<PAGE> 1
As filed with the Securities and Exchange Commission on September 6,1995
Registration Nos. 33-34423
811-06087
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 15 /x/
------------------------------------
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 17 /x/
------------------------------------
SALOMON BROTHERS SERIES FUNDS INC
(Exact Name of Registrant as Specified in Charter)
7 World Trade Center
New York, New York 10048
(Address of Principal Executive Offices, Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 725-6666
Lawrence H. Kaplan
Salomon Brothers Asset Management Fund
Inc
7 World Trade Center
New York, New York 10048
(Name and Address of Agent for Service)
with a copy to:
Gary S. Schpero, Esq.
Simpson Thacher & Bartlett
New York, New York 10017-3954
(212) 455-2000
- ----------------------------------------------------------------------------
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Post-Effective Amendment.
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/x/ on September 27, 1995, pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on pursuant to paragraph (a) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
<PAGE> 2
2
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has previously registered an indefinite number of its shares
under the Securities Act of 1933, as amended, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. The Registrant filed its Rule
24f-2 Notice for the fiscal year ended December 31, 1994 on February 28, 1995.
<PAGE> 3
SALOMON BROTHERS SERIES FUNDS INC
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(b)
under the Securities Act of 1933
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------- --------
Part A Prospectus Caption
- ------ ------------------
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary;
Expense Information
Item 3. Condensed Financial
Information Financial Highlights;
Performance Information
Item 4. General Description of
Registrant Investment Objectives and
Policies; Additional Investment
Activities and Risk Factors;
Investment Limitations; Capital
Stock
Item 5. Management of the Fund Expense Information;
Management; Purchase of
Shares; Back Cover
Item 5A. Management's Discussion of
Performance Not Applicable
Item 6. Capital Stock and Other
Securities Multiple Pricing System;
Dividends and Distributions;
Taxation; Account Services;
Capital Stock
Item 7. Purchase of Securities
Being Offered Multiple Pricing System;
Purchase of Shares;
Determination of Net Asset
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Value; Dividends and
Distributions; Shareholder
Services
Item 8. Redemption or Repurchase Multiple Pricing System;
Redemption of Shares
Item 9. Pending Legal Proceedings Not Applicable
Statement of Additional
<CAPTION>
Part B Information Caption
- ------ -----------------------
<S> <C> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and
History Not applicable.
Item 13. Investment Objectives and
Policies Additional Information on
Portfolio Instruments and
Investment Policies; Investment
Restrictions
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal
Holders of Securities Management; Capital Stock
Item 16. Investment Advisory and
Other Services Management; Custodian and
Transfer Agent; Independent
Accountants
Item 17. Brokerage Allocation and
Other Practices Portfolio Transactions
Item 18. Capital Stock and Other
Securities Capital Stock
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered Management; Net Asset Value;
Additional Purchase
Information; Additional
Redemption Information
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
Item 20. Tax Status Additional Information
Concerning Taxes
Item 21. Underwriters Management; Additional
Purchase Information
Item 22. Calculation of Performance
Data Performance Data
Item 23. Financial Statements Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
<PAGE> 6
- --------------------------------------------------------------------------------
SALOMON BROTHERS
INVESTMENT SERIES
--------------------------------------------------------------------------
PROSPECTUS &
APPLICATION
SEPTEMBER , 1995
CASH MANAGEMENT FUND
NEW YORK MUNICIPAL BOND FUND
NATIONAL INTERMEDIATE MUNICIPAL
FUND
U.S. GOVERNMENT INCOME FUND
HIGH YIELD BOND FUND
STRATEGIC BOND FUND
TOTAL RETURN FUND
INVESTORS FUND
For Information About Salomon Brothers Investment Series Consult The Following
Prospectus
<PAGE> 7
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
U.S. Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any jurisdiction in which such offer, solicitation
or sale would be unlawful prior to registration or qualification under the
securities laws of such jurisdiction.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED SEPTEMBER 6, 1995
- --------------------------------------------------------------------------------
SALOMON BROTHERS
INVESTMENT SERIES
7 WORLD TRADE CENTER - NEW YORK, NEW YORK 10048 - (800) SALOMON OR
(800) 725-6666
SALOMON BROTHERS INVESTMENT SERIES CONSISTS OF SALOMON BROTHERS CASH MANAGEMENT
FUND (THE "CASH MANAGEMENT FUND"), SALOMON BROTHERS NEW YORK MUNICIPAL BOND FUND
(THE "NEW YORK MUNICIPAL BOND FUND"), SALOMON BROTHERS NATIONAL INTERMEDIATE
MUNICIPAL FUND (THE "NATIONAL INTERMEDIATE MUNICIPAL FUND"), SALOMON BROTHERS
U.S. GOVERNMENT INCOME FUND (THE "U.S. GOVERNMENT INCOME FUND"), SALOMON
BROTHERS HIGH YIELD BOND FUND (THE "HIGH YIELD BOND FUND"), SALOMON BROTHERS
STRATEGIC BOND FUND (THE "STRATEGIC BOND FUND"), SALOMON BROTHERS TOTAL RETURN
FUND (THE "TOTAL RETURN FUND") AND SALOMON BROTHERS INVESTORS FUND INC (THE
"INVESTORS FUND") (EACH A "FUND" AND COLLECTIVELY, THE "FUNDS"). EACH OF THE
FUNDS, EXCEPT FOR THE INVESTORS FUND, IS A DIVERSIFIED INVESTMENT PORTFOLIO OF
SALOMON BROTHERS SERIES FUNDS INC, AN OPEN-END MANAGEMENT INVESTMENT COMPANY.
THE INVESTORS FUND IS A DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY. EACH
OF THE FUNDS HAS A SPECIFIC INVESTMENT OBJECTIVE.
continued on next page
------------------------------------------------------------------
THERE CAN BE NO ASSURANCE THAT ANY FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE(S)
AND EACH OF THE FUNDS MAY EMPLOY CERTAIN INVESTMENT PRACTICES WHICH INVOLVE
SPECIAL RISK CONSIDERATIONS. CERTAIN FUNDS MAY INVEST IN HIGH YIELD SECURITIES,
COMMONLY KNOWN AS "JUNK BONDS", WHICH PRESENT A HIGH DEGREE OF RISK.
HIGH-YIELDING, LOWER-QUALITY SECURITIES INVOLVE COMPARATIVELY GREATER RISKS,
INCLUDING PRICE VOLATILITY AND THE RISK OF DEFAULT IN THE TIMELY PAYMENT OF
INTEREST AND PRINCIPAL, THAN HIGHER-QUALITY SECURITIES. SEE "ADDITIONAL
INVESTMENT ACTIVITIES AND RISK FACTORS."
This Prospectus sets forth concisely the information a prospective investor
should know before investing in a Fund. This Prospectus should be read and
retained for ready reference to information about a Fund. A Statement of
Additional Information dated September , 1995, containing additional
information about each Fund (the "Statement of Additional Information") has been
filed with the Securities and Exchange Commission (the "SEC") and is hereby
incorporated by reference into this Prospectus. It is available without charge
and can be obtained by writing or calling at the address and telephone number
printed above.
------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SALOMON BROTHERS ASSET MANAGEMENT INC--INVESTMENT MANAGER
SALOMON BROTHERS INC--DISTRIBUTOR
SEPTEMBER , 1995
<PAGE> 8
continued from previous page
- - The CASH MANAGEMENT FUND seeks as high a level of current income as is
consistent with liquidity and the stability of principal. The Fund invests in
high-quality, short-term U.S. dollar-denominated money market instruments, and
seeks to maintain a stable net asset value of $1.00 per share. THERE IS NO
ASSURANCE THAT A STABLE NET ASSET VALUE OF $1.00 PER SHARE WILL BE MAINTAINED.
INVESTMENTS IN THE FUND ARE NOT GUARANTEED OR INSURED BY THE U.S. GOVERNMENT.
- - The NEW YORK MUNICIPAL BOND FUND seeks to achieve a high level of current
income which is exempt from regular federal income taxes and New York State and
New York City personal income taxes, consistent with the preservation of
capital. The Fund invests primarily in a portfolio of municipal obligations the
interest on which is exempt from regular federal income taxes and from the
personal income taxes of New York State and New York City. The Fund will not
invest in municipal obligations that are rated below investment grade at the
time of purchase.
- - The NATIONAL INTERMEDIATE MUNICIPAL FUND seeks a high level of current income
which is exempt from regular federal income taxes. The Fund seeks to achieve its
objective by investing primarily in a portfolio of municipal obligations. The
Fund will not invest in municipal obligations that are rated below investment
grade at the time of purchase.
- - The U.S. GOVERNMENT INCOME FUND seeks a high level of current income. The Fund
seeks to achieve its objective by investing in securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities.
- - The HIGH YIELD BOND FUND seeks to maximize current income. The Fund seeks to
achieve its objective by investing primarily in a diversified portfolio of high
yield fixed-income securities rated in medium or lower rating categories or
determined by the investment manager to be of comparable quality. As a secondary
objective, the Fund will seek capital appreciation.
- - The STRATEGIC BOND FUND seeks a high level of current income. As a secondary
objective, the Fund will seek capital appreciation. The Fund seeks to achieve
its objectives by investing in a globally diverse portfolio of fixed-income
investments and by giving the investment manager broad discretion to deploy the
Fund's assets among certain segments of the fixed-income market that the
investment manager believes will best contribute to achievement of the Fund's
investment objectives. In pursuing its investment objectives, the Strategic Bond
Fund reserves the right to invest predominantly in securities rated in medium or
lower rating categories or as determined by the investment manager to be of
comparable quality. Although the Fund's investment manager has the ability to
invest up to 100% of the Fund's assets in lower-rated securities, the Fund's
investment manager does not anticipate investing in excess of 75% of the Fund's
assets in such securities.
- - The TOTAL RETURN FUND seeks to obtain above-average income (compared to a
portfolio entirely invested in equity securities). As a secondary objective, the
Fund seeks to take advantage of opportunities for growth of capital and income.
The Fund seeks to achieve its objectives primarily through investments in a
broad variety of securities, including equity securities, fixed-income
securities and short-term obligations.
- - The INVESTORS FUND seeks long-term growth of capital. Current income is a
secondary objective. The Fund seeks to achieve its objectives primarily through
investments in common stocks of well-known companies.
PAGE 2
<PAGE> 9
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary 4
Expense Information 9
Financial Highlights 13
Investment Objectives and Policies 20
Additional Investment Activities and Risk Factors 44
Multiple Pricing System 58
Investment Limitations 63
Management 65
Determination of Net Asset Value 70
Purchase of Shares 71
Redemption of Shares 78
Performance Information 82
Dividends and Distributions 84
Taxation 86
Shareholder Services 90
Account Services 93
Capital Stock 93
Appendix A A-1
Appendix B B-1
</TABLE>
PAGE 3
<PAGE> 10
- -----------------------------------------------------------------------
SUMMARY
THE FUNDS
Each of the Funds, except for the Investors Fund, is a diversified investment
portfolio of the Salomon Brothers Series Funds Inc (the "Series Funds"), an
open-end investment company incorporated in Maryland on April 17, 1990. The
National Intermediate Municipal Fund, U.S. Government Income Fund, the High
Yield Bond Fund, the Strategic Bond Fund and the Total Return Fund are newly
organized portfolios of the Series Funds. The Investors Fund is a diversified
open-end management investment company incorporated in Maryland on April 2,
1958.
THE FUNDS' OBJECTIVES AND POLICIES
CASH MANAGEMENT FUND. The objective of the Cash Management Fund is to seek as
high a level of current income as is consistent with liquidity and the stability
of principal. The Fund seeks to maintain a stable net asset value of $1.00 per
share. The Fund will seek to attain its objective by investing in a broad range
of high-quality, short-term U.S. dollar-denominated money market instruments
which are deemed to mature in thirteen months or less, including the following:
(1) securities issued or guaranteed as to principal and interest by the U.S.
government or by agencies or instrumentalities thereof, (2) obligations issued
or guaranteed by U.S. banks with total assets of at least $1 billion (including
obligations of foreign branches of such banks) and by the 75 largest foreign
commercial banks in terms of total assets, (3) high quality commercial paper and
other high-quality short-term debt obligations, and (4) obligations of the
International Bank for Reconstruction and Development, other supranational
organizations and foreign governments and their agencies and instrumentalities.
The Cash Management Fund may also enter into repurchase agreements with respect
to the obligations identified above.
NEW YORK MUNICIPAL BOND FUND. The objective of the New York Municipal Bond Fund
is to achieve a high level of current income which is exempt from regular
federal income taxes and New York State and New York City personal income taxes,
consistent with the preservation of capital. The Fund invests primarily in a
portfolio of municipal obligations the interest on which is exempt from regular
federal income taxes and from the personal income taxes of New York State and
New York City. The Fund will not invest in municipal obligations that are rated
below investment grade at the time of purchase.
NATIONAL INTERMEDIATE MUNICIPAL FUND. The objective of the National Intermediate
Municipal Fund is to achieve a high level of current income which is exempt from
regular federal income taxes. The Fund seeks to achieve its objective by
investing primarily in a portfolio of municipal obligations. The Fund will not
invest in municipal obligations that are rated below investment grade at the
time of purchase.
U.S. GOVERNMENT INCOME FUND. The objective of the U.S. Government Income Fund is
to seek a high level of current income. The Fund seeks to achieve its objective
by investing in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities. From time to time, a significant portion of the
Fund's assets may be invested in mortgage-backed securities. The Fund will not
knowingly invest in "high risk mortgage securities" (as defined herein).
HIGH YIELD BOND FUND. The objective of the High Yield Bond Fund is to maximize
current income. The Fund seeks to
PAGE 4
<PAGE> 11
SALOMON BROTHERS INVESTMENT SERIES
achieve its objective by investing primarily in a diversified portfolio of high
yield fixed-income securities rated in medium or lower rating categories or
determined by the investment manager to be of comparable quality. As a secondary
objective, the Fund will seek capital appreciation.
STRATEGIC BOND FUND. The primary objective of the Strategic Bond Fund is to seek
a high level of current income. As a secondary objective, the Fund will seek
capital appreciation. The Fund seeks to achieve its objectives by investing in a
globally diverse portfolio of fixed-income investments and by giving the
investment manager broad discretion to deploy the Fund's assets among certain
segments of the fixed-income market that the investment manager believes will
best contribute to achievement of the Fund's investment objectives. In pursuing
its investment objectives, the Strategic Bond Fund reserves the right to invest
predominantly in securities rated in medium or lower rating categories or as
determined by the investment manager to be of comparable quality. Although the
investment manager has the ability to invest up to 100% of the Strategic Bond
Fund's assets in lower-rated securities, the investment manager does not
anticipate investing in excess of 75% of the assets in such securities.
TOTAL RETURN FUND. The Total Return Fund seeks to obtain above-average income
(compared to a portfolio entirely invested in equity securities). As a secondary
objective, the Fund seeks to take advantage of opportunities for growth of
capital and income. The Fund seeks to achieve its objectives primarily through
investments in a broad variety of securities, including equity securities,
fixed-income securities and short-term obligations.
INVESTORS FUND. The Investors Fund's primary objective is long-term growth of
capital. Current income is a secondary objective. The Fund seeks to achieve its
objectives primarily through investments in common stocks of well-known
companies.
There can be no assurance that the investment objective(s) of any Fund will be
achieved. See "Investment Objectives and Policies."
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc ("SBAM"), an affiliate of Salomon Brothers
Inc ("Salomon Brothers"), is the investment manager of the Funds. SBAM also
serves as investment manager to other investment companies and numerous
individuals and institutions. For its services as investment manager, the Cash
Management Fund pays SBAM a monthly fee at an annual rate of .20% of the Fund's
average daily net assets; the New York Municipal Bond Fund pays SBAM a monthly
fee at an annual rate of .50% of the Fund's average daily net assets; the
National Intermediate Municipal Fund pays SBAM a monthly fee at an annual rate
of .50% of the Fund's average daily net assets; the U.S. Government Income Fund
pays SBAM a monthly fee at an annual rate of .60% of the Fund's average daily
net assets; the High Yield Bond Fund pays SBAM a monthly fee at an annual rate
of .75% of the Fund's average daily net assets; the Strategic Bond Fund pays
SBAM a monthly fee at an annual rate of .75% of the Fund's average daily net
assets; the Total Return Fund pays SBAM a monthly fee at an annual rate of .55%
of the Fund's average daily net assets; and the Investors Fund pays SBAM a
performance-based fee which consists of a quarterly base fee, based on the
Fund's average daily net assets, at an annual rate of .50% of the Fund's first
$350 million, .40% on the next $150 million, .375% on the next $250 million,
.35% on the next $250 million and .30% on the amount in excess of $1 billion,
and which may be increased or decreased based on the performance of the
Investors Fund relative to
PAGE 5
<PAGE> 12
SALOMON BROTHERS INVESTMENT SERIES
the investment record of the Standard & Poor's 500 Index of Composite Stocks
(the "S&P 500 Index"). See "Management."
PURCHASE OF SHARES
Shares of each Fund may be purchased at their next determined net asset value
plus, in the case of Class A shares, a front end sales charge, from a selected
dealer or as otherwise set forth under "Purchase of Shares." The minimum initial
investment in any class of shares in any Fund is $500 and the minimum subsequent
investment is $50. However, for Individual Retirement Accounts ("IRAs") and
Self-Employed Retirement Plans (formerly Keogh Plans), the minimum initial
investment in any class of shares of any Fund is $50. In addition, an account
can be established with a minimum of $50 if the account will be receiving
periodic, regular investments through programs such as Automatic Investment
Plans, Automatic Dividend Diversification and Systematic Investing. See
"Purchase of Shares" and "Shareholder Services."
REDEMPTION OF SHARES
Each Fund redeems shares at the applicable next determined net asset value, less
the applicable contingent deferred sales charge ("CDSC"), if any. The value of
shares at the time of redemption may be more or less than the shareholder's
cost, depending on the market value of the securities held by the Fund at such
time. See "Redemption of Shares."
CLASSES OF SHARES
Each Fund offers three classes of shares ("Class A" shares, "Class B" shares and
"Class C" shares) to the general public, with each class having different sales
charge structures and expense levels (the "Multiple Pricing System"). In
addition, each Fund has Class O shares which are offered only to existing Class
O shareholders. Each class has distinct advantages and disadvantages for
different investors, and investors may choose the class that best suits their
circumstances and objectives. See "Multiple Pricing System."
CLASS A SHARES. Class A shares are offered for sale at net asset value per share
plus a front end sales charge of up to 4.75% (with the exception of Class A
shares of the Cash Management Fund, which are offered without such a charge). In
addition, Class A shares are subject to an ongoing 12b-1 service fee at an
annual rate of .25% of their respective average daily net assets (with the
exception of Class A shares of the Cash Management Fund, which bear no such
fees). Certain purchases of Class A shares qualify for a waived or reduced front
end sales charge. Certain Class A shares for which the front end sales charge is
waived may be subject to a CDSC of 1% within one year after the date of
purchase. See "Purchase of Shares--Class A Shares" and "Redemption of
Shares--Class A Share Purchases of $1 million or more."
CLASS B SHARES. Class B shares are offered for sale for purchases of less than
$250,000. Class B shares are sold at net asset value without a front end sales
charge but are subject to a CDSC of 5% of the dollar amount subject thereto
during the first and second year after purchase, and declining each year
thereafter to 0% after the sixth year (with the exception of Class B shares of
the Cash Management Fund, which are not subject to any CDSC upon redemption).
The applicable percentage is assessed on an amount equal to the lesser of the
original purchase price or the redemption price of the shares redeemed. Class B
shares are also subject to an ongoing 12b-1 distribution fee at an annual rate
of .75% of their respective average daily net assets and an ongoing 12b-1
service fee at an annual rate of .25% of their respective average daily net
assets (with the exception of Class B shares of the Cash Management Fund, which
bear
PAGE 6
<PAGE> 13
SALOMON BROTHERS INVESTMENT SERIES
no such fees). Class B shares (except for shares of the Cash Management Fund)
will automatically convert, based upon relative net asset value, to Class A
shares of the same Fund six years after purchase. Upon conversion, these shares
will no longer be subject to an annual distribution fee.
CLASS C SHARES. Class C shares are offered for sale for purchases of less than
$1,000,000, are offered at net asset value without a front end sales charge and
are subject to a CDSC of 1% of the dollar amount subject thereto on redemptions
made within one year of purchase (with the exception of Class C shares of the
Cash Management Fund, which are not subject to any CDSC upon redemption). The
CDSC is assessed on an amount equal to the lesser of the original purchase price
or the redemption price of the shares redeemed. Class C shares are subject to an
ongoing 12b-1 distribution fee at an annual rate of .75% of their respective
average daily net assets and an ongoing 12b-1 service fee at an annual rate of
.25% of their respective average daily net assets (with the exception of Class C
shares of the Cash Management Fund, which bear no such fees). Class C shares
(except for shares of the Cash Management Fund) will automatically convert,
based upon relative net asset value, to Class A shares of the same Fund ten
years after purchase. Upon conversion, these shares will no longer be subject to
an annual distribution fee.
CLASS O SHARES. Each Fund also offers Class O shares. However, only Class O
shareholders are permitted to purchase additional Class O shares. Class O shares
are not subject to any sales charges or 12b-1 fees.
For a discussion of factors to consider in selecting the most beneficial class
of shares for a particular investor, see "Multiple Pricing System--Factors for
Consideration."
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income of the Cash Management Fund, the
New York Municipal Bond Fund, the National Intermediate Municipal Fund, the U.S.
Government Income Fund, the High Yield Bond Fund, the Strategic Bond Fund and
the Total Return Fund will be declared as a daily dividend, and shareholders
will receive such dividends monthly. The Total Return Fund does not expect to
pay its initial dividend until December 1995 and thereafter will pay dividends
monthly. The Investors Fund will pay dividends from net investment income
quarterly. Each Fund will pay net realized long-term capital gains annually. It
is anticipated that the expenses incurred by each class of each fund (other than
Cash Management Fund) will differ and accordingly the dividends distributed by
each such class will differ. See "Dividends and Distributions." Dividends and
distributions are reinvested in additional shares of the same class of a Fund
unless a shareholder requests otherwise. Shares acquired by dividend and
distribution reinvestments will not be subject to any sales charge or CDSC.
Class B and Class C shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. A portion of the dividends of the New York Municipal Bond Fund and
the National Intermediate Municipal Fund may be subject to the federal
alternative minimum tax. See "Multiple Pricing System," "Dividends and
Distributions" and "Taxation."
RISK FACTORS
Prospective investors should consider certain risks associated with an
investment in each Fund. Certain Funds may use various investment practices that
involve special considerations, including investing in high yield and/or
illiquid securities, investing in foreign securities (including emerging market
securities), investing in warrants,
PAGE 7
<PAGE> 14
SALOMON BROTHERS INVESTMENT SERIES
investing in municipal obligations, entering into repurchase and reverse
repurchase agreements, entering into securities transactions on a firm
commitment or when issued basis, lending portfolio securities and high portfolio
turnover rates. Certain Funds may engage in hedging and derivatives which
involve special risks. Because the New York Municipal Bond Fund intends to
invest primarily in a portfolio of municipal obligations issued (i) by the State
of New York and its cities, municipalities and other public authorities, and
(ii) by territories and possessions of the United States and their respective
authorities, agencies, instrumentalities and political subdivisions the interest
on which is exempt from regular federal income taxes and from personal income
taxes of New York State and New York City, it is more susceptible to factors
adversely affecting issuers of such obligations than a comparable municipal
securities fund that is not so concentrated. See "Investment Objectives and
Policies" and "Additional Investment Activities and Risk Factors."
PAGE 8
<PAGE> 15
- --------------------------------------------------------------------------------
EXPENSE INFORMATION
Each Fund offers multiple classes of shares. Each share of a Fund accrues income
in the same manner, but certain expenses differ based upon the class. The
following tables are intended to assist investors in understanding the various
costs and expenses applicable to each class of shares of each Fund:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS O(d)
<S> <C> <C> <C> <C>
----------------------------------------------------------
SHAREHOLDERS TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases
of Shares (as a percentage of
offering price)
All Funds except Cash Management
Fund 4.75%(a) None None None
Cash Management Fund None None None None
Sales Charge Imposed on Reinvested
Dividends
All Funds None None None None
Contingent Deferred Sales Charge
(as a percentage of original
purchase price or redemption
price, whichever is lower)
All Funds except Cash Management
Fund 1% during the 5% first year, 1% during None
first year for 5% second year, the first
purchases of 4% third year, year(c)
$1 million or 3% fourth year,
more(b) 2% fifth year,
1% sixth year, and
0% after sixth year(c)
Cash Management Fund None None None None
Redemption Fees
All Funds None None None None
Exchange Fee
All Funds None None None None
</TABLE>
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(a) Reduced for purchases of $50,000 and over, decreasing to 0% for purchases of
$1,000,000 and over. See "Purchase of Shares--Class A Shares."
(b) See "Purchase of Shares--Class A Shares" and "Redemption of Shares--Class A
Shares."
(c) See "Purchase of Shares--Class B Shares" and "--Class C Shares" and
"Redemption of Shares--Class B Shares" and "--Class C Shares."
(d) Only Class O shareholders are permitted to purchase additional Class O
shares.
PAGE 9
<PAGE> 16
SALOMON BROTHERS INVESTMENT SERIES
ANNUAL FUND OPERATING EXPENSES
Information in the table below is given as a percentage of average daily net
assets after fee waivers and expense reimbursements in certain cases, as
indicated.
<TABLE>
<CAPTION>
FUND CLASS A CLASS B CLASS C CLASS O
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
CASH MANAGEMENT
Management fees (after waiver)* .00% .00% .00% .00%
Rule 12b-1 fees .00% .00% .00% .00%
Other expenses** .61% .61% .61% .61%
------- ------- ------- --------
Total fund operating expenses (after waiver)* .61% .61% .61% .61%
NEW YORK MUNICIPAL BOND
Management fees (after waiver)+ .00% .00% .00% .00%
Rule 12b-1 fees*** .25% 1.00% 1.00% .00%
Other expenses (after reimbursement)**+ .50% .50% .50% .50%
------- ------- ------- --------
Total fund operating expenses+ .75% 1.50% 1.50% .50%
NATIONAL INTERMEDIATE MUNICIPAL
Management fees (after waiver)**** .01% .01% .01% .01%
Rule 12b-1 fees*** .25% 1.00% 1.00% .00%
Other expenses (estimated)++ .49% .49% .49% .49%
------- ------- ------- --------
Total fund operating expenses .75% 1.50% 1.50% .50%
U.S. GOVERNMENT INCOME
Management fees (after waiver)**** .12% .12% .12% .12%
Rule 12b-1 fees*** .25% 1.00% 1.00% .00%
Other expenses (estimated)++ .48% .48% .48% .48%
------- ------- ------- --------
Total fund operating expenses .85% 1.60% 1.60% .60%
HIGH YIELD BOND
Management fees (after waiver)**** .51% .51% .51% .51%
Rule 12b-1 fees*** .25% 1.00% 1.00% .00%
Other expenses (estimated)++ .48% .48% .48% .48%
------- ------- ------- --------
Total fund operating expenses 1.24% 1.99% 1.99% .99%
STRATEGIC BOND
Management fees (after waiver)**** .53% .53% .53% .53%
Rule 12b-1 fees*** .25% 1.00% 1.00% .00%
Other expenses (estimated)++ .46% .46% .46% .46%
------- ------- ------- --------
Total fund operating expenses 1.24% 1.99% 1.99% .99%
TOTAL RETURN
Management fees (after waiver)++++ .00% .00% .00% .00%
Rule 12b-1 fees*** .25% 1.00% 1.00% .00%
Other expenses (estimated)++ .50% .50% .50% .50%
------- ------- ------- --------
Total fund operating expenses .75% 1.50% 1.50% .50%
INVESTORS
Management fees+++ .47% .47% .47% .47%
Rule 12b-1 fees*** .25% 1.00% 1.00% .00%
Other expenses** .22% .22% .22% .22%
------- ------- ------- --------
Total fund operating expenses .94% 1.69% 1.69% .69%
</TABLE>
------------------------------------------------------------------
* Reflects the voluntary waiver of the management fees, which SBAM has
agreed to waive through the fiscal year ended December 31, 1995. Absent
such waiver, the ratio of management fees and total Fund operating
expenses to the average daily net assets of the Cash Management Fund would
be .20% and .81%, respectively.
** The amounts set forth for "Other Expenses" are based on the Fund's
operating expenses for the fiscal year ended December 31, 1994 which are
calculated as a percentage of average daily net assets and includes fees
for shareholder services, administrative fees, custodial fees, legal and
accounting fees, printing costs and registration fees.
PAGE 10
<PAGE> 17
SALOMON BROTHERS INVESTMENT SERIES
*** Upon conversion, Class B and Class C shares will no longer be subject to a
distribution fee. Salomon Brothers receives an annual 12b-1 service fee of
.25% of the value of average daily net assets of Class A shares, and
receives an annual 12b-1 fee of 1.00% of the value of average daily net
assets of Class B and Class C shares, consisting of a .75% distribution
fee and a .25% service fee. See "Multiple Pricing System--Conversion
Feature."
**** Reflects the voluntary waiver of the management fees, which SBAM has
agreed to waive through the fiscal year ended December 31, 1995. Absent
such waiver, the ratio of management fees to the average daily net assets
for each class of shares of National Intermediate Municipal, U.S.
Government Income, High Yield Bond and Strategic Bond would be .50%, .60%,
.75% and .75%, respectively, and the ratio of total Fund operating
expenses to the average daily net assets of (i) National Intermediate
Municipal would be 1.24%, 1.99%, 1.99% and .99% for Class A, Class B,
Class C and Class O, respectively, (ii) U.S. Government Income would be
1.33%, 2.08%, 2.08% and 1.08.% for Class A, Class B, Class C and Class O,
respectively, (iii) High Yield Bond would be 1.48%, 2.23%, 2.23% and
1.23.% for Class A, Class B, Class C and Class O, respectively, and (iv)
Strategic Bond would be 1.46%, 2.21%, 2.21% and 1.21.% for Class A, Class
B, Class C and Class O, respectively.
+ Reflects the voluntary waiver of the management fee which SBAM has agreed
to waive through the fiscal year ended December 31, 1995. Absent such
waiver and reimbursement, the ratios of management fee and other expenses
for each class of shares to the average daily net assets would be .50% and
.67%, respectively, and the ratio of total Fund operating expenses to the
average daily net assets would be 1.42%, 2.17%, 2.17% and 1.17% for Class
A, Class B, Class C and Class O, respectively.
++ As of the date of this Prospectus, the Fund had only recently commenced
investment operations. The amounts set forth for "Other Expenses" are
therefore based on estimates for the current fiscal year and will include
fees for shareholder services, administrative fees, custodial fees, legal
and accounting fees, printing costs and registration fees.
+++ Effective August 1, 1994, the Investors Fund implemented a new
performance-based fee structure. Management fees included in the table
above reflect pro forma management fees indicating what such fees would
have been if the new management fee structure had been in effect
throughout the fiscal year ended December 31, 1994.
++++ Reflects the voluntary waiver of the management fee, which SBAM has agreed
to waive for a period of six months from the date of this Prospectus.
Absent such waiver, the ratio of management fees to the average daily net
assets for each class would be .55% and the ratio of total Fund operating
expenses to the average daily net assets would be 1.30%, 2.05%, 2.05% and
1.05% for Class A, Class B, Class C and Class O, respectively.
The fees and expenses listed under the caption "Annual Fund Operating Expenses"
are described in this Prospectus under the captions "Management" and "Purchase
of Shares--Distributor."
For additional information with respect to the expenses identified in the table
above, see "Management" in the Statement of
Additional Information.
PAGE 11
<PAGE> 18
SALOMON BROTHERS INVESTMENT SERIES
EXAMPLE:
The following table demonstrates the projected dollar amount of total cumulative
expenses that would be incurred over various periods with respect to a
hypothetical investment in each class of each Fund. The example assumes payment
by each Fund of operating expenses at the levels set forth in the table above
and are also based upon the following assumptions:
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period, with the
exception of the lines marked "Class B No redemption," in which case it is
assumed that no redemption is made at the end of each time period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------
CASH MANAGEMENT
Class A Shares $ 6 $ 20 $ 34 $ 76
Class B Shares $ 6 $ 20 $ 34 $ 76
Class C Shares $ 6 $ 20 $ 34 $ 76
Class O Shares $ 6 $ 20 $ 34 $ 76
NEW YORK MUNICIPAL BOND
Class A Shares* $55 $ 70 $ 87 $136
Class B Shares** $65 $ 87 $102 $140***
Class B No redemption $15 $ 47 $ 82 $140***
Class C Shares $25 $ 47 $ 82 $179
Class O Shares $ 5 $ 16 $ 28 $ 63
NATIONAL INTERMEDIATE MUNICIPAL
Class A Shares* $55 $ 70 N/A N/A
Class B Shares** $65 $ 87 N/A N/A
Class B No redemption $15 $ 47 N/A N/A
Class C Shares $25 $ 47 N/A N/A
Class O Shares $ 5 $ 16 N/A N/A
U.S. GOVERNMENT INCOME
Class A Shares* $56 $ 73 N/A N/A
Class B Shares** $66 $ 90 N/A N/A
Class B No redemption $16 $ 50 N/A N/A
Class C Shares $26 $ 50 N/A N/A
Class O Shares $ 6 $ 19 N/A N/A
HIGH YIELD BOND
Class A Shares* $60 $ 85 N/A N/A
Class B Shares** $70 $102 N/A N/A
Class B No redemption $20 $ 62 N/A N/A
Class C Shares $30 $ 62 N/A N/A
Class O Shares $10 $ 32 N/A N/A
STRATEGIC BOND
Class A Shares* $60 $ 85 N/A N/A
Class B Shares** $70 $102 N/A N/A
Class B No redemption $20 $ 62 N/A N/A
Class C Shares $30 $ 62 N/A N/A
Class O Shares $10 $ 32 N/A N/A
TOTAL RETURN
Class A Shares* $55 $70 N/A N/A
Class B Shares** $65 $87 N/A N/A
Class B No redemption $15 $47 N/A N/A
Class C Shares $25 $47 N/A N/A
Class O Shares $ 5 $16 N/A N/A
</TABLE>
PAGE 12
<PAGE> 19
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
INVESTORS
Class A Shares* $57 $ 76 $ 97 $158
Class B Shares** $67 $ 93 $112 $162***
Class B No redemption $17 $ 53 $ 92 $162***
Class C Shares $27 $ 53 $ 92 $200
Class O Shares $ 7 $ 22 $ 38 $ 86
</TABLE>
------------------------------------------------------------------
* Assumes deduction at the time of purchase of the maximum 4.75% sales charge.
** Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
*** Reflects the conversion to Class A shares six years after purchase, and
therefore years seven through ten reflect Class A expenses.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES FOR ANY OF THE FUNDS MAY BE HIGHER OR LOWER THAN THE
AMOUNTS SHOWN IN THE FEE TABLES. Moreover, while the example assumes a 5% annual
return, each Fund's performance will vary and may result in a return greater or
less than 5%.
Because a portion of the 12b-1 fees payable by Class B and Class C shares is
considered an asset based sales charge by the National Association of Securities
Dealers, Inc. ("NASD"), long-term shareholders in Class B and Class C of each
Fund (other than the Cash Management Fund) may pay more than the economic
equivalent of the maximum front end sales charges permitted by the NASD.
The information in the foregoing summary is qualified in its entirety by the
more detailed information appearing elsewhere in this Prospectus and in the
Statement of Additional Information.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following data per share of capital stock outstanding throughout each period
and ratios should be read in conjunction with the financial statements of the
applicable Fund contained in the Statement of Additional Information. The
financial statements and financial highlights of the Cash Management Fund, the
New York Municipal Bond Fund and the Investors Fund for each of the years in the
period ended December 31, 1994 for the applicable Fund have been audited by
Price Waterhouse LLP, whose unqualified reports thereon are included in the
Statement of Additional Information. The Statement of Additional Information may
be obtained by shareholders by writing or calling at the address or telephone
number printed on the front cover. Financial highlights for each of the years in
the period ended December 31, 1994 are not presented for Class A shares, Class B
shares or Class C shares since no such shares were outstanding during those
periods. As of the close of business on December 31, 1994, all existing shares
of the Cash Management Fund, the New York Municipal Bond Fund and the Investors
Fund were reclassified as Class O shares.
PAGE 13
<PAGE> 20
SALOMON BROTHERS INVESTMENT SERIES
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------------
PERIOD ENDED JUNE 30, 1995
PER SHARE OPERATING PERFORMANCE (UNAUDITED)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.000 $ 1.000 $ 1.000
------ ------ ------
Net investment income 0.017 0.016 0.015
Dividends from net investment
income (0.017) (0.016) (0.015)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000
------ ------ ------
------ ------ ------
Net assets, end of period
(thousands) $ 1,163 $ 49 $ 20
TOTAL RETURN* +1.7% +1.6% +1.6%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.55%** 0.55%** 0.55%**
Net investment income 6.22%** 5.6%** 5.59%**
Before waiver of management fee
and/or expenses absorbed by
Salomon Brothers Asset
Management Inc ("SBAM"), net
investment income per share and
expense ratios would have been:
Net investment income per
share $ 0.016 $ 0.015 $ 0.015
Expense ratio 0.75%** 0.75%** 0.75%**
</TABLE>
NEW YORK MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
CLASS CLASS CLASS
A B C
------------------------------
PERIOD ENDED JUNE 30, 1995
PER SHARE OPERATING PERFORMANCE (UNAUDITED)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.96 $ 8.96 $ 8.96
----- ----- -----
Net investment income 0.17 0.15 0.15
Net gain (loss) on securities and futures (both realized and
unrealized) 0.65 0.65 0.65
----- ----- -----
Total from investment operations 0.82 0.80 0.80
----- ----- -----
Less dividends and distributions:
Dividends from net investment income (0.17) (0.15) (0.15)
Distributions from net realized gain on securities and futures -- -- --
----- ----- -----
Total dividends and distributions (0.17) (0.15) (0.15)
----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 9.61 $ 9.61 $ 9.61
----- ----- -----
----- ----- -----
Net assets, end of period (thousands) $ 276 $ 253 $ 253
TOTAL RETURN* +9.2% +8.9% +8.9%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.75%** 1.5%** 1.5%**
Net investment income 5.27%** 4.54%** 4.54%**
Portfolio turnover rate 11% 11% 11%
Before waiver of management fee and/or expenses absorbed by Salomon
Brothers Asset Management Inc ("SBAM"), net investment income per
share and expense ratios would have been:
Net investment income per share $ 0.09 $ 0.06 $ 0.06
Expense ratio 3.30%** 4.05%** 4.05%**
</TABLE>
------------------------------------------------------------------
(a) October 2, 1990, commencement of investment operations, through December
31, 1990.
(b) February 1, 1993, commencement of investment operations, through December
31, 1993.
* Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the payable date, and a sale at net asset value on the last day
of each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
Due to the recent commencement of their offering, the ratios for Class A, Class
B and Class C shares may not necessarily be comparable to that of the Class O
shares and are not necessarily indicative of future ratios.
PAGE 14
<PAGE> 21
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
CLASS O
------------------------------------------------------------------
SIX
MONTHS
ENDED PERIOD
JUNE ENDED
30, YEAR ENDED DECEMBER 31, DECEMBER
1995 ------------------------------------------- 31,
(UNAUDITED) 1994 1993 1992 1991 1990(a)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----- ------ ------ ------ ------ ------
0.027 0.038 0.027 0.033 0.055 0.019
(0.027) (0.038) (0.027) (0.033) (0.055) (0.019)
----- ------ ------ ------ ------ ------
$1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----- ------ ------ ------ ------ ------
----- ------ ------ ------ ------ ------
$8,829 $19,127 $15,049 $11,613 $22,982 $10,293
+2.8% +3.9% +2.7% +3.4% +5.7% +1.9%
0.55%** 0.61% 0.65% 0.65% 0.65% 0.65%**
5.49%** 3.79% 2.68% 3.41% 5.43% 7.46%**
$0.026 $00.036 $00.025 $00.030 $00.053 $ 0.018
0.75%** 0.81% 0.85% 0.85% 0.85% 0.97%**
</TABLE>
<TABLE>
<CAPTION>
CLASS O
----------------------------------------------
SIX
MONTHS
ENDED YEAR PERIOD
JUNE ENDED ENDED
30, DECEMBER DECEMBER
1995 31, 31,
(UNAUDITED) 1994 1990(b)
----------------------------------------------
<S> <C> <C>
$ 8.98 $10.44 $10.00
----- ----- -----
0.27 0.55 0.46
0.64 (1.46) 0.46
----- ----- -----
0.91 (0.91) 0.92
----- ----- -----
(0.27) (0.55) (0.46)
-- -- (0.02)
----- ----- -----
(0.27) (0.55) (0.48)
----- ----- -----
$ 9.62 $ 8.98 $10.44
----- ----- -----
----- ----- -----
$3,101 $3,333 $8,364
+10.2% -8.8% +9.4%
0.50%** 0.50% 0.50%**
5.67%** 5.72% 4.99%**
11% 63% 24%
$ 0.15 $ 0.49 $ 0.40
3.05%** 1.17% 1.24%**
</TABLE>
PAGE 15
<PAGE> 22
SALOMON BROTHERS INVESTMENT SERIES
INVESTORS FUND
<TABLE>
<CAPTION>
PERIOD ENDED JUNE 30, 1995
(UNAUDITED)
------------------------------------
CLASS CLASS CLASS
A B C
------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $13.61 $13.61 $13.61
------ ------ ------
Net investment income 0.08 0.04 0.04
Net gain (or loss) on investments
(both realized and unrealized) 2.21 2.21 2.21
------ ------ ------
Total from investment operations 2.29 2.25 2.25
------ ------ ------
Less dividends and distributions:
Dividends from net investment income (0.06) (0.05) (0.05)
Distributions from net realized gain on
investments, options and foreign currency
transactions (0.07) (0.07) (0.07)
------ ------ ------
Total dividends and distributions (0.13) (0.12) (0.12)
------ ------ ------
Net asset value, end of period $15.77 $15.74 $15.74
====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $ 292 $ 333 $ 276
Total return** +16.9% +16.6% +16.6%
Ratios to average net assets:
Expenses 0.96%*** 1.71%*** 1.71%***
Net investment income 1.54%*** 0.81%*** 0.78%***
Portfolio turnover rate 52% 52% 52%
</TABLE>
- --------------------------------------------------------------------------------
* Since May 1, 1990, the Fund has been managed by SBAM. Prior thereto, the
Lehman Management Co. division of Shearson Lehman Brothers Inc. served
as the Fund's investment manager.
** Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the "ex-dividend" date, and a sale at net asset value on the
last day of each period reported. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total
return. Total return calculated for a period of less than one year is
not annualized.
*** Annualized.
Due to the recent commencement of their offering, the ratios for Class A, Class
B and Class C shares may not necessarily be comparable to that of the Class O
shares and are not necessarily indicative of future ratios.
PAGE 16
<PAGE> 23
SALOMON BROTHERS INVESTMENT SERIES
<TABLE>
<CAPTION>
SIX
MONTHS CLASS O
ENDED -----------------------------------------------------------------------------------------------------
JUNE 30, YEAR ENDED DECEMBER 31,
1995 -----------------------------------------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990 1989 1988 1987
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 13.63 $ 15.60 $ 16.10 $ 17.10 $ 14.54 $ 16.65 $ 15.55 $ 14.77 $ 17.37
------ ------ ------ ------ ------ ------
0.13 0.27 0.32 0.41 0.44 0.49 0.66* 0.52 0.49
2.15 (0.48) 2.03 0.79 3.68 (1.55) 2.86 1.885 (.32)
------ ------ ------ ------ ------ ------ ------ ------ ------
2.28 (0.21) 2.35 1.20 4.12 (1.06) 3.32 2.405 .17
------ ------ ------ ------ ------ ------ ------ ------ ------
(0.06) (0.27) (0.33) (0.41) (0.46) (0.55) (.63) (.525) (.51)
(0.07) (1.49) (2.52) (1.79) (1.10) (0.50) (1.59) (1.10) (2.26)
------ ------ ------ ------ ------ ------ ------ ------ ------
(0.13) (1.76) (2.85) (2.20) (1.56) (1.05) (2.22) (1.625) (2.77)
------ ------ ------ ------ ------ ------ ------ ------ ------
$ 15.78 $ 13.63 $ 15.60 $ 16.10 $ 17.10 $ 14.54 $ 16.65 $ 15.55 $ 14.77
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
$390,214 $348,214 $386,147 $370,350 $378,615 $330,814 $393,747 $362,742 $352,272
+16.8% -1.3% +15.1% +7.4% +29.3% -6.5% +21.8% +16.9% +0.7%
0.71%*** 0.69% 0.68% 0.68% 0.70% 0.68% 0.63% 0.67% 0.58%
1.78%*** 1.75% 1.90% 2.47% 2.67% 3.13% 3.76% 3.32% 2.37%
52% 66% 79% 48% 44% 22% 36% 54% 80%
<CAPTION>
CLASS O
- ---------------------------
YEAR ENDED DECEMBER 31,
- ---------------------------
1986 1985
- ---------------------------
<S> <C>
$ 19.86 $17.61
0.51 0.59
2.085 3.71
------ -----
2.595 4.30
------ -----
(.535) (.545)
(4.55) 1.505)
------ -----
(5.085) (2.05)
------ -----
$ 17.37 19.86
------ -----
------ -----
$396,610 3,399
+14.4% +26.9%
0.57% 0.62%
2.56% 3.32%
62% 46%
</TABLE>
- --------------------------------------------------------------------------------
The tables below provide financial highlights of income and capital changes for
one share of each Class of the National Intermediate Municipal Fund, the U.S.
Government Income Fund, the High Yield Bond Fund and the Strategic Bond Fund
outstanding from commencement of operations (February 22, 1995) through June 30,
1995. This information is supplemented by the unaudited financial statements and
accompanying notes incorporated by reference in the Statement of Additional
Information.
