11 0.05
Net realized and unrealized gain (loss) (0.17)+ 3.23 2.14 2.31 (0.63)
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.17) 3.27 2.19 2.42 (0.58)
- -------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.04) (0.04) (0.11) (0.05)
Net realized gains (0.16) (1.98) (2.00) (1.94) (0.09)
- -------------------------------------------------------------------------------------------------------------
Total Distributions (0.16) (2.02) (2.04) (2.05) (0.14)
- -------------------------------------------------------------------------------------------------------------
Redemption Fee(3) -- 0.13 -- -- --
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 13.35 $ 13.68 $ 12.30 $ 12.15 $ 11.78
- -------------------------------------------------------------------------------------------------------------
Total Return (1.31)% 28.25% 20.56% 18.90% (4.36)%
- -------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 42,747 $ 46,036 $ 52,911 $ 52,546 $ 51,641
- -------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.33% 1.21% 1.21% 1.22% 1.22%
Net investment income 0.03 0.24 0.43 0.84 0.43
- -------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 129% 140% 151% 177% 45%
=============================================================================================================
</TABLE>
(1) The Fund operated as a closed-end investment company until June 23, 1997.
As of that date all existing shares were converted to Class A shares.
Closed-end funds are not subject to the same legal requirements as
open-end funds, especially with respect to liquidity requirements. The
total returns noted for each year may have been different if the Fund had
been an open-end fund from inception. The Fund's total returns while it
was a closed-end fund are based on net asset value.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the year.
(3) Amount relates to a redemption fee which was in effect through December
31, 1997.
* Amount represents less than $0.01 per share.
+ The amount shown may not be consistent with the change in aggregate gains
and losses of portfolio securities due to the timing of sales and
redemptions of Fund shares throughout the year.
- --------------------------------------------------------------------------------
18 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
Class B Shares Class L Shares(1) Class Y Shares
-------------- -------------- --------------
1998(2) 1997(3) 1998(2) 1997(4) 1998(2) 1997(5)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $ 13.52 $ 13.34 $ 13.51 $ 13.24 $ 13.63 $ 13.87
- ---------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.09) (0.01) (0.10) (0.01) 0.06 0.01
Net realized and
unrealized gain (loss) (0.18)* 2.18 (0.16)* 2.27 (0.16)* (0.21)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.27) 2.17 (0.26) 2.26 (0.10) (0.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.01) -- (0.01) (0.03) (0.04)
Net realized gains (0.16) (1.98) (0.16) (1.98) (0.16) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.16) (1.99) (0.16) (1.99) (0.19) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 13.09 $ 13.52 $ 13.09 $ 13.51 $ 13.34 $ 13.63
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (2.07)% 16.73%++ (1.99)% 17.53%++ (0.80)% (1.42)%++
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 23,551 $ 12,685 $ 7,101 $ 2,974 $ 207,513 $ 104,503
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.10% 1.99%+ 2.13% 2.00%+ 0.94% 1.11%+
Net investment income (loss) (0.72) (0.26)+ (0.74) (0.26)+ 0.44 0.58+
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 129% 140% 129% 140% 129% 140%
=================================================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the year.
(3) For the period from June 25, 1997 (inception date) to December 31, 1997.
(4) For the period from June 24, 1997 (inception date) to December 31, 1997.
(5) For the period from October 17, 1997 (inception date) to December 31,
1997.
* The amount shown may not be consistent with the change in aggregate gains
and losses of portfolio securities due to the timing of sales and
redemptions of Fund shares throughout the year.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
For Federal tax purposes the Fund hereby designates for the fiscal year ended
December 31, 1998:
o A corporate dividends received deduction of 100.00%.
o Total long-term capital gain distributions paid of $2,410,101
A total of 0.11% of the ordinary dividends paid by the Fund from net investment
income are derived from Federal obligations and may be exempt from taxation at
the state level.
- --------------------------------------------------------------------------------
Smith Barney Small Cap Blend Fund, Inc. 19
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
Independent Auditors' Report To the Shareholders and Board
of Directors of Smith Barney Small Cap Blend Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Smith Barney Small Cap Blend Fund, Inc. as of
December 31, 1998, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
five-year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian. As to securities
purchased or sold but not received or delivered, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Small Cap Blend Fund, Inc. as of December 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 8, 1999
- --------------------------------------------------------------------------------
20 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Additional Shareholder Information (unaudited)
- --------------------------------------------------------------------------------
On March 9, 1998, a special meeting of shareholders of the Fund was held for the
purpose of voting on the following matters:
1. To elect Directors of the Fund; and
2. To approve or disapprove the reclassification, modification or elimination
of certain fundamental investment policies.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Voted Percentage Shares Voted Percentage
Name of Directors For Shares Voted Against Shares Voted
=====================================================================================================
<S> <C> <C> <C> <C>
Donald R. Foley 8,077,691.911 97.588% 199,657.158 2.412%
Paul Hardin 8,101,363.688 97.874 175,985.401 2.126
Heath B. McLendon 8,106,017.405 97.930 171,331.664 2.070
Roderick C. Rasmussen 8,082,931.671 97.651 194,417.398 2.349
Bruce D. Sargent 8,107,263.505 97.945 170,085.564 2.055
John P. Toolan 8,088,314.370 97.716 189,034.699 2.284
=====================================================================================================
</TABLE>
Proposal 2 requested that shareholders approve certain changes to the
fundamental policies of the Fund in order to modernize them in view of certain
regulatory, business or industry developments that have occurred since original
adoption of these policies by the Fund. The following chart demonstrates that
all proposals were approved by shareholders.
Please note that "M" indicates a modification of the policy; "E" indicates the
elimination of the policy; and "R" indicates the reclassification of the policy
from fundamental (which would require shareholder approval to change) to
non-fundamental (which can be changed by a vote of the Board of Directors).
================================================================================
M Diversification Approved
- --------------------------------------------------------------------------------
M Senior Securities Approved
- --------------------------------------------------------------------------------
M Industry Concentration Approved
- --------------------------------------------------------------------------------
M Borrowing Approved
- --------------------------------------------------------------------------------
E Ability to Pledge Assets Approved
- --------------------------------------------------------------------------------
M Lending Approved
- --------------------------------------------------------------------------------
M Underwriting of Securities Approved
- --------------------------------------------------------------------------------
R Margin and Short-Sales Approved
- --------------------------------------------------------------------------------
M Real Estate Approved
- --------------------------------------------------------------------------------
R Exercising Control or Management Approved
================================================================================
The information below reports the lowest percentage of shares voting for the
proposals, the highest percentage of shares voting against and abstaining by
shareholders of the Fund on all proposals.
Shares Percentage Shares Percentage Percentage
Voted of Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Abstained
================================================================================
7,463,739.932 92.634% 130,011.569 1.613% 463,499.568 5.730%
================================================================================
- --------------------------------------------------------------------------------
Smith Barney Small Cap Blend Fund, Inc. 21
<PAGE>
Smith Barney
Small Cap Blend
Fund, Inc.
Directors
Donald R. Foley
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
Joseph H. Fleiss, Emeritus
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Sandip A. Bhagat, CFA
Vice President
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Manager
Travelers Investment Management Company
Distributor
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Shareholder Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of shareholders of Smith
Barney Small Cap Blend Fund, Inc. It is not authorized for distribution to
prospective investors unless accompanied by a current Prospectus for the Fund,
which contains information concerning the Fund's investment policies and
expenses as well as other pertinent information.
SOLOMON SMITH BARNEY
- ---------------------------
A Member of citigroup[LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney
Small Cap Blend Fund, Inc.
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com
FD01319 2/99