PAGE 17
<PAGE> 24
SALOMON BROTHERS INVESTMENT SERIES
NATIONAL INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
CLASS CLASS CLASS CLASS
A B C O
---------------------------------------
PERIOD ENDED JUNE 30, 1995(a)
(UNAUDITED)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.16 0.13 0.13 0.17
Net gain (loss) on investments (both realized and
unrealized) 0.14 0.14 0.14 0.14
------ ------ ------ ------
Total from investment operations 0.30 0.27 0.27 0.31
------ ------ ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.16) (0.13) (0.13) (0.17)
Distributions from net realized gain on investments -- -- -- --
------ ------ ------ ------
Total dividends and distributions (0.16) (0.13) (0.13) (0.17)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.14 $10.14 $10.14 $10.14
====== ====== ====== ======
Net assets, end of period (thousands) $ 516 $ 334 $ 254 $9,413
TOTAL RETURN* +3.0% +2.7% +2.7% +3.1%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.75%** 1.50%** 1.50%** 0.50%**
Net investment income 4.53%** 3.75%** 3.76%** 4.76%**
Portfolio turnover rate 12% 12% 12% 12%
Before waiver of management fee and/or expenses
absorbed by Salomon Brothers Asset Management Inc
("SBAM"), net investment income per share and
expense ratios would have been:
Net investment income per share $ 0.12 $ 0.10 $ 0.10 $ 0.13
Expense ratio 1.78%** 2.53%** 2.53%** 1.53%**
</TABLE>
U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
CLASS CLASS CLASS CLASS
A B C O
---------------------------------------
PERIOD ENDED JUNE 30, 1995(a)
(UNAUDITED)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.21 0.18 0.18 0.22
Net gain (loss) on investments (both realized and
unrealized) 0.24 0.24 0.24 0.24
------ ------ ------ ------
Total from investment operations 0.45 0.42 0.42 0.46
------ ------ ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.21) (0.18) (0.18) (0.22)
Distributions from net realized gain on investments -- -- -- --
------ ------ ------ ------
Total dividends and distributions (0.21) (0.18) (0.18) (0.22)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.24 $10.24 $10.24 $10.24
====== ====== ====== ======
Net assets, end of period (thousands) $ 264 $ 409 $ 256 $9,480
TOTAL RETURN* +4.6% +4.3% +4.3% +4.7%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.85%** 1.60%** 1.60%** 0.60%**
Net investment income 5.97%** 5.23%** 5.22%** 6.22%**
Portfolio turnover rate 203% 203% 203% 203%
Before waiver of management fee and/or expenses
absorbed by Salomon Brothers Asset Management Inc
("SBAM"), net investment income per share and
expense ratios would have been:
Net investment income per share $ 0.17 $ 0.15 $ 0.15 $ 0.18
Expense ratio 1.93%** 2.68%** 2.68%** 1.68%**
</TABLE>
------------------------------------------------------------------
(a) February 22, 1995, commencement of investment operations, through June
30, 1995
* Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the payable date, and a sale at net asset value on the last day
of each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
Due to the recent commencement of their offering, the ratios for Class A, Class
B and Class C shares may not necessarily be comparable to that of the Class O
shares and are not necessarily indicative of future ratios.
PAGE 18
<PAGE> 25
SALOMON BROTHERS INVESTMENT SERIES
HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
CLASS CLASS CLASS
A B C CLASS O
----------------------------------------
PERIOD ENDED JUNE 30, 1995(a)
(UNAUDITED)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00 $10.00 $ 10.00
------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.36 0.33 0.33 0.37
Net gain (loss) on investments (both realized and
unrealized) 0.46 0.46 0.46 0.46
------ ------ ------ -------
Total from investment operations 0.82 0.79 0.79 0.83
------ ------ ------ -------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.36) (0.33) (0.33) (0.37)
Distributions from net realized gain on investments -- -- -- --
------ ------ ------ -------
Total dividends and distributions (0.36) (0.33) (0.33) (0.37)
------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $10.46 $10.46 $10.46 $ 10.46
====== ====== ====== =======
Net assets, end of period (thousands) $4,239 $ 878 $ 333 $ 9,683
TOTAL RETURN* +8.3% +8.0% +8.0% +8.4%
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.24%** 1.99%** 1.99%** 0.99%**
Net investment income 9.54%** 8.67%** 9.11%** 10.21%**
Portfolio turnover rate 63% 63% 63% 63%
Before waiver of management fee and/or expenses
absorbed by Salomon Brothers Asset Management Inc
("SBAM"), net investment income per share and
expense ratios would have been:
Net investment income per share $ 0.32 $ 0.29 $ 0.30 $ 0.33
Expense ratio 2.25%** 3.00%** 3.00%** 2.00%**
</TABLE>
STRATEGIC BOND FUND
<TABLE>
<CAPTION>
CLASS CLASS CLASS CLASS
A B C O
---------------------------------------
PERIOD ENDED JUNE 30, 1995(a)
(UNAUDITED)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.32 0.30 0.30 0.33
Net gain (loss) on investments (both realized and
unrealized) 0.46 0.46 0.46 0.46
------ ------ ------ ------
Total from investment operations 0.78 0.76 0.76 0.79
------ ------ ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.32) (0.30) (0.30) (0.33)
Distributions from net realized gain on investments -- -- -- --
------ ------ ------ ------
Total dividends and distributions (0.32) (0.30) (0.30) (0.33)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.46 $10.46 $10.46 $10.46
====== ====== ====== ======
Net assets, end of period (thousands) $ 336 $ 526 $ 269 $9,681
TOTAL RETURN* +7.9% +7.7% +7.7% +8.0%
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.24%** 1.99%** 1.99%** 0.99%**
Net investment income 9.00%** 8.08%** 8.28%** 9.28%**
Portfolio turnover rate 123% 123% 123% 123%
Before waiver of management fee and/or expenses
absorbed by Salomon Brothers Asset Management Inc
("SBAM"), net investment income per share and
expense ratios would have been:
Net investment income per share $ 0.29 $ 0.26 $ 0.27 $ 0.30
Expense ratio 2.10%** 2.85%** 2.85%** 1.85%**
</TABLE>
------------------------------------------------------------------
(a) February 22, 1995, commencement of investment operations, through June
30, 1995
* Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the payable date, and a sale at net asset value on the last day
of each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
Due to the recent commencement of their offering, the ratios for Class A, Class
B and Class C shares may not necessarily be comparable to that of the Class O
shares and are not necessarily indicative of future ratios.
PAGE 19
<PAGE> 26
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
AND POLICIES
The investment objective(s) of each Fund are deemed to be fundamental policies
and may not be changed without the affirmative vote of the holders of a majority
of its outstanding shares as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). There is no assurance that any particular Fund will
achieve its investment objective(s).
CASH MANAGEMENT FUND
The investment objective of the Cash Management Fund is to seek as high a level
of current income as is consistent with liquidity and the stability of
principal. The Fund invests in high-quality, short-term U.S. dollar-denominated
money market instruments which are deemed to mature in thirteen months or less,
and is managed so that the average portfolio maturity of all portfolio
instruments (on a dollar-weighted basis) will not exceed 90 days. The Fund will
be "diversified" within the meaning of the 1940 Act, and will seek to maintain a
stable net asset value of $1.00 per share.
The types of obligations in which the Cash Management Fund may invest include
the following:
(1) Securities issued or guaranteed by the U.S. government or by agencies or
instrumentalities thereof;
(2) Obligations issued or guaranteed by U.S. banks with total assets of at least
$1 billion (including obligations of foreign branches of such banks) and by the
75 largest foreign commercial banks in terms of total assets;
(3) High-quality commercial paper and other high-quality short-term debt
obligations; and
(4) Obligations of the International Bank for Reconstruction and Development,
other supranational organizations and foreign governments and their agencies and
instrumentalities.
The Cash Management Fund may also enter into repurchase agreements with respect
to the obligations identified above. While the maturity of the underlying
securities in a repurchase agreement transaction may be more than thirteen
months, the term of the repurchase agreement will always be less than thirteen
months. For a description of repurchase agreements and their associated risks,
see "Additional Investment Activities and Risk Factors--Repurchase Agreements."
Securities issued or guaranteed by the U.S. government or by its agencies or
instrumentalities include obligations of several kinds. Such securities in
general include a wide variety of U.S. Treasury obligations consisting of bills,
notes and bonds, which principally differ only in their interest rates,
maturities and times of issuance. Securities issued or guaranteed by U.S.
government agencies and instrumentalities are debt securities issued by agencies
or instrumentalities established or sponsored by the U.S. government and may be
backed only by the credit of the issuing agency or instrumentality. The Fund
will invest in such obligations only where the investment manager is satisfied
that the credit risk with respect to the issuer is minimal.
The Cash Management Fund will, as a fundamental policy, invest at least 25% of
the current value of its total assets in bank obligations (including bank
obligations subject to repurchase agreements). However, if at some future date
adverse conditions prevail in the banking industry or in the market for bank
obligations, the Fund,
PAGE 20
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SALOMON BROTHERS INVESTMENT SERIES
for temporary defensive purposes, may temporarily invest less than 25% of its
assets in bank obligations. Bank obligations that may be purchased by the Fund
consist of obligations issued or guaranteed by U.S. banks with total assets of
at least $1 billion (including obligations issued by foreign branches of such
banks) and by the 75 largest foreign commercial banks in terms of total assets.
Such obligations include certificates of deposit, commercial paper, bankers'
acceptances and fixed time deposits. Fixed time deposits are obligations of
branches of U.S. banks or foreign banks which are payable at a stated maturity
date and bear a fixed rate of interest. Although fixed time deposits do not have
a market, there are no contractual restrictions on the right to transfer a
beneficial interest in the deposit to a third party. For a discussion of the
risks associated with investing in bank obligations, see "Additional Investment
Activities and Risk Factors--Bank Obligations."
The commercial paper that may be purchased by the Cash Management Fund consists
of direct obligations of domestic issuers which are (i) rated in the highest
short-term rating category by at least two nationally recognized statistical
rating organizations ("NRSROs") or by the only NRSRO that has rated the
security; or (ii) if not rated, are of an investment quality comparable to rated
commercial paper in which the Fund may invest.
The Cash Management Fund's investments in corporate debt securities will consist
of non-convertible corporate debt securities such as bonds and debentures of
domestic issuers that have thirteen months or less remaining to maturity and are
of an investment quality comparable to rated commercial paper in which the Fund
may invest.
Obligations of the International Bank for Reconstruction and Development (also
known as the "World Bank") and certain other supranational organizations are
supported by subscribed but unpaid commitments of member countries. There is no
assurance that these commitments will be undertaken or complied with in the
future. The Cash Management Fund limits its investments in obligations of
foreign governments and their agencies and instrumentalities to U.S.
dollar-denominated commercial paper and other short-term notes issued or
guaranteed by the governments or agencies and instrumentalities of Western
Europe, including the United Kingdom, Spain, Portugal, Greece, Austria, France,
West Germany, Belgium, the Netherlands, Italy, Switzerland, Denmark, Norway,
Sweden, Finland and Ireland, and of Australia, New Zealand, Japan and Canada.
The Fund will purchase these obligations only if such obligations, in the
opinion of the investment manager based on guidelines established by the Fund's
Board of Directors, are of comparable quality to corporate obligations in which
the Fund may invest.
The Cash Management Fund may also invest in high quality, short-term municipal
obligations that carry yields that are competitive with those of other types of
money market instruments in which the Fund may invest. Dividends paid by the
Fund derived from interest on municipal obligations that may be purchased by it
will be taxable to shareholders for federal income tax purposes because the Fund
will not qualify as an entity that can pass through the tax-exempt character of
such interest.
The Cash Management Fund may invest in floating and variable rate obligations
with stated maturities in excess of thirteen months upon compliance with certain
conditions contained in Rule 2a-7 promulgated under the 1940 Act, in which case
such obligations will be treated, in accordance with Rule 2a-7, as having
maturities not exceeding thirteen months. Floating or variable rate obligations
bear interest at rates that are not fixed, but vary with changes in specified
market rates or indices, such as the prime rate, and at specified intervals.
Certain of the floating or variable rate obligations that may be
PAGE 21
<PAGE> 28
SALOMON BROTHERS INVESTMENT SERIES
purchased by the Fund may carry a demand feature that would permit the holder to
tender them back to the issuer at par value prior to maturity. Such obligations
include variable rate master demand notes, which are unsecured instruments
issued pursuant to an agreement between the issuer and the holder that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. The Fund will limit its purchases of floating and variable rate
obligations to those of the same quality as it otherwise is allowed to purchase.
The investment manager will monitor on an ongoing basis the ability of an issuer
of a demand instrument to pay principal and interest on demand.
The Cash Management Fund may also invest in variable amount master demand notes.
A variable amount master demand note differs from ordinary commercial paper in
that it is issued pursuant to a written agreement between the issuer and the
holder, its amount may from time to time be increased by the holder (subject to
an agreed maximum) or decreased by the holder or the issuer, it is payable on
demand, the rate of interest payable on it varies with an agreed formula and it
is not typically rated by a rating agency.
The Cash Management Fund may also purchase asset-backed securities. Asset-backed
securities represent defined interests in an underlying pool of assets. Such
securities may be issued as pass-through certificates, which represent undivided
fractional interests in the underlying pool of assets. Alternatively,
asset-backed securities may be issued as interests, generally in the form of
debt securities, in a special purpose entity organized solely for the purpose of
owning the underlying assets and issuing such securities. In the latter case,
such securities are secured by and payable from a stream of payments generated
by the underlying assets. The assets underlying asset-backed securities are
often a pool of assets similar to one another, such as motor vehicle receivables
or credit card receivables. Alternatively, the underlying assets may be
particular types of securities, various contractual rights to receive payments
and/or other types of assets. Asset-backed securities frequently carry credit
protection in the form of extra collateral, subordinate certificates, cash
reserve accounts, letters of credit or other enhancements. Any asset-backed
securities held by the Fund must comply with its portfolio maturity and credit
quality requirements.
Among the municipal obligations that the Cash Management Fund may invest in are
participation certificates in a lease, an installment purchase contract or a
conditional sales contract (hereinafter collectively called "lease obligations")
entered into by a State or a political subdivision to finance the acquisition or
construction of equipment, land or facilities. Although lease obligations do not
constitute general obligations of the issuer for which the lessee's unlimited
taxing power is pledged, a lease obligation is frequently backed by the lessee's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "nonappropriation"
clauses which provide that the lessee has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "nonappropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. These securities represent a relatively new
type of financing that has not yet developed the depth of marketability
associated with more conventional securities. Certain investments in lease
obligations may be illiquid. The Fund may not invest in illiquid lease
obligations if such investments, together with all other illiquid investments,
would exceed 10% of the Fund's net assets. The Fund may, however, invest without
regard to such limitation in lease obligations which the investment manager,
pursuant to guidelines which have been adopted by
PAGE 22
<PAGE> 29
SALOMON BROTHERS INVESTMENT SERIES
the Board of Directors and subject to the supervision of the Board, determines
to be liquid.
The Cash Management Fund may purchase securities on a firm commitment basis,
including when-issued securities. See "Additional Investment Activities and Risk
Factors--Firm Commitments and When-Issued Securities" for a description of such
securities and their associated risks.
In view of the fundamental policy of the Cash Management Fund to invest at least
25% of its assets in bank obligations, except for temporary defensive purposes
as described above, an investment in the Cash Management Fund should be made
with an understanding of the characteristics of the banking industry and the
risks which such an investment may entail. See "Additional Investment Activities
and Risk Factors--Bank Obligations."
The Cash Management Fund is not authorized to use any of the various investment
strategies referred to under "Additional Investment Activities and Risk
Factors--Derivatives."
Except with respect to investment by the Cash Management Fund of at least 25% of
its assets in bank obligations, as described above, the foregoing investment
policies and activities are not fundamental and may be changed by the Board of
Directors of the Cash Management Fund without the approval of shareholders.
NEW YORK MUNICIPAL BOND FUND
The New York Municipal Bond Fund's investment objective is to achieve a high
level of current income which is exempt from regular federal income taxes and
New York State and New York City personal income taxes, consistent with the
preservation of capital. The Fund invests primarily in a portfolio of municipal
obligations that are issued (i) by the State of New York and its cities,
municipalities and other public authorities, and (ii) by territories and
possessions of the United States and their respective authorities, agencies,
instrumentalities and political subdivisions, the interest on which is exempt
from regular federal income taxes and from personal income taxes of New York
State and New York City. All or a portion of the Fund's dividends paid in
respect of its shares may be subject to the federal alternative minimum tax. See
"Taxation." Under normal market conditions, the Fund will invest at least 65% of
its net assets in obligations the interest on which is exempt from personal
income taxes of New York State and New York City and at least 80% of its net
assets in obligations the interest on which is exempt from regular federal
income taxes.
The New York Municipal Bond Fund will not invest in municipal obligations that
are rated below investment grade at the time of purchase. However, the Fund may
retain in its portfolio a municipal obligation whose rating drops below Baa or
BBB after its acquisition by the Fund, if the investment manager considers the
retention of such obligation advisable. The Fund intends to emphasize
investments in municipal obligations with long-term maturities and expects to
maintain an average portfolio maturity of 20 to 30 years and an average
portfolio duration of 8 to 11 years. Duration is an approximate measure of the
sensitivity of the value of a fixed income security to changes in interest
rates. In general, the percentage change in a fixed income security's value in
response to changes in interest rates is a function of that security's duration
multiplied by the percentage point change in interest rates. The average
portfolio maturity and duration, however, may be shortened from time to time
depending on market conditions.
The types of obligations in which the New York Municipal Bond Fund may invest
include municipal bonds and municipal notes. The Fund may invest in municipal
bonds that are rated at the time of purchase within the four highest ratings
PAGE 23
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SALOMON BROTHERS INVESTMENT SERIES
assigned by Moody's Investors Service, Inc. ("Moody's") or Standard and Poor's
Corporation ("S&P"), or determined by the investment manager to be of comparable
quality. The four highest ratings currently assigned by Moody's to municipal
bonds are Aaa, Aa, A and Baa; the four highest ratings assigned by S&P to
municipal bonds are AAA, AA, A and BBB. A description of the ratings used by
Moody's and S&P is set forth in Appendix A to this Prospectus.
Although municipal obligations rated in the fourth highest rating category by
Moody's (i.e., Baa) or S&P (i.e., BBB) are considered investment grade, they may
be subject to greater risks than other higher rated investment grade securities.
Municipal obligations rated Baa by Moody's, for example, are considered medium
grade obligations that lack outstanding investment characteristics and have
speculative characteristics as well. Municipal obligations rated BBB by S&P are
regarded as having an adequate capacity to pay principal and interest. Municipal
bonds are debt obligations that are typically issued to obtain funds for various
public purposes, such as construction of public facilities (e.g., airports,
highways, bridges and schools). Municipal bonds at the time of issuance are
generally long-term securities with maturities of as much as thirty years or
more, but may have remaining maturities of shorter duration at the time of
purchase by the Fund.
The New York Municipal Bond Fund may invest in municipal notes rated at the time
of purchase MIG1, MIG2 (or VMIG-1 or VMIG-2, in the case of variable rate demand
notes), P-1, P-2 or better by Moody's or SP-1, SP-2, A-1, A-2 or better by S&P,
or determined by the investment manager to be of comparable quality.
Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes generally have maturities at the
time of issuance of three years or less. Municipal notes that may be purchased
by the Fund include, but are not limited to tax anticipation notes ("TANs"),
bond anticipation notes ("BANs") and revenue anticipation notes ("RANs").
TANs are sold as interim financing in anticipation of collection of taxes. An
uncertainty in a municipal issuer's capacity to raise taxes as a result of such
things as a decline in its tax base or a rise in delinquencies could adversely
affect the issuer's ability to meet its obligations on outstanding TANs.
BANs are sold as interim financing in anticipation of a bond sale. The ability
of a municipal issuer to meet its obligations on its BANs is primarily dependent
on the issuer's adequate access to the longer term municipal bond market and the
likelihood that the proceeds of such bond sales will be used to pay the
principal of, and interest on, BANs.
RANs are sold as interim financing in anticipation of receipt of other revenues.
A decline in the receipt of certain revenues, such as anticipated revenues from
another level of government, could adversely affect an issuer's ability to meet
its obligations on outstanding RANs.
TANs, BANs and RANs are usually general obligations of the issuer.
Municipal obligations are debt obligations issued by or on behalf of states,
cities, municipalities and other public authorities. The two principal
classifications of municipal obligations that may be held by the New York
Municipal Bond Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source as the user of a
facility being financed. Revenue securities may include private activity bonds.
Such bonds may be issued by or on behalf
PAGE 24
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SALOMON BROTHERS INVESTMENT SERIES
of public authorities to finance various privately operated facilities and are
not payable from the unrestricted revenues of the issuer. As a result, the
credit quality of private activity bonds is frequently related directly to the
credit standing of private corporations or other entities. In addition, the
interest on private activity bonds issued after August 7, 1986 is subject to the
federal alternative minimum tax. The Fund will not be restricted with respect to
the proportion of its assets that may be invested in such obligations.
Accordingly, the Fund may not be a suitable investment vehicle for individuals
or corporations that are subject to the federal alternative minimum tax.
The New York Municipal Bond Fund's portfolio may also include "moral obligation"
securities, which are normally issued by special purpose public authorities. If
the issuer of moral obligation securities is unable to meet its debt service
obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality that created the issuer.
In addition, the New York Municipal Bond Fund may invest in municipal lease
obligations. Municipal lease obligations are not fully backed by the
municipality's credit and their interest may become taxable if the lease is
assigned. For a further discussion of municipal lease obligations, see the
investment objectives and policies for the Cash Management Fund. The Fund also
may invest in resource recovery bonds, which may be general obligations of the
issuing municipality or supported by corporate or bank guarantees. The viability
of the resource recovery project, environmental protection regulations and
project operator tax incentives may affect the value and credit quality of
resource recovery bonds.
The New York Municipal Bond Fund currently intends to invest substantially all
of its assets in obligations that are exempt from regular federal income taxes
and New York State and New York City personal income taxes. See "Taxation." To
the extent that the unavailability of suitable obligations for investment by the
Fund prevents it from investing substantially all of its assets in such
obligations, the Fund may purchase municipal obligations issued by other states,
their agencies or instrumentalities. Under normal market conditions, however,
the Fund will invest at least 65% of its net assets in obligations that are
exempt from regular federal income tax and New York State and New York City
personal income taxes, as described above. In addition, it is a fundamental
policy of the Fund to invest, under normal market conditions, at least 80% of
its net assets in obligations that are exempt from regular federal income tax.
If at some future date, in the opinion of the investment manager, adverse
conditions prevail in the market for obligations exempt from regular federal
income tax and from the personal income taxes of New York State and New York
City (including conditions under which such obligations are unavailable for
investment), the New York Municipal Bond Fund may, for temporary defensive
purposes, invest more than 35% of its assets in municipal obligations issued by
other states, their agencies or instrumentalities. Moreover, if at some future
date, in the opinion of the investment manager, adverse conditions should
prevail in the market for municipal bonds generally, the Fund may temporarily
invest without limitation in taxable high-quality short-term money market
instruments in order to maintain a defensive posture. To the extent that the
Fund deviates from its investment policies as a result of the unavailability of
suitable obligations or for other defensive purposes, its investment objective
of seeking income exempt from regular federal income taxes and the personal
income taxes of New York State and New York City may not be achieved.
The New York Municipal Bond Fund may purchase the following taxable high-qual-
PAGE 25
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SALOMON BROTHERS INVESTMENT SERIES
ity short-term money market instruments: obligations of the U.S. government or
its agencies or instrumentalities; commercial paper of issuers rated, at the
time of purchase, A-2 or better by S&P or P-2 or better by Moody's or which, in
the opinion of the investment manager, is of comparable quality; certificates of
deposit, banker's acceptances or time deposits of U.S. banks with total assets
of at least $1 billion (including obligations of foreign branches of such banks)
and of the 75 largest foreign commercial banks in terms of total assets
(including domestic branches of such banks), and repurchase agreements with
respect to such obligations.
The New York Municipal Bond Fund may also purchase municipal commercial paper
that is rated at the time of purchase P-1 or P-2 or better by Moody's or A-1 or
A-2 or better by S&P, or determined by the investment manager to be of
comparable quality. Municipal commercial paper that may be purchased by the Fund
consists of short-term obligations of a municipality. Such paper is likely to be
issued to meet seasonal working capital needs of a municipality or as interim
construction financing. Municipal commercial paper, in many cases, is backed by
a letter of credit lending agreement, note repurchase agreement or other credit
facility agreement offered by banks or other institutions.
Certain of the obligations that the New York Municipal Bond Fund may purchase
may have a floating or variable rate of interest. For a description of these
obligations, see the discussion set forth above of the investment objective and
policies for the Cash Management Fund.
The New York Municipal Bond Fund may purchase participation certificates issued
by a bank, insurance company or other financial institution in obligations that
may otherwise be purchased by the Fund. A participation certificate gives the
Fund an undivided interest in the underlying obligations in the proportion that
the Fund's interest bears to the total principal amount of such obligations.
Certain of such participation certificates may carry a demand feature that would
permit the holder to tender them back to the issuer or to a third party prior to
maturity.
The New York Municipal Bond Fund may invest in variable rate auction securities
and inverse floaters which are instruments created when an issuer or dealer
separates the principal portion of a long-term, fixed-rate municipal bond into
two long-term, variable-rate instruments. The interest rate on the variable rate
auction portion reflects short-term interest rates, while the interest rate on
the inverse floater portion is typically higher than the rate available on the
original fixed-rate bond. Changes in the interest rate paid on the portion of
the issue relative to short-term interest rates inversely affect the interest
rate paid on the latter portion of the issue. The latter portion therefore is
subject to greater price volatility than the original fixed-rate bond, and the
market value can be extremely volatile. Since the market for these instruments
is new, the holder of one portion may have difficulty finding a ready purchaser.
Depending on market availability, the two portions may be recombined to form a
fixed-rate municipal bond. It is not presently anticipated that the Fund will
invest in variable rate auction securities or inverse floaters to any
significant degree.
Because the New York Municipal Bond Fund will invest primarily in obligations
issued (i) by the State of New York and its cities, municipalities and other
public authorities, and (ii) by territories and possessions of the United States
and their respective authorities, agencies, instrumentalities and political
subdivisions the interest on which is exempt from regular federal income taxes
and from personal income taxes of New York State and New York City, it is more
susceptible to factors adversely affecting issuers of such obligations than a
comparable municipal securities fund that is not so concentrated. New York
State, New York City and other New
PAGE 26
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SALOMON BROTHERS INVESTMENT SERIES
York public bodies at times have encountered and are encountering financial
difficulties. Although New York State's financial operations improved during the
most recent fiscal years, the State incurred budget deficits during the period
1989 through 1992 and both the State and the City continue to face increasing
debt levels. In the recent national recession, the State has been more heavily
impacted than the nation as a whole and has been slower in recovering. The City
and other State localities have required and continue to require significant
financial assistance from the State. In recent years, the ratings on State and
City general obligation bonds were downgraded by Moody's and S&P. If either New
York State or any of its local governmental entities is unable to meet its
financial obligations, the Fund's net asset value per share and liquidity could
be significantly adversely affected. See "Special Factors Affecting New York
Municipal Securities" in the Statement of Additional Information for further
information.
In addition, from time to time the New York Municipal Bond Fund may invest 25%
or more of its assets in municipal obligations that are related in such a way
that an economic, business or political development or change affecting one such
obligation could also affect the other obligations; for example, municipal
obligations the interest on which is paid from revenues of similar types of
projects.
Opinions relating to the validity of municipal obligations and to the exemption
of interest thereon from federal income tax and New York State and New York City
personal income taxes are rendered by bond counsel to the respective issuers at
the time of issuance. Neither the New York Municipal Bond Fund nor the
investment manager will review the proceedings relating to the issuance of
municipal obligations or the basis for such opinions.
The New York Municipal Bond Fund may purchase securities on a when-issued or
delayed delivery basis. See "Additional Investment Activities and Risk
Factors--Firm Commitments and When-Issued Securities" for a description of such
securities and their associated risks.
The New York Municipal Bond Fund may purchase securities for which there is a
limited trading market or which are subject to restrictions on resale to the
public. The Fund will not invest more than 15% of the value of its total assets
in illiquid securities, such as "restricted securities" which are illiquid, and
securities that are not readily marketable. For further discussion of illiquid
securities and their associated risks, see "Additional Investment Activities and
Risk Factors--Restricted Securities and Securities with Limited Trading
Markets."
The New York Municipal Bond Fund is currently authorized to use only certain of
the various investment strategies referred to under "Additional Investment
Activities and Risk Factors--Hedging and Derivatives." Specifically, the Fund
may, in order to further its objective, purchase or sell futures contracts on
(a) debt securities that are backed by the full faith and credit of the U.S.
government, such as long-term U.S. Treasury Bonds and Treasury Notes ("U.S. debt
securities") and (b) municipal bond indices. Currently, at least one exchange
trades futures contracts on an index of long-term municipal bonds, and the Fund
reserves the right to conduct futures transactions based on an index which may
be developed in the future to correlate with price movements in municipal
obligations. The Fund will only enter into futures contracts traded on
recognized domestic exchanges. The Fund does not intend to enter into futures
contracts on a regular basis, and will not do so if, as a result, the Fund will
have more than 25% of the value of its total assets committed to the completion
of such contracts. The Fund will not engage in futures transactions for
leveraging purposes. The Fund's ability to pursue these strategies may be
limited by applicable regulations of the SEC, the Commodity Futures Trading
Commission ("CFTC") and the federal
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income tax requirements applicable to regulated investment companies. For a
discussion of futures transactions, including certain risks associated
therewith, see "Additional Investment Activities and Risk Factors--Derivatives,"
Appendix B to this Prospectus and the Statement of Additional Information.
The foregoing policies, other than the New York Municipal Bond Fund's investment
objective and its policy to invest at least 65% of its net assets, under normal
market conditions, in obligations the interest on which is exempt from personal
income taxes of New York State and New York City and at least 80% of its net
assets, under normal market conditions, in obligations the interest on which is
exempt from regular federal income taxes, are not fundamental and may be changed
by the Fund's Board of Directors without the approval of shareholders.
NATIONAL INTERMEDIATE MUNICIPAL FUND
The National Intermediate Municipal Fund's investment objective is to achieve a
high level of current income which is exempt from regular federal income taxes.
The Fund seeks to achieve its objective by investing primarily in a portfolio of
municipal obligations. The Fund will invest under normal circumstances, at least
80% of its net assets in municipal obligations the interest on which is exempt
from regular federal income tax. All or a portion of the Fund's dividends paid
in respect of its shares may be subject to the federal alternative minimum tax.
See "Taxation."
The National Intermediate Municipal Fund will not invest in municipal
obligations that are rated below investment grade at the time of purchase.
However, the Fund may retain in its portfolio a municipal obligation whose
rating drops below "Baa" or "BBB" after its acquisition by the Fund, if the
investment manager considers the retention of such obligation advisable. The
Fund intends to emphasize investments in municipal obligations with intermediate
maturities and expects to maintain a dollar-weighted average portfolio maturity
of 3 to 10 years. The average portfolio maturity, however, may be shortened from
time to time depending on market conditions.
The types of obligations in which the National Intermediate Municipal Fund may
invest include municipal bonds, municipal notes, municipal obligations, "moral
obligation" securities, municipal lease obligations, resource recovery bonds,
taxable high quality short-term money market instruments and municipal
commercial paper which are described above under the investment objectives and
policies of the New York Municipal Bond Fund. The Fund may also invest in
floating and variable rate obligations, participation certificates, variable
rate auction securities and inverse floaters which are also described above
under the investment objectives and policies of the New York Municipal Bond
Fund. It is not presently anticipated that the Fund will invest in variable rate
auction securities or inverse floaters to any significant degree.
The Fund may invest in municipal bonds that are rated at the time of purchase
within the four highest ratings assigned by Moody's, S&P or Fitch, or determined
by the investment manager to be of comparable quality. The four highest ratings
currently assigned by Moody's to municipal bonds are Aaa, Aa, A and Baa; the
four highest ratings assigned by S&P and Fitch to municipal bonds are AAA, AA, A
and BBB. A description of the ratings used by Moody's, S&P and Fitch is included
in Appendix A to this Prospectus, and the risks associated with municipal
obligations rated in the fourth highest rating category are described above
under the investment objectives and policies of the New York Municipal Bond
Fund.
The National Intermediate Municipal Fund may invest in municipal notes rated at
the time of purchase MIG1, MIG2 (or VMIG-1 or VMIG-2, in the case of variable
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rate demand notes), P-2 or better by Moody's, SP-2, A-2 or better by S&P, or F-2
or better by Fitch, or determined by the investment manager to be of comparable
quality.
The National Intermediate Municipal Fund currently intends to invest
substantially all of its assets in obligations the interest on which is exempt
from regular federal income taxes. See "Taxation." However, in order to maintain
liquidity, the Fund may invest up to 20% of its assets in taxable obligations,
including taxable high-quality short-term money market instruments.
If at some future date, in the opinion of the investment manager, adverse
conditions prevail in the market for obligations exempt from regular federal
income taxes, the National Intermediate Municipal Fund may invest its assets
without limit in taxable high-quality short-term money market instruments, the
types and characteristics of which are set forth above in the discussion of
investment objectives and policies of the New York Municipal Bond Fund.
Dividends paid by the Fund that are attributable to interest derived from
taxable money market instruments will be taxable to investors.
Certain of the obligations that the National Intermediate Municipal Fund may
purchase may have a floating or variable rate of interest. For a description of
these obligations, see the discussion set forth above of the investment
objective and policies of the Cash Management Fund.
From time to time, the National Intermediate Municipal Fund may invest more than
25% of its assets in obligations whose interest payments are from revenues of
similar projects (such as utilities or hospitals) or whose issuers share the
same geographic location. As a result, the Fund may be more susceptible to a
single economic, political or regulatory development than would a portfolio of
securities with a greater variety of issuers. These developments include
proposed legislation or pending court decisions affecting the financing of such
projects and market factors affecting the demand for their services or products.
Opinions relating to the validity of municipal obligations and to the exemption
of interest thereon from regular federal income tax are rendered by bond counsel
to the respective issuers at the time of issuance. Neither the National
Intermediate Municipal Fund nor the investment manager will review the
proceedings relating to the issuance of municipal obligations or the basis for
such opinions.
The National Intermediate Municipal Fund may purchase securities on a when-
issued or delayed delivery basis. See "Additional Investment Activities and Risk
Factors--Firm Commitments and When-Issued Securities" for a description of such
securities and their associated risks.
The National Intermediate Municipal Fund may purchase securities for which there
is a limited trading market or which are subject to restrictions on resale to
the public. The Fund will not invest more than 15% of the value of its total
assets in illiquid securities, such as "restricted securities" which are
illiquid, and securities that are not readily marketable. For further discussion
of illiquid securities and their associated risks, see "Additional Investment
Activities and Risk Factors-- Restricted Securities and Securities with Limited
Trading Markets."
The National Intermediate Municipal Fund is currently authorized to use only
certain of the various investment strategies referred to under "Additional
Investment Activities and Risk Factors-- Derivatives." Specifically, the Fund
may purchase or sell futures contracts on (a) debt securities that are backed by
the full faith and credit of the U.S. Government, such as long-term U.S.
Treasury Bonds and Treasury Notes and (b) municipal bond indices. Currently, at
least one exchange trades futures contracts on an index of long-term municipal
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SALOMON BROTHERS INVESTMENT SERIES
bonds, and the Fund reserves the right to conduct futures transactions based on
an index which may be developed in the future to correlate with price movements
in municipal obligations. The Fund will only enter into futures contracts traded
on recognized domestic exchanges. The Fund does not intend to enter into futures
contracts on a regular basis, and will not do so if, as a result, the Fund will
have more than 25% of the value of its total assets committed to the completion
of such contracts. The Fund will not engage in futures transactions for
leveraging purposes. The Fund's ability to pursue these strategies may be
limited by applicable regulations of the SEC, the Commodity Futures Trading
Commission ("CFTC") and the federal income tax requirements applicable to
regulated investment companies. For a discussion of futures transactions,
including certain risks associated therewith, see "Additional Investment
Activities and Risk Factors--Derivatives," Appendix B to this Prospectus and the
Statement of Additional Information.
The foregoing policies, other than the National Intermediate Municipal Fund's
investment objective, are not fundamental and may be changed by the Fund's Board
of Directors without the approval of shareholders.
U.S. GOVERNMENT INCOME FUND
The investment objective of the U.S. Government Income Fund is to obtain a high
level of current income. The Fund seeks to attain its objective by investing
under normal circumstances 100% of its assets in debt obligations and
mortgage-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities. The securities in which the U.S. Government
Income Fund may invest are:
(1) U.S. Treasury obligations;
(2) obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government which are backed by their own credit and may not be backed by
the full faith and credit of the U.S. government;
(3) mortgage-backed securities guaranteed by the Government National Mortgage
Association ("GNMA"), popularly known as "Ginnie Maes," that are supported by
the full faith and credit of the U.S. government. Such securities entitle the
holder to receive all interest and principal payments due whether or not
payments are actually made on the underlying mortgages;
(4) mortgage-backed securities guaranteed by agencies or instrumentalities of
the U.S. government which are supported by their own credit but not the full
faith and credit of the U.S. government, such as the Federal Home Loan Mortgage
Corporation ("FHLMC") and the Federal National Mortgage Association; and
(5) collateralized mortgage obligations issued by private issuers for which the
underlying mortgage-backed securities serving as collateral are backed (i) by
the credit alone of the U.S. government agency or instrumentality which issues
or guarantees the mortgage-backed securities, or (ii) by the full faith and
credit of the U.S. government.
Any guarantee of the securities in which the U.S. Government Income Fund invests
runs only to principal and interest payments on the securities and not to the
market value of such securities or the principal and interest payments on the
underlying mortgages. In addition, the guarantee only runs to the portfolio
securities held by the U.S. Government Income Fund and not to the purchase of
shares of the Fund.
The U.S. Government Income Fund currently expects that it will maintain an
average portfolio effective duration of three to five years. Duration is an
approximate measure of the sensitivity of the value of a fixed income security
to changes in interest rates. In general, the percentage change in a fixed
income security's value in response to changes in
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SALOMON BROTHERS INVESTMENT SERIES
interest rates is a function of that security's duration multiplied by the
percentage point change in interest rates. The Fund may, however, invest in
securities of any maturity or effective duration and accordingly, the
composition and weighted average maturity of the Fund's portfolio will vary from
time to time, based upon the investment manager's determination of how best to
achieve the Fund's investment objective. With respect to mortgage-backed
securities in which the Fund invests, average maturity and duration are
determined by using mathematical models that incorporate prepayment assumptions
and other factors that involve estimates of future economic parameters. These
estimates may vary from actual results, particularly during periods of extreme
market volatility. In addition, the average maturity and duration of
mortgage-backed derivative securities may not accurately reflect the price
volatility of such securities under certain market conditions.
From time to time, a significant portion of the Fund's assets may be invested in
mortgage-backed securities. The mortgage-backed securities in which the U.S.
Government Income Fund invests represent participating interests in pools of
fixed rate and adjustable rate residential mortgage loans issued or guaranteed
by agencies or instrumentalities of the U.S. government. Mortgage-backed
securities are issued by lenders such as mortgage bankers, commercial banks, and
savings and loan associations. Mortgage-backed securities generally provide
monthly payments which are, in effect, a "pass-through" of the monthly interest
and principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans. Principal prepayments result from the
sale of the underlying property or the refinancing or foreclosure of underlying
mortgages.
The yield of the mortgage securities is based on the prepayment rates
experienced over the life of the security. Prepayments tend to increase during
periods of falling interest rates, while during periods of rising interest rates
prepayments will most likely decline. Reinvestment by the U.S. Government Income
Fund of scheduled principal payments and unscheduled prepayments may occur at
higher or lower rates than the original investment, thus affecting the yield of
the Fund. Monthly interest payments received by the Fund have a compounding
effect which will increase the yield to shareholders as compared to debt
obligations that pay interest semiannually. For further discussion of
mortgage-backed securities and collateralized mortgage obligations and their
associated risks, see "Additional Investment Activities and Risk Factors--
Mortgage-Backed Securities and "Additional Information on Portfolio Instruments
and Investment Policies--Mortgage-Backed Securities" in the Statement of
Additional Information.
While the U.S. Government Income Fund seeks a high level of current income, it
cannot invest in instruments such as lower grade corporate obligations which
offer higher yields but are subject to greater credit risks. The Fund will not
knowingly invest in a high risk mortgage security. The term "high risk mortgage
security" is defined generally as any mortgage security that exhibits
significantly greater price volatility than a benchmark security, the Federal
National Mortgage Association current coupon 30-year mortgage-backed pass
through security. Shares of the Fund are neither insured nor guaranteed by the
U.S. government, its agencies or instrumentalities. Neither the issuance by nor
the guarantee of a U.S. government agency for a security constitutes assurance
that the security will not significantly fluctuate in value or that the U.S.
Government Income Fund will receive the originally anticipated yield on the
security.
The U.S. Government Income Fund may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a firm commitment basis,
including when-issued securities and
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SALOMON BROTHERS INVESTMENT SERIES
may lend portfolio securities. The Fund does not currently intend to make loans
of portfolio securities with a value in excess of 33% of the value of its total
assets. The Fund may also enter into mortgage "dollar rolls." For a description
of these investment practices and the risks associated therewith, see
"Additional Investment Activities and Risk Factors."
The U.S. Government Income Fund may purchase securities for which there is a
limited trading market or which are subject to restrictions on resale to the
public. The Fund will not invest more than 15% of the value of its total assets
in illiquid securities, such as "restricted securities" which are illiquid, and
securities that are not readily marketable. For further discussion of illiquid
securities and their associated risks, see "Additional Investment Activities and
Risk Factors--Restricted Securities and Securities with Limited Trading
Markets."
The U.S. Government Income Fund is not currently authorized to use any of the
various investment strategies referred to under "Additional Investment
Activities and Risk Factors--Derivatives." However, such strategies may be used
in the future by the Fund. The Fund's ability to pursue certain of these
strategies may be limited by applicable regulations of the SEC, the Commodity
Futures Trading Commission ("CFTC") and the federal income tax requirements
applicable to regulated investment companies. Appendix B to this Prospectus and
the Statement of Additional Information contain descriptions of these strategies
and of certain risks associated therewith.
The foregoing investment policies, other than the U.S. Government Income Fund's
investment objective, are not fundamental and may be changed by the Fund's Board
of Directors without the approval of shareholders.
HIGH YIELD BOND FUND
The High Yield Bond Fund's investment objective is to maximize current income.
The Fund seeks to achieve its objective by investing primarily in a diversified
portfolio of high yield fixed-income securities rated in medium or lower rating
categories or determined by the investment manager to be of comparable quality.
As a secondary objective, the High Yield Bond Fund will seek capital
appreciation.
The High Yield Bond Fund intends to invest, under normal market conditions, at
least 65% of its assets in securities rated "Baa" or lower by Moody's or "BBB"
or lower by S&P, or in securities determined by the investment manager to be of
comparable quality. The Fund may invest up to 35% of its total assets in foreign
fixed-income securities as more fully described below. Medium and low-rated and
comparable unrated securities offer yields that fluctuate over time, but
generally are superior to the yields offered by higher rated securities.
However, such securities also involve significantly greater risks, including
price volatility and risk of default in the payment of interest and principal,
than higher rated securities. Under rating agency guidelines, medium- and lower-
rated securities and comparable unrated securities will likely have some quality
and protective characteristics that are outweighed by large uncertainties or
major risk exposures to adverse conditions. Certain of the debt securities
purchased by the Fund may be rated as low as "C" by Moody's or "D" by S&P or may
be considered comparable to securities having such ratings. Medium and lower
rated securities are considered to have extremely poor prospects of ever
attaining any real investment standing, to have a current identifiable
vulnerability to default or are in default, to be unlikely to have the capacity
to pay interest and repay principal when due in the event of adverse business,
financial or economic conditions, and/or to be in default or not current in the
payment of interest or
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SALOMON BROTHERS INVESTMENT SERIES
principal. Such securities are considered speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held by the
Fund with a commensurate effect on the value of the Fund's shares. Therefore, an
investment in the High Yield Bond Fund should not be considered as a complete
investment program for all investors. A description of the ratings used by
Moody's and S&P is set forth in Appendix A to this Prospectus. The ratings of
Moody's and S&P generally represent the opinions of those organizations as to
the quality of the securities that they rate. Such ratings, however, are
relative and subjective, are not absolute standards of quality, are subject to
change and do not evaluate the market risk of the securities. For further
discussion of high yield securities and the special risks associated therewith,
see "Additional Investment Activities and Risk Factors--High Yield Debt
Securities."
In light of the risks associated with high yield corporate and sovereign debt
securities, the investment manager will take various factors into consideration
in evaluating the creditworthiness of an issuer. For corporate debt securities,
these will typically include the issuer's financial resources, its sensitivity
to economic conditions and trends, the operating history of the issuer, and the
experience and track record of the issuer's management. For sovereign debt
instruments, these will typically include the economic and political conditions
within the issuer's country, the issuer's overall and external debt levels and
debt service ratios, the issuer's access to capital markets and other sources of
funding, and the issuer's debt service payment history. The investment manager
will also review the ratings, if any, assigned to the security by any recognized
rating agencies, although the investment manager's judgment as to the quality of
a debt security may differ from that suggested by the rating published by a
rating service. The High Yield Bond Fund's ability to achieve its investment
objective may be more dependent on the investment manager's credit analysis than
would be the case if it invested in higher quality debt securities. A
description of the ratings used by Moody's and S&P is set forth in Appendix A to
this Prospectus.
The investment manager will have discretion to select the range of maturities of
the fixed-income securities in which the High Yield Bond Fund may invest. The
investment manager anticipates that under current market conditions, the Fund
will have an average portfolio maturity of 10 to 15 years. However, the average
portfolio maturity may vary substantially from time to time depending on
economic and market conditions.
The High Yield Bond Fund may also invest its assets in high-yield commercial
paper. Investments in high-yield commercial paper are generally subject to the
same risk considerations as are applicable to longer-term high-yield debt
securities, as described in "Additional Investment Activities and Risk
Factors--High Yield Debt Securities."
The High Yield Bond Fund may invest up to 35% of its total assets in foreign
fixed-income securities (including emerging market securities) all or a portion
of which may be non-U.S. dollar denominated and which include: (a) debt
obligations issued or guaranteed by foreign national, provincial, state,
municipal or other governments with taxing authority or by their agencies or
instrumentalities, including Brady Bonds; (b) debt obligations of supranational
entities; (c) debt obligations of the U.S. government issued in non-dollar
securities; (d) debt obligations and other fixed-income securities of foreign
corporate issuers (both dollar and non-dollar denominated); and (e) U.S.
corporate issuers (both Eurodollar and non-dollar denominated). There is no
minimum rating criteria for the Fund's investments in such securities. A
descrip-
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SALOMON BROTHERS INVESTMENT SERIES
tion of Brady Bonds is set forth in the discussion of investment objectives and
policies of the Strategic Bond Fund. The risks associated with these investments
are described under the captions "Additional Investment Activities and Risk
Factors--Foreign Securities" and "--High Yield Debt Securities." Moreover,
substantial investments in foreign securities may have adverse tax implications
as described under "Taxation."
The High Yield Bond Fund may also invest in zero coupon securities and pay-
in-kind bonds, which involve special risk considerations. Zero coupon securities
are debt securities that pay no cash income but are sold at substantial
discounts from their value at maturity. When a zero coupon security is held to
maturity, its entire return, which consists of the amortization of discount,
comes from the difference between its purchase price and its maturity value.
This difference is known at the time of purchase, so that investors holding zero
coupon securities until maturity know at the time of their investment what the
expected return on their investment will be. Certain zero coupon securities also
are sold at substantial discounts from their maturity value and provide for the
commencement of regular interest payments at a deferred date. Zero coupon
securities may have conversion features. The Fund also may purchase pay-in-kind
bonds. Pay-in-kind bonds pay all or a portion of their interest in the form of
debt or equity securities.
Zero coupon securities and pay-in-kind bonds tend to be subject to greater price
fluctuations in response to changes in interest rates than are ordinary
interest-paying debt securities with similar maturities. The value of zero
coupon securities appreciates more during periods of declining interest rates
and depreciates more during periods of rising interest rates than ordinary
interest-paying debt securities with similar maturities. Zero coupon securities
and pay-in-kind bonds may be issued by a wide variety of corporate and
governmental issuers. Although zero coupon securities and pay-in-kind bonds are
generally not traded on a national securities exchange, such securities are
widely traded by brokers and dealers and, to such extent, will not be considered
illiquid for the purposes of the Fund's 15% limitation on investments in
illiquid securities.
Current federal income tax law requires the holder of a zero coupon security,
certain pay-in-kind bonds and certain other securities acquired at a discount
(such as Brady Bonds) to accrue income with respect to these securities prior to
the receipt of cash payments. Accordingly, to avoid liability for federal income
and excise taxes, the Fund may be required to distribute income accrued with
respect to these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
The High Yield Bond Fund may invest in fixed and floating rate loans ("Loans")
arranged through private negotiations between a corporate borrower or a foreign
sovereign entity and one or more financial institutions ("Lenders"). The Fund
may invest in such Loans in the form of participations in Loans
("Participations") and assignments of all or a portion of Loans from third
parties ("Assignments"). The Fund considers these investments to be investments
in debt securities for purposes of this Prospectus. The High Yield Bond Fund, in
pursuing its investment policies, may acquire Participations and Assignments
which are high yield, non-convertible corporate debt securities or short
duration debt securities. Participations typically will result in the Fund
having a contractual relationship only with the Lender, not with the borrower.
The Fund will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the Lender selling the Participation and
only upon receipt by the Lender of the payments from the borrower. In connection
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SALOMON BROTHERS INVESTMENT SERIES
with purchasing 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 Participation. In the
event of the insolvency of the Lender selling a 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. The Fund will acquire Participations only
if the Lender interpositioned between the Fund and the borrower is determined by
the investment manager to be creditworthy. When the Fund purchases Assignments
from Lenders, the Fund will acquire direct rights against the borrower on the
Loan, except that under certain circumstances such rights may be more limited
than those held by the assigning Lender.
The High Yield Bond Fund may have difficulty disposing of Assignments and
Participations. Because the market for such instruments is not highly liquid,
the Fund anticipates that such instruments could be sold only to a limited
number of institutional investors. The lack of a highly liquid secondary market
may have an adverse impact on the value of such instruments and will have an
adverse impact on the Fund's ability to dispose of particular Assignments or
Participations in response to a specific economic event, such as deterioration
in the creditworthiness of the borrower. Based upon the current position of the
staff of the SEC, the Fund will treat investments in Participations and
Assignments as illiquid for purposes of its limitation on investments in
illiquid securities. The Fund may revise its policy based on any future change
in the SEC's position.
The High Yield Bond Fund may invest up to 20% of its assets in common stock,
convertible securities, warrants, preferred stock or other equity securities
when consistent with the Fund's objectives. The Fund will generally hold such
equity investments as a result of purchases of unit offerings of fixed-income
securities which include such securities or in connection with an actual or
proposed conversion or exchange of fixed-income securities, but may also
purchase equity securities not associated with fixed-income securities when, in
the opinion of the investment manager, such purchase is appropriate.
There may be times when, in the judgment of the investment manager, conditions
in the securities markets would make pursuing the Fund's basic investment
strategy inconsistent with the best interests of the Fund's shareholders. At
such times, the Fund's investment manager may employ alternative strategies,
including investment of a substantial portion of the Fund's assets in securities
rated higher than "Baa" by Moody's or "BBB" by S&P, or of comparable quality. In
addition, in order to maintain liquidity, the Fund may invest up to 35% of its
assets in high-quality short-term money market instruments. Such instruments may
include obligations of the U.S. government or its agencies or instrumentalities;
commercial paper of issuers rated, at the time of purchase, A-2 or better by S&P
or P-2 or better by Moody's or which, in the opinion of the investment manager,
are of comparable quality; certificates of deposit, banker's acceptances or time
deposits of U.S. banks with total assets of at least $1 billion (including
obligations of foreign branches of such banks) and of the 75 largest foreign
commercial banks in terms of total assets (including domestic branches of such
banks), and repurchase agreements with respect to such obligations.
If at some future date, in the opinion of the investment manager, adverse
conditions prevail in the securities markets
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SALOMON BROTHERS INVESTMENT SERIES
which makes the High Yield Bond Fund's investment strategy inconsistent with the
best interests of the Fund's shareholders, the Fund may invest its assets
without limit in high-quality short-term money market instruments.
The High Yield Bond Fund may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a firm commitment basis,
including when-issued securities and may lend portfolio securities. The Fund
does not currently intend to make loans of portfolio securities with a value in
excess of 33% of the value of its total assets. For a description of these
investment practices and the risks associated therewith, see "Additional
Investment Activities and Risk Factors."
The High Yield Bond Fund may purchase securities for which there is a limited
trading market or which are subject to restrictions on resale to the public. The
Fund will not invest more than 15% of the value of its total assets in illiquid
securities, such as "restricted securities" which are illiquid, and securities
that are not readily marketable. As more fully described in the Statement of
Additional Information, the Fund may purchase certain restricted securities
("Rule 144A securities") for which there is a secondary market of qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933, as amended (the "1933 Act"). The Fund's holdings of Rule 144A securities
which are liquid securities will not be subject to the 15% limitation on
investments in illiquid securities. For further discussion of illiquid
securities and their associated risks, see "Additional Investment Activities and
Risk Factors--Restricted Securities and Securities with Limited Trading
Markets."
The High Yield Bond Fund is currently authorized to use all of the various
investment strategies referred to under "Additional Investment Activities and
Risk Factors--Derivatives." With the exception of currency transactions,
however, it is not presently anticipated that any of these strategies will be
used to a significant degree by the Fund. The Fund's ability to pursue certain
of these strategies may be limited by applicable regulations of the SEC, the
CFTC and the federal income tax requirements applicable to regulated investment
companies. Appendix B to this Prospectus and the Statement of Additional
Information contain descriptions of these strategies and of certain risks
associated therewith.
The foregoing investment policies, other than the High Yield Bond Fund's
investment objectives, are not fundamental and may be changed by the Fund's
Board of Directors without the approval of shareholders.
STRATEGIC BOND FUND
The primary investment objective of the Strategic Bond Fund is to seek a high
level of current income. As a secondary objective, the Fund will seek capital
appreciation. The Strategic Bond Fund seeks to achieve its objectives by
investing in a globally diverse portfolio of fixed-income investments and by
giving the investment manager broad discretion to deploy the Strategic Bond
Fund's assets among certain segments of the fixed-income market that the
investment manager believes will best contribute to the achievement of the
Fund's objectives. At any point in time, the investment manager will deploy the
Fund's assets based on the investment manager's analysis of current economic and
market conditions and the relative risks and opportunities present in the
following market segments: U.S. government obligations, investment grade
domestic corporate debt, high yield domestic corporate debt securities,
mortgage-backed securities and investment grade and high yield foreign corporate
and sovereign debt securities. The investment manager has entered into a
subadvisory consulting agreement with its London based affiliate, Salomon
Brothers Asset Management Limited ("SBAM Limited") pursuant to which SBAM
Limited will
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SALOMON BROTHERS INVESTMENT SERIES
provide certain advisory services to the investment manager relating to currency
transactions and investments in non-dollar-denominated debt securities for the
benefit of the Fund.
The investment manager will determine the amount of assets to be allocated to
each type of security in which it invests based on its assessment of the maximum
level of income and capital appreciation that can be achieved from a portfolio
which is invested in these securities. In making this determination, the
investment manager will rely in part on quantitative analytical techniques that
measure relative risks and opportunities of each type of security based on
current and historical economic, market, political and technical data for each
type of security, as well as on its own assessment of economic and market
conditions both on a global and local (country) basis. In performing
quantitative analysis, the investment manager will employ prepayment analysis
and option adjusted spread technology to evaluate mortgage securities, mean
variance optimization models to evaluate foreign debt securities, and total rate
of return analysis to measure relative risks and opportunities in other
fixed-income markets. Economic factors considered will include current and
projected levels of growth and inflation, balance of payment status and monetary
policy. The allocation of assets to foreign debt securities will further be
influenced by current and expected currency relationships and political and
sovereign factors. The investment manager will continuously review this
allocation of assets and make such adjustments as it deems appropriate. The Fund
does not plan to establish a minimum or a maximum percentage of the assets which
it will invest in any particular type of fixed-income security.
In addition, the investment manager will have discretion to select the range of
maturities of the various fixed-income securities in which the Strategic Bond
Fund invests. The investment manager anticipates that under current market
conditions, the Fund's portfolio securities will have a weighted average life of
6 to 10 years. However, the weighted average life of the portfolio securities
may vary substantially from time to time depending on economic and market
conditions.
The investment grade corporate debt securities and the investment grade foreign
debt securities to be purchased by the Fund are domestic and foreign debt
securities rated within the four highest bond ratings of either Moody's or S&P,
or, if unrated, deemed to be of equivalent quality in the investment manager's
judgment. While debt securities carrying the fourth highest quality rating
("Baa" by Moody's or "BBB" by S&P) are considered investment grade and are
viewed to have adequate capacity for payment of principal and interest,
investments in such securities involve a higher degree of risk than that
associated with investments in debt securities in the higher rating categories
and such debt securities lack outstanding investment characteristics and in fact
have speculative characteristics as well. For example, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
securities.
The types and characteristics of the U.S. government obligations and mortgage-
backed securities to be purchased by the Strategic Bond Fund are set forth above
in the discussion of investment objectives and policies for the U.S. Government
Income Fund. In addition, the Fund may purchase privately issued mortgage
securities which are not guaranteed by the U.S. government or its agencies or
instrumentalities and may purchase stripped mortgage securities, including
interest-only and principal-only securities. The Strategic Bond Fund does not
currently intend to invest more than 10% of its total assets in interest-only
and principal-only securities. Additional information with respect to securities
to be purchased by the Fund is
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SALOMON BROTHERS INVESTMENT SERIES
set forth below in the section entitled "Additional Investment Activities and
Risk Factors" and in the section entitled "Additional Information on Portfolio
Instruments and Investment Policies" in the Statement of Additional Information.
The Strategic Bond Fund may invest in debt obligations issued or guaranteed by a
foreign sovereign government or one of its agencies or political subdivisions
and debt obligations issued or guaranteed by supranational organizations.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the European Coal and Steel Community, the Asian
Development Bank and the Inter-American Development Bank. Such supranational
issued instruments may be denominated in multi-national currency units. The
Strategic Bond Fund will not invest more than 10% of its total assets in issuers
located in any one country (other than issuers located in the United States).
In pursuing the Strategic Bond Fund's investment objectives, the Fund reserves
the right to invest predominantly in medium or lower-rated securities.
Investments of this type involve significantly greater risks, including price
volatility and risk of default in the payment of interest and principal, than
higher-quality securities. Although the investment manager does not anticipate
investing in excess of 75% of the Strategic Bond Fund's assets in domestic and
developing country debt securities that are rated below investment grade, the
Strategic Bond Fund may invest a greater percentage in such securities when, in
the opinion of the investment manager, the yield available from such securities
outweighs their additional risks. The investment manager anticipates that under
current market conditions, a significant portion of the Fund's assets will be
invested in such securities. By investing a portion of the Strategic Bond Fund's
assets in securities rated below investment grade as well as through investments
in mortgage securities and foreign debt securities, the investment manager
expects to provide investors with a higher yield than a high-quality domestic
corporate bond fund. Certain of the debt securities in which the Strategic Bond
Fund may invest may be rated as low as "C" by Moody's or "D" by S&P or may be
considered comparable to securities having such ratings. Medium and lower-rated
securities are considered to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. See the description above
of investment objectives and polices for the High Yield Bond Fund and
"Additional Investment Activities and Risk Factors--High Yield Debt Securities."
In light of the risks associated with high yield corporate and sovereign debt
securities, the investment manager will take various factors into consideration
in evaluating the creditworthiness of an issuer. For corporate debt securities,
these will typically include the issuer's financial resources, its sensitivity
to economic conditions and trends, the operating history of the issuer, and the
experience and track record of the issuer's management. For sovereign debt
instruments, these will typically include the economic and political conditions
within the issuer's country, the issuer's overall and external debt levels and
debt service ratios, the issuer's access to capital markets and other sources of
funding, and the issuer's debt service payment history. The investment manager
will also review the ratings, if any, assigned to the security by any recognized
rating agencies, although the investment manager's judgment as to the quality of
a debt security may differ from that suggested by the rating published by a
rating service. The Strategic Bond Fund's ability to achieve its investment
objective may be more dependent on the investment manager's credit analysis than
would be the
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SALOMON BROTHERS INVESTMENT SERIES
case if it invested in higher quality debt securities. A description of the
ratings used by Moody's and S&P is set forth in Appendix A to this Prospectus.
The high yield sovereign debt securities in which the Strategic Bond Fund may
invest are U.S. dollar-denominated and non-dollar-denominated debt securities,
including Brady Bonds, that are issued or guaranteed by governments or
governmental entities of developing and emerging countries. The investment
manager expects that these countries will consist primarily of those which have
issued or have announced plans to issue Brady Bonds, but the Fund is not limited
to investing in the debt of such countries. Brady Bonds are debt securities
issued under the framework of the Brady Plan, an initiative announced by former
U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor
nations to restructure their outstanding external indebtedness. For a
description of Brady Bonds, see "Additional Investment Activities and Risk
Factors--High Yield Debt Securities" and "Additional Information on Portfolio
Instruments and Investment Policies--Brady Bonds" in the Statement of Additional
Information. The investment manager anticipates that the Fund's investments in
sovereign debt will be concentrated in Latin American countries, including
Central and South American and Caribbean countries. The investment manager also
expects to take advantage of additional opportunities for investment in the debt
of North African countries, such as Nigeria and Morocco, Eastern European
countries, such as Poland and Hungary, and Southeast Asian countries, such as
the Philippines. Sovereign governments may include national, provincial, state,
municipal or other foreign governments with taxing authority. Governmental
entities may include the agencies and instrumentalities of such governments, as
well as state-owned enterprises. For a more detailed discussion on high yield
sovereign debt securities, see "Additional Investment Activities and Risk
Factors--High Yield Debt Securities."
The Strategic Bond Fund will be subject to special risks as a result of its
ability to invest up to 100% of its assets in foreign securities (including
emerging market securities). Such securities may be non-U.S. dollar denominated
and there is no limit on the percentage of the Fund's assets that can be
invested in non-dollar denominated securities. The investment manager
anticipates that under current market conditions, a significant portion of the
Fund's assets will be invested in foreign securities. These risks are described
under the captions "Additional Investment Activities and Risk Factors-- Foreign
Securities." Moreover, substantial investments in foreign securities may have
adverse tax implications as described under "Taxation." The ability to spread
its investments among the fixed-income markets in a number of different
countries may, however, reduce the overall level of market risk to the extent it
may reduce the Strategic Bond Fund's exposure to a single market.
The Strategic Bond Fund may invest in zero coupon securities, pay-in-kind bonds,
Loan Participations and Assignments. The types and characteristics of these
investments are described above in the discussion of investment objectives and
policies of the High Yield Bond Fund. The Strategic Bond Fund will treat
investments in Participations and Assignments as illiquid for purposes of its
limitation on investments in illiquid securities. The Fund may revise its policy
based on any future change in the SEC's position.
The Strategic Bond Fund may invest up to 20% of its assets in common stock,
convertible securities, warrants, preferred stock or other equity securities
when consistent with the Fund's objectives. The Fund will generally hold such
equity investments as a result of purchases of unit offerings of fixed-income
securities which include such securities or in connection with an actual or
proposed conversion or
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SALOMON BROTHERS INVESTMENT SERIES
exchange of fixed-income securities, but may also purchase equity securities not
associated with fixed-income securities when, in the opinion of the investment
manager, such purchase is appropriate.
The Strategic Bond Fund currently intends to invest substantially all of its
assets in fixed-income securities. In order to maintain liquidity, the Strategic
Bond Fund may invest up to 20% of its assets in high-quality short-term money
market instruments. If at some future date, in the opinion of the investment
manager, adverse conditions prevail in the market for fixed-income securities,
the Strategic Bond Fund for temporary defensive purposes may invest its assets
without limit in high-quality short-term money market instruments. The types and
characteristics of the money market securities to be purchased by the Fund are
set forth in the discussion of investment objectives and policies of the Cash
Management Fund.
The Strategic Bond Fund may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a firm commitment basis,
including when-issued securities and may lend portfolio securities. The Fund
does not currently intend to make loans of portfolio securities with a value in
excess of 33% of the value of its total assets. The Fund may also enter into
mortgage "dollar rolls." For a description of these investment practices and the
risks associated therewith, see "Additional Investment Activities and Risk
Factors."
The Strategic Bond Fund may purchase securities for which there is a limited
trading market or which are subject to restrictions on resale to the public. The
Fund will not invest more than 15% of the value of its total assets in illiquid
securities, such as "restricted securities" which are illiquid, and securities
that are not readily marketable. As more fully described in the Statement of
Additional Information, the Fund may purchase Rule 144A securities for which
there is a secondary market of qualified institutional buyers as contemplated by
Rule 144A under the 1933 Act. The Fund's holdings of Rule 144A securities which
are liquid securities will not be subject to the 15% limitation on investments
in illiquid securities. For further discussion of illiquid securities and their
associated risks, see "Additional Investment Activities and Risk
Factors--Restricted Securities and Securities with Limited Trading Markets."
The Strategic Bond Fund is currently authorized to use all of the various
investment strategies referred to under "Additional Investment Activities and
Risk Factors--Derivatives." With the exception of currency transactions,
however, it is not presently anticipated that any of these strategies will be
used to a significant degree by the Fund. The Fund's ability to pursue certain
of these strategies may be limited by applicable regulations of the SEC, the
CFTC and the federal income tax requirements applicable to regulated investment
companies. Appendix B to this Prospectus and the Statement of Additional
Information contain descriptions of these strategies and of certain risks
associated therewith.
The foregoing investment policies, other than the Strategic Bond Fund's
investment objectives, are not fundamental and may be changed by the Fund's
Board of Directors without the approval of shareholders.
TOTAL RETURN FUND
The primary investment objective of the Total Return Fund is to obtain above-
average income (compared to a portfolio entirely invested in equity securities).
The Fund's secondary objective is to take advantage of opportunities for growth
of capital and income. The policy of the Total Return Fund is to invest in a
broad variety of securities, including equity securities, fixed-income
securities and short-term obligations. The Fund may vary the percentage of
assets invested in any one type of security in accordance with the SBAM's view
of existing and anticipated
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SALOMON BROTHERS INVESTMENT SERIES
economic and market conditions, fiscal and monetary policy and underlying
security values. Under current market conditions, it is anticipated that at
least 40% of the Fund's total assets will be invested in equity securities.
Equity securities include common and preferred stock (including convertible
preferred stock), bonds, notes and debentures convertible into common or
preferred stock, stock purchase warrants and rights, equity interests in trusts,
partnerships, joint ventures or similar enterprises and American, Global or
other types of depositary receipts. Most of the equity securities purchased by
the Fund are expected to be traded on a stock exchange or in an over-the-counter
market.
SBAM will have discretion to invest in the full range of maturities of
fixed-income securities. Generally, most of the Fund's long-term debt
investments will consist of "investment grade" securities (rated Baa or better
by Moody's Investors Service, Inc. ("Moody's") or BBB or better by Standard and
Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch") or
determined by the investment manager to be of comparable quality). See Appendix
A to this Prospectus for a description of these ratings. Certain risks
associated with investment in debt securities carrying the fourth highest
quality rating ("Baa" by Moody's or "BBB" by S&P) are described above in the
investment objectives and policies for the Strategic Bond Fund.
Up to 20% of the Fund's net assets may be invested in nonconvertible fixed
income securities that are rated Ba or lower by Moody's or BB or lower by S&P or
Fitch or determined by the investment manager to be of comparable quality
(commonly known as "junk bonds"). There is no limit on the amount of the Total
Return Fund's assets that can be invested in convertible securities rated below
investment grade. For additional information on these lower rated, high yield
debt securities, which may involve a high degree of risk, see the discussion
above under the investment objectives and policies for the High Yield Bond Fund
and "Additional Investment Activities and Risk Factors--High Yield Debt
Securities."
In addition to corporate debt securities, the Total Return Fund may invest in
U.S. Government securities and mortgage-backed securities, the types and
characteristics of which are set forth above in the discussion of investment
objectives and policies for the U.S. Government Income Fund. The Fund may also
purchase privately issued mortgage securities which are not guaranteed by the
U.S. government or its agencies or instrumentalities. For a description of these
securities and the risks associated therewith see "Additional Investment
Activities and Risk Factors." The Total Return Fund may invest in corporate
asset-backed securities, the characteristics and risks of which are described
above under the investment objective and policies of the Cash Management Fund.
Other fixed income securities in which the Total Return Fund may invest include
zero coupon bonds, deferred interest bonds and bonds on which the interest is
payable in kind ("PIK bonds"). For additional information on zero coupon bonds
and PIK bonds, see the investment objectives and policies for the High Yield
Bond Fund. Deferred interest bonds are debt obligations which are issued or
purchased at a significant discount from face value and provide for a period of
delay before the regular payment of interest begins. The characteristics and
related risks of these bonds are similar to those of zero coupon bonds.
The Total Return Fund may invest up to 20% (and generally expects to invest
between 10% and 20%) of its total assets in foreign securities (including
American Depositary Receipts). For a discussion of the risks associated with
investment in foreign securities, see "Additional Investment Activities and Risk
Factors--Foreign Securities."
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SALOMON BROTHERS INVESTMENT SERIES
The Total Return Fund may invest a portion of its assets in Loan Participations
and Assignments. For a discussion of Loan Participations and Assignments and
their associated risks, see the investment objectives and policies for the High
Yield Bond Fund. The Total Return Fund will treat investments in Loan
Participations as illiquid for purposes of its limitation on investments in
illiquid securities. The Fund may revise its policy based on any future change
in the SEC's position.
The Total Return Fund may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a firm commitment basis,
including when-issued securities, and may lend portfolio securities. For a
description of these investment practices, see "Additional Investment Activities
and Risk Factors." The Fund will not invest more than 10% of its assets in
repurchase agreements maturing in more than seven days.
The Total Return Fund may purchase securities for which there is a limited
trading market or which are subject to restrictions on resale to the public. The
Fund will not invest more than 15% of the value of its total assets in illiquid
securities, such as "restricted securities" which are illiquid, and securities
that are not readily marketable. As more fully described in the Statement of
Additional Information, the Fund may purchase Rule 144A securities for which
there is a secondary market of qualified institutional buyers as contemplated by
Rule 144A under the 1933 Act. The Fund's holdings of Rule 144A securities which
are liquid securities will not be subject to the 15% limitation on investments
in illiquid securities. For further discussion of illiquid securities and their
associated risks, see "Additional Investment Activities and Risk
Factors--Restricted Securities and Securities with Limited Trading Market."
The Total Return Fund is currently authorized to use all of the various
investment strategies referred to under "Additional Investment Activities and
Risk Factors-- Derivatives." With the exception of currency transactions,
however, it is not presently anticipated that any of these strategies will be
used to a significant degree by the Fund. The Fund's ability to pursue certain
of these strategies may be limited by applicable regulations of the SEC, the
CFTC and the federal income tax requirements applicable to regulated investment
companies. Appendix B to this Prospectus and the Statement of Additional
Information contain descriptions of these strategies and of certain risks
associated therewith.
The foregoing investment policies, other than the Total Return Fund's investment
objectives, are not fundamental and may be changed by the Board of Directors
without the approval of shareholders.
INVESTORS FUND
The primary investment objective of the Investors Fund is to seek long-term
growth of capital. Current income is a secondary objective. The Fund seeks to
achieve its objectives primarily through investments in common stocks of well-
known companies.
The Investor Fund's policy is to retain flexibility in the management of its
portfolio, without restrictions as to the proportion of assets which may be
invested in any class of securities. It is anticipated that the Fund's portfolio
will generally consist of common and preferred stocks. The Fund may purchase
securities of companies located in foreign countries which the Fund's investment
manager deems consistent with the investment objectives and policies of the
Fund, but not if upon such purchase more than 20% of the Fund's net assets would
be so invested. For a discussion of the risks associated with investment in
foreign securities, see "Additional Investment Activities and Risk
Factors--Foreign Securities."
Under normal conditions, the selection of common stock or securities convertible
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SALOMON BROTHERS INVESTMENT SERIES
into common stock, such as convertible preferred stock or convertible
debentures, with growth possibilities will be favored. Income-producing
securities are a secondary consideration in portfolio selection. To meet
operating expenses, to serve as collateral in connection with certain investment
techniques and to meet anticipated redemption requests, the Investors Fund
generally holds a portion of its assets in short-term fixed-income securities
(governmental obligations or investment grade debt securities) or cash or cash
equivalents. As described below, short-term investments may include repurchase
agreements with banks or broker-dealers. When management deems it appropriate,
consistent with the Investors Fund secondary objective of current income, or
during temporary defensive periods due to economic or market conditions, the
Fund may invest without limitation in fixed-income securities or hold assets in
cash or cash equivalents. The types and characteristics of investment grade
corporate debt securities and investment grade foreign debt securities which may
be purchased by the Fund are set forth above in the discussion of investment
objectives and policies for the Strategic Bond Fund. Investments in such
investment grade fixed-income securities may also be made for the purpose of
capital appreciation, as in the case of purchases of bonds traded at a
substantial discount, or when interest rates are expected to decline.
The Investors Fund from time to time may invest up to 5% of its net assets in
non-convertible debt securities rated below investment grade by S&P and Moody's
with no minimum rating required or comparable unrated securities. There is no
limit on the amount of Investors Fund's assets that can be invested in
convertible securities rated below investment grade. For additional information
on these high yield debt securities, which may involve a high degree of risk,
see the description above of investment objectives and polices for the High
Yield Bond Fund and "Additional Investment Activities and Risk Factors--High
Yield Debt Securities."
The Investors Fund maintains a carefully selected portfolio of securities
diversified among industries and companies. The Fund may invest up to 25% of its
net assets in any one industry. The Fund generally purchases marketable
securities, primarily those traded on the New York Stock Exchange ("NYSE") or
other national securities exchanges, but also issues traded in the
over-the-counter market. The Fund will not invest more than 10% of the value of
its total assets in illiquid securities, such as "restricted securities" which
are illiquid, and securities that are not readily marketable. As more fully
described in the Statement of Additional Information, the Fund may purchase
certain Rule 144A securities for which there is a secondary market of qualified
institutional buyers as contemplated by Rule 144A under the 1933 Act. The Fund's
holdings of Rule 144A securities which are liquid securities will not be subject
to the 10% limitation on investments in illiquid securities. For further
discussion of illiquid securities and their associated risks, see "Additional
Investment Activities and Risk Factors--Restricted Securities and Securities
with Limited Trading Markets."
From time to time, the Investors Fund may lend portfolio securities to brokers
or dealers or other financial institutions. Such loans will not exceed 10% of
the Fund's total assets, taken at value. For a discussion of the risks
associated with lending portfolio securities, see "Additional Investment
Activities and Risk Factors--Loans of Portfolio Securities."
As indicated under "Investment Limitations" below, the Investors Fund may invest
in repurchase agreements in an amount up to 25% of its total assets. For a
description of repurchase agreements and their associated risks, see "Additional
Investment Activities and Risk Factors-- Repurchase Agreements."
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SALOMON BROTHERS INVESTMENT SERIES
As a hedge against either a decline in the value of securities included in the
Investors Fund's portfolio or against an increase in the price of securities
which it plans to purchase or in order to preserve to maintain a return or
spread on a particular investment or portion of its portfolio or to achieve a
particular return on cash balances, or in order to increase income, the
Investors Fund may use all of the various investment strategies referred to
under "Additional Investment Activities and Risk Factors--Derivatives." The
Fund's ability to pursue certain of these strategies may be limited by
applicable regulations of the SEC, the CFTC and the federal income tax
requirements applicable to regulated investment companies. Appendix B to this
Prospectus and the Statement of Additional Information contain descriptions of
these strategies and of certain risks associated therewith.
The foregoing investment policies, other than the Investors Fund's investment
objectives, are not fundamental and may be changed by the Board of Directors
without the approval of shareholders.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTMENT ACTIVITIES
AND RISK FACTORS
BANK OBLIGATIONS. Banks are subject to extensive governmental regulations which
may limit both the amounts and types of loans and other financial commitments
which may be made and interest rates and fees which may be charged. The
profitability of this industry is largely dependent upon the availability and
cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations.
Investors should also be aware that securities issued or guaranteed by foreign
banks, foreign branches of U.S. banks, and foreign government and private
issuers may involve investment risks in addition to those relating to domestic
obligations. See "--Foreign Securities" below. None of the Funds will purchase
bank obligations which the investment manager believes, at the time of purchase,
will be subject to exchange controls or foreign withholding taxes; however,
there can be no assurance that such laws may not become applicable to certain of
the Funds' investments. In the event unforeseen exchange controls or foreign
withholding taxes are imposed with respect to a Fund's investments, the effect
may be to reduce the income received by the Fund on such investments.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements for cash
management purposes. A repurchase agreement is a transaction in which the seller
of a security commits itself at the time of the sale to repurchase that security
from the buyer at a mutually agreed upon time and price. Repurchase agreements
may be characterized as loans which are collateralized by the underlying
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SALOMON BROTHERS INVESTMENT SERIES
securities. Each Fund will enter into repurchase agreements only with respect to
obligations that could otherwise be purchased by such Fund. Each Fund will enter
into repurchase agreements only with dealers, domestic banks or recognized
financial institutions which, in the opinion of the investment manager based on
guidelines established by the Fund's Board of Directors, are deemed
creditworthy. The investment manager will monitor the value of the securities
underlying the repurchase agreement at the time the transaction is entered into
and at all times during the term of the repurchase agreement to ensure that the
value of the securities always equals or exceeds the repurchase price. Each Fund
requires that additional securities be deposited if the value of the securities
purchased decreases below their resale price and does not bear the risk of a
decline in the value of the underlying security unless the seller defaults under
the repurchase obligation. In the event of default by the seller under the
repurchase agreement, a Fund could experience losses that include: (i) possible
decline in the value of the underlying security during the period while the Fund
seeks to enforce its rights thereto; (ii) additional expenses to the Fund for
enforcing those rights; (iii) possible loss of all or part of the income or
proceeds of the repurchase agreement; and (iv) possible delay in the disposition
of the underlying security pending court action or possible loss of rights in
such securities. Repurchase agreements with maturities of more than seven days
will be treated as illiquid securities by a Fund.
REVERSE REPURCHASE AGREEMENTS. Certain of the Funds may enter into "reverse"
repurchase agreements to avoid selling securities during unfavorable market
conditions to meet redemptions. Pursuant to a reverse repurchase agreement, a
Fund will sell portfolio securities and agree to repurchase them from the buyer
at a particular date and price. Whenever a Fund enters into a reverse repurchase
agreement, it will establish a segregated account in which it will maintain
liquid assets in an amount at least equal to the repurchase price marked to
market daily (including accrued interest), and will subsequently monitor 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.
LOANS OF PORTFOLIO SECURITIES. Certain of the Funds may lend portfolio
securities. By doing so, a Fund attempts to increase its income through the
receipt of interest on the loan. In the event of the bankruptcy of the other
party to a securities loan, a Fund could experience delays in recovering the
securities it lent. To the extent that, in the meantime, the value of the
securities a Fund lent has increased, the Fund could experience a loss. A Fund
may lend securities from its portfolio if liquid assets in an amount at least
equal to the current market value of the securities loaned plus the interest
payable to the Fund with respect to the loan is maintained by the Fund in a
segregated account. Any securities that a Fund may receive as collateral will
not become a part of its portfolio at the time of the loan and, in the event of
a default by the borrower, the Fund will, if permitted by law, dispose of such
collateral except that the Fund may retain any such part thereof that is a
security in which the Fund is permitted to invest. During the time securities
are on loan, the borrower will pay a Fund any accrued income on those
securities, and the Fund may invest the cash collateral and earn additional
income or receive an agreed-upon fee from a borrower that has delivered cash
equivalent collateral. Cash collateral received by a Fund will be invested in
securities in which the Fund is permitted to invest. The value of securities
loaned will be marked to market daily. Portfolio securities purchased with cash
collateral are
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SALOMON BROTHERS INVESTMENT SERIES
subject to possible depreciation. Voting rights may pass with the lending of
portfolio securities; however, a Fund's Board of Directors will be obligated to
call loans to vote proxies or otherwise obtain rights to vote if a material
event affecting the investment is to occur. Loans of securities by a Fund will
be subject to termination at the Fund's or the borrower's option. A Fund may pay
reasonable administrative and custodial fees in connection with a securities
loan and may pay a negotiated portion of the interest or fee earned with respect
to the collateral to the borrower or a placing broker.
FIRM COMMITMENTS AND WHEN-ISSUED SECURITIES. A Fund may purchase securities on a
firm commitment basis, including when-issued securities. Securities purchased on
a firm commitment basis are purchased for delivery beyond the normal settlement
date at a stated price and yield. No income accrues to the purchaser of a
security on a firm commitment basis prior to delivery. Such securities are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. Purchasing a security on a firm commitment
basis can involve a risk that the market price at the time of delivery may be
lower than the agreed upon purchase price, in which case there could be an
unrealized loss at the time of delivery. A Fund will only make commitments to
purchase securities on a firm commitment basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. A Fund will establish a segregated account in which it will
maintain liquid assets in an amount at least equal in value to the Fund's
commitments to purchase securities on a firm commitment basis. If the value of
these assets declines, the Fund will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments.
RESTRICTED SECURITIES AND SECURITIES WITH LIMITED TRADING MARKETS. Each Fund may
purchase securities for which there is a limited trading market or which are
subject to restrictions on resale to the public. Investments in securities which
are "restricted" may involve added expenses to a Fund should the Fund be
required to bear registration costs with respect to such securities and could
involve delays in disposing of such securities which might have an adverse
effect upon the price and timing of sales of such securities and the liquidity
of the Fund with respect to redemptions. Restricted securities and securities
for which there is a limited trading market may be significantly more difficult
to value due to the unavailability of reliable market quotations for such
securities, and investment in such securities may have an adverse impact on net
asset value. As more fully described in the Statement of Additional Information,
certain Funds may purchase Rule 144A securities for which there may be a
secondary market of qualified institutional buyers as contemplated by recently
adopted Rule 144A under the 1933 Act. A Fund's holdings of Rule 144A securities
which are liquid securities will not be subject to the Fund's applicable
limitation on investments in illiquid securities. Rule 144A is a recent
development and there is no assurance that a liquid market in Rule 144A
securities will develop or be maintained. To the extent that the number of
qualified institutional buyers is reduced, a previously liquid Rule 144A
security may be determined to be illiquid, thus increasing the percentage of
illiquid assets in a Fund's portfolio. The Board of Directors will be
responsible for monitoring the liquidity of Rule 144A securities and the
selection by the investment manager of such securities.
WARRANTS. Certain of the Funds may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other securities.
Warrants do not carry the right to dividends or
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voting rights with respect to their underlying securities, and they do not
represent any rights in assets of the issuer. An investment in warrants may be
considered speculative. In addition, the value of a warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to its expiration date.
FOREIGN SECURITIES. Investors should recognize that investing in the securities
of foreign issuers involves special considerations which are not typically
associated with investing in the securities of U.S. issuers. Investments in
securities of foreign issuers may involve risks arising from restrictions on
foreign investment and repatriation of capital, from differences between U.S.
and foreign securities markets, including less volume, much greater price
volatility in and relative illiquidity of foreign securities markets, different
trading and settlement practices and less governmental supervision and
regulation, from changes in currency exchange rates, from high and volatile
rates of inflation, from economic, social and political conditions and, as with
domestic multinational corporations, from fluctuating interest rates. Other
investment risks include the possible imposition of foreign withholding taxes on
certain amounts of a Fund's income, the possible seizure or nationalization of
foreign assets and the possible establishment of exchange controls,
expropriation, confiscatory taxation, other foreign governmental laws or
restrictions which might affect adversely payments due on securities held by a
Fund, the lack of extensive operating experience of eligible foreign
subcustodians and legal limitations on the ability of a Fund to recover assets
held in custody by a foreign subcustodian in the event of the subcustodian's
bankruptcy. In addition, there may be less publicly-available information about
a foreign issuer than about a U.S. issuer, and foreign issuers may not be
subject to the same accounting, auditing and financial record-keeping standards
and requirements as U.S. issuers. Finally, in the event of a default in any such
foreign obligations, it may be more difficult for a Fund to obtain or enforce a
judgment against the issuers of such obligations.
FIXED-INCOME SECURITIES. Changes in market yields will affect a Fund's net asset
value as prices of fixed-income securities generally increase when interest
rates decline and decrease when interest rates rise. Prices of longer term
securities generally increase or decrease more sharply than those of shorter
term securities in response to interest rate changes, particularly if such
securities were purchased at a discount. Because the New York Municipal Bond
Fund, National Intermediate Municipal Fund, U.S. Government Income Fund, the
High Yield Bond Fund and the Strategic Bond Fund will invest primarily in
fixed-income securities and the Total Return Fund may from time to time invest
in a substantial amount of fixed-income securities, the net asset value of these
Fund's shares can be expected to change as general levels of interest rates
fluctuate. It should be noted that the market values of securities rated below
investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities.
Except to the extent that values are affected independently by other factors
such as developments relating to a specific issuer, when interest rates decline,
the value of a fixed-income portfolio can generally be expected to rise.
Conversely, when interest rates rise, the value of a fixed-income portfolio can
generally be expected to decline.
In addition, many fixed-income securities contain call or buy-back features that
permit their issuers to call or repurchase the securities from their holders.
Such securities may present risks based on payment expectations. Although a Fund
would typically receive a premium if an issuer were to redeem a security, if an
issuer exercises such a "call option" and redeems the security during a time of
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declining interest rates, a Fund may realize a capital loss on its investment if
the security was purchased at a premium and a Fund may have to replace the
called security with a lower yielding security, resulting in a decreased rate of
return to the Fund.
Because the New York Municipal Bond Fund and the National Intermediate Municipal
Fund invest primarily in municipal obligations, they are more susceptible to
factors adversely affecting issuers of such obligations than funds that are not
so concentrated. The secondary market for municipal obligations may be less
liquid than for most taxable fixed-income securities. Consequently, the ability
of the New York Municipal Bond Fund and the National Intermediate Municipal Fund
to buy and sell municipal obligations may, at any particular time and with
respect to any particular securities, be limited. The amount of information
about the financial condition of an issuer of municipal obligations may not be
as extensive as information about corporations whose securities are publicly
traded. Obligations of issuers of municipal obligations may be subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the U.S. Bankruptcy Code and applicable state
laws, which could limit the ability of such Funds to recover payments of
principal or interest on such securities.
MORTGAGE-BACKED SECURITIES. The yield characteristics of the mortgage-backed
securities in which the U.S. Government Income Fund, the Strategic Bond Fund and
the Total Return Fund may invest differ from those of traditional debt
securities. Among the major differences are that interest and principal payments
are made more frequently on mortgage-backed securities, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if these securities are
purchased at a premium, faster than expected prepayments will reduce yield to
maturity, while slower than expected prepayments will increase yield to
maturity. Conversely, if these securities are purchased at a discount, faster
than expected prepayments will increase yield to maturity, while slower than
expected prepayments will reduce yield to maturity. Accelerated prepayments on
securities purchased at a premium also impose a risk of loss of principal
because the premium may not have been fully amortized at the time the principal
is prepaid in full. Because of the reinvestment of prepayments of principal at
current rates, mortgage-backed securities may be less effective than Treasury
bonds of similar maturity at maintaining yields during periods of declining
interest rates. When interest rates rise, the value and liquidity of
mortgage-backed securities may decline sharply and generally will decline more
than would be the case with other fixed-income securities; however, when
interest rates decline, the value of mortgage-backed securities may not increase
as much as other fixed-income securities due to the prepayment feature. Certain
market conditions may result in greater than expected volatility in the prices
of mortgage-backed securities. For example, in periods of supply and demand
imbalances in the market for such securities and/or in periods of sharp interest
rate movements, the prices of mortgage-backed securities may fluctuate to a
greater extent than would be expected from interest rate movements alone. For a
description of multiple class mortgage pass-through securities, see
"--Collateralized Mortgage Obligations and Multiclass Pass-Through Securities"
below.
ADJUSTABLE RATE MORTGAGE SECURITIES. Unlike fixed rate mortgage securities,
adjustable rate mortgage securities are collateralized by or represent interests
in mortgage loans with variable rates of interest. These variable rates of
interest reset periodically to align themselves with market rates. A Fund will
not benefit from increases in interest rates to the extent that interest rates
rise to the point where
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they cause the current coupon of the underlying adjustable rate mortgages to
exceed any maximum allowable annual or lifetime reset limits (or "cap rates")
for a particular mortgage. In this event, the value of the mortgage securities
in a Fund would likely decrease. Also, a Fund's net asset value could vary to
the extent that current yields on adjustable rate mortgage securities are
different than market yields during interim periods between coupon reset dates
or if the timing of changes to the index upon which the rate for the underlying
mortgages is based lags behind changes in market rates. During periods of
declining interest rates, income to a Fund derived from adjustable rate
mortgages which remain in a mortgage pool will decrease in contrast to the
income on fixed rate mortgages, which will remain constant. Adjustable rate
mortgages also have less potential for appreciation in value as interest rates
decline than do fixed rate investments.
PRIVATELY-ISSUED MORTGAGE SECURITIES. The Strategic Bond Fund and the Total
Return Fund may also purchase mortgage-backed securities issued by private
issuers which may entail greater risk than mortgage-backed securities that are
guaranteed by the U.S. government, its agencies or instrumentalities.
Privately-issued mortgage securities are issued by private originators of, or
investors in, mortgage loans, including mortgage bankers, commercial banks,
investment banks, savings and loan associations and special purpose subsidiaries
of the foregoing. Since privately-issued mortgage certificates are not
guaranteed by an entity having the credit status of GNMA or FHLMC, such
securities generally are structured with one or more types of credit
enhancement. Such credit support falls into two categories: (i) liquidity
protection and (ii) protection against losses resulting from ultimate default by
an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the pass-through of payments due on the underlying pool occurs in
a timely fashion. Protection against losses resulting from ultimate default
enhances the likelihood of ultimate payment of the obligations on at least a
portion of the assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches.
The ratings of mortgage securities for which third-party credit enhancement
provides liquidity protection or protection against losses from default are
generally dependent upon the continued creditworthiness of the provider of the
credit enhancement. The ratings of such securities could be subject to reduction
in the event of deterioration in the creditworthiness of the credit enhancement
provider even in cases where the delinquency and loss experience on the
underlying pool of assets is better than expected. There can be no assurance
that the private issuers or credit enhancers of mortgage-backed securities can
meet their obligations under the relevant policies or other forms of credit
enhancement.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments sometimes funded from a portion of the
payments on the underlying assets are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based
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on historical information with respect to the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that which is
anticipated could adversely affect the return on an investment in such security.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES. The
U.S. Government Income Fund and the Strategic Bond Fund may invest in
collateralized mortgage obligations. Collateralized mortgage obligations or
"CMOS" are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac Certificates, but also may be collateralized by whole
loans or private pass-throughs (such collateral collectively hereinafter
referred to as "Mortgage Assets"). Multiclass pass-through securities are
interests in a trust composed of Mortgage Assets. Unless the context indicates
otherwise, all references herein to CMOs include multiclass pass-through
securities. Payments of principal and of interest on the Mortgage Assets, and
any reinvestment income thereon, provide the funds to pay debt service on the
CMOs or make scheduled distributions on the multiclass pass-through securities.
CMOs may be issued by agencies or instrumentalities of the U.S. government, or
by private originators of, or investors in, mortgage loans, including savings
and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. CMOs acquired by the U.S.
Government Income Fund will be limited to those issued or guaranteed by agencies
or instrumentalities of the U.S. government and, if available in the future, the
U.S. government.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche", is issued at a specified fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
In one structure, payments of principal, including any principal prepayments, on
the Mortgage Assets are applied to the classes of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other classes having an
earlier stated maturity or final distribution date have been paid in full. The
U.S. Government Income and Strategic Bond Funds have no present intention to
invest in CMO residuals. As market conditions change, and particularly during
periods of rapid or unanticipated changes in market interest rates, the
attractiveness of the CMO classes and the ability of the structure to provide
the anticipated investment characteristics may be significantly reduced. Such
changes can result in volatility in the market value, and in some instances
reduced liquidity, of the CMO class.
The U.S. Government Income and Strategic Bond Funds may also invest in, among
others, parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds").
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class, which, as with other CMO structures, must be retired by its stated
maturity date or a final distribution date but may be retired earlier. PAC Bonds
are a type of CMO tranche or series designed to provide relatively predictable
payments of principal provided that, among other things, the actual prepayment
experience on the underlying mortgage loans falls within a predefined range. If
the actual
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prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the predefined range or if deviations from other assumptions occur,
principal payments on the PAC Bond may be earlier or later than predicted. The
magnitude of the predefined range varies from one PAC Bond to another; a
narrower range increases the risk that prepayments on the PAC Bond will be
greater or smaller than predicted. Because of these features, PAC Bonds
generally are less subject to the risks of prepayment than are other types of
mortgage-backed securities.
STRIPPED MORTGAGE SECURITIES. The Strategic Bond Fund may purchase stripped
mortgage securities which are derivative multiclass mortgage securities.
Stripped mortgage securities may be issued by agencies or instrumentalities of
the U.S. government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.
Stripped mortgage securities have greater volatility than other types of
mortgage securities. Although stripped mortgage securities are purchased and
sold by institutional investors through several investment banking firms acting
as brokers or dealers, the market for such securities has not yet been fully
developed. Accordingly, stripped mortgage securities are generally illiquid and
to such extent, together with any other illiquid investments, will be subject to
the Strategic Bond Fund's applicable restriction on investments in illiquid
securities.
Stripped mortgage securities are structured with two or more classes of
securities that receive different proportions of the interest and principal
distributions on a pool of mortgage assets. A common type of stripped mortgage
security will have at least one class receiving only a small portion of the
interest and a larger portion of the principal from the mortgage assets, while
the other class will receive primarily interest and only a small portion of the
principal. In the most extreme case, one class will receive all of the interest
("IO" or interest-only), while the other class will receive all of the principal
("PO" or principal-only class). The yield to maturity on IOs, POs and other
mortgage-backed securities that are purchased at a substantial premium or
discount generally are extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on such securities' yield
to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the securities have received the
highest rating by a nationally recognized statistical rating organizations.
In addition to the stripped mortgage securities described above, the Strategic
Bond Fund may invest in similar securities such as Super POs and Levered IOs
which are more volatile than POs, IOs and IOettes. Risks associated with
instruments such as Super POs are similar in nature to those risks related to
investments in POs. Risks connected with Levered IOs and IOettes are similar in
nature to those associated with IOs. The Strategic Bond Fund may also invest in
other similar instruments developed in the future that are deemed consistent
with its investment objective, policies and restrictions. POs may generate
taxable income from the current accrual of original issue discount, without a
corresponding distribution of cash to the Fund. See "Taxation" and "Additional
Information Concerning Taxes" in the Statement of Additional Information.
MORTGAGE ROLLS. The U.S. Government Income Fund and the Strategic Bond Fund may
enter into mortgage "dollar rolls" in which a Fund sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type,
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coupon and maturity) securities on a specified future date. During the roll
period, a Fund foregoes principal and interest paid on the mortgage-backed
securities. A Fund is compensated by the difference between the current sales
price and the lower forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. A Fund may only enter into covered rolls. A "covered roll" is a
specific type of dollar roll for which there is an offsetting cash position
which matures on or before the forward settlement date of the dollar roll
transaction. At the time a Fund enters into a mortgage "dollar roll", it will
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. government securities or other liquid high grade debt obligations
equal in value to its obligations in respect of dollar rolls, and accordingly,
such dollar rolls will not be considered borrowings. Mortgage dollar rolls
involve 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.
HIGH YIELD SECURITIES. The High Yield Bond Fund and the Strategic Bond Fund may
invest without limitation in domestic and foreign "high yield" securities. The
Investors Fund and the Total Return Fund may invest without limitation in
convertible securities of this type and up to 5% and 20%, respectively, of their
net assets in non-convertible securities of this type. The secondary markets for
high yield securities are not as liquid as the secondary markets for higher
rated securities. The secondary markets for high yield securities are
concentrated in relatively few market makers and participants in the market are
mostly institutional investors, including insurance companies, banks, other
financial institutions and mutual funds. In addition, the trading volume for
high yield securities is generally lower than that for higher-rated securities
and the secondary markets could contract under adverse market or economic
conditions independent of any specific adverse changes in the condition of a
particular issuer. These factors may have an adverse effect on the ability of a
Fund holding such securities to dispose of particular portfolio investments, may
adversely affect the Fund's net asset value per share and may limit the ability
of such a Fund to obtain accurate market quotations for purposes of valuing
securities and calculating net asset value. If a Fund is not able to obtain
precise or accurate market quotations for a particular security, it will become
more difficult for the Board of Directors to value such Fund's portfolio
securities, and the Directors may have to use a greater degree of judgment in
making such valuations. Less liquid secondary markets may also affect the
ability of a Fund to sell securities at their fair value. If the secondary
markets for high yield securities contract due to adverse economic conditions or
for other reasons, certain liquid securities in a Fund's portfolio may become
illiquid and the proportion of the Fund's assets invested in illiquid securities
may significantly increase.
HIGH YIELD CORPORATE SECURITIES. While the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities,
the market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, such securities present a higher degree of
credit risk. Issuers of these securities are often highly leveraged and may not
have more traditional methods of
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financing available to them, so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater than with investment grade securities because such
securities generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness. A Fund also may incur additional expenses to the
extent that it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings.
The development of a market for high yield non-U.S. corporate securities has
been a relatively recent phenomenon. On the other hand, the market for high
yield U.S. corporate debt securities is more established than that for high
yield non-U.S. corporate debt securities, but has undergone significant changes
in the past and may undergo significant changes in the future.
High yield non-U.S. and U.S. corporate securities in which the applicable Funds
may invest include bonds, debentures, notes, commercial paper and preferred
stock and will generally be unsecured. Most of the debt securities will bear
interest at fixed rates. However, a Fund may also invest in corporate debt
securities with variable rates of interest or which involve equity features,
such as contingent interest or participations based on revenues, sales or
profits (i.e., interest or other payments, often in addition to a fixed rate of
return, that are based on the borrower's attainment of specified levels of
revenues, sales or profits and thus enable the holder of the security to share
in the potential success of the venture).
HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES. Investing in fixed and floating
rate high yield foreign sovereign debt securities will expose Funds investing in
such securities to the direct or indirect consequences of political, social or
economic changes in the countries that issue the securities. See "--Foreign
Securities" above. The ability and willingness of sovereign obligors in
developing and emerging countries or the governmental authorities that control
repayment of their external debt to pay principal and interest on such debt when
due may depend on general economic and political conditions within the relevant
country. Countries such as those in which a Fund may invest have historically
experienced, and may continue to experience, high rates of inflation, high
interest rates, exchange rate trade difficulties and extreme poverty and
unemployment. Many of these countries are also characterized by political
uncertainty or instability. Additional factors which may influence the ability
or willingness to service debt include, but are not limited to, a country's cash
flow situation, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of its debt service burden to the economy as a
whole, and its government's policy towards the International Monetary Fund, the
World Bank and other international agencies.
The ability of a foreign sovereign obligor to make timely payments on its
external debt obligations will also be strongly influenced by the obligor's
balance of payments, including export performance, its access to international
credits and investments, fluctuations in interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few commodities
or whose economy depends on certain strategic imports could be vulnerable to
fluctuations in international prices of these commodities or imports. To the
extent that a country receives payment for its exports in currencies other than
dollars, its ability to make debt payments denominated in dollars could be
adversely affected. If a foreign sovereign obligor cannot generate sufficient
earnings from foreign trade to service its external debt, it may need to depend
on continuing loans and aid from foreign governments, commercial banks and
multilateral organizations, and inflows
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of foreign investment. The commitment on the part of these foreign governments,
multilateral organizations and others to make such disbursements may be
conditioned on the government's implementation of economic reforms and/or
economic performance and the timely service of its obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds, which may further impair the obligor's
ability or willingness to timely service its debts. The cost of servicing
external debt will also generally be adversely affected by rising international
interest rates, because many external debt obligations bear interest at rates
which are adjusted based upon international interest rates. The ability to
service external debt will also depend on the level of the relevant government's
international currency reserves and its access to foreign exchange. Currency
devaluations may affect the ability of a sovereign obligor to obtain sufficient
foreign exchange to service its external debt.
As a result of the foregoing, a governmental obligor may default on its
obligations. If such an event occurs, a Fund may have limited legal recourse
against the issuer and/or guarantor. Remedies must, in some cases, be pursued in
the courts of the defaulting party itself, and the ability of the holder of
foreign sovereign debt securities to obtain recourse may be subject to the
political climate in the relevant country. In addition, no assurance can be
given that the holders of commercial bank debt will not contest payments to the
holders of other foreign sovereign debt obligations in the event of default
under their commercial bank loan agreements.
Certain debt obligations, customarily referred to as "Brady Bonds," are created
through the exchange of existing commercial bank loans to foreign entities for
new obligations in connection with debt restructuring under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are dollar-denominated) and they are actively
traded in the over-the-counter secondary market. Dollar-denominated,
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are generally collateralized in full as to principal due at
maturity by U.S. Treasury zero coupon obligations which have the same maturity
as the Brady Bonds. Certain interest payments on these Brady Bonds may be
collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is typically equal to between 12 and 18 months of rolling interest
payments or, in the case of floating rate bonds, initially is typically equal to
between 12 and 18 months rolling interest payments based on the applicable
interest rate at that time and is adjusted at regular intervals thereafter with
the balance of interest accruals in each case being uncollateralized. The
applicable Funds may purchase Brady Bonds with no or limited collateralization,
and will be relying for payment of interest and (except in the case of principal
collateralized Brady Bonds) principal primarily on the willingness and ability
of the foreign government to make payment in accordance with the terms of the
Brady Bonds. In the event of a default with respect to collateralized Brady
Bonds as a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as collateral for
the payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held by
the collateral agent to the scheduled maturity of the defaulted Brady Bonds,
which will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments which would have then been due on
the Brady Bonds
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in the normal course. Based upon current market conditions, a Fund would not
intend to purchase Brady Bonds which, at the time of investment, are in default
as to payments. However, in light of the residual risk of the Brady Bonds and,
among other factors, the history of default with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are to be viewed as speculative. A substantial
portion of the Brady Bonds and other sovereign debt securities in which the High
Yield Bond and Strategic Bond Funds invest are likely to be acquired at a
discount, which involves certain considerations discussed below under
"Taxation."
Sovereign obligors in developing and emerging countries are among the world's
largest debtors to commercial banks, other governments, international financial
organizations and other financial institutions. These obligors have in the past
experienced substantial difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiating
new or amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Holders of certain foreign sovereign debt securities may be requested to
participate in the restructuring of such obligations and to extend further loans
to their issuers. There can be no assurance that the Brady Bonds and other
foreign sovereign debt securities in which certain of the Funds may invest will
not be subject to similar restructuring arrangements or to requests for new
credit which may adversely affect a Fund's holdings. Furthermore, certain
participants in the secondary market for such debt may be directly involved in
negotiating the terms of these arrangements and may therefore have access to
information not available to other market participants.
BORROWING. Each of the Funds may borrow in certain limited circumstances. See
"Investment Limitations." Borrowing creates an opportunity for increased return,
but, at the same time, creates special risks. For example, borrowing may
exaggerate changes in the net asset value of a Fund's shares and in the return
on the Fund's portfolio. Although the principal of any borrowing will be fixed,
a Fund's assets may change in value during the time the borrowing is
outstanding. A Fund may be required to liquidate portfolio securities at a time
when it would be disadvantageous to do so in order to make payments with respect
to any borrowing, which could affect the investment manager's strategy and the
ability of the Fund to comply with certain provisions of the Internal Revenue
Code of 1986, as amended (the "Code") in order to provide "pass-though" tax
treatment to shareholders. Furthermore, if a Fund were to engage in borrowing,
an increase in interest rates could reduce the value of the Fund's shares by
increasing the Fund's interest expense.
DERIVATIVES. Certain of the Funds may be authorized to use various hedging and
investment strategies described below to hedge market risks (such as broad or
specific market movements, interest rates and currency exchange rates), to
manage the effective maturity or duration of debt instruments held by a Fund, or
to seek to increase a Fund's income or gain. The description in this Prospectus
of each Fund indicates which, if any, of these types of transactions may be used
by that Fund. Although these strategies are regularly used by some investment
companies and other institutional investors, it is not presently anticipated
that any of these strategies will be used to a significant degree by any Fund
unless otherwise specifically indicated in the description of the particular
Fund contained in this Prospectus. Over time, however, techniques and
instruments may change as
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new instruments and strategies are developed or regulatory changes occur.
Subject to the constraints described above, a Fund may (if and to the extent so
authorized) purchase and sell interest rate, currency or stock or bond index
futures contracts and enter into currency forward contracts and currency swaps;
purchase and sell (or write) exchange listed and over-the-counter put and call
options on securities, currencies, futures contracts, indices and other
financial instruments, and a Fund may enter into interest rate transactions,
equity swaps and related transactions and other similar transactions which may
be developed to the extent the investment manager determines that they are
consistent with the applicable Fund's investment objective and policies and
applicable regulatory requirements (collectively, these transactions are
referred to in this Prospectus as "Derivatives"). A Fund's interest rate
transactions may take the form of swaps, caps, floors and collars, and a Fund's
currency transactions may take the form of currency forward contracts, currency
futures contracts, currency swaps and options on currencies or currency futures
contracts.
Derivatives may be used to attempt to protect against possible changes in the
market value of securities held or to be purchased for a Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, to
protect a Fund's unrealized gains in the value of its securities, to facilitate
the sale of those securities for investment purposes, to manage the effective
maturity or duration of a Fund's portfolio or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities or to seek to enhance a Fund's income or gain. A Fund may
use any or all types of Derivatives which it is authorized to use at any time;
no particular strategy will dictate the use of one type of transaction rather
than another, as use of any authorized Derivative will be a function of numerous
variables, including market conditions. The ability of a Fund to utilize
Derivatives successfully will depend on, in addition to the factors described
above, the investment manager's ability to predict pertinent market movements,
which cannot be assured. These skills are different from those needed to select
a Fund's portfolio securities. None of the Funds is a "commodity pool" (i.e., a
pooled investment vehicle which trades in commodity futures contracts and
options thereon and the operator of which is registered with the CFTC), and
Derivatives involving futures contracts and options on futures contracts will be
purchased, sold or entered into only for bona fide hedging purposes, provided
that a Fund may enter into such transactions for purposes other than bona fide
hedging if, immediately thereafter, the sum of the amount of its initial margin
and premiums on open contracts and options would not exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account unrealized
profits and losses on existing contracts provided, further, that, in the case of
an option that is in-the-money, the in-the-money amount may be excluded in
calculating the 5% limitation. The use of certain Derivatives in certain
circumstances will require that a Fund segregate cash, liquid high grade debt
obligations or other assets to the extent a Fund's obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency.
Derivatives involve special risks, including possible default by the other party
to the transaction, illiquidity and, to the extent the investment manager's view
as to certain market movements is incorrect, the risk that the use of
Derivatives could result in significantly greater losses than if it had not been
used. Use of put and call options could result in losses to a Fund, force the
purchase or sale of portfolio securities at inopportune times or for prices
higher or lower than current market values, or cause a Fund to hold a
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SALOMON BROTHERS INVESTMENT SERIES
security it might otherwise sell. The use of currency transactions could result
in a Fund's incurring losses as a result of the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency in addition to exchange rate fluctuations. The use of options and
futures transactions entails certain special risks. In particular, the variable
degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of a Fund could create the
possibility that losses on the Derivative will be greater than gains in the
value of the Fund's position. In addition, futures and options markets could be
illiquid in some circumstances and certain over-the-counter options could have
no markets. A Fund might not be able to close out certain positions without
incurring substantial losses. To the extent a Fund utilizes futures and options
transactions for hedging, such transactions should tend to minimize the risk of
loss due to a decline in the value of the hedged position and, at the same time,
limit any potential gain to the Fund that might result from an increase in value
of the position. Finally, the daily variation margin requirements for futures
contracts create a greater ongoing potential financial risk than would purchases
of options, in which case the exposure is limited to the cost of the initial
premium and transaction costs. Losses resulting from the use of Derivatives will
reduce a Fund's net asset value, and possibly income, and the losses may be
significantly greater than if Derivatives had not been used. Additional
information regarding the risks and special considerations associated with
Derivatives appears in Appendix B to this Prospectus and the Statement of
Additional Information.
The degree of a Fund's use of Derivatives may be limited by certain provisions
of the Code. See "Taxation."
PORTFOLIO TURNOVER. Purchases and sales of portfolio securities may be made as
considered advisable by each Fund's investment manager in the best interests of
the shareholders. Each Fund intends to limit portfolio trading to the extent
practicable and consistent with its investment objectives. Each Fund's portfolio
turnover rate may vary from year to year, as well as within a year. The New York
Municipal Bond Fund anticipates that its annual portfolio turnover rate
generally will not exceed 200%; the U.S. Government Income Fund anticipates that
its annual portfolio turnover rate generally will not exceed 300%; the National
Intermediate Municipal Fund, the High Yield Bond Fund and the Strategic Bond
Fund each anticipates that its annual portfolio turnover rate generally will not
exceed 100%; the Total Return Fund anticipates that its annual portfolio
turnover rate will not exceed 120%; and the Investors Fund does not expect its
portfolio turnover rate to exceed 50%. However, the expected portfolio rates may
be exceeded if conditions warrant. The portfolio turnover of the New York
Municipal Bond Fund for the years ended December 31, 1994 and 1993 were 63% and
24%, respectively. The portfolio turnover of the Investors Fund for the years
ended December 31, 1994 and 1993 were 66% and 79%, respectively. Short-term
gains realized from portfolio transactions are taxable to shareholders as
ordinary income. In addition, higher portfolio turnover rates can result in
corresponding increases in portfolio transaction costs for a Fund.
With respect to the Cash Management Fund, the investment manager seeks to
enhance the Fund's yield by taking advantage of yield disparities or other
factors that occur in the money market. For example, market conditions
frequently result in similar securities trading at different prices. The Cash
Management Fund may dispose of any portfolio security prior to its maturity if
such disposition and reinvestment of the proceeds are expected to enhance yield
consistent with the investment manager's judgment as to a desirable portfolio
maturity structure or if
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SALOMON BROTHERS INVESTMENT SERIES
such disposition is believed to be advisable due to other circumstances or
considerations. Subsequent to its purchase, a portfolio security may be assigned
a lower rating or cease to be rated. Such an event would not require the
disposition of the instrument, but the investment manager will consider such an
event in determining whether the Cash Management Fund should continue to hold
the security. The policy of the Cash Management Fund regarding dispositions of
portfolio securities and its policy of investing in securities deemed to have
maturities of thirteen months or less will result in high portfolio turnover. A
higher rate of portfolio turnover results in increased transaction costs to the
Cash Management Fund in the form of dealer spreads.
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MULTIPLE PRICING SYSTEM
The Funds' Multiple Pricing System permits an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are offered for sale at net asset value per share
plus a front end sales charge of up to 4.75% payable at the time of purchase
(with the exception of Class A shares of the Cash Management Fund, which are
offered without such a charge). The initial sales charge may be reduced or
waived for certain purchases of Class A shares. Certain Class A shares for which
the front end sales charge is waived may be subject to a CDSC of 1% within one
year after the date of purchase. In addition, Class A shares are subject to a
12b-1 service fee at an annual rate of .25% of their respective average daily
net assets (with the exception of Class A shares of the Cash Management Fund,
which bear no such fees). The annual service fee is compensation for ongoing
services provided by Salomon Brothers to shareholders, including payments to
compensate selected securities dealers for such services. See "Purchase of
Shares--Class A Shares--Reduced Sales Charges" and "--Distributor" and
"Redemption of Shares--Class A Share Purchases of $1 million or more."
CLASS B SHARES. Class B shares are offered for sale for purchases of less than
$250,000. Class B shares are sold at net asset value without a front end sales
charge, but are subject to a CDSC of 5% of the dollar amount subject thereto
during the first and second year after purchase, and declining each year
thereafter to 0% after the sixth year. The applicable percentage is assessed on
an amount equal to the lesser of the original purchase price or the redemption
price of the shares redeemed. Any CDSC applicable to Class B shares excludes the
time the shares were held in the Cash Management Fund. The CDSC is not
applicable with respect to redemptions of Class B shares of the Cash Management
Fund which were initially purchased as such and which were never exchanged for
Class B shares of another Fund. However, in the case of Class B shares of the
Cash Management Fund which were obtained through an exchange, such shares are
subject to any applicable CDSC due at
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SALOMON BROTHERS INVESTMENT SERIES
redemption. Similarly, shares initially purchased as Class B shares of the Cash
Management Fund which are subsequently exchanged for Class B Shares of other
Funds will be subject to any applicable CDSC due at redemption. See "Shareholder
Services--Exchange Privilege." In addition, Class B shares are subject to a
12b-1 distribution fee at an annual rate of .75% of their respective average
daily net assets and a 12b-1 service fee at an annual rate of .25% of their
respective average daily net assets (with the exception of Class B shares of the
Cash Management Fund, which bear no such fees). Like the service fee applicable
to Class A shares, the Class B service fee is compensation for ongoing services
provided by Salomon Brothers to shareholders, including payments to compensate
selected securities dealers for such services. Additionally, the distribution
fee paid with respect to Class B shares compensates Salomon Brothers for selling
those shares. The Class B shares enjoy the benefit of permitting all of the
investor's dollars to work from the time the investment is made. The ongoing
distribution fees paid by Class B shares will cause such shares to have a higher
expense ratio and to pay lower dividends than Class A shares. See "Purchase of
Shares--Class B Shares" and "--Distributor." Class B shares will automatically
convert to Class A shares six years after the end of the calendar month in which
the shareholder's order to purchase was accepted. See "--Conversion Feature"
below.
CLASS C SHARES. Class C shares are offered for purchases of less than
$1,000,000, are offered at net asset value without a front end sales charge and
are subject to a CDSC of 1% if redeemed within the first year of purchase (with
the exception of Class C shares of the Cash Management Fund, which are not
subject to any CDSC upon redemption if they were initially purchased as such and
were never exchanged for Class C shares of another Fund). Any CDSC applicable to
Class C shares excludes the time the shares were held in the Cash Management
Fund. See "Shareholder Services--Exchange Privilege." Class C shares are subject
to a 12b-1 distribution fee at an annual rate of .75% of their respective
average daily net assets and a 12b-1 service fee at an annual rate of .25% of
their respective average daily net assets (with the exception of Class C shares
of the Cash Management Fund, which bear no such fees). Like the services fees
applicable to Class A and Class B shares, the Class C service fee is
compensation for ongoing services provided by Salomon Brothers to shareholders,
including payments to compensate selected securities dealers for such services,
and like the distribution fee applicable to Class B shares, the Class C
distribution fee compensates Salomon Brothers for selling shares of that class.
Class C shares, like Class B shares, enjoy the benefit of permitting all of the
investor's dollars to work from the time the investment is made. The ongoing
distribution fees paid by Class C shares will cause such shares to have a higher
expense ratio and to pay lower dividends than Class A shares. See "Purchase of
Shares--Class C Shares" and "--Distributor." Class C shares will automatically
convert to Class A shares ten years after the end of the calendar month in which
the shareholder's order to purchase was accepted. See "--Conversion Feature"
below.
CLASS O SHARES. Each Fund also offers Class O shares. However, only Class O
shareholders are permitted to purchase additional Class O shares. In connection
with the implementation of the Multiple Pricing System, shares outstanding as of
the close of business on December 31, 1994 of each of the Cash Management Fund,
the New York Municipal Bond Fund and the Investors Fund were reclassified as
shares of Class O of each such Fund. Class O shares are not subject to any sales
charges, distribution or service fees.
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CONVERSION FEATURE. Class B shares and Class C shares will automatically convert
to Class A shares six years and ten years, respectively, after the end of the
calendar month in which the shareholder's order to purchase was accepted and
will thereafter no longer be subject to a distribution fee. Such conversion will
be on the basis of the relative net asset values of each class, without the
imposition of any sales charge, fee or other charge. The purpose of the
conversion feature is to relieve the holders of Class B shares and Class C
shares from most of the burden of distribution-related expenses at such time as
when the shares have been outstanding for a duration sufficient for the Fund's
distributor, Salomon Brothers (in such capacity, the "Distributor"), to have
been substantially compensated for distribution-related expenses incurred in
connection with Class B shares or Class C shares, as the case may be.
Accordingly, Class B shares and Class C shares of the Cash Management Fund do
not convert to Class A shares of the Cash Management Fund at any time, as shares
of all classes of the Cash Management Fund do not bear any distribution or
service fees. If a shareholder effects one or more exchanges among Class B
shares or Class C shares, as the case may be, of the Funds during the applicable
conversion period, the period of time during which Class B shares or Class C
shares were held prior to an exchange will be added to the holding period of
Class B shares or Class C shares acquired in an exchange. However, because Class
B shares and Class C shares of the Cash Management Fund are not subject to any
distribution or service fees, the applicable conversion period is tolled for any
period of time in which Class B shares or Class C shares are held in the Cash
Management Fund. For example, if Class B shares of a Fund other than the Cash
Management Fund are exchanged for Class B shares of the Cash Management Fund two
years after purchase and are subsequently exchanged one year later for Class B
shares of a Fund other than the Cash Management Fund, the one year of ownership
in the Cash Management Fund does not count in the determination of the time of
conversion to Class A shares.
For purposes of the conversion of Class B shares and Class C shares to Class A
shares, shares purchased through the reinvestment of dividends and distributions
paid on Class B shares or Class C shares, as the case may be, in a shareholder's
Fund account will be considered to be held in a separate sub-account. Each time
any Class B shares or Class C shares in the shareholder's Fund account (other
than those in the sub-account) convert to Class A shares, a pro rata portion of
the Class B shares or Class C shares, as the case may be, in the sub-account
will also convert to Class A shares.
The conversion of Class B shares to Class A shares and the conversion of Class C
shares to Class A shares of the Total Return Fund are both subject to the
availability of a ruling of the Internal Revenue Service that payment of
different dividends on Class A shares, Class B shares and Class C shares, does
not result in the Funds' dividends or distributions constituting "preferential
dividends" under the Code, and the continuing availability of an opinion of
counsel to the effect that the conversion of shares does not constitute a
taxable event under federal income tax law. Each of the other Funds has obtained
such a ruling. The Total Return Fund has applied for such a ruling; however,
there can be no assurance that the Funds' ruling request will be granted. The
conversion of Class B shares and Class C shares of the Total Return Fund may be
suspended if such a ruling or opinion is not available. In that event, no
further conversions of Class B shares or Class C shares would occur, and those
shares might continue to be subject to distribution fees for an indefinite
period which may extend beyond the period ending six years or ten years,
respectively, after the end of the calendar month in
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SALOMON BROTHERS INVESTMENT SERIES
which the shareholder's order to purchase was accepted.
FACTORS FOR CONSIDERATION. The Funds' Multiple Pricing System is designed to
offer different classes of shares to investors. Although the different classes
of shares of a particular Fund represent an interest in the same portfolio of
investments, each class is subject to a different distribution structure and, as
a result, differing expenses. The Multiple Pricing System provides investors
with the option of choosing the class of shares which is best suited to their
needs and objectives. In evaluating the options offered by the Multiple Pricing
System, investors should consider the different sales charges, distribution and
service fees and conversion features applicable to each class, and other
factors, including the amount of the purchase and the length of time the
investor expects to hold the shares. To assist investors in making their
determination, the information provided above under the caption "Expense
Information" sets forth the charges applicable to each class of shares and
presents an example of a hypothetical investment in each class of shares of each
Fund.
There are distinct advantages and disadvantages among the classes of shares that
investors should consider in evaluating the options offered by the Multiple
Pricing System. Class A, Class B and Class C shares all pay an annual 12b-1
service fee of .25% of average daily net assets, but Class A shares are not
subject to the annual 12b-1 distribution fee of .75% of average daily net assets
paid by Class B and Class C shares, and, accordingly, Class A shares pay
correspondingly higher dividends per share. However, because a front end sales
charge is deducted at the time of purchase of Class A shares, the entire
purchase price is not immediately invested and, therefore, investors purchasing
Class A shares initially own fewer shares than they would own if they had
invested the same amount in Class B shares or Class C shares. Investors may,
however, benefit from the reduction or waiver of the front end sales charge
applicable to Class A shares for certain purchases.
Although investors purchasing Class B or Class C shares benefit from the
advantage of having all their funds invested initially, Class B and Class C
shares remain subject to an ongoing distribution fee which causes them to have
higher expenses and pay lower dividends than Class A shares and may be subject
to a CDSC upon redemption. Class B shares differ from Class C shares, however,
in that Class B shares may be subject to a CDSC upon redemption if redeemed
within six years of purchase, whereas Class C shares are subject to a CDSC only
if they are redeemed within one year after purchase. In addition, Class B shares
automatically convert to Class A shares six years after the end of the month in
which the shares were purchased and thereafter are not subject to an ongoing
distribution fee, whereas Class C shares, which automatically convert to Class A
shares ten years after the end of the month in which the shares were purchased,
remain subject to an ongoing distribution fee for a longer time period. The
purchase of Class C shares may therefore prove beneficial for an investor
expecting to hold Fund shares for less than six years.
Because of the differences among the classes of shares, in deciding which class
of shares to purchase, investors should consider, in addition to other facts and
circumstances, the following factors:
(i) Class A shares are, in general, the most beneficial for the investor who
qualifies for a waiver or certain reductions of the front end sales charges, as
described herein under "Purchase of Shares-- Class A Shares."
(ii) Class B and Class C shareholders may pay a CDSC upon redemption. Investors
who expect to redeem during the six year CDSC period applicable to Class B
shares or the one year CDSC period applicable
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to Class C shares should consider the cost of the applicable CDSC plus the
aggregate annual distribution and service fees applicable to Class B and Class C
shares, as compared with the cost of the front end sales charge plus the
aggregate annual service fees applicable to Class A shares.
(iii) Over time, the cumulative distribution and service fees applicable to
Class B and Class C shares will approach and may exceed the 4.75% maximum front
end sales charge plus the service fee applicable to Class A shares. For example,
assuming a constant net asset value, the aggregate distribution and service fees
applicable to Class B and Class C shares would equal the front end sales charge
and aggregate service fees applicable to Class A shares at the end of the sixth
year after purchase. Because Class B shares convert to Class A shares (which
bear the same service fees as Class B and Class C shares but do not bear the
expense of ongoing distribution fees) approximately six years after purchase, an
investor expecting to hold Fund shares for longer than six years would generally
pay lower cumulative expenses by purchasing Class A or Class B shares than by
purchasing Class C shares. An investor expecting to hold Fund shares for less
than six years would generally pay lower cumulative expenses by purchasing Class
C shares than by purchasing Class A shares and, due to the CDSC that would
become payable on redemption of Class B shares, such an investor would generally
pay lower cumulative expenses by purchasing Class C shares than Class B shares.
(iv) Because Class B and Class C shareholders pay no front end sales charge, the
entire purchase price is immediately invested in Fund shares. Any return
realized on the additional funds initially invested may partially or wholly
offset the ongoing distribution fees applicable to Class B and Class C shares.
There can be no assurance, however, as to the investment return, if any, which
will be realized on such additional funds.
Investors should consult their investment representatives for assistance in
evaluating the relative benefits of the different classes of shares.
Sales personnel of broker-dealers distributing each Fund's shares and any other
persons entitled to receive compensation for selling or servicing a Fund's
shares may receive different compensation for selling or servicing one class of
shares over another. The distribution and shareholder service expenses incurred
by the Distributor and dealers in connection with the sale of shares will be
paid, in the case of Class A shares, from the proceeds of front end sales
charges and the ongoing service fees; and in the cases of Class B and Class C
shares, from the proceeds of applicable CDSCs and ongoing distribution and
service fees. Investors should understand that the purpose of the front end
sales charge and ongoing service fees applicable to Class A shares is the same
as that of the CDSCs and ongoing distribution and service fees applicable to
Class B and Class C shares.
Dividends paid by each Fund with respect to all classes of shares will be
calculated in substantially the same manner at the same time on the same day,
except that distribution and service fees and any other costs specifically
attributable to a particular class of shares will be borne exclusively by the
applicable class. See "Dividends and Distributions." Net asset value per share
will also differ among the classes. Shares of each Fund may be exchanged for
shares of the same class of any other Fund, but not for shares of other classes
of any Fund. See "Shareholder Services--Exchange Privilege."
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INVESTMENT LIMITATIONS
The following investment restrictions and those described in the Statement of
Additional Information are fundamental policies applicable to the individual
Funds which may be changed only when permitted by law and approved by the
holders of a majority of each Fund's outstanding voting securities, as defined
in the 1940 Act. Except for the investment restrictions set forth below and in
the Statement of Additional Information and each Fund's investment objective(s),
the other policies and percentage limitations referred to in this Prospectus and
in the Statement of Additional Information are not fundamental policies of the
Funds and may be changed by the applicable Fund's Board of Directors without
shareholder approval.
If a percentage restriction on investment or use of assets set forth below is
adhered to at the time a transaction is effected, later changes in percentages
resulting from changing values will not be considered a violation.
CASH MANAGEMENT FUND. The Cash Management Fund may not:
(1) purchase the securities of any one issuer, other than the U.S. government,
its agencies or instrumentalities, if immediately after such purchase, more than
5% of the value of the Fund's total assets would be invested in such issuer;
provided, however, that such 5% limitation shall not apply to repurchase
agreements collateralized by obligations of the U.S. government, its agencies or
instrumentalities; and provided, further, that the Fund may invest more than 5%
(but no more than 25%) of the value of the Fund's total assets in the securities
of a single issuer for a period of up to three business days;
(2) borrow money except as a temporary measure from banks for extraordinary or
emergency purposes, and in no event in excess of 15% of the value of its total
assets, except that for the purpose of this restriction, short-term credits
necessary for settlement of securities transactions are not considered
borrowings (the Fund will not purchase any securities at any time while such
borrowings exceed 5% of the value of its total assets);
(3) invest more than 10% of the value of its net assets in securities which are
illiquid, including repurchase agreements having notice periods of more than
seven days, fixed time deposits subject to withdrawal penalties and having
notice periods of more than seven days, receivables-backed obligations and
variable amount master demand notes that are not readily saleable in the
secondary market and with respect to which principal and interest may not be
received within seven days, and securities that would be illiquid by virtue of
legal or contractual restrictions on resale;
(4) invest less than 25% of the current value of its total assets in bank
obligations (including bank obligations subject to repurchase agreements),
provided that if at some future date adverse conditions prevail in the banking
industry or in the market for bank obligations, the Fund, for defensive
purposes, may invest temporarily less than 25% of its assets in bank
obligations; or
(5) pledge, hypothecate, mortgage or otherwise encumber its assets in excess of
20% of the value of its total assets, and then only to secure borrowings
permitted by (2) above.
NEW YORK MUNICIPAL BOND FUND. The New York Municipal Bond Fund may not:
(1) purchase the securities of any one issuer, other than the U.S. government,
its agencies or instrumentalities, if immediately after such purchase, more than
5% of the value of the Fund's total assets would be invested in such issuer;
provided, how-
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ever, that up to 25% of the assets of the Fund may be invested without regard to
this limitation; or
(2) borrow money except as a temporary measure from banks for extraordinary or
emergency purposes, and in no event in excess of 20% of the value of its total
assets, except that for the purpose of this restriction, short-term credits
necessary for settlement of securities transactions are not considered
borrowings (the Fund will not purchase any securities at any time while such
borrowings exceed 5% of the value of its total assets).
NATIONAL INTERMEDIATE MUNICIPAL FUND, U.S. GOVERNMENT INCOME FUND, HIGH YIELD
BOND FUND, STRATEGIC BOND FUND AND TOTAL RETURN FUND. The National Intermediate
Municipal Fund, the U.S. Government Income Fund, the High Yield Bond Fund, the
Strategic Bond Fund and the Total Return Fund may not:
(1) purchase securities of any issuer if the purchase would cause more than 5%
of the value of each Fund's total assets to be invested in the securities of any
one issuer (excluding securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities and bank obligations) or cause more than 10%
of the voting securities of the issuer to be held by a Fund, except that up to
25% of the value of each Fund's total assets may be invested without regard to
this restriction and provided that each Fund may invest all or substantially all
of its assets in another registered investment company having substantially the
same investment objective(s) and policies and substantially the same investment
restrictions as those with respect to such Fund;
(2) borrow money (including entering into reverse repurchase agreements), except
for temporary or emergency purposes and then not in excess of 10% of the value
of the total assets of the applicable Fund at the time the borrowing is made,
except that for the purpose of this restriction, short-term credits necessary
for settlement of securities transactions are not considered borrowings (a Fund
will not purchase additional securities at any time its borrowings exceed 5% of
total assets, provided, however, that a Fund may increase its interest in
another registered investment company having substantially the same investment
objective(s) and policies and substantially the same investment restrictions as
those with respect to such Fund while such borrowings are outstanding); or
(3) invest more than 25% of the total assets of each Fund in the securities of
issuers having their principal activities in any particular industry, except for
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities or by any state, territory or any possession of the United
States or any of their authorities, agencies, instrumentalities or political
subdivisions, or with respect to repurchase agreements collateralized by any of
such obligations (for purposes of this restriction, supranational issuers will
be considered to comprise an industry as will each foreign government that
issues securities purchased by a Fund), provided, however, that each Fund may
invest all or substantially all of its assets in another registered investment
company having substantially the same investment objective(s) and policies and
substantially the same investment restrictions as those with respect to such
Fund.
INVESTORS FUND. The Investors Fund may not:
(1) purchase any securities of another issuer (other than the United States of
America) if upon said purchase more than 5% of its net assets would consist of
securities of such issuer, or purchase more than 10% of any class of securities
of such issuer;
(2) borrow money, except as a temporary measure for extraordinary or emergency
purposes and then only from banks and only in an amount not to exceed 5% of its
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SALOMON BROTHERS INVESTMENT SERIES
total assets taken at cost or value, whichever is less, or mortgage or pledge
any of its assets and except that for purposes of this restriction, collateral
arrangements with respect to the writing of options on stocks and stock indices,
the purchase and sale of futures contracts and options on futures contracts, and
forward currency contracts are not deemed a pledge of assets or a borrowing of
money;
(3) lend its funds or other assets to any other person other than through the
purchase of liquid debt securities pursuant to the Fund's investment policies,
except that (a) the Fund may lend its portfolio securities as described in the
Statement of Additional Information and (b) the Fund may enter into repurchase
agreements in an amount up to an aggregate of 25% of its total assets; or
(4) invest in the securities of issuers which have been in operation for less
than three years if such purchase at the time thereof would cause more than 5%
of the net assets of the Fund to be so invested.
Each Fund may, in the future, seek to achieve its investment objective(s) by
investing all of its assets in a no-load, open-end management investment company
for which SBAM serves as investment manager and which has substantially the same
investment objective(s) and policies and substantially the same investment
restrictions as those applicable to such Fund. In such event, the Fund's
applicable investment advisory agreement would be terminated since the
investment management would be performed by or on behalf of such other
registered investment company.
- ----------------------------------------------------------------------------
MANAGEMENT
The business and affairs of each Fund are managed under the direction of its
Board of Directors. The Board of Directors approves all significant agreements
between a Fund and the persons or companies that furnish services to the Fund,
including agreements with its distributor, investment manager, administrator,
custodian and transfer agent. The day-to-day operations of a Fund are delegated
to the Fund's investment manager and administrator. The Statement of Additional
Information contains general background information regarding each director and
executive officer of each Fund.
INVESTMENT MANAGER
Each Fund retains SBAM, a wholly owned subsidiary of Salomon Brothers Holding
Company Inc, which is in turn wholly owned by Salomon Inc, as its investment
manager under an investment management contract. SBAM was incorporated in 1987
and together with affiliates in London, Frankfurt and Tokyo, SBAM provides a
broad range of fixed-income and equity investment advisory services to various
individuals and institutional clients located throughout the world, and serves
as investment adviser to various investment companies. As of June 30, 1995, SBAM
had approximately $12 billion of assets under management of which approximately
$458 million is invested in high yield securities and approximately $645 million
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SALOMON BROTHERS INVESTMENT SERIES
is invested in mortgage backed securities. Michael S. Hyland serves as President
of SBAM. SBAM has access to Salomon Inc's more than 250 economists, mortgage,
bond, sovereign, and equity analysts. The business address of SBAM is 7 World
Trade Center, New York, New York 10048.
In connection with SBAM's service as investment manager to the Strategic Bond
Fund, SBAM Limited, whose business address is Victoria Plaza, 111 Buckingham
Palace Road, London SW1W OSB, England, provides certain advisory services to
SBAM relating to currency transactions and investments in non-dollar-denominated
debt securities for the benefit of the Strategic Bond Fund. SBAM Limited is
compensated by SBAM at no additional expense to the Fund. Like SBAM, SBAM
Limited is a direct, wholly-owned subsidiary of Salomon Brothers Holding Company
Inc. SBAM Limited is a member of the Investment Management Regulatory
Organization Limited in the United Kingdom and is registered as an investment
adviser in the United States pursuant to the Investment Advisers Act of 1940, as
amended. David J. Scott is primarily responsible for a portion of the Strategic
Bond Fund relating to currency transactions and investments in non-dollar
denominated debt securities. Prior to joining SBAM Limited in April, 1994, Mr.
Scott worked for four years at JP Morgan Investment Management where he was
responsible for global and non-dollar portfolios. Before joining JP Morgan
Investment Management, Mr. Scott worked for three years at Mercury Asset
Management where he was responsible for captive insurance portfolios and
products.
Marybeth Whyte is primarily responsible for the day-to-day management of the New
York Municipal Bond Fund's portfolio and the National Intermediate Municipal
Fund's portfolio. Prior to joining SBAM on July 25, 1994, Ms. Whyte was a Senior
Vice President and head of the Municipal Bond Area at Fiduciary Trust Company
International, where her responsibilities included managing and advising
portfolios with assets of approximately $1.3 billion.
Steven Guterman is primarily responsible for the day-to-day management of the
U.S. Government Income Fund and the mortgage-backed securities and U.S.
government securities portions of the Strategic Bond Fund. Mr. Guterman is
assisted by Roger Lavan in the management of the two foregoing Funds. Mr.
Guterman joined SBAM in 1990 and is currently a Senior Portfolio Manager,
responsible for SBAM's investment company and institutional portfolios which
invest primarily in mortgage-backed securities and U.S. government issues. Mr.
Guterman also serves as portfolio manager for two offshore mortgage funds. In
addition, Mr. Guterman serves as portfolio manager for a number of SBAM's
institutional clients. Mr. Guterman joined Salomon Brothers in 1983. He
initially worked in the mortgage research group where he became a Research
Director and later traded derivative mortgage-backed securities for Salomon
Brothers. Mr. Lavan joined SBAM in 1990 and is a Portfolio Manager and
Quantitative Fixed Income Analyst. He is responsible for working with senior
portfolio managers to monitor and analyze market relationships and identify and
implement relative value transactions in SBAM's investment company and
institutional portfolios which invest in mortgage-backed securities and U.S.
Government securities. Prior to joining SBAM, Mr. Lavan spent four years
analyzing portfolios for Salomon Brothers' Fixed Income Sales Group and Product
Support Divisions.
Peter J. Wilby is primarily responsible for the day-to-day management of the
High Yield Bond Fund and the high yield and sovereign bond portions of the
Strategic Bond Fund. Mr. Wilby, who joined SBAM in 1989, is a Senior Portfolio
Manager, responsible for SBAM's investment company and institutional portfolios
which invest in high yield non-U.S. and U.S.
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SALOMON BROTHERS INVESTMENT SERIES
corporate debt securities and high yield foreign sovereign debt securities. Mr.
Wilby is the portfolio manager for Global Partners Income Fund Inc., The
Emerging Markets Income Fund Inc, The Emerging Markets Income Fund II Inc, The
Emerging Markets Floating Rate Fund Inc, Salomon Brothers Worldwide Income Fund
Inc, Salomon Brothers High Income Fund Inc, and the foreign sovereign debt
component of Salomon Brothers 2008 Worldwide Dollar Government Term Trust Inc.
From 1984 to 1989, Mr. Wilby was employed by Prudential Capital Management Group
("PCMG"). He served as director of PCMG's credit research unit and as a
corporate and sovereign credit analyst with PCMG. Mr. Wilby later managed high
yield bonds and leveraged equities in the mutual funds and institutional
portfolios at PCMG.
Allan R. White III and Ross S. Margolies are primarily responsible for
day-to-day management of the Investors Fund's portfolio. Mr. White has been
Executive Vice President and portfolio manager for the Investors Fund since
April of 1992. Since 1989 he has been a Vice President of SBAM and prior to 1989
he was a Vice President at The First Boston Corporation. Mr. White is also
Executive Vice President and portfolio manager for The Salomon Brothers Fund
Inc. Mr. Margolies, who joined SBAM in 1992, is a Senior Portfolio Manager
responsible for SBAM's investments in convertible securities. Mr. Margolies has
been Executive Vice President and portfolio manager for the Investors Fund since
August 1994 and is the portfolio manager for an offshore fund. From 1989 through
1992, Mr. Margolies was employed by Lehman Brothers Inc. As a Senior Vice
President in High Yield Research, Mr. Margolies analyzed a variety of
industries, sponsored industry conferences and participated in selecting the
firm's proprietary investments. Mr. Margolies is also Executive Vice President
and portfolio manager for The Salomon Brothers Fund Inc.
Richard E. Dahlberg is primarily responsible for the day-to-day management of
the Total Return Fund. Prior to joining SBAM in 1995, Mr. Dahlberg was employed
by Massachusetts Financial Services Company since 1968. For the last 10 years,
Mr. Dahlberg has been primarily responsible for the day-to-day management of the
MFS Total Return Funds.
Subject to policy established by the Board of Directors, which has overall
responsibility for the business and affairs of each Fund, SBAM manages the
investment and reinvestment of each Fund's assets pursuant to the applicable
management contract. SBAM also furnishes office space, personnel and certain
facilities required for the performance by SBAM of certain additional services
provided by it to each Fund under the applicable management contract, including
Commission compliance, supervision of Fund operations and certain administrative
and clerical services, and pays the compensation of the Funds' officers,
employees and directors affiliated with SBAM. Except for the expenses paid by
SBAM that are described herein, each Fund bears all costs of its operations.
As compensation for its services, the Cash Management Fund pays SBAM a monthly
fee at an annual rate of .20% of the Fund's average daily net assets. The New
York Municipal Bond Fund pays SBAM a monthly fee at an annual rate of .50% of
the Fund's average daily net assets. The National Intermediate Municipal Fund
pays SBAM a monthly fee at an annual rate of .50% of the Fund's average daily
net assets; the U.S. Government Income Fund pays SBAM a monthly fee at an annual
rate of .60% of the Fund's average daily net assets; the High Yield Bond Fund
pays SBAM a monthly fee at an annual rate of .75% of the Fund's average daily
net assets; the Strategic Bond Fund pays SBAM a monthly fee at an annual rate of
.75% of the Fund's average daily net assets and the Total Return Fund pays SBAM
a monthly fee at an annual rate of .55% of
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SALOMON BROTHERS INVESTMENT SERIES
the Fund's average daily net assets. SBAM has agreed to waive all or a portion
of its management fee for each Fund other than the Total Return Fund and the
Investors Fund through the fiscal year ended December 31, 1995. SBAM has further
agreed to waive its entire management fee for the Total Return Fund for a period
of six months from the date of this prospectus. See "Expense Information--Annual
Fund Operating Expenses." The Investors Fund pays SBAM a quarterly fee (the
"Base Fee") at the end of each calendar quarter based on the following rates:
<TABLE>
<CAPTION>
ANNUAL FEE
AVERAGE DAILY NET ASSETS RATE
- ------------------------------ -----------
<S> <C>
First $350 million .500%
Next $150 million .400%
Next $250 million .375%
Next $250 million .350%
Over $1 billion .300%
</TABLE>
The Base Fee for the Investors Fund may be increased or decreased based on the
performance of the Investors Fund relative to the investment record of the S&P
500 Index. At the end of each calendar quarter, for each percentage point by
which the investment performance of the Investors Fund exceeds or is exceeded by
the investment record of the S&P 500 Index over the one year period ending on
the last day of the calendar quarter for which the adjustment is being
calculated, the Base Fee will be adjusted upward or downward by the product of
(i) 1/4 of .01% multiplied by (ii) the average daily net assets of the Investors
Fund for the one year period preceding the end of the calendar quarter. If the
amount by which the Investors Fund outperforms or underperforms the S&P 500
Index is not a whole percentage point, a pro rata adjustment shall be made.
However, there will be no performance adjustment unless the investment
performance of the Investors Fund exceeds or is exceeded by the investment
record of the S&P 500 Index by at least one percentage point. The maximum
quarterly adjustment is 1/4 of .10%, which would occur if the Investors Fund's
performance exceeds or is exceeded by the S&P 500 Index by ten or more
percentage points. The first performance adjustment will be paid on September
30, 1995 for the one year period ending on that date. Thereafter, the
performance adjustment will be paid quarterly based on a rolling one year
period.
With respect to the Strategic Bond Fund and in connection with the subadvisory
consulting agreement between SBAM and SBAM Limited, SBAM will pay SBAM Limited,
as full compensation for all services provided under the subadvisory consulting
agreement, a portion of its investment management fee. The amount payable to
SBAM Limited will be equal to the fee payable under SBAM's management agreement
multiplied by the portion of the assets of the Strategic Bond Fund that SBAM
Limited has been delegated to manage divided by the current value of the net
assets of the Strategic Bond Fund.
SBAM may waive all or part of its fee from time to time in order to increase
each Fund's net investment income available for distribution to shareholders.
The Funds will not be required to reimburse SBAM for any advisory fees waived.
SBAM may from time to time, at its own expense, provide compensation to certain
selected dealers for performing administrative services for their customers.
These services include maintaining account records, processing orders to
purchase, redeem and exchange Fund shares and responding to certain customer
inquiries. The amount of such compensation may be up to .12% annually of the
average net assets of a Fund attributable to shares of such Fund held by
customers of such selected dealers. Such compensation does not represent an
additional expense to a Fund or its shareholders, since it will be paid from the
assets of SBAM.
The services of SBAM and SBAM Limited are not deemed to be exclusive, and
nothing in the relevant agreements will prevent either of them or their
affiliates from providing similar services to other investment companies and
other clients
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SALOMON BROTHERS INVESTMENT SERIES
(whether or not their investment objectives and policies are similar to those of
any of the Funds) or from engaging in other activities.
Consistent with the Rules of Fair Practice of the NASD, and subject to seeking
the most favorable price and execution available, SBAM may consider sales of
shares of the Funds as a factor in the selection of brokers to execute portfolio
transactions for the Funds. The Funds may use Salomon Brothers to execute
portfolio transactions when SBAM believes that the broker's charge for the
transaction does not exceed the usual and customary levels charged by other
brokers in connection with comparable transactions involving similar securities.
See the Statement of Additional Information for a more complete description of
the Funds' policies with respect to portfolio transactions.
ADMINISTRATOR
Each Fund employs Investors Bank & Trust Company ("Investors Bank") under its
applicable administration agreement to provide certain administrative services
to the respective Fund. The administrator is not involved in the investment
decisions made with respect to the Funds.
The services provided by Investors Bank under the applicable administration
agreements include certain accounting, clerical and bookkeeping services, Blue
Sky compliance, corporate secretarial services and assistance in the preparation
and filing of tax returns and reports to shareholders and the SEC. For its
services as administrator, each Fund, other than the Investors Fund, pays
Investors Bank a fee, calculated daily and payable monthly, at an annual rate of
.08% of the applicable Fund's aggregate average daily net assets. As
compensation for its services to the Investors Fund and at no additional cost to
the Investors Fund, SBAM pays Investors Bank a fee each month at an annual rate
of .08% of the average daily value of the Investors Fund's net assets.
EXPENSES
Each Fund's expenses include taxes, interest, fees and salaries of the directors
and officers who are not directors, officers or employees of the Fund's service
contractors, SEC fees, state securities qualification fees, costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders, advisory and administration fees, charges of the
custodian, transfer agent and dividend disbursing agent, certain insurance
premiums, outside auditing and legal expenses, costs of shareholder reports and
shareholder meetings and any extraordinary expenses. Each Fund also pays for
brokerage fees and commissions (if any) in connection with the purchase and sale
of portfolio securities. Fund expenses are allocated to a particular class based
on either expenses identifiable to the class or relative net assets of the class
and other classes of Fund shares.
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- -------------------------------------------------------------------------------
DETERMINATION
OF NET ASSET VALUE
For the purpose of pricing purchase and redemption orders, the net asset value
per share of each class of each Fund is calculated separately and is determined
once daily as of the close of regularly scheduled trading on the NYSE (except
with respect to the Cash Management Fund for which the determination is made at
12:00 noon (New York time)). With respect to each Fund, such calculation is
determined on each day that the NYSE is open for trading, i.e., Monday through
Friday, except for New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and the
preceding Friday or subsequent Monday when one of those holidays falls on a
Saturday or Sunday, respectively. Net asset value per share of each class of
each Fund is calculated by dividing the value of the portion of the Fund's
securities and other assets attributable to that class, less the liabilities
attributable to that class, by the number of shares of that class outstanding.
In calculating net asset value, all portfolio securities will be valued at
market value when there is a reliable market quotation available for the
securities and otherwise pursuant to procedures adopted by each Fund's Board of
Directors. Securities that are primarily traded on foreign exchanges generally
are valued at the preceding closing values of such securities on their
respective exchanges, except that when an occurrence subsequent to the time a
value was so established is likely to have changed such value, then the fair
value of those securities will be determined by consideration of other factors
by or under the direction of the Board of Directors. Securities may be valued by
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. In valuing a Fund's assets, any assets
or liabilities initially expressed in terms of a foreign currency are converted
to U.S. dollar equivalents at the then current exchange rate. Further
information regarding the Funds' valuation policies is contained in the
Statement of Additional Information.
The Cash Management Fund uses the amortized cost method to value its portfolio
securities and, with respect to each class of shares of the Fund, seeks to
maintain a stable net asset value of $1.00 per share. Each of the other Funds
values short-term investments that mature in 60 days or less at amortized cost
whenever the Board of Directors determines that amortized cost is the fair value
of those investments. If a Fund acquires securities with more than sixty days
remaining to maturity, they will be valued at current market value (using the
bid price) until the 60th day prior to maturity, and will then be valued on an
amortized cost basis based upon the value on such date unless the Board
determines during such 60-day period that this amortized cost basis does not
represent fair value. The amortized cost method involves valuing a security at
its cost and amortizing any discount or premium over the period until maturity,
regardless of the impact of fluctuating interest rates on the market value of
the security. See the Statement of Additional Information for a more complete
description of the amortized cost method.
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- --------------------------------------------------------------------------------
PURCHASE OF SHARES
Shares of each Fund may be purchased from any dealer that has a selling
agreement with Salomon Brothers. Purchases of shares made through a selected
dealer should be made in accordance with the procedures prescribed by such
selected dealer.
HOW TO OPEN AN ACCOUNT
In order to purchase shares of any Fund, an investor must submit a fully
completed Purchase Application form.
MINIMUM INVESTMENT
The minimum initial investment in any class of shares in any Fund is $500 and
the minimum subsequent investment is $50. However, for IRAs and Self-Employed
Retirement Plans (formerly Keogh Plans), the minimum initial investment in any
class of shares of any Fund is $50. In addition, an account can be established
with a minimum of $50 if the account will be receiving periodic, regular
investments through programs such as Automatic Investment Plans, Automatic
Dividend Diversification and Systematic Investing. See "Shareholder Services."
When purchasing shares of any Fund, investors must specify the class of shares.
Each Fund and the investment manager reserve the right to reject any purchase
order, to suspend the offering of shares for a period of time or to waive or
lower the minimum investment requirements.
TIMING OF PURCHASE ORDERS
Orders for the purchase of Fund shares (other than the Cash Management Fund)
received by selected dealers by the close of regular trading on the NYSE on any
day that a Fund calculates its net asset value and either transmitted to Salomon
Brothers by the close of its business day (normally 5:00 p.m., New York time) or
transmitted by dealers to The Shareholder Services Group, Inc. ("TSSG") through
the facilities of the National Securities Clearing Corporation ("NSCC") by 7:00
p.m., New York time on that day will be priced according to the net asset value
determined on that day plus any applicable sales charge. Otherwise, the orders
will be priced as of the time the net asset value is next determined. Purchase
orders for shares of the Cash Management Fund will be executed at the net asset
value per share next determined after the order has become effective, i.e.,
payment has been received in or converted into federal funds. See "Determination
of Net Asset Value." It is the dealers' responsibility to ensure that orders are
transmitted on a timely basis to Salomon Brothers or TSSG through the facilities
of NSCC. Any loss resulting from a dealer's failure to submit an order within
the prescribed time frame will be borne by that dealer. See "Purchases by Wire"
below for information on obtaining a reference number for wire orders, which
will facilitate the handling of such orders and ensure prompt credit to the
investor's account.
Funds transmitted by a wire system other than the Federal Reserve Wire System
generally take one business day to be converted into federal funds. In those
cases in which an investor pays for shares by a check drawn on a member bank of
the Federal Reserve System, federal funds generally will become available on the
business day after the check is deposited. Checks drawn on banks which are not
members of the Federal Reserve System or foreign banks may take substantially
longer to be converted into federal funds.
PURCHASES BY WIRE
Shares of the Funds may be purchased by wiring federal funds to TSSG. Prior to
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SALOMON BROTHERS INVESTMENT SERIES
making an initial investment by wire, an investor must call (800) SALOMON or
(800) 725-6666 to open an account. Please supply the following information: (i)
the name(s) in which the shares are to be registered, (ii) address, (iii) social
security or tax identification number (where applicable), (iv) dividend payment
election, (v) class of shares (vi) amount to be wired, (vii) name of the wiring
bank, and (viii) name and telephone number of the person to be contacted in
connection with the order. An account number will be assigned. The investor
should instruct the wiring bank to transmit the specified amount in federal
funds to:
Boston Safe Deposit and Trust Company
Boston, Massachusetts
ABA No. 011-001-234
Account #142743
Attn: (Name of Fund)
Name of Account:
Account # (As assigned):
Investors making initial investments by wire must promptly complete a Purchase
Application and forward it to TSSG. Shareholders should note that their bank may
charge a fee in connection with transferring money by bank wire.
Subsequent investments can be made by wire at any time by wiring federal funds
to TSSG as set forth above. Prior notification by telephone is not required in
the case of subsequent wire purchases. To ensure prompt credit to their
accounts, investors or their dealers should call (800) SALOMON or (800) 725-6666
prior to sending a wire to receive a reference number for the wire. If wires are
received after 4:15 p.m. New York time or during a bank holiday, purchases will
be confirmed at the price determined on the next business day of the applicable
Fund.
STOCK CERTIFICATES
Although most shareholders elect not to receive stock certificates, certificates
for full shares can be obtained on specific written request at no cost to the
shareholder. No certificates will be issued for fractional shares.
OTHER PURCHASE METHODS
Purchase orders may also be placed through Salomon Brothers, the Funds'
distributor. Except as described below with respect to the Cash Management Fund,
purchase orders placed through Salomon Brothers for brokerage accounts and
received before the close of regular trading on the NYSE on any day that a Fund
is open, including orders for which payment is to be made from free cash credit
balances in brokerage accounts at Salomon Brothers, generally will be executed
at the net asset value next determined that day (the "trade date") plus any
applicable sales charge. Purchase orders received by Salomon Brothers after the
close of regular trading on the NYSE on any day that a Fund is open generally
will be executed at the net asset value determined on the next day such Fund is
open. Payment generally is due to Salomon Brothers on the settlement date (i.e.,
the third business day after the trade date). When payment is made to Salomon
Brothers by an investor before the settlement date, unless otherwise directed by
an investor, the monies will be held as a free credit balance in the investor's
brokerage account and Salomon Brothers will benefit from the temporary use of
these monies. The Board of Directors of each Fund has been advised of the
benefits to Salomon Brothers resulting from the five-day settlement procedures
and will take such benefits into consideration when reviewing the applicable
management contract and applicable distribution agreement for continuance.
Purchase orders for shares of the Cash Management Fund placed through Salomon
Brothers by 12:00 noon (New York time) on any business day will be executed and
begin to earn dividends that same day if payment is received in or converted
into federal funds by 12:00 noon (New York time) that day. Purchase orders
received after 12:00 noon
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SALOMON BROTHERS INVESTMENT SERIES
(New York time) or for which payment is received in or converted into federal
funds after 12:00 noon (New York time) will be executed and begin to earn
dividends on the following business day. Because Salomon Brothers does not
forward investors' funds until the day on which the order is executed, it may
benefit from temporary use of such funds.
Shares may also be purchased initially by completing a Purchase Application and
mailing it, together with a check payable to TSSG, to:
(Name of Fund)
c/o TSSG
P.O. Box 9109
Boston, MA 02205-9109
Subsequent investments may be made at any time through a selected dealer or by
mailing a check to TSSG at the address set forth above, along with the
detachable stub from the Statement of Account (or a letter providing the account
number). Shareholders should be sure to write the Fund account number on the
check. If an investor's purchase check is not collected, the purchase will be
cancelled and TSSG will charge a fee of $10 to the shareholder's account. TSSG
does not intend to resubmit such checks for collection.
MULTIPLE PRICING SYSTEM
Each Fund currently offers three classes of shares to the general public through
the Multiple Pricing System. Although the Class A, Class B and Class C shares of
a particular Fund represent an interest in the same portfolio of investments,
each class is subject to different sales charge structures and expense levels.
Class A shares of all Funds are sold with a front end sales charge (with the
exception of Class A shares of the Cash Management Fund, which are sold at net
asset value) and may, under limited circumstances, be subject to a CDSC upon
redemption. Class B shares and Class C shares of all Funds are sold without a
front end sales charge but may be subject to a CDSC upon redemption (with the
exception of sales of Class B shares and Class C shares of the Cash Management
Fund, which are not subject to a CDSC). The Multiple Pricing System allows
investors to select the class that is best suited to their needs and objectives.
In considering the options afforded by the Multiple Pricing System, investors
should consider both the applicable front end sales charge or CDSC, as well as
the applicable service or distribution fee, and other relevant factors such as
whether their investment goals are long-term or short-term in order to determine
the class that best suits their circumstances and objectives. See "Multiple
Pricing System" for a discussion of factors to consider in selecting which class
of shares to purchase. In addition, Class O shareholders may purchase additional
Class O shares which are sold at net asset value and are not subject to any
sales charges, distribution or service fees.
CLASS A SHARES
The public offering price for Class A shares of each Fund is the per share net
asset value of that class plus a front end sales charge, expressed as a
percentage of the offering price as set forth in the table below. No front end
sales charge is imposed on the purchase of Class A shares of the Cash Management
Fund. However, when Class A shares of the Cash Management Fund on which no sales
charge has been paid or waived are exchanged for Class A shares of another Fund,
the sales charge applicable to purchases of Class A shares will be assessed at
that time.
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SALOMON BROTHERS INVESTMENT SERIES
CLASS A SALES CHARGE TABLE
<TABLE>
<CAPTION>
CONCESSION
TO
BROKER-DEALER
PERCENTAGE AS
PERCENTAGE OF A
OF THE PERCENTAGE
THE NET OF
AMOUNT OF OFFERING AMOUNT OFFERING
PURCHASE PAYMENT PRICE INVESTED PRICE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.25%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 4.00% 4.17% 3.50%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than 1 million 2.00% 2.04% 1.75%
$1 million or more None* None **
</TABLE>
------------------------------------------------------------------
* With respect to purchases of Class A shares of $1 million or more, a CDSC
will apply if the shares are redeemed within one year after purchase. See
"Redemption of Shares--Class A Share Purchases of $1 million or more."
** The Distributor may in its discretion compensate selected dealers in
connection with the sale of Class A Shares in an aggregate amount of $1
million or more up to the following amounts:
<TABLE>
<CAPTION>
DEALER'S
AMOUNT OF PURCHASE CONCESSION
--------------------------------- ----
<S> <C>
1 million up to $2 million 1.00%
Over $2 million up to $3 million .75%
Over $3 million up to $5 million .50%
Over $5 million .25%
</TABLE>
The Distributor may reallow concessions to selected dealers and retain the
balance over such concessions, and at times the Distributor may reallow the
entire front end sales charge to such dealers. In such circumstances, dealers
may be deemed to be "underwriters" as that term is defined under the 1933 Act.
The Distributor has determined to reallow the entire front end sales charge to
dealers for sales of Class A shares during the period from September 11, 1995
through December 31, 1995.
REDUCED SALES CHARGES
Investors purchasing Class A shares may be able to benefit from a reduction or
elimination of the front end sales charge through several purchase plans.
RIGHT OF ACCUMULATION. For the purposes of determining which sales charge level
in the table above is applicable to a purchase of Class A shares, investors may
combine the total of the value of the shares being purchased with the amount
equal to the current net asset value of the investor's holdings of Class A
shares in all Funds, excluding Class A shares purchased or held in the Cash
Management Fund. Also, for purposes of the foregoing calculation, Class A shares
(excluding Class A shares purchased or held in the Cash Management Fund)
beneficially owned by the investor's spouse and the investor's children under
the age of 21 may, upon written notice to the transfer agent, also be included
in the investor's beneficial holdings at the current net asset value to reach a
level specified in the above table. The investor must notify the transfer agent
in writing of all share accounts to be considered in exercising the right of
accumulation described above.
LETTER OF INTENT. For the purposes of determining which sales charge level in
the table above is applicable to a purchase of Class A shares, investors may
also establish a total investment goal in shares of the Funds to be achieved
over a thirteen-month period and may purchase Class A shares during such period
at the applicable reduced front end sales charge. All Class A shares, (excluding
Class A shares purchased or held in the Cash Management Fund), previously
purchased and still beneficially owned by the investor and his or her spouse and
children under the age of 21 may, upon written notice to the transfer agent,
also be included at the current net asset value to reach a level specified in
the table above.
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SALOMON BROTHERS INVESTMENT SERIES
Shares totaling 5% of the dollar amount of the Letter of Intent will be held in
escrow by the transfer agent in the name of the purchaser. The effective date of
a Letter of Intent may be back-dated up to 90 days, in order that any
investments made during this 90-day period, valued at the purchaser's cost, can
be applied to the fulfillment of the Letter of Intent goal.
The Letter of Intent does not obligate the investor to purchase, nor any Fund to
sell, the indicated amount. In the event the Letter of Intent goal is not
achieved within the thirteen-month period, the investor is required to pay the
difference between the front end sales charge otherwise applicable to the
purchases of Class A shares made during this period and the sales charge
actually paid. If a payment is due under the preceding sentence, it must be made
directly to the transfer agent within twenty days of notification or, if not
paid, the transfer agent will liquidate sufficient escrowed shares to obtain
such difference. For additional information, shareholders should contact the
applicable Fund, the transfer agent or eligible securities dealers.
GROUP PURCHASES. A reduced sales charge is available to employees (and partners)
of the same employer purchasing as a group. The sales charge applicable to
purchases by each member of such a group will be determined by the table set
forth above and will be based upon the aggregate sales of Class A shares to, and
share holdings of, all members of the group. To be eligible for such reduced
sales charges, all purchases must be pursuant to an employer or
partnership-sanctioned plan meeting certain requirements; one such requirement
is that the plan must be open to specified partners or employees of the employer
and its subsidiaries, if any. Such plans include but are not limited to plans
which provide for payroll deductions and retirement plans under Sections 401 or
408 of the Code. The Distributor may also offer a reduced sales charge for
aggregating related fiduciary accounts under such conditions that the
Distributor will realize economies of sales efforts and sales related expenses.
An individual who is a member of a qualified group may also purchase Class A
shares of the Fund at the reduced sales charge applicable to the group as a
whole. The sales charge is based upon the aggregate dollar value of Class A
shares previously purchased and still owned by the group, plus the amount of the
current purchase. A "qualified group" is one which (i) has been in existence for
more than six months, (ii) has a purpose other than acquiring Fund shares at a
discount and (iii) satisfies uniform criteria which enables the Distributor to
realize economies of scale in its costs of distributing shares. A qualified
group must have more than 10 members, must be available to arrange for group
meetings between representatives of a Fund and the members, and must agree to
include sales and other materials related to the Funds in its publications and
mailings to members at no cost to the Distributor. In order to obtain such
reduced sales charge, the purchases must provide sufficient information at the
time of purchase to permit verification that the purchase qualifies for the
reduced sales charge. Approval of group purchase reduced sales charge plans is
subject to the discretion of the Distributor.
CERTAIN QUALIFIED PURCHASERS. No front end sales charge is applicable to any
sale of Class A shares to a Director or officer of a Fund and to their immediate
families (i.e., the spouse, children, mother or father of such persons),
employees of SBAM and their immediate families, or any full-time employee or
registered representative of the Distributor or of broker-dealers having dealer
agreements with the Distributor ("Selling Broker") and their immediate families
(or any trust, pension, profit sharing or other benefit plan for the benefit of
such persons), any full-time employee of a bank, savings and loan, credit union
or other financial institution
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SALOMON BROTHERS INVESTMENT SERIES
that utilizes a Selling Broker to clear purchases of the Funds' shares and their
immediate families, participants in certain "wrap-fee" or asset allocation
programs sponsored by broker-dealers and other financial institutions that have
entered into agreements with Salomon Brothers or investors who purchase Class A
shares with proceeds from the sale of shares of any other investment company
with respect to which the investor previously paid a commission, whether a
front-end sales charge or CDSC or otherwise.
CLASS B SHARES
Class B shares of each Fund are offered for sale at net asset value and are
offered for purchases of less than $250,000. No initial sales charge is imposed
at the time of purchase. A CDSC is imposed, however, on certain redemptions of
Class B shares. See "Redemption of Shares" which describes the CDSC in greater
detail.
In general, a sales commission of 4% of the amount of Class B share purchases
(other than Class B shares of the Cash Management Fund) will be paid by the
Distributor to broker-dealers at the time of sale. However, the Distributor will
pay dealers a sales commission of 5% of the amount of Class B share purchases of
the High Yield Bond Fund and the Total Return Fund during the period from
September 11, 1995 through December 31, 1995.
CLASS C SHARES
Class C shares of each Fund are offered for sale at net asset value and are
offered for purchases of less than $1,000,000. Class C shares are sold without a
front end sales charge and are subject to a CDSC of 1% within the first year of
purchase.
A sales commission of 1% of the amount of Class C share (other than Class C
shares of the Cash Management Fund) will be paid by the Distributor to broker
dealers at the time of sale.
CLASS O SHARES
Class O shares of each Fund are offered for sale at net asset value and are not
subject to any sales charges. Only Class O shareholders may purchase additional
Class O shares.
DISTRIBUTOR
Salomon Brothers, located at 7 World Trade Center, New York, New York 10048,
serves as each Fund's distributor. Salomon Brothers is a wholly owned subsidiary
of Salomon Brothers Holding Company Inc, which is in turn wholly owned by
Salomon Inc. It is also one of the largest securities dealers in the world and a
registered broker-dealer. Salomon Brothers makes markets in securities and
provides a broad range of underwriting, research, and financial advisory
services to governments, international corporations, and institutional
investors. Salomon Brothers from time to time may receive fees from SBAM in
connection with processing and other services that it provides for certain
shareholder accounts and may from time to time receive fees from the Funds in
connection with the execution of portfolio transactions on behalf of the Funds.
Each class of each Fund (other than the Cash Management Fund) is authorized
pursuant to a services and distribution plan applicable to that class of shares
(the "Class A Plan," the "Class B Plan" and the "Class C Plan," collectively,
the "Plans") adopted pursuant to Rule 12b-1 under the 1940 Act to pay Salomon
Brothers an annual service fee with respect to Class A, Class B and Class C
shares of the applicable Fund (other than the Cash Management Fund) at the rate
of .25% of the value of the average daily net assets of the respective class.
Salomon Brothers is also paid an annual distribution fee with re-
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SALOMON BROTHERS INVESTMENT SERIES
spect to Class B and Class C shares of each Fund (other than the Cash Management
Fund) at the rate of .75% of the value of the average daily net assets of the
respective class. Class O shares are not subject to a services and distribution
plan. The service fees are used for servicing shareholder accounts, including
payments by Salomon Brothers to selected securities dealers. The distribution
fees are paid to Salomon Brothers to compensate for activities primarily
intended to result in the sale of Class B and Class C shares. The expenses
incurred in connection with these activities include: costs of printing and
distributing the Funds' Prospectus, Statement of Additional Information and
sales literature to prospective investors; an allocation of overhead and other
Salomon Brothers' branch office distribution-related expenses; payments to and
expenses of other persons who provide support services in connection with the
distribution of the shares; any other costs and expenses relating to
distribution or sales support activities; compensation for the Distributor's
initial expense of paying investment representatives or introducing brokers a
commission upon the sale of the Funds' shares; and accruals for interest on the
amount of the foregoing expenses that exceed the amount of the distribution fee
and the CDSC received by the Distributor. Under the Plans, Salomon Brothers may
retain all or a portion of the service and distribution fees. The payments to
selected securities dealers may include a commission paid at the time of sale
and a continuing fee based upon the value of the average daily net assets of the
applicable class of shares that remain invested in a Fund (a "trail fee") with
respect to accounts that dealers continue to service. With respect to Class B
shares, Salomon Brothers will pay broker-dealers at the time of sale a
commission of 4% (or, in the limited circumstances described above under
"-- --Class B Shares", 5%) of the purchase price and a trail fee at an annual
rate of .25% beginning in the thirteenth month after settlement. With respect to
Class C shares, Salomon Brothers will pay broker-dealers at the time of sale a
commission of 1% of the purchase price and a trail fee at an annual rate of .90%
beginning in the thirteenth month after settlement. In addition, with respect to
Class A shares, Salomon Brothers will pay broker-dealers at the time of sale a
commission as discussed above under "Purchase of Shares--Class A Shares" and a
trail commission at an annual rate of .25% beginning in the first month after
settlement.
The Plans provide that Salomon Brothers may make payments to assist in the
distribution of a Fund's shares out of the other fees received by it or its
affiliates from such Fund, its past profits or any other sources available to
it. From time to time, Salomon Brothers may waive receipt of fees under a Plan
while retaining the ability to be paid under such Plan thereafter. The fees
payable to Salomon Brothers under the Plans and payments by Salomon Brothers to
selected securities dealers are payable without regard to actual expenses
incurred.
The Distributor may, from time to time, assist dealers by, among other things,
providing sales literature to, and holding informational programs for the
benefit of, dealers' registered representatives which may include payment for
travel expenses, including lodging, incurred in connection with trips taken by
qualifying registered representatives and members of their families within or
outside the United States. Participation of registered representatives in such
informational programs may require the sale of minimum dollar amounts of shares
of the Funds. In addition, the Distributor may also, from time to time, at its
expense or as an expense for which it may be compensated under a distribution
plan, if applicable, pay a bonus or other consideration or incentives to dealers
who sell a minimum dollar amount of shares of the Funds during a specified
period of time. In some instances, these incentives may be offered only to
certain dealers who have sold or may sell significant
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SALOMON BROTHERS INVESTMENT SERIES
amounts of shares. Any such bonus or incentive programs will not change the
price paid by investors for the purchase of the applicable Fund's shares or the
amount that any particular Fund will receive as proceeds from such sales.
Dealers may not use sales of the Funds' shares to qualify for any incentives to
the extent that such incentives may be prohibited by the laws of any state.
Incentive payments will be provided for out of the front end sales charges and
CDSCs retained by the Distributor, any applicable Plan payments or the
Distributor's other resources. Other than Plan payments, the Funds do not bear
distribution expenses.
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
Shareholders may redeem all or any part of their shareholdings on any business
day at the applicable net asset value next determined after the receipt of
proper redemption instructions. The value of shares on redemption may be more or
less than the investor's cost.
Payment of redemption proceeds may be made in securities, subject to regulation
by some state securities commissions. Payment of the redemption price will be
made within seven days after receipt of the redemption instructions in good
order (or such shorter time period as may be required), but each Fund may
suspend the right of redemption during any period when (i) trading on the NYSE
is restricted or the NYSE is closed, other than customary weekend and holiday
closings, (ii) the SEC has by order permitted such suspension, or (iii) an
emergency, as defined by rules of the SEC, exists, making disposal of portfolio
securities or determination of the value of the net assets of each Fund not
reasonably practicable.
For the shareholder's convenience each Fund has established several different
redemption procedures. No redemption requests will be processed until the
applicable Fund has received a completed Purchase Application. If a shareholder
holds shares in more than one class, any request for redemption must specify the
class being redeemed. Each Fund will not credit redemption proceeds for any
shares until checks received in payment for such shares have been collected,
which may take up to 15 days or more. A shareholder who anticipates the need for
more immediate access to his or her investment should purchase shares by federal
funds or bank wire, or by a certified or cashier's check.
REDEMPTION THROUGH SELECTED DEALERS
Salomon Brothers will accept orders from dealers with whom it has sales
agreements for the repurchase of shares held by investors. With respect to each
Fund (other than the Cash Management Fund), repurchase orders received by the
dealer prior to the close of trading on the NYSE on any business day and
transmitted to Salomon Brothers prior to the close of its business day (normally
5:00 p.m., New York time) are effective that day. Otherwise, the shares will be
repurchased at the applicable net asset value next determined. With respect to
the Cash Management Fund, redemption requests received by the dealer and
transmitted to Salomon Brothers by 12:00 noon (New York time)
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SALOMON BROTHERS INVESTMENT SERIES
on any business day generally will be effected on that same day. It is the
responsibility of the dealer to transmit orders on a timely basis. The dealer
may charge the investor a fee for executing the order. This repurchase
arrangement is discretionary and may be withdrawn or modified at any time.
REDEMPTION THROUGH DISTRIBUTOR
In addition, shareholders who hold their shares in an account with Salomon
Brothers may redeem shares by calling 1-800-SALOMON. With respect to each Fund
(other than the Cash Management Fund), redemption requests for shares held in
brokerage accounts received by Salomon Brothers prior to the close of regular
trading on the NYSE on any day that the Fund calculates its net asset value are
effective that day. Redemption requests received after the close of trading on
the NYSE are effective at the applicable net asset value per share next
determined.
Proceeds of redemption will be credited to the shareholder's brokerage account
at Salomon Brothers. A redeeming shareholder with a Salomon Brothers brokerage
account may request a check from Salomon Brothers or may elect to retain the
redemption proceeds in such brokerage account. Generally, these funds will not
be invested for the shareholder's benefit without specific instructions, and
Salomon Brothers will benefit from the use of temporarily uninvested funds.
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request to TSSG which meets all
the following requirements:
(1) Written instructions from registered owner(s), signed exactly as shares are
registered (facsimile instructions will not be accepted);
(2) All certificates, if any, to be redeemed;
(3) If shares to be redeemed have a net asset value of $50,000 or more, a letter
or a stock power signed by the registered owner(s) with the signature(s)
guaranteed by an acceptable guarantor. A guarantee of each shareholder's
signature is required for all redemptions, regardless of the amount involved,
when the proceeds are to be paid to someone other than the registered owner(s)
of the shares redeemed, are to be wired to a bank or are to be sent to other
than the registered address. Signature guarantees must be in accordance with
TSSG's standards and procedures. Any one of the following guarantors is normally
acceptable: (a) a commercial or savings bank which is a member of the Federal
Deposit Insurance Corporation; (b) a trust company; (c) a member firm of a
domestic stock exchange; or (d) a foreign branch of any of the above (TSSG will
not accept dated guarantees or guarantees from a notary public); and
(4) In the case of shares of record held in the name of a corporation, trust,
fiduciary or partnership, the redemption agent requires evidence of authority to
sign and a stock power with signature(s) guaranteed.
To expedite processing of redemptions by mail, shareholders should submit
redemption requests and all related documents directly to The Shareholder
Services Group, Inc., P.O. Box 9109, Boston, MA 02205-9109.
Checks for redemption proceeds will normally be mailed within seven days after
redemption. Unless other instructions are given in proper form, checks for
redemption proceeds will be sent to the shareholder's address of record if the
shareholder does not have a brokerage account. If a shareholder has a brokerage
account, redemption proceeds will be credited to such account.
Upon request, the proceeds of a redemption amounting to $500 or more will be
sent by federal funds or bank wire to the shareholder's predesignated bank
account.
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SALOMON BROTHERS INVESTMENT SERIES
TELEPHONE REDEMPTION PRIVILEGE
Shareholders having direct accounts with TSSG may redeem shares by means of the
Telephone Redemption Privilege. The Application for Telephone Redemption
Privilege must be completed by the shareholder with the signature(s) guaranteed
in the manner described above under "Redemption by Mail" prior to initiating a
telephone redemption.
Shareholders cannot apply the Telephone Redemption Privilege to shares held in
certificate form or for accounts requiring additional supporting documentation
for redemptions such as trust, corporate, estate and guardian accounts.
Proceeds from the telephone redemption will be forwarded to the shareholder by
check unless the shareholder has requested redemption by wire in the manner
described below under "Redemption by Wire." The check will be made payable to
the registered shareholder(s) and sent to the address of record on file with
TSSG.
Shareholders should realize that by making redemption requests by telephone,
they may be giving up a measure of security that they may have if they were to
redeem their shares in writing. Each Fund reserves the right to refuse a
telephone request for redemption if it is believed advisable to do so.
Procedures for redeeming shares by telephone may be modified or terminated at
any time by the applicable Fund. None of the Funds or TSSG will be liable for
following redemption instructions received by telephone, which are reasonably
believed to be genuine, and the shareholder will bear the risk of loss in the
event of unauthorized or fraudulent telephone instructions. Each Fund and TSSG
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Each Fund and/or TSSG may be liable for any losses due to
unauthorized or fraudulent instructions in the absence of following these
procedures. When requesting a redemption by telephone, shareholders should have
available the correct account registration and account numbers or tax
identification number.
REDEMPTION BY WIRE
If redemption by wire has been elected on the Purchase Application, shares may
be redeemed, in the amount of $500 or more, on any business day upon request
made by telephone or letter. No signature guarantee is required on such a
redemption request. To elect this service subsequent to opening an account, call
SBAM or TSSG for further information.
You may either:
Telephone the redemption request to TSSG at the following number:
(800) SALOMON or (800) 725-6666 or
Mail the request to TSSG at the following address:
(Name of Fund)
c/o TSSG
P.O. Box 9109
Boston, MA 02205-9109
Proceeds of wire redemptions of $500 or more will be wired to the shareholder's
bank indicated in the Purchase Application or by letter which has been properly
guaranteed. With respect to the Cash Management Fund, if a wire redemption
request is received by TSSG by 12:00 noon (New York time) on any business day,
the redemption proceeds generally will be transmitted to the shareholder's bank
that same day. Checks for redemption proceeds of less than $500 will be mailed
to the shareholder's address of record.
CHECKWRITING
Checkwriting is available only to Class A and Class O shareholders of the Cash
Management Fund. If redemption by check has been elected on the Purchase
Application, the redemption of shares may be made by using redemption checks
provided by TSSG. There is no charge for
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SALOMON BROTHERS INVESTMENT SERIES
this service. Checks may be made payable to the order of any person or
organization designated by the shareholder and must be for amounts of $500 or
more. Shareholders will continue to earn dividends on the shares redeemed until
the check clears the banking system. If a shareholder's account does not contain
an available amount sufficient to cover the amount of a check, the check will be
returned marked insufficient funds and a $10 charge per returned check will be
imposed. If checks are improperly signed, they will not be honored. Checks
cannot be used to close an account. Redemption by check may be terminated at any
time by TSSG or the applicable Fund.
SMALL ACCOUNTS
Under each Fund's present policy, it reserves the right to redeem upon not less
than 30 days' notice, the shares in an account which has a value of $500 or less
or, in the case of an IRA or Self-Employed Retirement Plan, $250 or less if the
reduction in value is the result of shareholder redemptions or transfers and not
as a result of a decline in the net asset value. However, any shareholder
affected by the exercise of this right will be allowed to make additional
investments prior to the date fixed for redemption to avoid liquidation of the
account.
CONTINGENT DEFERRED SALES CHARGES
Redemptions may be subject to a CDSC as described below. The CDSC is not
applicable with respect to redemptions of shares of the Cash Management Fund
which have never been exchanged from another Fund. However, in the case of
shares of the Cash Management Fund which were obtained through an exchange from
another Fund, such shares will be subject to any applicable CDSC due at
redemption. Similarly, shares initially purchased in the Cash Management Fund
which are subsequently exchanged for shares of other Funds will be subject to
any applicable CDSC due at redemption. Shares of any Fund may be exchanged for
shares of any other Fund without the imposition of a CDSC, although a CDSC may
apply upon redemption of the shares acquired through the exchange. See
"Shareholder Services--Exchange Privilege."
Because shares of the Cash Management Fund are not subject to any distribution
or service fees, any applicable CDSC period is tolled for the period of time in
which shares of other Funds are held in the Cash Management Fund. For example,
if shares subject to a CDSC of a Fund other than the Cash Management Fund are
exchanged for shares of the Cash Management Fund two years after purchase and
are subsequently redeemed one year later, only the first two years of ownership
count in the determination of the applicable CDSC percentage to be applied to
that redemption.
The CDSC is assessed on an amount equal to the lesser of the net asset value at
redemption or the initial purchase price of the shares being redeemed. In
determining the amount of the CDSC that may be applicable to a redemption, the
calculation is determined in the manner that results in the lowest possible rate
being charged. Therefore, any shares in the redeeming shareholder's account that
may be redeemed without charge will be assumed to be redeemed prior to those
subject to a charge. In addition, if the CDSC is determined to be applicable to
redeemed shares, it will be assumed that shares held for the longest duration
are redeemed first. No CDSC is imposed on: (i) amounts representing increases in
the net asset value per share and (ii) shares acquired through reinvestment of
income dividends or capital gains distributions.
The CDSC may be waived on a redemption of shares in connection with: (a)
redemptions made following the death or disability (as defined in the Code) of a
shareholder; (b) redemptions effected pursuant to each Fund's right to liquidate
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SALOMON BROTHERS INVESTMENT SERIES
a shareholder's account if the aggregate net asset value of the shares held in
the account is less than the applicable minimum account size; (c) a tax-free
return of an excess contribution to any retirement plan; (d) exchanges; (e)
automatic cash withdrawals in amounts equal to or less than 12% annually or 2%
monthly of their initial account balances (see "Shareholder Services--Automatic
Withdrawal Plan"); (f) redemptions of shares in connection with certain
post-retirement distributions and withdrawals from retirement plans or IRAs; (g)
redemptions proceeds from other Funds that are reinvested within 60 days of the
redemption (see "Shareholder Services--Reinstatement Privilege"); (h) certain
redemptions of shares of a Fund in connection with lump-sum or other
distributions made by eligible retirement plans; and (i) redemption of shares by
participants in certain "wrap-fee" or asset allocation programs sponsored by
broker-dealers and other financial institutions that have entered into
agreements with SBAM.
CLASS A SHARE PURCHASES OF $1 MILLION OR MORE
Class A shares that were purchased without a sales charge by reason of a
purchase of $1 million or more within one year after the date of purchase are
subject to a CDSC of 1% if redeemed within the first year of purchase (with the
exception of Class A shares of the Cash Management Fund, which are not subject
to any CDSC upon redemption).
CLASS B SHARES
Class B shares that are redeemed within six years of purchase are subject to a
CDSC at the rates set forth in the table below, charged as a percentage of the
dollar amount subject thereto (with the exception of Class B shares of the Cash
Management Fund, which are not subject to any CDSC upon redemption). The amount
of any CDSC payable upon redemption varies depending on the number of years
elapsed from the time of the purchase of Class B shares until the time of
redemption. Solely for purposes of determining the number of years from the time
of any payment for the purchase of shares until redemption, all orders accepted
during a month are aggregated and deemed to have been made on the last business
day of that month.
CLASS B CDSC TABLE
<TABLE>
<CAPTION>
CDSC
AS A
PERCENTAGE
OF
DOLLAR
AMOUNT
SUBJECT
TO
YEAR(S) SINCE PURCHASE ORDER CHARGE
- ------------------------------------------------------------- ----
<S> <C>
Up to 2 years 5%
2 years or more but less than 3 years 4%
3 years or more but less than 4 years 3%
4 years or more but less than 5 years 2%
5 years or more but less than 6 years 1%
6 or more years 0%
</TABLE>
CLASS C SHARES
Class C shares are subject to a CDSC of 1% if redeemed within the first year of
purchase (with the exception of Class C shares of the Cash Management Fund,
which are not subject to any CDSC upon redemption).
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- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
From time to time, a Fund may advertise its "yield," "tax-equivalent yield,"
"effective yield" and/or standardized and nonstandardized "average annual total
return" over various periods of time. Total return and yield quotations are
computed separately for each class of shares of a Fund. Total return figures
show the average annual percentage change in value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period. These figures reflect changes in the price of the shares and assume that
any income dividends and/or capital gains distributions made by a Fund during
the period were reinvested in shares of the same class. Total return
figures for Class A shares include the maximum initial 4.75% sales charge
(except for the Cash Management Fund which has no sales charge) and for Class B
and Class C shares include any applicable CDSC during the measuring period.
These figures also take into account the service and distribution fees, if any,
payable with respect to each class of a Fund's shares.
Standardized total return is calculated in accordance with the SEC's formula.
Nonstandardized total return differs from the standardized total return only in
that it may relate to a nonstandard period or is presented in the aggregate
rather than as an annual average.
Total return figures will be given for the most current one-, five- and ten-year
periods, or the life of the relevant class of a Fund to the extent it has not
been in existence for any such periods, and may be given for other periods as
well, such as on a year-by-year basis. When considering average total return
figures for periods longer than one year, it is important to note that the total
return for any one year in the period might have been greater or less than the
average for the entire period. "Aggregate total return" figures may be used for
various periods, representing the cumulative change in value of an investment in
Fund shares for the specific period (again reflecting changes in share prices
and assuming reinvestment of dividends and distributions). Aggregate total
return may be calculated either with or without the effect of the maximum 4.75%
sales charge for the Class A shares (except for the Cash Management Fund which
has no sales charge) or any applicable CDSC for Class B and Class C shares, and
may be shown by means of schedules, charts or graphs and may indicate subtotals
of the various components of total return (i.e., change in the value of initial
investment, income dividends and capital gains distributions). Because of the
differences in sales charges, distribution fees and certain other expenses, the
performance for each of the classes will differ.
Yield is calculated in accordance with the SEC's formula. The tax-equivalent
yield is calculated by determining the portion of the yield which is tax-exempt
and calculating the equivalent taxable yield and adding to such amount any fully
taxable yield. Yield differs from total return in that it does not consider
changes in net asset value.
From time to time the Cash Management Fund may make available information as to
its "yield" and "effective yield." The "yield" of the Cash Management Fund
refers to the income generated by an investment in the Fund over a seven-day
period. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested in shares of the
same class. The effective yield will be slightly higher
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than the yield because of the compounding effect of this assumed reinvestment.
Distribution rate differs from yield in that it is calculated by dividing the
annualization of the most recent month's distribution by the maximum offering
price at the end of the month.
Furthermore, in reports or other communications to shareholders or in
advertising materials, performance of Fund shares may be compared with that of
other mutual funds or classes of shares of other mutual funds, as listed in the
rankings prepared by Lipper Analytical Services, Inc. or similar independent
services that monitor the performance of mutual funds, financial indices such as
the S&P 500 Index or other industry or financial publications such as Barron's,
Business Week, CDA Investment Technologies, Inc., Changing Times, Forbes,
Fortune, Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. The annual
reports to shareholders for each of the Series Funds and the Investors Fund for
the fiscal year ended December 31, 1994 containing additional performance
information are available without charge and can be obtained by writing or
calling the address or telephone number printed on the front cover. The yield of
the Cash Management Fund may be compared to yields set forth in the weekly
statistical release H.15(519) or the monthly statistical release designated
G.13(415) published by the Board of Governors of the Federal Reserve System or
to performance information from Lipper Analytical Services, Inc., ICB/Donoghue's
Money Fund Report or Bank Rate Monitor. Performance figures are based on
historical earnings and are not intended to indicate future performance. See
"Performance Data" in the Statement of Additional Information.
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DIVIDENDS AND DISTRIBUTIONS
The Cash Management Fund intends to declare as a dividend substantially all of
its net investment income at the close of each business day to the Fund's
shareholders of record at 12:00 noon (New York time) on that day, and will pay
such dividends monthly. The New York Municipal Bond Fund, the National
Intermediate Municipal Fund, the U.S. Government Income Fund, the High Yield
Bond Fund, the Strategic Bond Fund and the Total Return Fund will declare
dividends from net investment income daily and pay them monthly. The Total
Return Fund does not expect to pay its initial dividend until December 1995 and
thereafter will pay dividends monthly. The Investors Fund present policy is to
pay quarterly dividends from net investment income.
Net investment income is a Fund's investment company taxable income, as that
term is defined in the Code determined without regard to the deduction for
dividends paid and excluding any net realized capital gains. For the purpose of
calculating dividends, net investment income shall consist of interest earned,
which includes, where applicable, any discount accreted or premium amortized to
the date of maturity, minus estimated expenses.
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SALOMON BROTHERS INVESTMENT SERIES
Shares of a Fund (other than the Cash Management Fund, as described below) are
entitled to dividends declared beginning on the day after the purchase order is
received in good order. Purchase orders for shares of the Cash Management Fund
for which payment is received in or converted into federal funds by 12:00 noon
(New York time) on any business day will become effective and begin to earn
dividends that same day. Purchase orders for shares of the Cash Management Fund
for which payment is received in or converted into federal funds after 12:00
noon (New York time) on any business day will become effective and begin to earn
dividends on the following business day. With respect to the Cash Management
Fund, shares redeemed by 12:00 noon (New York time) will accrue dividends
through the day prior to redemption and shares redeemed after 12:00 noon will
accrue dividends through the day of redemption. The New York Municipal Bond
Fund, the National Intermediate Municipal Fund, the U.S. Government Income Fund,
the High Yield Bond Fund, the Strategic Bond Fund and the Total Return Fund will
accrue dividends on settled shares through the day of redemption. For Funds that
will declare dividends daily, net investment income for a Saturday, Sunday or
holiday will be declared as a dividend on the previous business day.
Dividends are determined in the same manner and are paid in the same amount for
each Fund share, except certain expenses borne differ by class. In addition, the
maximum distribution and service fees payable by the Class B and Class C shares
of each Fund (other than the Cash Management Fund, which bears no such fees) are
more than the maximum fees payable by such Fund's Class A and Class O shares.
Moreover, Class O shares are not subject to any distribution or service fees. As
a result, the per share dividends on the Class O shares will generally be higher
than Class A, Class B and Class C shares of each Fund (other than the Cash
Management Fund) and the per share dividends on Class A shares of each Fund will
generally be higher than those on Class B and Class C shares (other than the
Cash Management Fund).
Net realized short-term capital gains of each Fund, if any, will be distributed
whenever the Directors determine that such distributions would be in the best
interest of shareholders, but in any event at least once a year. Each Fund
distributes annually any net realized long-term capital gains from the sale of
securities (after deducting any net realized losses that may be carried forward
from prior years). The Cash Management Fund does not expect to realize any
long-term capital gains.
If a shareholder elects to receive dividends and/or distributions in cash and
the check cannot be delivered to a shareholder due to an invalid address or
otherwise remains uncashed by the shareholder for a period of six months, each
Fund reserves the right to reinvest the dividend and/or distribution in a
shareholder's account at the then-current net asset value and to convert the
shareholder's election to automatic reinvestment in shares of the Fund from
which the distributions were made.
If, for any full fiscal year, a Fund's total distributions exceed net investment
income and net realized capital gains, the excess distributions generally will
be treated as a tax-free return of capital (up to the amount of the
shareholder's tax basis in his or her shares). The amount treated as a tax-free
return of capital will reduce a shareholder's adjusted basis in his or her
shares. Pursuant to the requirements of the 1940 Act, as amended and other
applicable laws, a notice will accompany any distribution paid from sources
other than net investment income. In the event a Fund distributes amounts in
excess of its net investment income and net realized capital gains, such
distributions may have the effect of decreasing the Fund's total assets, which
may increase the Fund's expense ratio.
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SALOMON BROTHERS INVESTMENT SERIES
Dividend and/or capital gains distributions will be reinvested automatically in
additional shares of the same class of a Fund at the applicable net asset value
per share and such shares will be automatically credited to a shareholder's
account, unless a shareholder elects to receive either dividends or capital
gains distributions in cash. A shareholder who does not have a brokerage account
may inform TSSG, by notice sent to P.O. Box 9109, Boston, Massachusetts
02205-9109, that he or she wishes to receive such dividends or distributions in
cash directly from TSSG. If such distribution is to be sent to an address other
than the address on record, a signature guarantee is required. See "Redemptions
by Mail" above for instructions concerning signature guarantees. Such signature
must be signed exactly as registered with TSSG. Shareholders may change the
distribution option at any time by notification to TSSG or calling 1-800-SALOMON
prior to the record date of any such dividend or distribution.
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TAXATION
FEDERAL INCOME TAX MATTERS. Each Fund intends to qualify and elect to be treated
as a regulated investment company under Subchapter M of the Code. If it so
qualifies, a Fund will not be subject to federal income taxes on its net
investment income (i.e., its investment company taxable income, as that term is
defined in the Code, determined without regard to the deduction for dividends
paid) and net capital gain (i.e., the excess of a Fund's net long-term capital
gain over its net short-term capital loss), if any, that it distributes to its
shareholders in each taxable year, provided that it distributes to its
shareholders (i) at least 90% of its net investment income for such taxable
year, and (ii) with respect to the New York Municipal Bond Fund and the National
Intermediate Municipal Fund at least 90% of its net tax-exempt interest income
for such taxable year. If in any year a Fund fails to qualify as a regulated
investment company, such Fund would incur regular corporate federal income tax
on its taxable income for that year and be subject to certain additional
distribution requirements upon requalification.
Each Fund will be subject to federal corporate income tax (currently at a
maximum rate of 35%) on any undistributed income other than tax-exempt income
from municipal obligations and to alternative minimum tax (currently at a
maximum rate of 28%) on alternative minimum taxable income, which includes
interest income on certain "private activity" obligations that is otherwise
exempt from tax.
Each Fund is subject to a nondeductible 4% excise tax calculated as a percentage
of certain undistributed amounts of ordinary income and net realized capital
gains. To the extent possible, each Fund intends to make sufficient
distributions to avoid the application of both the corporate income and excise
taxes.
All dividends and distributions to shareholders of a Fund of investment company
taxable income will be taxable to shareholders whether paid in cash or
reinvested in additional shares. For federal income
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SALOMON BROTHERS INVESTMENT SERIES
tax purposes, distributions of net investment income and net realized short-term
capital gains are taxable to shareholders as ordinary income.
Distributions of net realized long-term capital gains designated by a Fund as
"capital gain dividends" will be taxable as long-term capital gains, whether
paid in cash or additional shares, regardless of how long the shares have been
held by such shareholders, and such distributions will not be eligible for the
dividends received deduction. With respect to each Fund, a portion of each
Fund's dividends may qualify for the dividends received deduction available to
corporations. In general, the maximum federal income tax rate imposed on
individuals with respect to capital gain dividends will be limited to 28%,
whereas the maximum federal income tax rate imposed on individuals with respect
to ordinary income (and short-term capital gains, which currently are taxed at
the same rates as ordinary income) will be 39.6%. With respect to corporate
taxpayers, long-term capital gains currently are taxed at the same federal
income tax rates as ordinary income and short-term capital gains. Investors
should consider the tax implications of buying shares shortly before the record
date of a distribution because distributions of net capital gain will be taxable
even though the net asset value of shares of a Fund is reduced by the
distribution.
Funds investing in foreign securities or currencies may be required to pay
withholding or other taxes to foreign governments on dividends and interest. The
investment yield of a Fund investing in foreign securities or currencies will be
reduced by these foreign taxes. Shareholders will bear the cost of any foreign
taxes but may not be able to claim a foreign tax credit or deduction for these
foreign taxes. In addition, a Fund investing in securities of passive foreign
investment companies may be subject to U.S. federal income taxes (and interest
on such taxes) as a result of such investments. The investment yield of a Fund
making such investments will be reduced by these taxes and interest.
Shareholders will bear the cost of these taxes and interest, but will not be
able to claim a deduction for these amounts.
The redemption, sale or exchange of shares of one Fund for shares of another is
a taxable event and may result in a gain or loss. Gain or loss, if any,
recognized on the sale or other disposition of shares of a Fund will be taxed as
capital gain or loss if the shares are capital assets in the shareholder's
hands. Generally, a shareholder's gain or loss will be a long-term gain or loss
if the shares have been held for more than one year. If a shareholder sells or
otherwise disposes of shares of a Fund before holding them for more than six
months, any loss on the sale or other disposition of such shares shall be (i)
treated as a long-term capital loss to the extent of any capital gain dividends
received by the shareholder with respect to such shares or (ii) disallowed to
the extent of any exempt-interest dividends received by the shareholder with
respect to such shares. A loss realized on a sale or exchange of shares may be
disallowed if other shares are acquired within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of.
Generally, shareholders will be taxable on dividends or distributions in the
year of receipt. However, if a Fund declares a dividend or distribution in
October, November or December to shareholders of record on a specified date in
such a month which is actually paid during the following January, it will be
deemed to have been received by the shareholders and paid by the Fund no later
than December 31 of the year in which the dividend or distribution is declared.
A Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in POs or other
obligations having original issue discount
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SALOMON BROTHERS INVESTMENT SERIES
(i.e., an amount equal to the excess of the stated redemption price of the
security at maturity over its issue price), or market discount (i.e., an amount
equal to the excess of the stated redemption price of the security over the
basis of such bond immediately after it was acquired) if the Fund elects to
accrue market discount on a current basis. In addition, income may continue to
accrue for federal income tax purposes with respect to a non-performing
investment. Any such income would be treated as income earned by a Fund and
therefore would be subject to the distribution requirements of the Code. Because
such income may not be matched by a corresponding cash distribution to a Fund,
such Fund may be required to borrow money or dispose of other securities to be
able to make distributions to its investors. The extent to which a Fund may
liquidate securities at a gain may be limited by the requirement that less than
30% of its annual gross income be derived from the sale or other disposition of
securities and certain other investments held for less than three months
("short-short income"). In addition, if an election is not made to currently
accrue market discount with respect to a market discount bond, all or a portion
of any deduction or any interest expense incurred to purchase or hold such bond
may be deferred until such bond is sold or otherwise disposed.
Each Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends (other than exempt-interest dividends) and
redemption proceeds paid to non-corporate shareholders. This tax may be withheld
from dividends if (i) the payee fails to furnish the Fund with the payee's
correct taxpayer identification number (e.g., an individual's social security
number), (ii) the Internal Revenue Service ("IRS") notifies the Fund that the
payee has failed to report properly certain interest and dividend income to the
IRS and to respond to notices to that effect, or (iii) when required to do so,
the payee fails to certify that he or she is not subject to backup withholding.
Redemption proceeds may be subject to withholding under the circumstances
described in (i) above. Backup withholding is not an additional tax and any
amounts withheld may be credited against the shareholder's federal income tax
liability.
STATE AND LOCAL TAX MATTERS. Depending on the residence of the shareholder for
tax purposes, distributions may also be subject to state and local taxes or
withholding taxes.
Some states provide that a regulated investment company may pass through
(without restriction) to its shareholders state and local income tax exemptions
available to direct owners of certain types of U.S. government securities (such
as U.S. Treasury obligations). Thus, for residents of these states,
distributions derived from a Fund's investment in certain types of U.S.
government securities should be free from state and local income taxes to the
extent that the interest income from such investments would have been exempt
from state and local income taxes if such securities had been held directly by
the respective shareholders themselves. Certain states, however, do not allow a
regulated investment company to pass through to its shareholders the state and
local income tax exemptions available to direct owners of certain types of U.S.
government securities unless the regulated investment company holds at least a
required amount of U.S. government securities. Accordingly, for residents of
these states, distributions derived from a Fund's investment in certain types of
U.S. government securities may not be entitled to the exemptions from state and
local income taxes that would be available if the shareholders had purchased
U.S. government securities directly. Shareholders' dividends attributable to a
Fund's income from repurchase agreements generally are subject to state and
local income taxes, although states and regulations vary in their treatment of
such income. The exemption from state and local income taxes does not
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SALOMON BROTHERS INVESTMENT SERIES
preclude states from asserting other taxes on the ownership of U.S. government
securities. To the extent that a Fund invests to a substantial degree in U.S.
government securities which are subject to favorable state and local tax
treatment, shareholders of such Fund will be notified as to the extent to which
distributions from the Fund are attributable to interest on such securities.
NEW YORK MUNICIPAL BOND FUND AND NATIONAL INTERMEDIATE MUNICIPAL FUND. The New
York Municipal Bond Fund and the National Intermediate Municipal Fund each
intends to qualify to pay "exempt-interest dividends," as that term is defined
in the Code, by holding at the end of each quarter of its taxable year at least
50% of the value of its total assets in the form of obligations described in
section 103(a) of the Code. Each Fund's policy is to pay in each taxable year
exempt-interest dividends equal to at least 90% of such Fund's interest from
tax-exempt obligations net of certain deductions. Except as discussed below,
exempt-interest dividends will be exempt from regular federal income tax. In
addition, dividends from the New York Municipal Bond Fund will not be subject to
New York State and New York City personal income taxes to the extent that such
distributions qualify as exempt-interest dividends and represent interest income
attributable to federally tax-exempt obligations of the State of New York and
its political subdivisions (as well as certain other federally tax-exempt
obligations the interest on which is exempt from New York State and New York
City personal income taxes). Dividends from the New York Municipal Bond Fund,
however, are not excluded in determining New York State or New York City
franchise taxes on corporations and financial institutions.
All or a portion of the gain from sale or redemption of tax-exempt obligations
acquired after April 30, 1993 attributable to market discount will be treated as
ordinary income rather than capital gain. This rule may increase the amount of
ordinary income dividends received by shareholders of the New York Municipal
Bond Fund and the National Intermediate Municipal Fund.
Although exempt-interest dividends may be excluded from a shareholder's gross
income for federal income tax purposes, a portion of the exempt-interest
dividends may be a specific preference item for purposes of determining the
shareholder's liability (if any) under the federal individual and corporate
alternative minimum tax provisions of the Code. Exempt-interest dividends will
constitute a specific preference item for purposes of the federal alternative
minimum tax to the extent that such dividends are derived from certain types of
private activity bonds issued after August 7, 1986. In addition, all exempt-
interest dividends will be a component of the "adjusted current earnings"
adjustment item for purposes of the federal corporate alternative minimum tax.
Moreover, the receipt of exempt-interest dividends may increase a corporate
shareholder's liability for environmental taxes under Section 59A of the Code
and a foreign corporate shareholder's liability under the branch profits tax,
and may also affect the federal tax liability of certain Subchapter S
corporations and insurance companies. Furthermore, the receipt of
exempt-interest dividends may be a factor in determining the extent to which a
shareholder's Social Security benefits are taxable.
With respect to the New York Municipal Bond Fund, the exemption of interest
income for regular federal income tax purposes and for New York State and New
York City personal income tax purposes may not result in similar exemptions
under the tax law of state and local taxing authorities outside New York. In
general, a state exempts from state income tax only interest earned on
obligations issued by that state or its political subdivisions and
instrumentalities.
Under the Code, interest on indebtedness incurred or continued to purchase or
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SALOMON BROTHERS INVESTMENT SERIES
carry shares of the New York Municipal Bond Fund, which interest is deemed to
relate to exempt-interest dividends, will not be deductible by shareholders of
the Fund for federal income tax purposes.
The New York Municipal Bond Fund and the National Intermediate Municipal Fund
each intends that substantially all dividends and distributions it pays to its
respective shareholders will be designated as exempt-interest dividends and as
such will be exempt from regular federal income taxes. However, to the extent
the New York Municipal Bond Fund and the National Intermediate Municipal Fund
each earns income from taxable investments or realizes capital gains, some
portion of its respective dividends and distributions may not qualify as exempt-
interest dividends and may be subject to regular federal income taxes.
Statements detailing the tax status of each shareholder's dividends and
distributions will be mailed annually.
The foregoing is intended to be general information to shareholders and
potential investors in a Fund and does not constitute tax advice. Shareholders
and potential investors should consult their own tax advisers regarding federal,
state, local and foreign tax consequences of ownership of shares in a Fund.
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SHAREHOLDER SERVICES
Each Fund offers the following shareholder services. See the Statement of
Additional Information for further details about these services or call or write
the Fund.
AUTOMATIC INVESTMENT PLAN
An investor who opens an account and wishes to make subsequent, periodic
investments in a Fund by electronic funds transfer from a bank account may
establish an Automatic Investment Plan on the account. The bank at which the
bank account is maintained must be a member of the Automated Clearing House
(ACH). The investor specifies the frequency with which the investments occur
(monthly, every alternate month, quarterly, etc.) with the exception that no
more than one investment will be processed each month. On or about the tenth of
the month, the Fund will debit the bank account in the specified amount (minimum
of $25 per draft) and the proceeds will be invested at the applicable offering
price determined on the date of the debit. In the event of a full exchange, this
plan will follow into the new Fund unless otherwise specified.
AUTOMATIC DIVIDEND
DIVERSIFICATION (ADD)
The ADD program allows an investor to have all dividends and any other
distributions from a Fund automatically used to purchase shares of the same
class of any other Fund. The receiving account must be in the same name as the
investor's existing account. The purchase of shares to the Fund receiving the
cross-investment of the dividends will be using the net asset value at the close
of business of the dividend payable date.
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SYSTEMATIC INVESTING
An investor may request that shares of any class of a Fund be exchanged monthly
for shares of the same class of any other Fund. A predetermined dollar amount of
at least $50 per exchange will then occur on or about the 15th of each month in
accordance with the instructions provided on the initial account application or
on the Systematic Investing application. This Systematic Investing program is
also referred to as "Dollar Cost Averaging."
EXCHANGE PRIVILEGE
Shareholders of any Fund may exchange all or part of their shares for shares of
the same class of any other Fund at the applicable relative net asset value per
share without the imposition of any front end sales charge or CDSC, except as
described below. Shares of a Fund are eligible for exchange 30 days after
purchase. Shares of one class may not be exchanged for shares of any other class
of any Fund.
A front end sales charge will be imposed with respect to Class A shares of a
Fund which are issued upon an exchange from Class A Cash Management Fund shares
and as to which no front end sales charge had been previously paid or waived.
For purposes of determining a shareholder's holding period in the calculation of
any applicable CDSC, the period of time during which shares were held prior to
an exchange will be added to the holding period of shares acquired in an
exchange. However, the CDSC period is tolled for any period of time in which
shares are held in the Cash Management Fund. For example, if shares subject to a
CDSC of a Fund other than the Cash Management Fund are exchanged for shares of
the Cash Management Fund two years after purchase and are subsequently redeemed
one year later, only the first two years of ownership count in the determination
of the applicable CDSC percentage to be applied to that redemption. Furthermore,
when Cash Management Fund shares are exchanged for shares of any other Fund, the
CDSC becomes (or, in the case of Cash Management Fund shares which were subject
to a CDSC prior to a previous exchange for Cash Management Fund shares, again
becomes) applicable to those shares commencing at the time of exchange. If such
shares are subsequently redeemed, only time of ownership spent in Funds other
than the Cash Management Fund counts toward determining the applicable CDSC.
Each Fund reserves the right to refuse a telephone request for exchange if it is
believed advisable to do so. Procedures for exchanging shares by telephone may
be modified or terminated at any time by a Fund. None of the Funds or TSSG will
be liable for following exchange instructions received by telephone, which are
reasonably believed to be genuine, and the shareholder will bear the risk of
loss in the event of unauthorized or fraudulent telephone instructions. The
Funds and TSSG may employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The Funds and/or TSSG may be liable for
any losses due to unauthorized or fraudulent instructions in the absence of
following these procedures. When requesting an exchange by telephone,
shareholders should have available the correct account registration and account
numbers or tax identification number.
The exchange of shares of one Fund for shares of another Fund is treated for
federal income tax purposes as a sale of the shares given in exchange by the
shareholder, and an exchanging shareholder may, therefore, realize a taxable
gain or loss in connection with an exchange. See "Taxation" above.
The exchange privilege is available to shareholders residing in any state in
which the shares of the Fund being acquired may be legally sold. Salomon
Brothers reserves the right to reject any exchange
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SALOMON BROTHERS INVESTMENT SERIES
request. The exchange privilege may be modified or terminated at any time after
notice to shareholders.
AUTOMATIC WITHDRAWAL PLAN
A shareholder may establish a plan for redemptions to be made automatically at
monthly, quarterly, semiannual or annual intervals with payments sent directly
to him or her or to persons designated by the shareholders as recipients of the
withdrawals. Requests for this service not made on the initial application
require signature guarantees unless the payments are to be made to the
shareholder and mailed to the address of record on the account. Investors are
required to have a minimum account value of $10,000 in a single account in order
to establish a monthly withdrawal plan, and a minimum of $5,000 in a single
account for quarterly, semiannual and annual withdrawal plans. Each withdrawal
constitutes a redemption of shares on which a gain or loss may be recognized.
Class B and Class C shareholders may redeem 12% annually or no more than 2%
monthly of their initial account balances without incurring a CDSC. With respect
to the New York Municipal Bond Fund and the Investors Fund, a Withdrawal Plan
may be opened with an account having a total value of at least $7,500, and a
shareholder can arrange for automatic distributions to be made monthly or
quarterly in amounts not less than $250 and $50 from the New York Municipal Bond
Fund and the Investors Fund, respectively. Maintenance of an Automatic
Withdrawal Plan concurrently with purchases of additional shares may be
disadvantageous to an investor because of the sales charges on certain purchases
and redemptions.
The redemptions will occur on or about the 10th day or the 25th day of the month
and the checks will generally be mailed within two days after the redemption
occurs. No redemption will occur if the account balance falls below the amount
required to meet the requested withdrawal amount. This service may be terminated
at any time.
REINSTATEMENT PRIVILEGE
A shareholder may return any dividend, capital gain or redemption check to a
Fund within 60 days of the transaction and have it reinvested at the applicable
net asset value without incurring a sales charge. With regard to Class A shares,
a shareholder may reinstate at net asset value any portion of shares which have
been previously redeemed if the redemption occurred within 60 days of the
request. With regard to Class B and Class C shares, if an investor redeems Class
B or Class C shares and pays a CDSC upon redemption, and then uses those
proceeds to purchase Class B or Class C shares of any Fund within 60 days, the
Class B or Class C shares purchased will be credited with any CDSC paid in
connection with the prior redemption. There are no restrictions on the number of
times a shareholder may use the Reinstatement Privilege.
Any gain recognized on a redemption or repurchase is taxable despite the
reinstatement in the Fund. Any loss realized as a result of the redemption or
repurchase may not be allowed as a deduction for federal income tax purposes but
may be applied, depending on the amount reinstated, to adjust the cost basis of
the shares acquired upon reinstatement. In addition, if the shares redeemed or
repurchased had been acquired within the 60 days preceding the redemption or
repurchase, the amount of any gain or loss on the redemption or repurchase may
have to be computed without regard to any sales charges incurred on the redeemed
or repurchased shares (except to the extent those sales charges exceed the sales
charges waived in connection with the reinstatement).
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SALOMON BROTHERS INVESTMENT SERIES
SELF-EMPLOYED RETIREMENT PLAN
A prototype defined contribution retirement plan is available for self-employed
individuals who wish to contribute earned income on behalf of themselves and
each of their employees to purchase shares of a Fund and/or certain other mutual
funds managed by SBAM. Shareholders should consult with a financial adviser
regarding such plan.
IRAS
A prototype IRA is available generally for all working individuals who receive
compensation (which for self-employed individuals includes earned income) for
services rendered and for certain individuals who receive alimony or separate
maintenance payments pursuant to a divorce or separation instrument.
Contributions to an IRA made available by the Funds may be invested in shares of
a Fund and/or certain other mutual funds managed by SBAM. Shareholders should
consult with a financial adviser regarding an IRA.
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ACCOUNT SERVICES
Shareholders of each Fund are kept informed through semi-annual reports showing
diversification of investments and other financial data for such Fund. Annual
reports for all Funds include audited financial statements. Shareholders of each
Fund will receive a Statement of Account following each share transaction,
except for shareholders of the Cash Management Fund, the New York Municipal Bond
Fund and the National Intermediate Municipal Fund who will receive a Statement
of Account at least monthly showing transactions in the account, the total
number of shares owned, and any dividends or distributions paid. Shareholders
can write or call a Fund at the address and telephone number on the first page
of this Prospectus with any questions relating to their investment in shares of
such Fund.
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CAPITAL STOCK
The Series Funds was incorporated in Maryland on April 17, 1990. The authorized
capital stock of the Series Funds consists of 10,000,000,000 shares having a par
value of $.001 per share. Pursuant to the Series Funds' Articles of
Incorporation and Articles Supplementary, the Directors have authorized the
issuance of nine series of shares, each representing shares in one of nine
separate Funds. The National Intermediate Municipal Fund, U.S. Government Income
Fund, High Yield Bond Fund, Strategic Bond Fund and the Total Return Fund are
newly organized portfolios of the Series Funds. In addition, the Series Funds
includes the Cash Manage
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SALOMON BROTHERS INVESTMENT SERIES
ment Fund, New York Municipal Bond Fund, Salomon Brothers New York Municipal
Money Market Fund and Salomon Brothers U.S. Treasury Securities Money Market
Fund. The assets of each Fund are segregated and separately managed. The Series
Funds' Board of Directors may, in the future, authorize the issuance of
additional classes of capital stock representing shares of additional investment
portfolios. The Board of Directors of the Series Funds, including each Director
who is not an "interested person," as such term is defined under the 1940 Act,
unanimously approved implementation of the Multiple Pricing System with respect
to the Cash Management Fund, the New York Municipal Bond Fund, the National
Intermediate Municipal Fund, the U.S. Government Income Fund, the High Yield
Bond Fund, the Strategic Bond Fund and the Total Return Fund. As of the date of
this Prospectus, Salomon Brothers Holding Company Inc., the parent company of
SBAM, owns a significant percentage of the outstanding shares of the National
Intermediate Municipal Fund, U.S. Government Income Fund, High Yield Bond Fund,
Strategic Bond Fund and the Total Return Fund and consequently is a controlling
person of such Funds.
The Investors Fund was incorporated in Maryland on April 2, 1958. The authorized
capital stock of the Fund consists of 50,000,000 shares having a par value of
$1.00 per share. The Board of Directors of the Investors Fund, the Directors,
including each Director who is not an "interested person," as such term is
defined under the 1940 Act, unanimously approved implementation of the Multiple
Pricing System.
Although each Fund is offering only its own shares, it is possible that a Fund
could become liable for a misstatement in this Prospectus about another Fund.
The Directors of the Series Funds and the Investors Fund have considered this
factor in approving the use of a combined Prospectus.
Shares of each class of a Fund represent interests in that Fund in proportion to
each share's net asset value. The per share net asset value of each class of
shares in a Fund is calculated separately and may differ as between classes as a
result of the differences in distribution and service fees payable by the
classes and the allocation of certain incremental class-specific expenses to the
appropriate class to which such expenses apply.
All shares of each Fund have equal voting rights and will be voted in the
aggregate, and not by series or class, except where voting by series or class is
required by law or where the matter involved affects only one series or class.
Each shareholder is entitled to cast, at all meetings of shareholders, such
number of votes as is equal to the number of full and fractional shares held by
such shareholder. All shares of each Fund will, when issued, be fully paid and
nonassessable. None of the Funds will issue any senior securities. Under the
corporate law of Maryland, the state of incorporation of both the Series Funds
and the Investors Fund, and the By-Laws of each of the Series Funds and the
Investors Fund, neither the Series Fund nor the Investors Fund is required and
does not currently intend to hold annual meetings of shareholders for the
election of directors except as required under the 1940 Act. A more complete
statement of the voting rights of shareholders is contained in the Statement of
Additional Information.
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APPENDIX A:
DESCRIPTION OF RATINGS
A DESCRIPTION OF THE RATING POLICIES OF MOODY'S, S&P AND FITCH WITH RESPECT TO
BONDS AND COMMERCIAL PAPER APPEARS BELOW.
MOODY'S INVESTORS SERVICE'S CORPORATE BOND RATINGS
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated "A" possess many favorable investment qualities and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated "Ca" represent obligations which are speculative in
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" to certain of its rating
classifications. The modifier "1" indicates that the security ranks in the
higher end of its
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SALOMON BROTHERS INVESTMENT SERIES
generic rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the issue ranks in the lower end of its generic
rating category.
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and pay
interest.
AA--Bonds rated "AA" also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from "AAA" issues only in
small degree.
A--Bonds rated "A" have a strong capacity to repay principal and pay interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Bonds rated "BBB" are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher rated categories.
BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CI--Bonds rated "CI" are income bonds on which no interest is being paid.
D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS
PRIME-1--Issuers (or related supporting institutions) rated "Prime-1" have a
superior ability for repayment of senior short-term debt obligations. "Prime-1"
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers (or related supporting institutions) rated "Prime-2" have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization
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SALOMON BROTHERS INVESTMENT SERIES
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
PRIME-3--Issuers (or related supporting institutions) rated "Prime-3" have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME--Issuers rated "Not Prime" do not fall within any of the Prime rating
categories.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. The four categories are as follows:
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3--Issues carrying this designation have adequate capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B--Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
MOODY'S INVESTORS SERVICE'S MUNICIPAL BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
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SALOMON BROTHERS INVESTMENT SERIES
A--Bonds which are rated A possess many favorable investment qualities and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers "1", "2" and "3" to certain of its rating
classifications. The modifier "1" indicates that the security ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
STANDARD & POOR'S MUNICIPAL BOND RATINGS
AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA--Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degrees.
A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE'S RATINGS OF STATE AND MUNICIPAL NOTES
MIG-1/VMIG-1--Notes rated MIG-1/VMIG-1 are of the best quality. There is present
strong protection by established cash flows, superior liquidity support or
broad-based access to the market for refinancing.
MIG-2/VMIG-2--Notes which are rated MIG-2/VMIG-2 are of high quality. Margins of
protection are ample though not so large as in the preceding group.
STANDARD & POOR'S RATINGS OF STATE AND MUNICIPAL NOTES
SP-1--Notes which are rated SP-1 have a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2--Notes which are rated SP-2 have a satisfactory capacity to pay principal
and interest.
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SALOMON BROTHERS INVESTMENT SERIES
FITCH MUNICIPAL BOND RATINGS
AAA--Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds rated AA by Fitch are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated F-1+ by Fitch.
A--Bonds rated A by Fitch are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB--Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse consequences on
these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
Plus and minus signs are used by Fitch to indicate the relative position of a
credit within a rating category. Plus and minus signs, however, are not used in
the AAA category.
FITCH SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Fitch's short-term ratings are as follows:
F-1+--Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1--Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2--Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as for issues assigned
F-1+ and F-1 ratings.
F-3--Issues assigned this rating have characteristics suggesting that the degree
of assurance for timely payment is adequate, although near-term adverse changes
could cause these securities to be rated below investment grade.
LOC--The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
Like higher rated bonds, bonds rated in the Baa or BBB categories are considered
to have adequate capacity to pay principal and interest. However, such bonds may
have speculative characteristics, and changes in economic conditions or other
circumstances
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SALOMON BROTHERS INVESTMENT SERIES
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds.
After purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by such Fund. Neither event will
require a sale of such security by a Fund. However, a Fund's investment manager
will consider such event in its determination of whether such Fund should
continue to hold the security. To the extent the ratings given by Moody's, S&P
or Fitch may change as a result of changes in such organizations or their rating
systems, a Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in this
Prospectus and in the Statement of Additional Information.
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APPENDIX B:
GENERAL CHARACTERISTICS
AND RISKS OF DERIVATIVES
A detailed discussion of Derivatives (as defined below) that may be used by the
investment manager on behalf of certain Funds follows below. The description in
this Prospectus of each Fund indicates which, if any, of these types of
transactions may be used by that Fund. A Fund will not be obligated, however, to
use any Derivatives and makes no representation as to the availability of these
techniques at this time or at any time in the future. "Derivatives," as used in
this Appendix B, refers to interest rate, currency or stock or bond index
futures contracts, currency forward contracts and currency swaps, the purchase
and sale (or writing) of exchange listed and over-the-counter ("OTC") put and
call options on debt and equity securities, currencies, interest rate, currency
or stock index futures and fixed-income and stock indices and other financial
instruments, entering into various interest rate transactions such as swaps,
caps, floors, collars, entering into equity swaps, caps, floors or trading in
other similar types of instruments.
A Fund's ability to pursue certain of these strategies may be limited by the
Commodity Exchange Act, as amended, applicable regulations of the Commodity
Futures Trading Commission ("CFTC") thereunder and the federal income tax
requirements applicable to regulated investment companies which are not operated
as commodity pools.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural characteristics
and operational mechanics regardless of the underlying instrument on which they
are purchased or sold. Thus, the following general discussion relates to each of
the particular types of options discussed in greater detail below. In addition,
many Derivatives involving options require segregation of Fund assets in special
accounts, as described below under "Use of Segregated and Other Special
Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
index, currency or other instrument at the exercise price. A Fund's purchase of
a put option on a security, for example, might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value of such instrument by giving
the Fund the right to sell the instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
futures contract, index, currency or other instrument might be intended to
protect the Fund against an increase in the price of the underlying instrument
that it intends to purchase in the future by fixing the price at which it may
purchase the instrument. An "American" style put or call option may be exercised
at any time during the option period, whereas a "European" style put or call
option may be exercised only upon expiration or during a fixed period prior to
expiration. Exchange-listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the
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SALOMON BROTHERS INVESTMENT SERIES
performance of the obligations of the parties to the options. The discussion
below uses the OCC as an example, but is also applicable to other similar
financial intermediaries.
OCC-issued and exchange-listed options, with certain exceptions, generally
settle by physical delivery of the underlying security or currency, although in
the future, cash settlement may become available. Index options are cash settled
for the net amount, if any, by which the option is "in-the-money" (that is, the
amount by which the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
A Fund's ability to close out its position as a purchaser or seller of an
OCC-issued or exchange-listed put or call option is dependent, in part, upon the
liquidity of the particular option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (1) insufficient trading
interest in certain options, (2) restrictions on transactions imposed by an
exchange, (3) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities,
including reaching daily price limits, (4) interruption of the normal operations
of the OCC or an exchange, (5) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume or (6) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the relevant market for that option on that exchange
would cease to exist, although any such outstanding options on that exchange
would continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that would not be reflected in the corresponding option
markets.
Over-the-counter ("OTC") options are purchased from or sold to securities
dealers, financial institutions or other parties (collectively referred to as
"Counterparties" and individually referred to as a "Counterparty") through a
direct bilateral agreement with the Counterparty. In contrast to exchange-listed
options, which generally have standardized terms and performance mechanics, all
of the terms of an OTC option, including such terms as method of settlement,
term, exercise price, premium, guaranties and security, are determined by
negotiation of the parties. It is anticipated that any Portfolio authorized to
use OTC options will generally only enter into OTC options that have cash
settlement provisions, although it will not be required to do so.
Unless the parties provide for it, no central clearing or guaranty function is
involved in an OTC option. As a result, if a Counterparty fails to make or take
delivery of the security, currency or other instrument underlying an OTC option
it has entered into with the Fund or fails to make a cash settlement payment due
in accordance with the terms of that option, the Fund will lose any premium it
paid for the option as well as any anticipated benefit of the transaction. Thus,
the investment manager must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be met. A Fund
will enter into OTC option transactions only with U.S. Government securities
dealers recognized by the Federal Reserve Bank of New York as "primary dealers,"
or broker-dealers, domestic or foreign banks, or other financial institutions
that
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SALOMON BROTHERS INVESTMENT SERIES
the investment manager deems to be creditworthy. In the absence of a change in
the current position of the staff of the SEC, OTC options purchased by a Fund
and the amount of a Fund's obligation pursuant to an OTC option sold by the Fund
(the cost of the sell-back plus the in-the-money amount, if any) or the value of
the assets held to cover such options will be deemed illiquid.
If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments held by the Fund or will
increase the Fund's income. Similarly, the sale of put options can also provide
gains for a Fund.
A Fund may purchase and sell call options on securities that are traded on U.S.
and foreign securities exchanges and in the OTC markets, and on securities
indices, currencies and futures contracts. All calls sold by a Fund must be
"covered" (that is, the Fund must own the securities or futures contract subject
to the call), or must otherwise meet the asset segregation requirements
described below for so long as the call is outstanding. Even though the Fund
will receive the option premium to help protect it against loss, a call sold by
a Fund will expose the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
that it might otherwise have sold.
A Fund reserves the right to purchase or sell options on instruments and indices
which may be developed in the future to the extent consistent with applicable
law, the Fund's investment objective and the restrictions set forth herein.
A Fund may purchase and sell put options on securities (whether or not it holds
the securities in its portfolio) and on securities indices, currencies and
futures contracts. In selling put options, a Fund faces the risk that it may be
required to buy the underlying security at a disadvantageous price above the
market price.
GENERAL CHARACTERISTICS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A Fund may trade financial futures contracts or purchase or sell put and call
options on those contracts as a hedge against anticipated interest rate,
currency or market changes, and for risk management purposes, or a Fund may seek
to increase its income or gain. Futures contracts are generally bought and sold
on the commodities exchanges on which they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to certain instruments, the net
cash amount). Options on futures contracts are similar to options on securities
except that an option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract and
obligates the seller to deliver that position.
A Fund's use of financial futures contracts and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the CFTC. Maintaining a futures contract or selling
an option on a futures contract will typically require the Fund to deposit with
a financial intermediary, as security for its obligations, an amount of cash or
other specified assets ("initial margin") that initially is from 1% to 10% of
the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets ("variation margin") may be required to be deposited
thereafter daily as the mark-to-market value of the futures contract
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SALOMON BROTHERS INVESTMENT SERIES
fluctuates. The purchase of an option on a financial futures contract involves
payment of a premium for the option without any further obligation on the part
of the Fund. If the Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potentially variation margin) for the
resulting futures position just as it would for any futures position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction, but no assurance can be given that a position can be
offset prior to settlement or that delivery will occur.
A Fund will not enter into a futures contract or option thereon if, immediately
thereafter, the sum of the amount of its initial margin and premiums required to
maintain permissible non-bona fide hedging positions in futures contracts and
options thereon would exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and losses on existing
contracts; however, in the case of an option that is in-the-money at the time of
the purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The value of all futures contracts sold by the Fund (adjusted for
the historical volatility relationship between the Fund and the contracts) will
not exceed the total market value of the Fund's securities. The segregation
requirements with respect to futures contracts and options thereon are described
below under "Use of Segregated and Other Special Accounts."
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES
A Fund may purchase and sell call and put options on securities indices and
other financial indices. In so doing, the Fund can achieve many of the same
objectives it would achieve through the sale or purchase of options on
individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, options on indices settle by cash settlement; that is, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the excess of the
closing price of the index over the exercise price of the option, which also may
be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount. The gain or
loss on an option on an index depends on price movements in the instruments
comprising the market, market segment, industry or other composite on which the
underlying index is based, rather than price movements in individual securities,
as is the case with respect to options on securities.
CURRENCY TRANSACTIONS
A Fund may engage in currency transactions with Counterparties to hedge the
value of portfolio securities denominated in particular currencies against
fluctuations in relative value or to generate income or gain. Currency
transactions include currency forward contracts, exchange-listed currency
futures contracts and options thereon, exchange-listed and OTC options on
currencies, and currency swaps. A forward currency contract involves a privately
negotiated obligation to purchase or sell (with delivery generally required) a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. A currency swap is an agreement to exchange cash flows based on
the notional
PAGE B-4
<PAGE> 111
SALOMON BROTHERS INVESTMENT SERIES
difference among two or more currencies and operates similarly to an interest
rate swap, which is described below under "Swaps, Caps, Floors and Collars." A
Fund may enter into currency transactions only with Counterparties that the
investment manager deems to be creditworthy.
Transaction hedging is entering into a currency transaction with respect to
specific assets or liabilities of the Fund, which will generally arise in
connection with the purchase or sale of the Fund's portfolio securities or the
receipt of income from them. Position hedging is entering into a currency
transaction with respect to portfolio securities positions denominated or
generally quoted in that currency. A Fund will not enter into a transaction to
hedge currency exposure to an extent greater, after netting all transactions
intended wholly or partially to offset other transactions, than the aggregate
market value (at the time of entering into the transaction) of the securities
held by the Fund that are denominated or generally quoted in or currently
convertible into the currency, other than with respect to proxy hedging as
described below.
A Fund may cross-hedge currencies by entering into transactions to purchase or
sell one or more currencies that are expected to increase or decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have exposure. To reduce the effect of currency fluctuations on the value of
existing or anticipated holdings of its securities, a Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
holdings is exposed is difficult to hedge generally or difficult to hedge
against the dollar. Proxy hedging entails entering into a forward contract to
sell a currency, the changes in the value of which are generally considered to
be linked to a currency or currencies in which some or all of the Fund's
securities are or are expected to be denominated, and to buy dollars. The amount
of the contract would not exceed the market value of the Fund's securities
denominated in linked currencies.
Currency transactions are subject to risks different from other portfolio
transactions, as discussed below under "Risk Factors." If a Fund enters into a
currency hedging transaction, the Fund will comply with the asset segregation
requirements described below under "Use of Segregated and Other Special
Accounts."
COMBINED TRANSACTIONS
A Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts), multiple interest rate transactions and
any combination of futures, options, currency and interest rate transactions,
instead of a single Derivative, as part of a single or combined strategy when,
in the judgment of the investment manager, it is in the best interests of the
Fund to do so. A combined transaction will usually contain elements of risk that
are present in each of its component transactions. Although combined
transactions will normally be entered into by a Fund based on the investment
manager's judgment that the combined strategies will reduce risk or otherwise
more effectively achieve the desired portfolio management goal, it is possible
that the combination will instead increase the risks or hinder achievement of
the Fund management objective.
SWAPS, CAPS, FLOORS AND COLLARS
A Fund may enter into interest rate, currency and equity swaps, the purchase or
sale of related caps, floors and collars and other similar arrangements. A Fund
will enter into these transactions primarily to seek to preserve a return or
spread on a particular
PAGE B-5
<PAGE> 112
SALOMON BROTHERS INVESTMENT SERIES
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique, to protect against any
increase in the price of securities the Fund anticipates purchasing or selling
at a later date or to generate income or gain. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest (for example, an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal). An equity
swap is an agreement to exchange cash flows on a national principal amount based
on changes in the values of the reference index. A currency swap is an agreement
to exchange cash flows on a notional amount based on changes in the values of
the currency exchange rates. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling the cap
to the extent that a specified interest rate, currency exchange rate or index
exceeds a predetermined rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling the floor to the extent that a specified interest rate, currency
exchange rate or index falls below a predetermined rate or amount. A collar is a
combination of a cap and a floor that preserves a certain return with a
predetermined range of rates or values.
A Fund will usually enter into swaps on a net basis, that is, the two payments
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors, collars and other similar types of instruments are entered into for good
faith hedging or other non-speculative purposes, they do not constitute senior
securities under the 1940 Act, and, thus, will not be treated as being subject
to the Fund's applicable borrowing restrictions. A Fund will not enter into any
swap, cap, floor, collar or other similar type of transaction unless the
investment manager deems the Counterparty to be creditworthy. If a Counterparty
defaults, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, for that reason, they are less liquid than swaps.
The liquidity of swap agreements will be determined by the investment manager
based on various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). Such determination will govern whether a swap will
be deemed within the 10% restriction on investments in securities that are not
readily marketable.
A Fund will maintain cash and appropriate liquid assets (i.e., high grade debt
securities) in a segregated custodial account to cover its current obligations
under swap agreements. If a Fund enters into a swap agreement on a net basis, it
will segregate assets with a daily value at least equal to the excess, if any,
of the Fund's accrued obligations under the swap agreement over the accrued
amount the Fund is entitled to receive under the agreement. If a Fund enters
into a swap agreement on other than a net basis, it will segregate assets with a
value equal to the full amount of the Fund's accrued obligations under the
agreement. See "Use of Segregated and Other Special Accounts" below.
PAGE B-6
<PAGE> 113
SALOMON BROTHERS INVESTMENT SERIES
RISK FACTORS
Derivatives have special risks associated with them, including possible default
by the Counterparty to the transaction, illiquidity and, to the extent the
investment manager's view as to certain market movements is incorrect, the risk
that the use of the Derivatives could result in losses greater than if they had
not been used. Use of put and call options could result in losses to a Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, or cause a Fund to hold a security it might
otherwise sell.
The use of futures and options transactions entails certain special risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related securities position of a
Fund could create the possibility that losses on the hedging instrument are
greater than gains in the value of the Fund's position. In addition, futures and
options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. As a result, in certain markets,
a Fund might not be able to close out a transaction without incurring
substantial losses. Although a Fund's use of futures and options transactions
for hedging should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time it will tend to limit any
potential gain to the Fund that might result from an increase in value of the
position. There is also the risk of loss by a Fund of margin deposits in the
event of bankruptcy of a broker with whom the Fund has an open position in a
futures contract or option thereon. Finally, the daily variation margin
requirements for futures contracts create a greater on going potential financial
risk than would purchases of options, in which case the exposure is limited to
the cost of the initial premium. However, because option premiums paid by a Fund
are small in relation to the market value of the investments underlying the
options, buying options can result in large amounts of leverage. The leverage
offered by trading in options could cause a Fund's net asset value to be subject
to more frequent and wider fluctuation than would be the case if the Fund did
not invest in options.
As is the case with futures and options strategies, the effective use of swaps
and related transactions by a Fund may depend, among other things, on a Fund's
ability to terminate the transactions at times when SBAM deems it desirable to
do so. To the extent a Fund does not, or cannot, terminate such a transaction in
a timely manner, a Fund may suffer a loss in excess of any amounts that it may
have received, or expected to receive, as a result of entering into the
transaction.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to a Fund if the currency being hedged fluctuates in value to a degree or
in a direction that is not anticipated. Further, the risk exists that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
Currency transactions are also subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be adversely affected by
government exchange controls, limitations or restrictions on repatriation of
currency, and manipulations or exchange restrictions imposed by governments.
These forms of governmental actions can result in losses to a Fund if it is
unable to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless, resulting in
full currency exposure as well as incurring transaction
PAGE B-7
<PAGE> 114
SALOMON BROTHERS INVESTMENT SERIES
costs. Buyers and sellers of currency futures contracts are subject to the same
risks that apply to the use of futures contracts generally. Further, settlement
of a currency futures contract for the purchase of most currencies must occur at
a bank based in the issuing nation. Trading options on currency futures
contracts is relatively new, and the ability to establish and close out
positions on these options is subject to the maintenance of a liquid market that
may not always be available. Currency exchange rates may fluctuate based on
factors extrinsic to that country's economy.
Losses resulting from the use of Derivatives will reduce a Fund's net asset
value, and possibly income, and the losses can be greater than if Derivatives
had not been used.
RISKS OF DERIVATIVES OUTSIDE THE UNITED STATES
When conducted outside the United States, Derivatives may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and will be subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. In addition, the price of any foreign futures or foreign options
contract and, therefore, the potential profit and loss thereon, may be affected
by any variance in the foreign exchange rate between the time an order is placed
and the time it is liquidated, offset or exercised. The value of positions taken
as part of non-U.S. Derivatives also could be adversely affected by: (1) other
complex foreign political, legal and economic factors, (2) lesser availability
of data on which to make trading decisions than in the United States, (3) delays
in the Fund's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States, (4) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States and (5) lower trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Use of many Derivatives by a Fund will require, among other things, that the
Fund segregate cash, liquid high grade debt obligations or other assets with its
custodian, or a designated sub-custodian, to the extent the Fund's obligations
are not otherwise "covered" through ownership of the underlying security,
financial instrument or currency. In general, either the full amount of any
obligation by a Fund to pay or deliver securities or assets must be covered at
all times by the securities, instruments or currency required to be delivered,
or, subject to any regulatory restrictions, an amount of cash or liquid high
grade debt obligations at least equal to the current amount of the obligation
must be segregated with the custodian or sub-custodian. The segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. A call option on
securities written by a Fund, for example, will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate liquid high grade
debt obligations sufficient to purchase and deliver the securities if the call
is exercised. A call option sold by a Fund on an index will require the Fund to
own portfolio securities that correlate with the index or to segregate liquid
high grade debt obligations equal to the excess of the index value over the
exercise price on a current basis. A put option on securities written by a Fund
will require the Fund to segregate liquid high grade debt obligations equal to
the exercise price. Except when a Fund enters into a forward contract in
connection with the purchase or sale of a security denominated in a foreign
currency or for other non-speculative purposes, which requires
PAGE B-8
<PAGE> 115
SALOMON BROTHERS INVESTMENT SERIES
no segregation, a currency contract that obligates the Fund to buy or sell a
foreign currency will generally require the Fund to hold an amount of that
currency or liquid securities denominated in that currency equal to the Fund's
obligations or to segregate liquid high grade debt obligations equal to the
amount of the Fund's obligations.
OTC options entered into by a Fund, including those on securities, currency,
financial instruments or indices, and OCC-issued and exchange-listed index
options will generally provide for cash settlement, although the Fund will not
be required to do so. As a result, when a Fund sells these instruments it will
segregate an amount of assets equal to its obligations under the options.
OCC-issued and exchange-listed options sold by a Fund other than those described
above generally settle with physical delivery, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option on a futures contract, a Fund
must deposit initial margin and, in some instances, daily variation margin in
addition to segregating assets sufficient to meet its obligations to purchase or
provide securities or currencies, or to pay the amount owed at the expiration of
an index-based futures contract. These assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets. A Fund
will accrue the net amount of the excess, if any, of its obligations relating to
swaps over its entitlements with respect to each swap on a daily basis and will
segregate with its custodian, or designated sub-custodian, an amount of cash or
liquid high grade debt obligations having an aggregate value equal to at least
the accrued excess. Caps, floors and collars require segregation of assets with
a value equal to the Fund's net obligation, if any.
Derivatives may be covered by means other than those described above when
consistent with applicable regulatory policies. A Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related Derivatives.
A Fund could purchase a put option, for example, if the strike price of that
option is the same or higher than the strike price of a put option sold by the
Fund. Moreover, instead of segregating assets if it holds a futures contracts or
forward contract, a Fund could purchase a put option on the same futures
contract or forward contract with a strike price as high or higher than the
price of the contract held. Other Derivatives may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction, no segregation is required, but if it terminates prior
to that time, assets equal to any remaining obligation would need to be
segregated.
PAGE B-9
<PAGE> 116
TELEPHONES
(800) SALOMON
(800) 725-6666
DISTRIBUTOR
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
INVESTMENT MANAGER
Salomon Brothers Asset
Management Inc
Seven World Trade Center
New York, New York 10048
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
The Shareholder Services Group, Inc.
P.O. Box 9109
Boston, Massachusetts 02205-9109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
New York, New York 10017
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY A FUND, THE DISTRIBUTOR OR THE INVESTMENT MANAGER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
- ------------------------------------------------------------------
SALOMON BROTHERS ASSET MANAGEMENT
- ------------------------------------------------------------------
SBFPRO-5/95
<PAGE> 117
- ------------------------------------------------------------------------
SALOMON BROTHERS INVESTMENT SERIES
ACCOUNT APPLICATION Please Note: A separate application must be used to open an
IRA account.
- --------------------------------------------------------------------------------
1. TYPE OF ACCOUNT (Please print) (Account will not be opened without Taxpayer
I.D. No. or Social Security No.)
/ / INDIVIDUAL / / JOINT Social Security No. or Taxpayer I.D. No.
Name _______________________________ _________
Joint Registrant (if any)1,2 Social Security No. or Taxpayer I.D. No.
Name _______________________________ _________
(1) Use only the Social Security Number or Taxpayer Identification Number of the
first listed joint tenant.
(2) For joint registrations, the account registrants will be joint tenants with
right of survivorship and not tenants in common unless tenants in common or
community property registrations are requested.
- --------------------------------------------------------------------------------
/ / UNIFORM GIFT TO MINORS OR / / UNIFORM TRANSFER TO MINORS (where allowed
by law)
Name of Adult Custodian (only one permitted)
Name _______________________________
Minor's Date of Birth __ __ __
Name of Minor (only one permitted) Minor's Social Security No.
Name _______________________________ _________
(Account will not be opened without minor's Social Security No.)
under the ____________________________ Uniform Gifts/Transfers to Minors Act.
State of Residence of Minor
- --------------------------------------------------------------------------------
/ / CORPORATION / / PARTNERSHIP Social Security No. or Taxpayer I.D. No.
/ / TRUST* / / OTHER _________
(Account will not be opened without Taxpayer I.D. No. or Social Security No.)
Name of Corporation, Partnership, or Other _____________________________________
________________________________________________________________________________
Name(s) of Trustee(s)___________________________________________________________
*If a Trust, include date of trust instrument and list trustees
if they are to be named in the registration.
Date of the Trust Agreement __ __ __
- --------------------------------------------------------------------------------
2. MAILING ADDRESS
Street or P.O. Box _____________________________________________________________
_____________________________________________________________
City _________________________________ State __ Zip _____
Business Telephone __ _______ Home Telephone __________
- --------------------------------------------------------------------------------
3. INVESTMENT INFORMATION
METHOD OF INVESTMENT.
/ / I have enclosed a check for a minimum of $500 per Fund.
/ / I have enclosed a check for a minimum of $25 per Fund and completed the
Automatic Investment Plan information in Section 13.
/ / I purchased ---- shares of ---------------- through my broker on
---/---/---. Confirm #----------------
/ / I will wire money from my bank account to Salomon Brothers Inc. Please
call me at (----) ---------------- to confirm my new account number.
PLEASE MAKE MY INVESTMENT IN THE FUNDS DESIGNATED BELOW:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C SALOMON BROTHERS INVESTMENT SERIES INVESTMENT
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Cash Management Fund $
- ------ ------ ------ ---------------------
New York Municipal Bond Fund $
- ------ ------ ------ ---------------------
National Intermediate Municipal Fund $
- ------ ------ ------ ---------------------
U.S. Government Income Fund $
- ------ ------ ------ ---------------------
High Yield Bond Fund $
- ------ ------ ------ ---------------------
Strategic Bond Fund $
- ------ ------ ------ ---------------------
Total Return Fund $
- ------ ------ ------ ---------------------
Investors Fund $
- ------ ------ ------ ---------------------
TOTAL INVESTMENT AMOUNT $
---------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 118
- --------------------------------------------------------------------------------
4. REDUCED SALES CHARGE (Available for CLASS A Shares Only)
METHOD OF INVESTMENT.
Are you a shareholder in another Salomon Brothers Investment Series Fund?
/ / Yes / / No
/ / I apply for Right of Accumulation reduced sales charges based on the
following Salomon Brothers Investment Series Fund accounts (excluding
Class B and Class C Shares).
Fund Account No. or Social Security No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LETTER OF INTENT.
/ / I agree to the Letter of Intent provisions in the Fund's current prospectus.
During a 13-month period, I plan to invest a dollar amount of at least:
/ / $50,000 / / $100,000 / / $250,000 / / $500,000 / / $1,000,000
- --------------------------------------------------------------------------------
5. DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS
Dividends and capital gains will be reinvested in the same Fund if no other
option is selected.
<TABLE>
<S> <C>
DIVIDENDS CAPITAL GAINS
/ / I wish to reinvest dividends in the same Fund. / / I wish to reinvest capital gains in the same Fund.
/ / I wish to have dividends paid in cash. / / I wish to have capital gains paid in cash.
</TABLE>
The AUTOMATIC DIVIDEND DIVERSIFICATION PROGRAM allows an investor to have
dividends and any other distributions from a Fund automatically used to purchase
shares of the same class of any other Fund. The receiving account must be in the
same name as your existing account.
/ / Please reinvest dividends and capital gains from the --------------------
Fund to the ------------------- Fund.
OPTIONAL FEATURES
- --------------------------------------------------------------------------------
6. AUTOMATIC WITHDRAWAL PLAN
I would like to receive payments of --------------- :
/ / Monthly / / Quarterly / / Semiannually / / Annually
/ / Startup Month ------------------------------.
Payments will be made on or near the 10th or the 25th of the month. / / 10th of
the month OR / / 25th of the month
A minimum account value of $10,000 in a single account is required to establish
a monthly withdrawal plan. For quarterly, semi-annual and annual withdrawal
plans a minimum of $5,000 in a single account is required.
For the New York Municipal Bond Fund and the Investors Fund, shareholders are
required to have a minimum value of $7,500 in a single account. A shareholder
can arrange for automatic distributions to be made monthly or quarterly for
amounts not less than $250 and $50 from the New York Municipal Bond Fund and
Investors Fund, respectively.
<TABLE>
<S> <C>
Please mail checks to: Wire transfers to:
/ / Address of Record (named in Section 2) / / Bank of Record (named in Section 10)
</TABLE>
Name ___________________________________________________________________________
Address ________________________________________________________________________
City __________________________________ State __ Zip ____ _____
- --------------------------------------------------------------------------------
7. SYSTEMATIC INVESTMENT PLAN
I would like to exchange shares in my ------------------ Fund account, for
which no certificates have been issued, to:
$ --------------- into the --------------------------------------- Fund,
$50 Minimum
Account #------------------------
$ --------------- into the --------------------------------------- Fund,
$50 Minimum
Account #------------------------
$ --------------- into the --------------------------------------- Fund,
$50 Minimum
Account #------------------------
The exchange will occur on or about the 15th of each month, beginning in the
month of
- --------------------------------------------------------------------------------
8. TELEPHONE EXCHANGE PRIVILEGE
Unless indicated below, I authorize the Transfer Agent to accept instructions
from any person to exchange shares in my account(s) by telephone, in accordance
with the procedures and conditions set forth in the Funds' current prospectus.
/ / I DO NOT want the Telephone Exchange Privilege.
<PAGE> 119
- --------------------------------------------------------------------------------
9. TELEPHONE REDEMPTION PRIVILEGE
Unless indicated below, I authorize the Transfer Agent to accept instructions
from any person to redeem shares in my account(s) by telephone, in accordance
with the procedures and conditions set forth in the Fund's current prospectus.
Checks for redemption of proceeds will be sent by check via U.S. Mail to the
address of record, unless the information in Section 10 is completed for
redemption by wire of $500 or more.
/ / I DO NOT want the Telephone Redemption Privilege.
- --------------------------------------------------------------------------------
10. BANK OF RECORD
Please attach a voided check in the space provided in Section 13.
Bank Name __________________________________________________________________
Address ____________________________________________________________________
City ________________________________________________ State ___ Zip ______
Bank ABA No. _______________________________
Bank Account No. ____________________________
Account Name _______________________________________________________________
SIGNATURE AND DEALER INFORMATION
- --------------------------------------------------------------------------------
11. SIGNATURE AND TAXPAYER CERTIFICATION
The undersigned warrants that I (we) have full authority and, if a natural
person, I (we) am (are) of legal age to purchase shares pursuant to this
Application, and have received a current prospectus for the Salomon Brothers
Investment Series Fund(s) in which I (we) am (are) investing. THE UNDERSIGNED
ACKNOWLEDGES THAT THE TELEPHONE EXCHANGE PRIVILEGE IS AUTOMATIC AND THAT I (WE)
MAY BEAR THE RISK OF LOSS IN THE EVENT OF FRAUDULENT USE OF THE PRIVILEGE. If I
(we) do not want the Telephone Exchange Privilege, I (we) have so indicated on
this Application.
Under the Interest and Dividend Tax Compliance Act of 1983, the Fund is required
to have the following certification:
Under penalty of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because (a) I am exempt from backup
withholding or (b) I have not been notified by the Internal Revenue Service that
I am subject to backup withholding as a result of a failure to report all
interest or dividends or (c) the IRS has notified me that I am no longer subject
to backup withholding.
Certification Instructions -- You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting of interest or dividends on your tax return. For real estate
transactions, item (2) does not apply. For mortgage interest paid, the
acquisition or abandonment of secured property, contributions to an individual
retirement account (IRA), and generally payments other than interest and
dividends, you are not required to sign the Certification, but you must provide
your correct Taxpayer Identification Number.
/ / Exempt from Backup Withholding (i.e., exempt entity as described in
Application Instructions)
/ / Nonresident alien [form W-8 attached] Country of Citizenship ------------
Authorized signature --------------------- Title ------------- Date ------------
Authorized signature --------------------- Title ------------- Date ------------
- --------------------------------------------------------------------------------
12. FOR DEALER USE ONLY (Please print)
We hereby authorize Salomon Brothers Inc to act as our agent in connection with
transactions authorized by the Application and agree to notify Salomon Brothers
Inc of any purchases made under a Letter of Intent or Right of Accumulation. If
this Application includes a Telephone Exchange Privilege authorization, a
Telephone Redemption Privilege authorization or an Automatic Withdrawal Plan
request, we guarantee the signature(s) above.
Dealer's Name _______________________________________________________________
Main Office Address _________________________________________________________
Dealer Number _________ Branch # _________ Rep # ____________
Representative's Name _______________________________________________________
Branch Address _____________________________________ Telephone No. ____ _____
Authorized Signature of Dealer ----------------------- Title ________________
If desired, I elect to have third party statements sent to the following
address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE> 120
- --------------------------------------------------------------------------------
13. AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan, which is available to shareholders of the Salomon
Brothers Investment Series Funds, makes possible regular monthly purchases of
Fund shares to allow dollar-cost averaging. The Funds' transfer agent can
arrange for an amount of money selected by you ($25 minimum) to be deducted from
your checking account and used to purchase shares of a specified Salomon
Brothers Investment Series Fund.
Please withdraw $ ------------ from my checking account (named in Section 10)
on or about the 10th of the month for investment:
<TABLE>
<S> <C> <C>
/ / Monthly / / Every alternate month / / Other ----------------------------
/ / Quarterly / / Semiannually
</TABLE>
No more than one investment will be processed per month.
$
- --------------- into the -------------------------------------------------- Fund
$25 Minimum
$
- --------------- into the -------------------------------------------------- Fund
$25 Minimum
$
- --------------- into the -------------------------------------------------- Fund
$25 Minimum
If you are applying for the Telephone Redemption Privilege or Automatic
Investment Plan, please tape your voided check on top of our sample below.
- --------------------------------------------------------------------------------
JOHN DOE 000
123 Main Street
Anywhere, USA 12345
/ /
- ---------------------------------------------------------------------- $
- --------------------------------------------------------------------------------
- ---------------------------------- ---------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SERVICE ASSISTANCE
Our knowledgeable Client Services Representatives are available to assist you
between 9:00 a.m. and 5:00 p.m. Eastern Time at:
1-800-SALOMON
7256666
- --------------------------------------------------------------------------------
MAILING INSTRUCTIONS
<TABLE>
<S> <C>
Mail your completed account application and check to: OR (for overnight and express mail delivery)
SALOMON BROTHERS INVESTMENT SERIES SALOMON BROTHERS INVESTMENT SERIES
C/O THE SHAREHOLDERS SERVICE GROUP, INC. C/O THE SHAREHOLDERS SERVICE GROUP, INC.
P.O. BOX 9109 53 STATE STREET, SEVENTH FLOOR
BOSTON, MA 02205 - 9109 BOSTON, MA 02109
</TABLE>
Salomon Brothers Inc SBAPP - 5/95
<PAGE> 121
VOID
<PAGE> 122
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE PAYMENT OF FUNDS IS AUTHORIZED BY THE SIGNATURE(S) APPEARING ON REVERSE
SIDE.
By signing this signature card, I (we) hereby authorize Boston Safe Deposit
and Trust Company ("Bank") to honor checks drawn by me (us) on my (our)
Account in the Investment Company ("Fund") indicated on the reverse side of
this form with payment therefore to be made by redeeming sufficient full
and fractional shares in that Account without a signature guarantee.
If this card is signed by more than one person, all checks will require
only one of the signatures appearing on the reverse side unless the
requirement of more than one signature is indicated.
Checks may not be for less than $500 or such other minimum or maximum as
may from time to time be established by the Fund. Shares for which
certificates have been issued may not be redeemed by check. No redemption
of shares purchased by check will be permitted pursuant to this Check
Redemption Service until 15 days after such shares were credited to the
shareholder's account. The Bank has the right not to honor checks in
amounts exceeding the value of the shareholder's account at the time the
check is presented for payment.
Neither the Bank nor the Fund shall incur any liability to me (us) for
honoring my (our) redemption checks, or for effecting redemptions pursuant
to the Check Redemption Service or for returning checks which have not been
honored. The Bank and the Fund shall be liable only for their own
negligence.
I (we) understand and agree that this Check Redemption Service is in all
respects subject to the procedures, rules and regulations of the Bank
governing checking accounts, and also to the terms and conditions in the
Fund's current Prospectus and Statement of Additional Information, and that
the Bank and the Fund reserve the right to change, modify or terminate the
Service at any time upon notification in writing mailed to my (our) address
of record.
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<PAGE> 123
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SIGNATURE CARD
CASH MANAGEMENT FUND
Boston Safe Deposit and Trust Company
ACCOUNT NUMBER
- --------------------------------------------------------------------------------
ACCOUNT NAME(S) AS REGISTERED
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE(S) -- Individuals must sign as their names appear in
account registration
1 ------------------------------------------------------------------------------
2 ------------------------------------------------------------------------------
3 ------------------------------------------------------------------------------
4 ------------------------------------------------------------------------------
- - Check if all signatures are required
- - Check if only one signature is required Date
-----------------
- - Check if combination of signatures is required and specify number and/or
individual(s)
SUBJECT TO CONDITION ON REVERSE SIDE
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<PAGE> 124
SALOMON BROTHERS INVESTMENT SERIES
7 World Trade Center
New York, New York 10048
(800) SALOMON
(800) 725-6666
STATEMENT OF ADDITIONAL INFORMATION
Salomon Brothers Investment Series consists of Salomon Brothers Cash
Management Fund (the "Cash Management Fund"), Salomon Brothers New York
Municipal Bond Fund (the "New York Municipal Bond Fund"), Salomon Brothers
National Intermediate Municipal Fund (the "National Intermediate Municipal
Fund"), Salomon Brothers U.S. Government Income Fund (the "U.S. Government
Income Fund"), Salomon Brothers High Yield Bond Fund (the "High Yield Bond
Fund"), Salomon Brothers Strategic Bond Fund (the "Strategic Bond Fund"),
Salomon Brothers Total Return Fund (the "Total Return Fund") and Salomon
Brothers Investors Fund Inc (the "Investors Fund") (each a "Fund" and
collectively, the "Funds"). Each of the Funds, except for the Investors Fund,
is a diversified investment portfolio of the Salomon Brother Series Funds Inc
(the "Series Funds"), an open-end investment company incorporated in Maryland
on April 17, 1990. The National Intermediate Municipal Fund, U.S. Government
Income Fund, the High Yield Bond Fund, the Strategic Bond Fund and the Total
Return Fund are newly organized portfolios of the Series Funds. The Investors
Fund is a diversified open-end management investment company incorporated in
Maryland on April 2, 1958. The investment objective of each Fund is described
in the Prospectus dated September __, 1995, as the same may be amended or
supplemented from time to time (the "Prospectus").
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Prospectus.
This Statement of Additional Information contains additional information to
that set forth in the Prospectus and should be read in conjunction with the
Prospectus, additional copies of which may be obtained without charge by
writing or calling the Fund at the address and telephone number printed above.
September , 1995
<PAGE> 125
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . 2
SPECIAL FACTORS AFFECTING THE FUND'S INVESTMENT IN NEW YORK MUNICIPAL OBLIGATIONS . . . . . . . . . . . . . . . . 17
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ADDITIONAL PURCHASE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ADDITIONAL REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SHAREHOLDER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
VALIDITY OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
</TABLE>
<PAGE> 126
2
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
The Prospectus indicates the extent to which each of the Funds may
purchase the instruments or engage in the investment activities described
below. The discussion below supplements the information sets forth in the
Prospectus under "Investment Objectives and Policies" and "Additional
Investment Activities and Risk Factors".
U.S. GOVERNMENT OBLIGATIONS
In addition to the U.S. Treasury obligations described in the
Prospectus, a Fund may invest in separately traded interest components of
securities issued or guaranteed by the U.S. Treasury. The interest components
of selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS"). Under the
STRIPS program, the interest components are individually numbered and
separately issued by the U.S. Treasury at the request of depository financial
institutions, which then trade the component parts independently.
Securities issued or guaranteed by U.S. government agencies and
instrumentalities include obligations that are supported by (a) the full faith
and credit of the U.S. Treasury (e.g., direct pass-through certificates of the
Government National Mortgage Association); (b) the limited authority of the
issuer or guarantor to borrow from the U.S. Treasury (e.g., obligations of
Federal Home Loan Banks); or (c) only the credit of the issuer or guarantor
(e.g., obligations of the Federal Home Loan Mortgage Corporation). In the
case of obligations not backed by the full faith and credit of the U.S.
Treasury, the agency issuing or guaranteeing the obligation is principally
responsible for ultimate repayment.
Agencies and instrumentalities that issue or guarantee debt securities
and that have been established or sponsored by the U.S. government include, in
addition to those identified above, the Bank for Cooperatives, the
Export-Import Bank, the Federal Farm Credit System, the Federal Intermediate
Credit Banks, the Federal Land Banks, the Federal National Mortgage Association
and the Student Loan Marketing Association.
BANK OBLIGATIONS
As stated in the Prospectus, bank obligations that may be purchased by a
Fund include certificates of deposit, banker's acceptances and fixed time
deposits. A certificate of deposit is a short-term negotiable certificate
issued by a commercial bank against funds deposited in the bank and is either
interest-bearing or purchased on a discount basis. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction. The borrower is
liable for payment as is the bank, which unconditionally guarantees to pay the
draft at its face amount on the maturity date. Fixed time deposits are
obligations of branches of U.S. banks or foreign banks which are payable at a
stated maturity date and bear a fixed rate of interest. Although fixed time
deposits do not have a market, there are no contractual restrictions on the
right to transfer a beneficial interest in the deposit to a third party.
<PAGE> 127
3
Bank obligations may be general obligations of the parent bank or may be
limited to the issuing branch by the terms of the specific obligations or by
government regulation.
FLOATING AND VARIABLE RATE INSTRUMENTS
As stated in the Prospectus, certain of the floating or variable rate
obligations that may be purchased by a Fund may carry a demand feature that
would permit the holder to tender them back to the issuer of the instrument or
to a third party at par value prior to maturity. Some of the demand
instruments purchased by a Fund are not traded in a secondary market and derive
their liquidity solely from the ability of the holder to demand repayment from
the issuer or third party providing credit support. If a demand instrument is
not traded in a secondary market, each Fund will nonetheless treat the
instrument as "readily marketable" for the purposes of its investment
restriction limiting investments in illiquid securities unless the demand
feature has a notice period of more than seven days; if the notice period is
greater than seven days, the demand instrument will be characterized as "not
readily marketable" for such purpose.
A Fund's right to obtain payment at par on a demand instrument could be
affected by events occurring between the date such Fund elects to demand
payment and the date payment is due that may affect the ability of the issuer
of the instrument or third party providing credit support to make payment when
due, except when such demand instruments permit same day settlement. To
facilitate settlement, these same day demand instruments may be held in book
entry form at a bank other than a Fund's custodian subject to a sub-custodian
agreement approved by such Fund between that bank and the Fund's custodian.
ASSET-BACKED SECURITIES
Asset-backed securities are generally issued as pass through
certificates, which represent undivided fractional ownership interests in the
underlying pool of assets, or as debt instruments, which are generally issued
as the debt of a special purpose entity organized solely for the purpose of
owning such assets and issuing such debt. Asset-backed securities are often
backed by a pool of assets representing the obligations of a number of
different parties. Asset-backed securities frequently carry credit protection
in the form of extra collateral, subordinate certificates, cash reserve
accounts, letters of credit or other enhancements. For example, payments of
principal and interest may be guaranteed up to certain amounts and for a
certain time period by a letter of credit or other enhancement issued by a
financial institution unaffiliated with the entities issuing the securities.
Assets which, to date, have been used to back asset-backed securities include
motor vehicle installment sales contracts or installment loans secured by motor
vehicles, and receivables from revolving credit (credit card) agreements.
Asset-backed securities present certain risks which are, generally,
related to limited interests, if any, in related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile
receivables permit the servicers
<PAGE> 128
4
to retain possession of the underlying obligations. If the servicer were to
sell these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
automobile receivables. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Other types of asset-backed securities will be subject to the risks associated
with the underlying assets. If a letter of credit or other form of credit
enhancement is exhausted or otherwise unavailable, holders of asset-backed
securities may also experience delays in payments or losses if the full amounts
due on underlying assets are not realized. Because asset-backed securities are
relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of the market cycle
has not been tested.
MUNICIPAL LEASE OBLIGATIONS
Municipal lease obligations are secured by revenues derived from the
lease of property to state and local government units. The underlying leases
typically are renewable annually by the governmental user, although the lease
may have a term longer than one year. If the governmental user does not
appropriate sufficient funds for the following year's lease payments, the lease
will terminate, with the possibility of default on the lease obligations and
significant loss to a Fund. In the event of a termination, assignment or
sublease by the governmental user, the interest paid on the municipal lease
obligation could become taxable, depending upon the identity of the succeeding
user.
LOANS OF PORTFOLIO SECURITIES
Certain Funds may lend portfolio securities to brokers or dealers or
other financial institutions. The procedure for the lending of securities will
include the following features and conditions. The borrower of the securities
will deposit cash with the Fund in an amount equal to a minimum of 100% of the
market value of the securities lent. The Fund will invest the collateral in
short-term debt securities and earn the interest thereon. A negotiated portion
of the income so earned may be paid to the borrower or the broker who arranged
the loan. If the deposit drops below the required minimum at any time, the
borrower may be called upon to post additional cash. If the additional cash is
not paid, the loan will be immediately due and the Fund may use the collateral
or its own cash to replace the securities by purchase in the open market
charging any loss to the borrower. These will be "demand" loans and may be
terminated by the Fund at any time. A Fund will receive any dividends and
interest paid on the securities lent and the loans will be structured to assure
that the Fund will be able to exercise its voting rights on the securities.
Such loans will be authorized only to the extent that the receipt of income
from such activity would not cause any adverse tax consequences to a Fund's
shareholders and only in accordance with applicable rules and regulations. The
borrowers may not be affiliated, directly or indirectly, with a Fund. The
Investors Fund did not lend any of its portfolio securities during 1994 and has
no present intention to do so.
<PAGE> 129
5
Each of the U.S. Securities Fund, the High Yield Bond Fund, the Strategic Bond
Fund and the Total Return Fund has no present intention to lend its portfolio
securities.
RULE 144A SECURITIES
As indicated in the Prospectus, certain Funds may purchase certain
restricted securities ("Rule 144A securities") for which there is a secondary
market of qualified institutional buyers, as contemplated by Rule 144A under
the Securities Act of 1933, as amended (the "1933 Act"). Rule 144A provides an
exemption from the registration requirements of the 1933 Act for the resale of
certain restricted securities to qualified institutional buyers.
One effect of Rule 144A is that certain restricted securities may now be
liquid, though there is no assurance that a liquid market for Rule 144A
securities will develop or be maintained. In promulgating Rule 144A the
Securities and Exchange Commission (the "Commission") stated that the ultimate
responsibility for liquidity determinations is that of an investment company's
board of directors. However, the Commission stated that the board may delegate
the day-to-day function of determining liquidity to the fund's investment
adviser, provided that the board retains sufficient oversight. The Board of
Directors of each Fund has adopted policies and procedures for the purpose of
determining whether securities that are eligible for resale under Rule 144A are
liquid or illiquid for purposes of a Fund's limitation on investment in
illiquid securities. Pursuant to those policies and procedures, each Board of
Directors has delegated to Salomon Brothers Asset Management Inc ("SBAM") the
determination as to whether a particular security is liquid or illiquid,
requiring that consideration be given to, among other things, the frequency of
trades and quotes for the security, the number of dealers willing to sell the
security and the number of potential purchasers, dealer undertakings to make a
market in the security, the nature of the security and the time needed to
dispose of the security. The Board of Directors periodically reviews Fund
purchases and sales of Rule 144A securities.
To the extent that liquid Rule 144A securities that a Fund holds become
illiquid, due to the lack of sufficient qualified institutional buyers or
market or other conditions, the percentage of a Fund's assets invested in
illiquid assets would increase. SBAM, under the supervision of the Boards of
Directors, will monitor Fund investments in Rule 144A securities and will
consider appropriate measures to enable a Fund to maintain sufficient liquidity
for operating purposes and to meet redemption requests.
MORTGAGE-BACKED SECURITIES
The following describes certain characteristics of mortgage-backed
securities. Mortgage-backed securities acquired by the U.S. Government Income
Fund will be limited to those issued or guaranteed by the U.S. government, its
agencies and instrumentalities. The Strategic Bond Fund and the Total Return
Fund may, in addition, purchase privately issued mortgage securities which are
not guaranteed by the U.S. government, its agencies or instrumentalities. It
should be noted that new types of mortgage-backed securities are developed and
marketed from time to time and that, consistent with its investment
limitations,
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6
a Fund may invest in those new types of mortgage-backed securities that the
investment manager believes may assist it in achieving its investment
objective(s).
BACKGROUND. Mortgage-backed securities were introduced in the 1970s
when the first pool of mortgage loans was converted into a mortgage
pass-through security. Since the 1970s, the mortgage-backed securities market
has vastly expanded and a variety of structures have been developed to meet
investor needs.
YIELD CHARACTERISTICS. Interest and principal payments on
mortgage-backed securities are typically made monthly, and principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if a Fund purchases such a
security at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if
a Fund purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce,
yield to maturity.
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. Generally, however,
prepayments on fixed rate mortgage loans will increase during a period of
falling interest rates. Accordingly, amounts available for reinvestment by a
Fund are likely to be greater during a period of relatively low interest rates
and, as a result, likely to be reinvested at lower interest rates than during a
period of relatively high interest rates. This prepayment effect has been
particularly pronounced during recent years as borrowers have refinanced higher
interest rate mortgages into lower interest rate mortgages available in the
marketplace. Mortgage-backed securities may decrease in value as a result of
increases in interest rates and may benefit less than other fixed income
securities from declining interest rates because of the risk of prepayment.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. The U.S. Government
Income, Strategic Bond and Total Return Funds may invest in mortgage
pass-through securities representing participation interests in pools of
residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
government or one of its agencies or instrumentalities. Any guarantee of such
securities runs only to principal and interest payments on the securities and
not to the market value of such securities or the principal and interest
payments on the underlying mortgages. In addition, the guarantee only runs to
the portfolio securities held by a Fund and not to the purchase of shares of
the Fund. Such securities, which are ownership interests in the underlying
mortgage loans, differ from conventional debt securities, which provide for
periodic payment of interest in fixed amounts (usually semi-annually) and
principal payments at maturity or on specified call dates. Mortgage
pass-through securities provide for monthly payments that are a "pass-through"
of the monthly interest and principal payments (including any prepayments) made
by the individual borrowers on the pooled mortgage loans, net of any fees paid
to the guarantor of such securities and the servicer of the underlying mortgage
loans. Guaranteed mortgage pass-through securities are often sold on a
to-be-acquired or "TBA"
<PAGE> 131
7
basis. Such securities are typically sold one to three months in advance of
issuance, prior to the identification of the underlying pools of mortgage
securities but with the interest payment provisions fixed in advance. The
underlying pools of mortgage securities are identified shortly before
settlement and must meet certain parameters.
The guaranteed mortgage pass-through securities in which a Fund may
invest may include those issued or guaranteed by Ginnie Mae, Fannie Mae and
Freddie Mac.
Ginnie Mae Certificates. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The full faith and credit of the U.S. government is pledged to
the payment of amounts that may be required to be paid under any guarantee, but
not as to the market value of such securities. The Ginnie Mae Certificates
will represent a pro rata interest in one or more pools of the following types
of mortgage loans: (i) fixed rate level payment mortgage loans; (ii) fixed rate
graduated payment mortgage loans; (iii) fixed rate growing equity mortgage
loans; (iv) fixed rate mortgage loans secured by manufactured (mobile) homes;
(v) mortgage loans on multifamily residential properties under construction;
(vi) mortgage loans on completed multifamily projects; (vii) fixed rate
mortgage loans as to which escrowed funds are used to reduce the borrower's
monthly payments during the early years of the mortgage loans ("buydown"
mortgage loans); (viii) mortgage loans that provide for adjustments in payments
based on periodic changes in interest rates or in other payment terms of the
mortgage loans; and (ix) mortgage-backed serial notes. All of these mortgage
loans will be Federal Housing Administration Loans ("FHA Loans") or Veterans'
Administration Loans ("VA Loans") and, except as otherwise specified above,
will be fully-amortizing loans secured by first liens on one- to four-family
housing units.
Fannie Mae Certificates. Fannie Mae is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act. Each Fannie Mae Certificate will entitle the
registered holder thereof to receive amounts representing such holder's pro
rata interest in scheduled principal payments and interest payments (at such
Fannie Mae Certificate's pass-through rate, which is net of any servicing and
guarantee fees on the underlying mortgage loans), and any principal prepayments
on the mortgage loans in the pool represented by such Fannie Mae Certificate
and such holder's proportionate interest in the full principal amount of any
foreclosed or otherwise finally liquidated mortgage loan. The full and timely
payment of principal of and interest on each Fannie Mae Certificate, but not
the market value thereof, will be guaranteed by Fannie Mae, which guarantee is
not backed by the full faith and credit of the U.S. government. Each Fannie
Mae Certificate will represent a pro rata interest in one or more pools of FHA
Loans, VA Loans or conventional mortgage loans (i.e., mortgage loans that are
not insured or guaranteed by any governmental agency) of the following types:
(i) fixed rate level payment mortgage loans; (ii) fixed rate growing equity
mortgage loans; (iii) fixed rate graduated payment mortgage loans; (iv)
variable rate California mortgage loans; (v) other adjustable rate mortgage
loans; and (vi) fixed rate mortgage loans secured by multifamily projects.
Freddie Mac Certificates. Freddie Mac is a corporate instrumentality of
the United States created pursuant to the Emergency Home Finance Act of 1970,
as amended (the
<PAGE> 132
8
"FHLMC Act"). Freddie Mac guarantees to each registered holder of a Freddie
Mac Certificate ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal or the market value of the securities.
Freddie Mac may remit the amount due on account of its guarantee of collection
of principal at any time after default on an underlying mortgage loan, but not
later than 30 days following (i) foreclosure sale; (ii) payment of a claim by
any mortgage insurer; or (iii) the expiration of any right of redemption,
whichever occurs later, but in any event no later than one year after demand
has been made upon the mortgagor for accelerated payment of principal. The
obligations of Freddie Mac under its guarantee are obligations solely of
Freddie Mac and are not backed by the full faith and credit of the U.S.
government.
Freddie Mac Certificates represent a pro rata interest in a group of
mortgage loans (a "Freddie Mac Certificate group") purchased by Freddie Mac.
The mortgage loans underlying the Freddie Mac Certificates will consist of
fixed rate or adjustable rate mortgage loans with original terms to maturity of
between ten and thirty years, substantially all of which are secured by first
liens on one- to four-family residential properties or multifamily projects.
Each mortgage loan must meet the applicable standards set forth in the FHLMC
Act. A Freddie Mac Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
BRADY BONDS
Brady Bonds are debt securities, generally denominated in U.S. dollars,
issued under the framework of the Brady Plan. The Brady Plan is an initiative
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
commercial bank indebtedness. In restructuring its external debt under the
Brady Plan framework, a debtor nation negotiates with its existing bank lenders
as well as multilateral institutions such as the International Bank for
Reconstruction and Development (the "World Bank") and the International
Monetary Fund (the "IMF"). The Brady Plan framework, as it has developed,
contemplates the exchange of external commercial bank debt for newly issued
bonds (Brady Bonds). Brady Bonds may also be issued in respect of new money
being advanced by existing lenders in connection with the debt restructuring.
The World Bank and/or the IMF support the restructuring by providing funds
pursuant to loan agreements or other arrangements which enable the debtor
nation to collateralize the new Brady Bonds or to repurchase outstanding bank
debt at a discount. Under these arrangements with the World Bank and/or the
IMF, debtor nations have been required to agree to the implementation of
certain domestic monetary and fiscal reforms. Such reforms have included the
liberalization of trade and foreign investment, the privatization of
state-owned enterprises and the setting of targets for public spending and
borrowing. These policies and programs seek to promote the debtor country's
economic growth and development. Investors should also recognize that the
Brady Plan only sets forth general guiding principles for economic reform and
debt reduction, emphasizing that solutions must be negotiated on a case-by-case
basis between debtor nations and their creditors. SBAM believes that economic
reforms undertaken by countries in connection with the issuance of
<PAGE> 133
9
Brady Bonds make the debt of countries which have issued or have announced
plans to issue Brady Bonds an attractive opportunity for investment. However,
there can be no assurance that SBAM's expectations with respect to Brady Bonds
will be realized.
Investors should recognize that Brady Bonds have been issued only
recently, and accordingly do not have a long payment history. Brady Bonds
which have been issued to date are rated in the categories "BB" or "B" by S&P
or "Ba" or "B" by Moody's or, in cases in which a rating by S&P or Moody's has
not been assigned, are generally considered by SBAM to be of comparable
quality.
Agreements implemented under the Brady Plan to date are designed to
achieve debt and debt-service reduction through specific options negotiated by
a debtor nation with its creditors. As a result, the financial packages
offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face
value of such debt which carry a below-market stated rate of interest
(generally known as par bonds), bonds issued at a discount from the face value
of such debt (generally known as discount bonds), bonds bearing an interest
rate which increases over time and bonds issued in exchange for the advancement
of new money by existing lenders. Discount bonds issued to date under the
framework of the Brady Plan have generally borne interest computed semiannually
at a rate equal to 13/16 of one percent above the then current six month LIBOR
rate. Regardless of the stated face amount and stated interest rate of the
various types of Brady Bonds, the applicable Funds will purchase Brady Bonds in
secondary markets, as described below, in which the price and yield to the
investor reflect market conditions at the time of purchase. Brady Bonds issued
to date have traded at a deep discount from their face value. Certain
sovereign bonds are entitled to "value recovery payments" in certain
circumstances, which in effect constitute supplemental interest payments but
generally are not collateralized. Certain Brady Bonds have been collateralized
as to principal due at maturity (typically 30 years from the date of issuance)
by U.S. Treasury zero coupon bonds with a maturity equal to the final maturity
of such Brady Bonds, although the collateral is not available to investors
until the final maturity of the Brady Bonds. Collateral purchases are financed
by the IMF, the World Bank and the debtor nations' reserves. In addition,
interest payments on certain types of Brady Bonds may be collateralized by cash
or high-grade securities in amounts that typically represent between 12 and 18
months of interest accruals on these instruments with the balance of the
interest accruals being uncollateralized. The applicable Funds may purchase
Brady Bonds with no or limited collateralization, and will be relying for
payment of interest and (except in the case of principal collateralized Brady
Bonds) principal primarily on the willingness and ability of the foreign
government to make payment in accordance with the terms of the Brady Bonds.
Brady Bonds issued to date are purchased and sold in secondary markets through
U.S. securities dealers and other financial institutions and are generally
maintained through European transnational securities depositories. A
substantial portion of the Brady Bonds and other sovereign debt securities in
which the Fund invests are likely to be acquired at a discount, which involves
certain considerations discussed below under "Additional Information Concerning
Taxes."
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INVERSE FLOATING RATE OBLIGATIONS
Certain Funds may invest in inverse floating rate obligations, or
"inverse floaters." Inverse floaters have coupon rates that vary inversely at
a multiple of a designated floating rate (which typically is determined by
reference to an index rate, but may also be determined through a dutch auction
or a remarketing agent) (the "reference rate"). Inverse floaters may constitute
a class of CMOs with a coupon rate that moves inversely to a designated index,
such as LIBOR (London Inter-Bank Offered Rate) or COFI (Cost of Funds Index).
Any rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
In addition, like most other fixed income securities, the value of inverse
floaters will generally decrease as interest rates increase.
Inverse floaters exhibit substantially greater price volatility than
fixed rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some
inverse floater CMOs exhibit extreme sensitivity to changes in prepayments. As
a result, the yield to maturity of an inverse floater CMO is sensitive not only
to changes in interest rates but also to changes in prepayment rates on the
related underlying mortgage assets.
DERIVATIVES
The description in the Prospectus of each Fund indicates which, if any,
of these types of transactions may be used by that Fund.
FORWARD CURRENCY EXCHANGE CONTRACTS. As indicated in the Prospectus, in
order to hedge against currency exchange rate risks or to increase income,
certain Funds may enter into forward currency exchange contracts with
securities dealers, financial institutions or other parties, through direct
bilateral agreements with such counterparties. A Fund will enter into forward
currency exchange contracts only with counterparties which SBAM deems
creditworthy. In connection with a Fund's forward currency transactions, the
Fund will set aside in a segregated account with its custodian, cash, cash
equivalents or high quality debt securities in an amount equal to the amount of
the contract, to be used to pay for the commitment. The segregated account
will be marked-to-market on a daily basis. In addition to the circumstances
set forth in the Prospectus, a Fund may enter into forward currency exchange
contracts when SBAM believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar. In those circumstances,
a Fund may enter into a forward contract to sell, for a fixed amount of U.S.
dollars, the amount of that currency approximating the value of some or all of
the Fund's portfolio securities denominated in such currency. Forward
contracts may limit potential gain from a positive change in the relationship
between the U.S. dollar and foreign currencies.
FUTURES CONTRACTS. As indicated in the Prospectus, certain Funds may
trade futures contracts (1) on domestic and foreign exchanges on currencies,
interest rates and bond indices
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and (2) on domestic and, to the extent permitted by the Commodity Futures
Trading Commission ("CFTC"), foreign exchanges on stock indices. None of the
Funds is a commodity pool, and a Fund will use futures contracts and options
thereon solely (i) for bona fide hedging purposes and (ii) for other purposes
in amounts permitted by the rules and regulations promulgated by the CFTC. A
Fund may not enter into any futures contract or related option other than for
bona fide hedging purposes if, immediately thereafter, the sum of the amount of
aggregate initial margin deposits on the Fund's existing futures contracts and
premiums paid for options on futures contracts would exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account unrealized
profits and losses on existing contracts. In addition, the value of a Fund's
long futures and options positions (futures contracts on stock or bond indices,
interest rates or foreign currencies and call options on such futures
contracts) will not exceed the sum of (a) cash, cash equivalents or high
quality debt securities segregated for this purpose, (b) cash proceeds on
existing investments due within thirty days and (c) accrued profits on the
particular futures or options positions. Furthermore, with respect to the sale
of futures contracts by a Fund, the value of such contracts may not exceed the
total market value of such Fund's portfolio securities.
Interest Rate Futures Contacts. A Fund may enter into interest rate
futures contracts in order to protect it from fluctuations in interest rates
without necessarily buying or selling fixed income securities. An interest
rate futures contract is an agreement to take or make delivery of either (i) an
amount of cash equal to the difference between the value of a particular index
of debt securities at the beginning and at the end of the contract period or
(ii) a specified amount of a particular debt security at a future date at a
price set at time of the contract. For example, if a Fund owns bonds, and
interest rates are expected to increase, the Fund might sell futures contracts
on debt securities having characteristics similar to those held in the
portfolio. Such a sale would have much the same effect as selling an
equivalent value of the bonds owned by the Fund. If interest rates did
increase, the value of the debt securities in the portfolio would decline, but
the value of the futures contracts to the Fund would increase at approximately
the same rate, thereby keeping the net asset value of the Fund from declining
as much as it otherwise would have. A Fund could accomplish similar results by
selling bonds with longer maturities and investing in bonds with shorter
maturities when interest rates are expected to increase. However, since the
futures market may be more liquid than the cash market, the use of futures
contracts as a risk management technique allows a Fund to maintain a defensive
position without having to sell its portfolio securities.
Similarly, when SBAM expects that interest rates may decline, a Fund may
purchase interest rate futures contracts in an attempt to hedge against having
to make subsequently anticipated purchases of bonds at the higher prices
subsequently expected to prevail. Since the fluctuations in the value of
appropriately selected futures contracts should be similar to that of the bonds
that will be purchased, a Fund could take advantage of the anticipated rise in
the cost of the bonds without actually buying them until the market had
stabilized. At that time, a Fund could make the intended purchase of the bonds
in the cash market and the futures contracts could be liquidated.
At the time of delivery of securities pursuant to an interest rate
futures contract, adjustments are made to recognize differences in value
arising from the delivery of securities
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12
with a different interest rate from that specified in the contract. In some
(but not many) cases, securities called for by a futures contract may have a
shorter term than the term of the futures contract and, consequently, may not
in fact have been issued when the futures contract was entered.
Municipal Bond Index Futures Contracts. A municipal bond index futures
contract is an agreement to take or make delivery of an amount of cash equal to
the difference between the value of the index at the beginning and at the end
of the contract period. Certain Funds may enter into short municipal bond
index futures contracts in anticipation of or during a market decline to
attempt to offset the decrease in market value of securities in its portfolio
that might otherwise result. When a Fund is not fully invested in securities
and anticipates a significant market advance, it may enter into long municipal
bond index futures contracts in order to gain rapid market exposure that may
wholly or partially offset increases in the costs of securities that it intends
to purchase. In a substantial majority of these transactions, a Fund will
purchase such securities upon termination of the futures position but, under
unusual market conditions, a futures position may be terminated without the
corresponding purchase of securities.
OPTIONS. As indicated in the Prospectus, in order to hedge against
adverse market shifts or to increase income, certain Funds may purchase put and
call options or write "covered" put and call options on futures contracts on
stock indices, interest rates and currencies. In addition, in order to hedge
against adverse market shifts or to increase its income, a Fund may purchase
put and call options and write "covered" put and call options on stocks, stock
indices and currencies. A Fund may utilize options on currencies in order to
hedge against currency exchange rate risks. A call option is "covered" if, so
long as the Fund is obligated as the writer of the option, it will own (i) the
underlying investment subject to the option; (ii) securities convertible or
exchangeable without the payment of any consideration into the securities
subject to the option or (iii) a call option on the relevant security or
currency with an exercise price no higher than the exercise price on the call
option written. A put option is "covered" if, to support its obligation to
purchase the underlying investment if a put option that a Fund writes is
exercised, the Fund will either (a) deposit with its custodian in a segregated
account cash, U.S. government securities or other high grade liquid debt
obligations having a value at least equal to the exercise price of the
underlying investment or (b) continue to own an equivalent number of puts of
the same "series" (that is, puts on the same underlying investment having the
same exercise prices and expiration dates as those written by the Fund), or an
equivalent number of puts of the same "class" (that is, puts on the same
underlying investment) with exercise prices greater than those that it has
written (or, if the exercise prices of the puts it holds are less than the
exercise prices of those it has written, it will deposit the difference with
its custodian in a segregated account). Parties to options transactions must
make certain payments and/or set aside certain amounts of assets in connection
with each transaction, as described in the Prospectus.
In all cases except for certain options on interest rate futures
contracts, by writing a call, a Fund will limit its opportunity to profit from
an increase in the market value of the underlying investment above the exercise
price of the option for as long as the Fund's obligation as writer of the
option continues. By writing a put, a Fund will limit its
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13
opportunity to profit from a decrease in the market value of the underlying
investment below the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Upon the exercise of a put
option written by a Fund, the Fund may suffer an economic loss equal to the
difference between the price at which the Fund is required to purchase the
underlying investment and its market value at the time of the option exercise,
less the premium received for writing the option. Upon the exercise of a call
option written by a Fund, the Fund may suffer an economic loss equal to an
amount not less than the excess of the investment's market value at the time of
the option exercise over the Fund's acquisition cost of the investment, less
the sum of the premium received for writing the option and the positive
difference, if any, between the call price paid to the Fund and the Fund's
acquisition cost of the investment.
In all cases except for certain options on interest rate futures
contracts, in purchasing a put option, a Fund will seek to benefit from a
decline in the market price of the underlying investment, while in purchasing a
call option, a Fund will seek to benefit from an increase in the market price
of the underlying investment. If an option purchased is not sold or exercised
when it has remaining value, or if the market price of the underlying
investment remains equal to or greater than the exercise price, in the case of
a put, or remains equal to or below the exercise price, in the case of a call,
during the life of the option, the Fund will lose its investment in the option.
For the purchase of an option to be profitable, the market price of the
underlying investment must decline sufficiently below the exercise price, in
the case of a put, and must increase sufficiently above the exercise price, in
the case of a call, to cover the premium and transaction costs.
In the case of certain options on interest rate futures contracts, a
Fund may purchase a put option in anticipation of a rise in interest rates, and
purchase a call option in anticipation of a fall in interest rates. By writing
a covered call option on interest rate futures contracts, a Fund will limit its
opportunity to profit from a fall in interest rates. By writing a covered put
option on interest rate futures contracts, a Fund will limit its opportunity to
profit from a rise in interest rates.
A Fund may choose to exercise the options it holds, permit them to
expire or terminate them prior to their expiration by entering into closing
transactions. A Fund may enter into a closing purchase transaction in which
the Fund purchases an option having the same terms as the option it had written
or a closing sale transaction in which the Fund sells an option having the same
terms as the option it had purchased. A covered option writer unable to effect
a closing purchase transaction will not be able to sell the underlying security
until the option expires or the underlying security is delivered upon exercise,
with the result that the writer will be subject to the risk of market decline
in the underlying security during such period. Should a Fund choose to
exercise an option, the Fund will purchase in the open market the securities,
commodities or commodity futures contracts underlying the exercised option.
Exchange-listed options on securities and currencies, with certain
exceptions, generally settle by physical delivery of the underlying security or
currency, although in the future, cash settlement may become available.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed
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14
by entering into offsetting purchase or sale transactions that do not result in
ownership of the new option. Index options are cash settled for the net
amount, if any, by which the option is "in-the-money" (that is, the amount by
which the value of the underlying instrument exceeds, in the case of a call
option, or is less than, in the case of a put option, the exercise price of the
option) at the time the option is exercised.
A Fund's ability to close out its position as a purchaser or seller of
an exchange-listed put or call option is dependent upon the existence of a
liquid secondary market on option exchanges. Among the possible reasons for
the absence of a liquid secondary market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions imposed
by an exchange; (iii) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (iv) interruption of the normal operations on an exchange; (v)
inadequacy of the facilities of an exchange or the Options Clearing Corporation
("OCC") to handle current trading volume; or (vi) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange that had been listed by the OCC as a result of trades
on that exchange would generally continue to be exercisable in accordance with
their terms.
Over-the-counter options are purchased from or sold to securities
dealers, financial institutions or other parties, through direct bilateral
agreement with such counterparties. A Fund will purchase and sell
over-the-counter options only from and to counterparties which SBAM deems to be
creditworthy.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that
the option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the options markets.
(a) Options on Stocks and Stock Indices. A Fund may purchase put and
call options and write covered put and call options on stocks and stock indices
listed on domestic and foreign securities exchanges in order to hedge against
movements in the equity markets or to increase income to the Fund. In
addition, the Fund may purchase options on stocks that are traded
over-the-counter. Options on stock indices are similar to options on specific
securities. However, because options on stock indices do not involve the
delivery of an underlying security, the option represents the holder's right to
obtain from the writer cash in an amount equal to a fixed multiple of the
amount by which the exercise price exceeds (in the case of a put) or is less
than (in the case of a call) the closing value of the underlying stock index on
the exercise date. Currently, options traded include the Standard & Poor's 100
Index of Composite Stocks, Standard & Poor's 500 Index of Composite Stocks (the
"S&P 500 Index"), the New York Stock Exchange ("NYSE") Composite Index, the
American Stock Exchange ("AMEX") Market Value Index, the National
Over-the-Counter Index and other standard broadly based stock market indices.
Options are also traded in certain industry or market segment indices such as
the Oil Index, the Computer Technology Index and the
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15
Transportation Index. Stock index options are subject to position and
exercise limits and other regulations imposed by the exchange on which they
are traded.
If SBAM expects general stock market prices to rise, a Fund might
purchase a call option on a stock index or a futures contract on that index as
a hedge against an increase in prices of particular equity securities it wants
ultimately to buy. If in fact the stock index does rise, the price of the
particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of the
Fund's index option or futures contract resulting from the increase in the
index. If, on the other hand, SBAM expects general stock market prices to
decline, it might purchase a put option or sell a futures contract on the
index. If that index does in fact decline, the value of some or all of the
equity securities in a Fund's portfolio may also be expected to decline, but
that decrease would be offset in part by the increase in the value of the
Fund's position in such put option or futures contract.
(b) Options on Currencies. A Fund may invest in options on currencies
traded on domestic and foreign securities exchanges in order to hedge against
currency exchange rate risks or to increase income, as described above in
"Forward Currency Exchange Contracts."
(c) Options on Futures Contracts. A Fund may purchase put and call
options and write covered put and call options on futures contracts on stock
indices, interest rates and currencies traded on domestic and, to the extent
permitted by the CFTC, foreign exchanges, in order to hedge all or a portion of
its investments or to increase income and may enter into closing transactions
in order to terminate existing positions. There is no guarantee that such
closing transactions can be effected. An option on a stock index futures
contract, interest rate futures contract or currency futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in the
underlying contract at a specified exercise price at any time on or before the
expiration date of the option. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will
be accompanied by delivery of the accumulated balance in the writer's futures
margin account. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus
transaction costs). While the price of the option is fixed at the point of
sale, the value of the option does change daily and the change would be
reflected in the net asset value of the Fund.
INTEREST RATE AND EQUITY SWAPS AND RELATED TRANSACTIONS. Certain Funds
may enter into interest rate and equity swaps and may purchase or sell (i.e.,
write) interest rate and equity caps, floors and collars. A Fund expects to
enter into these transactions in order to hedge against either a decline in the
value of the securities included in the Fund's portfolio, or against an
increase in the price of the securities which it plans to purchase, or in order
to preserve or maintain a return or spread on a particular investment or
portion of its portfolio or to achieve a particular return on cash balances, or
in order to increase income. Interest rate and equity swaps involve the
exchange by A Fund with another party of their respective commitments to make
or receive payments based on a notional principal amount. The purchase of an
interest rate or equity cap entitles the purchaser, to the extent that a
specified index exceeds a predetermined level, to receive payments on a
contractually-based principal
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amount from the party selling the interest rate or equity cap. The purchase of
an interest rate or equity floor entitles the purchaser, to the extent that a
specified index falls below a predetermined rate, to receive payments on a
contractually-based principal amount from the party selling the interest rate
or equity floor. A collar is a combination of a cap and a floor which preserve
a certain return within a predetermined range of values.
A Fund may enter into interest rate and equity swaps, caps, floors and
collars on either an asset-based or liability-based basis, depending on whether
it is hedging its assets or its liabilities, and will usually enter into
interest rate and equity swaps on a net basis (i.e., the two payment streams
are netted out), with the Fund receiving or paying, as the case may be, only
the net amount of the two payments. The net amount of the excess, if any, of a
Fund's obligations over its entitlements with respect to each interest rate or
equity swap will be accrued on a daily basis, and an amount of cash and/or
liquid high grade debt securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated account by the
Fund's custodian. If a Fund enters into an interest rate or equity swap on
other than a net basis, the Fund will maintain a segregated account in the full
amount accrued on a daily basis of the Fund's obligations with respect to the
swap. A Fund will only enter into interest rate and equity swap, cap, floor or
collar transactions with counterparties SBAM deems to be creditworthy. SBAM
will monitor the creditworthiness of counterparties to its interest rate and
equity swap, cap, floor and collar transactions on an ongoing basis. If there
is a default by the other party to such a transaction, a Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and agents
utilizing standardized swap documentation. SBAM has determined that, as a
result, the swap market has become relatively liquid. Caps, floors and collars
are more recent innovations for which standardized documentation has not yet
been developed and, accordingly, they are less liquid than swaps. To the
extent a Fund sells caps, floors, and collars it will maintain in a segregated
account cash and/or liquid high grade debt securities having an aggregate net
asset value at least equal to the full amount, accrued on a daily basis, of the
Fund's obligations with respect to the caps, floors or collars. The use of
interest rate and equity swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If SBAM is incorrect in its forecasts of
market values, interest rates and other applicable factors, the investment
performance of a Fund would diminish compared with what it would have been if
these investment techniques were not utilized. Moreover, even if SBAM is
correct in its forecasts, there is a risk that the swap position may correlate
imperfectly with the price of the asset or liability being hedged.
There is no limit on the amount of interest rate and equity swap
transactions that may be entered into by a Fund. These transactions do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate and equity swaps is
limited to the net amount of payments that a Fund is contractually obligated to
make, if any. The effective use of swaps and related transactions by a Fund
may depend, among other things on the Fund's ability to terminate the
transactions at times when SBAM deems it desirable to do so. Because swaps and
related transactions are bilateral contractual arrangements between a Fund and
counterparties to the transactions, the Fund's
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ability to terminate such an arrangement may be considerably more limited than
in the case of an exchange traded instrument. To the extent a Fund does not,
or cannot, terminate such a transaction in a timely manner, the Fund may suffer
a loss in excess of any amounts that it may have received, or expected to
receive, as a result of entering into the transaction. If the other party to a
swap defaults, a Fund's risk of loss is the net amount of payments that the
Fund contractually is entitled to receive, if any. A Fund may purchase and
sell caps, floors and collars without limitation, subject to the segregated
account requirement described above.
OTHER INVESTMENT COMPANIES
As indicated under "Investment Restrictions" below, a Fund may from time
to time invest in securities of other investment companies. The return on such
investments will be reduced by the operating expenses, including investment
advisory and administration fees, of such investment funds, and will be further
reduced by Fund expenses, including management fees; that is, there will be a
layering of certain fees and expenses.
SPECIAL FACTORS AFFECTING THE FUND'S INVESTMENT IN NEW YORK MUNICIPAL
OBLIGATIONS
Some of the significant financial considerations relating to the
investments of the Fund in New York municipal securities are summarized below.
The following information constitutes only a brief summary, does not purport to
be a complete description and is largely based on information drawn from
official statements relating to securities offerings of New York municipal
obligations available as of the date of this Statement of Additional
Information. The accuracy and completeness of the information contained in
such offering statements has not been independently verified.
NEW YORK STATE
New York State Financing Activities. There are a number of methods by
which New York State (the "State") may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term borrowing (i.e., borrowing for more than one year) unless
the borrowing is authorized in a specific amount for a single work or purpose
by the New York State Legislature (the "Legislature") and approved by the
voters. There is no limitation on the amount of long-term debt that may be so
authorized and subsequently incurred by the State.
In April 1993, legislation was also enacted providing for significant
constitutional changes to the long-term financing practices of the State and
the Authorities.
The Legislature passed a proposed constitutional amendment that would
permit the State, within a formula-based cap, to issue revenue bonds, which
would be debt of the State secured solely by a pledge of certain State tax
receipts (including those allocated to State funds dedicated for transportation
purposes), and not by the full faith and credit of the State. In addition, the
proposed amendment would permit multiple purpose general obligation bond
proposals to be proposed on the same ballot, require that State debt be
incurred only for
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capital projects included in a multi-year capital financing plan and prohibit,
after its effective date, lease-purchase and contractual-obligation financing
mechanisms for State facilities.
Public hearings were held on the proposed constitutional amendment
during 1993. Following these hearings, in February 1994, Governor Cuomo and
the State Comptroller recommended a revised constitutional amendment which
would further tighten the ban on lease-purchase and contractual-obligation
financing, incorporate existing lease-purchase and contractual-obligation debt
under the proposed revenue bond cap while simultaneously reducing the size of
the cap. After considering these recommendations, the Legislature passed a
revised constitutional amendment which tightens the ban, and provides for a
phase-in to a lower cap (4.4 percent of personal income).
Before the approved constitutional amendment can be presented to the
voters for their consideration, it must be passed again by a separately elected
Legislature. The amendment must therefore be passed by the newly elected
Legislature in 1995 prior to presentation to the voters in November 1995. The
amendment was passed by the State Senate in June 1995, and the State expects
the Assembly to pass the amendment. If approved by the voters, the amendment
would become effective January 1, 1996.
The State may undertake short-term borrowings without voter approval (i)
in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes ("TRANs"), and (ii) in anticipation of the receipt
of proceeds from the sale of duly authorized but unissued bonds, by issuing
bond anticipation notes ("BANs"). TRANs must mature within one year from their
dates of issuance and may not be refunded or refinanced beyond such period.
BANS may only be issued for the purposes and within the amounts for which bonds
may be issued pursuant to voter authorizations. Such BANs must be paid from
the proceeds of the sale of bonds in anticipation of which they were issued or
from other sources within two years of the date of issuance or, in the case of
BANs for housing purposes, within five years of the date of issuance.
The State may also, pursuant to specific constitutional authorization,
directly guarantee certain public authority obligations. The State
Constitution provides for the State guarantee of the repayment of certain
borrowings for designated projects of the New York State Thruway Authority, the
Job Development Authority and the Port Authority of New York and New Jersey.
The State has never been called upon to make any direct payments pursuant to
such guarantees. The constitutional provisions allowing a State-guarantee of
certain Port Authority of New York and New Jersey debt stipulates that no such
guaranteed debt may be outstanding after December 31, 1996.
Payments of debt service on State general obligation and
State-guaranteed bonds and notes are legally enforceable obligations of the
State.
The State also employs two other types of long-term financing mechanisms
which are State-supported but are not general obligations of the State: moral
obligation and lease-purchase or contractual-obligation financing. Moral
obligation financing generally involves the issuance of debt by an Authority to
finance a revenue-producing project or other activity,
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and that debt is secured by project revenues and statutory provisions of the
State, subject to appropriation by the Legislature, to make up any deficiencies
which may occur in the issuer's debt service reserve fund. Under
lease-purchase or contractual-obligation financing arrangements, Authorities
and certain municipalities have issued obligations to finance the construction
and rehabilitation of facilities or the acquisition and rehabilitation of
equipment, and expect to cover debt service and amortization of the obligations
through the receipt of rental or other contractual payments made by the State.
The State has also entered into a payment agreement with the New York Local
Government Assistance Corporation ("LGAC"). State lease-purchase or
contractual-obligation financing arrangements involve a contractual undertaking
by the State to make payments to an Authority, municipality or other entity,
but the State's obligation to make such payments is generally expressly made
subject to appropriation by the Legislature and the actual availability of
money to the State for making the payments. The State also participates in the
issuance of certificates of participation ("COPs") in a pool of leases entered
into by the State's Office of General Services on behalf of several State
departments and agencies. The State has also participated in the issuance of
certificates of participation for the acquisition of real property which
represent proportionate interests in lease payments to be paid by the State.
The State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
The State anticipates that its capital programs will be financed, in
part, through borrowings by the State and public authorities in the 1995-96
fiscal year. The State expects to issue $248 million in general obligation
bonds (including $70 million for purposes of redeeming outstanding BANs) and
$186 million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $33 million in COPs during the State's 1995-96
fiscal year for equipment purchases and $14 million for capital purposes. The
projection of the State regarding its borrowings for the 1995-96 fiscal year
may change if circumstances require.
LGAC is authorized to provide net proceeds of up to $529 million during
the State's 1995-96 fiscal year, to redeem notes sold in June 1995.
Borrowings by other public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total $2.7 billion, including costs of issuances, reserve funds,
and other costs, net of anticipated refundings and other adjustments for
1994-95 capital projects. Included therein are borrowings by (i) the Dormitory
Authority of the State of New York ("DA") for State University of New York
("SUNY"), The City University of New York ("CUNY"), and health facilities, (ii)
the New York State Medical Care Facilities Finance Agency ("MCFFA") for mental
health facilities; (iii) Thruway Authority for the Dedicated Highway and Bridge
Trust Fund and Consolidated Highway Improvement Program; (iv) UDC for prison
and youth facilities and economic development programs; (v) the Housing Finance
Agency ("HFA") for housing programs; and (vi) other borrowings by the
Environmental Facilities Corporation ("EFC") and the Energy Research and
Development Authority ("ERDA").
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In addition to the arrangements described above, State law provides for
State municipal assistance corporations, which are Authorities authorized to
aid financially troubled localities. The Municipal Assistance Corporation for
The City of New York ("MAC"), created to provide financing assistance to New
York City (the "City"), is the only municipal assistance corporation created to
date. To enable MAC to pay debt service on its obligations, MAC receives,
subject to annual appropriation by the Legislature, receipts from the 4% New
York State Sales Tax for the Benefit of New York City, the State-imposed Stock
Transfer Tax and, subject to certain prior liens, certain local assistance
payments otherwise payable to the City. The legislation creating MAC also
includes a moral obligation provision. Under its enabling legislation, MAC's
authority to issue bonds and notes (other than refunding bonds and notes)
expired on December 31, 1984.
State Financial Operations. The State has historically been one of
the wealthiest states in the nation. For decades, however, the State economy
has grown more slowly than that of the nation as a whole, gradually eroding the
State's relative economic affluence. Statewide, urban centers have experienced
significant changes involving migration of the more affluent to the suburbs and
an influx of generally less affluent residents. Regionally, the older
Northeast cities have suffered because of the relative success that the South
and the West have had in attracting people and business. The City has also had
to face greater competition as other major cities have developed financial and
business capabilities which make them less dependent on the specialized
services traditionally available almost exclusively in the City.
Although the State ranks 22nd in the nation for its State tax burden,
the State has the second highest combined state and local tax burden in the
United States. In 1991, total State and local taxes in New York were $3,349
per capita, compared with $1,475 per capita in 1980. Between 1980 and 1991,
State and local taxes per capita increased at approximately the same rate in
the State as in the nation as a whole with per capita taxes in the State
increasing by 127% while such taxes increased 111% in the nation. The State
and its localities have used these taxes to develop and maintain their
respective transportation networks, public schools and colleges, public health
systems, other social services, and recreational facilities. Despite these
benefits, the burden of State and local taxation, in combination with the many
other causes of regional economic dislocation, may have contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State.
The national economy began to expand in 1991, although the growth rate
for the first two years of the expansion was modest by historical standards.
The State economy remained in recession until 1993, when employment growth
resumed. Employment growth has been hindered during recent years by
significant cutbacks in the computer and instrument manufacturing, utility, and
defense industries. Personal income increased substantially in 1992 and 1993,
aided significantly by large bonus payments in banking and financial
industries.
To stimulate economic growth, the State has developed programs,
including the provision of direct financial assistance, designed to assist
businesses to expand existing operations located within the State and to
attract new businesses to the State. In addition, the
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State has provided various tax incentives to encourage business relocation and
expansion. These programs include direct tax abatements from local property
taxes for new facilities (subject to locality approval) and investment tax
credits that are applied against the State corporation franchise tax. There
can be no assurance that these programs will be successful.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1995-96 fiscal year (the "1995-96 State Financial Plan")
was formulated on June 20, 1995 and is based on the State's budget as enacted
by the Legislature and signed into law by the Governor. The State Financial
Plan is updated quarterly pursuant to law in July, October and January.
The 1995-96 budget is the first to be enacted in the administration of
Governor George Pataki, who assumed office on January 1, 1995. It is the first
budget in over half a century which proposed and, as enacted, projects an
absolute year-over-year decline in General Fund disbursements. Spending for
State operations is projected to drop even more sharply, by 4.6 percent.
Nominal spending from all State funding sources (i.e., excluding Federal aid)
is proposed to increase by only 2.5 percent from the prior fiscal year, in
contrast to the prior decade when such spending growth averaged more than 6.0
percent annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the 1995-96 State Financial Plan, based on then-current law
governing spending and revenues, would be out of balance by almost $4.7
billion, as a result of the projected structural deficit resulting from the
ongoing disparity between sluggish growth in receipts, the effect of prior-year
tax changes, and the rapid acceleration of spending growth; the impact of
unfunded 1994-95 initiatives, primarily for local aid programs; and the use of
one-time solutions, primarily surplus funds from the prior year, to fund
recurring spending in the 1994-95 budget. The Governor proposed additional tax
cuts to spur economic growth and provide relief for low and middle-income tax
payers, which were larger than those ultimately adopted, and which added $240
million to the then projected imbalance or budget gap, bringing the total to
approximately $5 billion.
The 1995-96 State Financial Plan contemplates closing this gap based on
the enacted budget, through a series of actions, mainly spending reductions and
cost containment measures and certain reestimates that are expected to be
recurring, but also through the use of one-time solutions. The 1995-96 State
Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, SUNY and CUNY, mental hygiene programs,
capital projects, the prison system and fringe benefits; (iii) $300 million in
savings from local assistance reforms, including actions affecting school aid
and revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in
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revenue measures, primarily a new Quick Draw Lottery game, changes to tax
payment schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
The following discussion summarizes the State Financial Plan for the
1995-96 fiscal year and recent fiscal years with particular emphasis on the
State's General Fund. Pursuant to statute, the State updates the financial
plan at least on a quarterly basis. Due to changing economic conditions and
information, public statements or reports may be released by the Governor,
members of the Legislature, and their respective staffs, as well as others
involved in the budget process from time to time. Those statements or reports
may contain predictions, projections or other items of information relating to
the State's financial condition, including potential operating results for the
current fiscal year and projected baseline gaps for future fiscal years, that
may vary materially and adversely from the information provided herein.
The General Fund is the general operating fund of the State and is used
to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular
purposes. In the State's 1995-96 fiscal year, the General Fund is expected by
the State to account for approximately 49 percent of total governmental-fund
receipts and 71 percent of total governmental-fund disbursements. General Fund
moneys are also transferred to other funds, primarily to support certain
capital projects and debt service payments in other fund types.
The General Fund is projected to be balanced on a cash basis for the
1995-96 fiscal year. Total receipts are projected to be $33.110 billion, an
increase of $48 million over total receipts in the prior fiscal year. Total
General Fund disbursements are projected to be $33.055 billion, an increase of
$344 million over the total amount disbursed and transferred in the prior
fiscal year.
In addition to the General Fund, the State Financial Plan includes
Special Revenue Funds, Capital Projects Funds and Debt Service Funds which are
discussed below.
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as Federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes.
Although activity in this fund type is expected to comprise more than 40
percent of total government funds receipts and disbursements in the 1995-96
fiscal year, about three-quarters of that activity relates to Federally-funded
programs.
Projected receipts in this fund type total $25.547 billion, an increase
of $1.316 billion over the prior year. Projected disbursements in this fund
type total $26.002 billion, an increase of $1.641 billion over 1994-95 levels.
Disbursements from Federal funds, primarily the Federal share of Medicaid and
other social services programs, are projected to total $19.209 billion in the
1995-96 fiscal year. Remaining projected spending of $6.793 billion primarily
reflects aid to SUNY supported by tuition and dormitory fees, education aid
funded from lottery receipts, operating aid payments to the Metropolitan
Transportation Authority (the "MTA") funded from the proceeds of dedicated
transportation taxes, and costs of a variety of self-supporting programs which
deliver services financed by user fees.
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Capital Projects Funds are used to account for the financial resources
used for the acquisition, construction, or rehabilitation of major State
capital facilities and for capital assistance grants to certain local
governments or public authorities. This fund type consists of the Capital
Projects Fund, which is supported by tax dollars transferred from the General
Fund, and 37 other capital funds established to distinguish specific capital
construction purposes supported by other revenues. In the 1995-96 fiscal year,
activity in these funds is expected to comprise 7 percent of total governmental
receipts and disbursements.
Disbursements from this fund type are projected to increase by $541
million over prior-year levels, primarily reflecting higher spending for
transportation and mental hygiene projects. The Dedicated Highway and Bridge
Trust Fund is projected to comprise 23 percent of the activity in this fund
type--$936 million in 1995-96--and is the single largest dedicated fund.
Projected disbursements from this dedicated fund reflect an increase of $80
million over 1994-95 levels. Spending for capital projects will be financed
through a combination of sources: Federal grants (25 percent), public
authority bond proceeds (38 percent), general obligation bond proceeds (9
percent), and current revenues (28 percent). Total receipts in this fund type
are projected at $4.170 billion, not including $364 million expected to be
available from the proceeds of general obligation bonds.
Debt Service Funds are used to account for the payment of principal of,
and interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements. This
fund is expected to comprise 4 percent of total governmental fund receipts and
disbursements in the 1995-96 fiscal year. Receipts in these funds in excess of
debt service requirements are transferred to the General Fund and Special
Revenue Funds, pursuant to law.
The Debt Service Fund type consists of the General Debt Service Fund,
which is supported primarily by tax dollars transferred from the General Fund,
and seven other funds. In the 1995-96 fiscal year, total disbursements in this
fund type are projected at $2.506 billion, an increase of $303 million or 13.8
percent. The transfer from the General Fund of $1.583 billion is expected to
finance 63 percent of these payments.
The State contemplates financing the remaining payments by pledged
revenues, including $1.794 billion in taxes, $228 million in dedicated fees,
and $2.200 billion in patient revenues, including transfers of Federal
reimbursements. After impoundment for debt service, as required, $3.481
billion is expected to be transferred to the General Fund and other funds in
support of State operations. The largest transfer--$1.761 billion--is made to
the Special Revenue Fund type, in support of operations of the mental hygiene
agencies. Another $1.341 billion in excess sales taxes is expected to be
transferred to the General Fund, following payment of projected debt service on
bonds of LGAC.
The State Financial Plan is based upon forecasts of national and State
economic activity. Economic' forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, Federal
financial and monetary policies, the availability of credit, and the condition
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of the world economy, which could have an adverse effect on the State. There
can be no assurance that the State economy will not experience results in the
1995-96 fiscal year that are worse than predicted, with corresponding material
and adverse effects on the State's projections of receipts and disbursements.
New York State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of
TRANs. First, the national recession, and then the lingering economic slowdown
in the New York and regional economy, resulted in repeated shortfalls in
receipts and three budget deficits. For its 1992-93, 1993-94 and 1994-95
fiscal years, the State recorded balanced budgets on a cash basis, with
substantial fund balances in 1992-93 and 1993-94, and a smaller fund balance in
1994-95 as described below.
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve Fund
("CRF"). The CRF was established in State fiscal year 1993-94, funded partly
with surplus moneys, to assist the State in financing the 1994-95 fiscal year
costs of extraordinary litigation known or anticipated at that time; the
opening fund balance in State fiscal year 1994-95 was $265 million. The $241
million change in the fund balance reflects the use of $264 million in the CRF
as planned, as well as the required deposit of $23 million to the Tax
Stabilization Reserve Fund. In addition, $278 million was on deposit in the
tax refund reserve account, $250 million of which was deposited at the end of
the State's 1994-95 fiscal year to continue the process of restructuring the
State's cash flow as part of the LGAC program.
Compared to the State Financial Plan for 1994-95 as formulated on June
16, 1994, reported receipts fell short of original projections by $1.163
billion, primarily in the categories of personal income and business taxes. Of
this amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of
potential Federal tax changes. Business taxes fell short by $373 million,
primarily reflecting lower payments from banks as substantial overpayments of
1993 liability depressed net collections in the 1994-95 fiscal year. These
shortfalls were offset by better performance in the remaining taxes,
particularly the user taxes and fees, which exceeded projections by $210
million. Of this amount, $227 million was attributable to certain restatements
for accounting treatment purposes pertaining to the CRF and LGAC; these
restatements had no impact on balance in the General Fund.
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to the
CRF and LGAC which raised disbursements by $38 million, the variance is $886
million. Well over two-thirds of this variance is in the category of grants to
local governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other
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programs. Lower education costs are attributable to the availability of $110
million in additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap in
the 1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects. These actions, together with $71 million in
other measures comprised the Governor's $259 million gap-closing plan,
submitted to the Legislature in connection with the 1995-96 Executive Budget.
The State ended its 1993-94 fiscal year with a balance of $1.140 billion
in its tax refund reserve account, $265 million in its CRF and $134 million in
its Tax Stabilization Reserve Fund. These fund balances were primarily the
result of an improving national economy, State employment growth, tax
collections that exceeded earlier projections and disbursements that were below
expectations. Deposits to the personal income tax refund reserve have the
effect of reducing reported personal income tax receipts in the fiscal year
when made and withdrawals from such reserve increase receipts in the fiscal
year when made. The balance in the tax refund reserve account will be used to
pay taxpayer refunds, rather than drawing from 1994-95 receipts.
Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-95
fiscal year. The remaining $114 million was redeposited in the tax refund
reserve account at the end of the State's 1994-95 fiscal year to continue the
process of restructuring the State's cash flow as part of the LGAC program.
The balance in the CRF will be used to meet the cost of litigation facing the
State. The Tax Stabilization Reserve Fund may be used only in the event of an
unanticipated General Fund cash-basis deficit during the 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in the 1993-94 fiscal year exceeded those originally
projected when the State Financial Plan for that year was formulated on April
16, 1993 by $1.002 billion. Greater-than-expected receipts in the personal
income tax, the bank tax, the corporation franchise tax and the estate tax
accounted for most of this variance, and more than offset weaker-than-projected
collections from the sales and use tax and miscellaneous receipts. Collections
from individual taxes were affected by various factors including changes in
Federal business laws, sustained profitability of banks, strong performance of
securities firms, and higher-than-expected consumption of tobacco products
following price cuts.
The higher receipts resulted, in part, because the State economy
performed better than forecasted. Employment growth started in the first
quarter of the State's 1993-94 fiscal year, and, although this lagged behind
the national economic recovery, the growth in New York began earlier than
forecasted. The State economy exhibited signs of strength in the service
sector, in construction, and in trade. Long Island and the Mid-Hudson Valley
continued to lag behind the rest of the State in economic growth. The State
Division of the Budget (the "DOB") believes that approximately 100,000 jobs
were added during the 1993-94 fiscal year.
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Disbursements and transfers from the General Fund were $303 million
below the level that was projected in April 1993, an amount that would have
been $423 million had the State not accelerated the payment of Medicaid
billings, which in the April 1993 State Financial Plan were planned to be
deferred into the 1994-95 fiscal year. Compared to the estimates included in
the State Financial Plan formulated in April 1993, lower disbursements resulted
from lower spending for Medicaid, capital projects, and debt service (due to
refundings) and $114 million used to restructure the State's cash flow as part
of the LGAC program. Disbursements were higher-than-expected for general
support for public schools, the State share of income maintenance, overtime for
prison guards, and highway snow and ice removal. The State also made the first
of six required payments to the State of Delaware related to the settlement of
Delaware's litigation against the State regarding the disposition of abandoned
property receipts.
During the 1993-94 fiscal year, the State also established and funded
the CRF as a way to assist the State in financing the cost of litigation
affecting the State. The CRF was initially funded with a transfer of $100
million attributable to the positive margin recorded in the 1992-93 fiscal
year. In addition, the State augmented this initial deposit with $132 million
in debt service savings attributable to the refinancing of State and public
authority bonds during 1993-94. A year-end transfer of $36 million was also
made to the CRF, which, after a disbursement for authorized fund purposes,
brought the CRF balance at the end of 1993-94 to $265 million. This amount was
$165 million higher than the amount originally targeted for this reserve fund.
The State ended its 1992-93 fiscal year with a balance of $671 million
in the tax refund reserve account and $67 million in the Tax Stabilization
Reserve Fund.
The State's 1992-93 fiscal year was characterized by performance that
was better than projected for the national and regional economies. National
gross domestic product, State personal income, and State employment and
unemployment performed better than originally projected in April 1992. This
favorable economic performance, particularly at year end, combined with a
tax-induced acceleration of income into 1992, was the primary cause of the
General Fund surplus. Personal income tax collections were more than $700
million higher than originally projected (before reflecting the tax refund
reserve account transaction), primarily in the withholding and estimated
payment components of the tax.
There were large, but mainly offsetting, variances in other categories
of receipts. Significantly higher-than-projected business tax collections and
the receipt of unbudgeted payments from the Medical Malpractice Insurance
Association ("MMIA") and the New York Racing Association approximately offset
the loss of an anticipated $200-million Federal reimbursement, the loss of
certain budgeted hospital differential revenue as a result of unfavorable court
decisions, and shortfalls in certain miscellaneous revenues.
Disbursements and transfers to other funds were $45 million above
projections made in April 1992, although this includes a $150 million payment
to health insurers (financed with a receipt from the MMIA made pursuant to
legislation passed in January 1993). All other disbursements were $105 million
lower than projected. This reduction primarily reflected
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lower costs in virtually all categories of spending, including Medicaid, local
health programs, agency operations, fringe benefits, capital projects and debt
service as partially offset by higher-than-anticipated costs for education
programs.
The financial condition of the State is affected by several factors,
including the strength of the State and regional economy and actions of the
Federal government, as well as State actions affecting the level of receipts
and disbursements. Owing to these and other factors, the State may, in future
years, face substantial potential budget gaps resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the future costs of maintaining State programs at current levels. Any such
recurring imbalance would be exacerbated if the State were to use a significant
amount of nonrecurring resources to balance the budget in a particular fiscal
year. To address a potential imbalance for a given fiscal year, the State
would be required to take actions to increase receipts and/or reduce
disbursements as it enacts the budget for that year, and under the State
Constitution the Governor is required to propose a balanced budget each year.
To correct recurring budgetary imbalances, the State would need to take
significant actions to align recurring receipts and disbursements in future
fiscal years. There can be no assurance, however, that the State's actions
will be sufficient to preserve budgetary balance in a given fiscal year or to
align recurring receipts and disbursements in future fiscal years.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation authorized LGAC to issue its bonds and notes in an amount not in
excess of $4.7 billion (exclusive of certain refunding bonds) plus certain
other amounts. Over a period of years, the issuance of these long-term
obligations, which are to be amortized over no more than 30 years, was expected
to eliminate the need for continued short-term seasonal borrowing. The
legislation also dedicated revenues equal to one-quarter of the four cent State
sales and use tax to pay debt service on these bonds. The legislation also
imposed a cap on the annual seasonal borrowing of the State at $4.7 billion,
less net proceeds of bonds issued by LGAC and bonds issued to provide for
capitalized interest, except in cases where the Governor and the legislative
leaders have certified the need for additional borrowing and provided a
schedule for reducing it to the cap. If borrowing above the cap is thus
permitted in any fiscal year, it is required by law to be reduced to the cap by
the fourth fiscal year after the limit was first exceeded. This provision
capping the seasonal borrowing was included as a covenant with LGAC's
bondholders in the resolution authorizing such bonds.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds
of $4.7 billion completing the program. The impact of LGAC's borrowing is that
the State is able to meet its cash flow needs in the first quarter of the
fiscal year without relying on short-term seasonal borrowings. The 1995-96
State Financial Plan includes no spring borrowing nor did the 1994-95 State
Financial Plan, which was the first time in 35 years there was no short-term
seasonal borrowing.
On January 13, 1992, S&P lowered its rating on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease
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purchase, guaranteed and contractual obligation debt. S&P also continued its
negative rating outlook assessment on State general obligation debt. On April
26, 1993 S&P revised the rating outlook assessment to stable. On February 14,
1994, S&P revised its outlook to positive and, on March 1, 1995 and July 13,
1995, confirmed its A- rating. On January 6, 1992, Moody's reduced its ratings
on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On March 1, 1995, Moody's reconfirmed its A rating
on the State's general obligation long-term indebtedness.
On June 6, 1990, Moody's changed its ratings on all of the State's
outstanding general obligation bonds from A1 to A, the rating having been A1
since May 27, 1986. On November 12, 1990, Moody's confirmed the A rating. On
March 26, 1990, S&P lowered its rating of all of the State's outstanding
general obligation bonds from AA- to A. Previous S&P ratings were AA- from
August, 1987 to March, 1990 and A+ from November, 1982 to August, 1987.
Authorities. The fiscal stability of the State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially
adversely affected, if any of its public authorities were to default on their
respective obligations. As of September 30, 1994, the date of the latest data
available, there were 18 Authorities that had outstanding debt of $100 million
or more, and the aggregate outstanding debt, including refunding bonds, of
these 18 Authorities was $70.3 billion. As of March 31, 1995, aggregate
Authority debt outstanding as State-supported debt was $27.9 billion and as
State-related debt was $36.1 billion.
There are numerous public authorities, with various responsibilities,
including those which finance, construct and/or operate revenue producing
public facilities. Public authority operating expenses and debt service costs
are generally paid by revenues generated by the projects financed or operated,
such as tolls charged for the use of highways, bridges or tunnels, rentals
charged for housing units, and charges for occupancy at medical care
facilities.
In addition, State legislation authorizes several financing techniques
for public authorities. Also, there are statutory arrangements providing for
State local assistance payments otherwise payable to localities to be made
under certain circumstances to public authorities. Although the State has no
obligation to provide additional assistance to localities whose local
assistance payments have been paid to public authorities under these
arrangements if local assistance payments are so diverted, the affected
localities could seek additional State assistance.
Some authorities also receive monies from State appropriations to pay
for the operating costs of certain of their programs. As described below, the
MTA receives the bulk of this money in order to carry out mass transit and
commuter services.
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The State's experience has been that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency, the New York State Urban Development Corporation
and certain other Authorities have in the past required and continue to require
substantial amounts of assistance from the State to meet debt service costs or
to pay operating expenses. Further assistance, possibly in increasing amounts,
may be required for these, or other, Authorities in the future. In addition,
certain other statutory arrangements provide for State local assistance
payments otherwise payable to localities to be made under certain circumstances
to certain Authorities. The State has no obligation to provide additional
assistance to localities whose local assistance payments have been paid to
Authorities under these arrangements. However, in the event that such local
assistance payments are so diverted, the affected localities could seek
additional State funds.
Metropolitan Transportation Authority . The MTA oversees the operation
of the City's subway and bus lines by its affiliates, the New York City Transit
Authority and the Manhattan and Bronx Surface Transit Operating Authority
(collectively, the "TA"). The MTA operates certain commuter rail and bus lines
in the New York Metropolitan area through MTA's subsidiaries, the Long Island
Rail Road Company, the Metro-North Commuter Railroad Company and the
Metropolitan Suburban Bus Authority. In addition, the Staten Island Rapid
Transit Operating Authority, an MTA subsidiary, operates a rapid transit line
on Staten Island. Through its affiliated agency, the Triborough Bridge and
Tunnel Authority (the "TBTA"), the MTA operates certain intrastate toll bridges
and tunnels. Because fare revenues are not sufficient to finance the mass
transit portion of these operations, the MTA has depended, and will continue to
depend for operating support upon a system of State, local government and TBTA
support, and, to the extent available, Federal operating assistance, including
loans, grants and operating subsidies. If current revenue projections are not
realized and/or operating expenses exceed current projections, the TA or
commuter railroads may be required to seek additional State assistance, raise
fares or take other actions.
Over the past several years the State has enacted several taxes --
including a surcharge on the profits of banks, insurance corporations and
general business corporations doing business in the 12-county Metropolitan
Transportation Region served by the MTA and a special one-quarter of 1 percent
regional sales and use tax -- that provide revenues for mass transit purposes,
including assistance to the MTA. In addition, since 1987, State law has
required that the proceeds of a one quarter of 1% mortgage recording tax paid
on certain mortgages in the Metropolitan transportation Region be deposited in
a special MTA fund for operating or capital expenses. Further, in 1993 the
State dedicated a portion of the State petroleum business tax to fund operating
or capital assistance to the MTA. For the 1995-96 fiscal year, total State
assistance to the MTA is estimated by the State to be approximately $1.1
billion.
In 1993, State legislation authorized the funding of a five-year $9.56
billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96
Capital Program based on this legislation from the 1992-96 Capital Program
Review Board, as State law requires. This is the third
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five-year plan since the Legislature authorized procedures for the adoption,
approval and amendment of a five-year plan in 1981 for a capital program
designed to upgrade the performance of the MTA's transportation systems and to
supplement, replace and rehabilitate facilities and equipment. The MTA, the
TBTA and the TA are collectively authorized to issue an aggregate of $3.1
billion of bonds (net certain statutory exclusions) to finance a portion of the
1992-96 Capital Program. The 1992-96 Capital Program may be financed in
significant part through dedication of State petroleum business taxes referred
to above. However, in December 1994 the proposed bond resolution based on such
tax receipts was not approved by the MTA Capital Program Review Board. Further
consideration of the resolution was deferred until 1995.
There can be no assurance that all the necessary governmental actions
for the 1992-96 Capital Program will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1992-96 Capital
Program, or parts thereof, will not be delayed or reduced. If the 1992-96
Capital Program is delayed or reduced, ridership and fare revenues may decline,
which could, among other things, impair the MTA's ability to meet its operating
expenses without additional State assistance.
Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the 1995-96 fiscal years and thereafter. The potential impact on the State of
such actions by localities is not included in the projections of the State
receipts and disbursements for the 1995-96 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken
by the Governor or the Legislature to assist Yonkers could result in allocation
of State resources in amounts that cannot yet be determined.
Municipal Indebtedness. Municipalities and school districts have engaged
in substantial short-term and long-term borrowings. In 1993, the total
indebtedness of all localities in the State was approximately $17.7 billion. A
small portion (approximately $105 million) of that indebtedness represented
borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than the City authorized by State law to issue debt to finance deficits during
the period that such deficit financing is outstanding. Fifteen localities had
outstanding indebtedness for deficit financing at the close of their fiscal
year ending in 1993.
From time to time, proposed Federal expenditure reductions could reduce,
or in some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities. If the State, the City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic
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trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
certain localities and require increasing State assistance in the future.
Litigation. Certain litigation pending against the State or its officers
or employees could have a substantial or long-term adverse effect on State
finances. Among the more significant of these cases are those that involve:
(i) the validity of agreements and treaties by which various Indian tribes
transferred title to the State of certain land in central and upstate New York;
(ii) a challenge to State regulations which reduce base prices for the direct
and indirect component of Medicaid reimbursement for rate years commencing
1989; (iii) an action against State and City officials alleging that the
present level of shelter allowance for public assistance recipients is
inadequate under statutory standards to maintain proper housing; (iv)
challenges to the practice of reimbursing certain Office of Mental Health
patient care expenses from the client's Social Security benefits; (v) alleged
responsibility of State officials to assist in remedying racial segregation in
the City of Yonkers; (vi) alleged responsibility of the State Department of
Environmental Conservation for a plaintiff's inability to complete construction
of a cogeneration facility in a timely fashion and the damages suffered
thereby; (vii) a challenge to the constitutionality of petroleum business tax
assessments authorized by Tax Law Section 301; (viii) challenges by commercial
insurers, employee welfare benefit plans, and health maintenance organizations
to provisions of Section 2807-c of the Public Health Law which impose 13%, 11%,
and 9% surcharges on inpatient hospital bills and a bad debt and charity care
allowance on all hospital bills paid by such entities; (ix) challenges to the
promulgation of the State's proposed procedure to determine the eligibility for
and nature of home care services for Medicaid recipients, and (x) a challenge
to State implementation of a program which reduces Medicaid benefits to certain
home-relief recipients.
Adverse developments in the proceedings described above or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced 1995-96 State Financial Plan. In its Notes to its General Purpose
Financial Statements for the fiscal year ended March 31, 1994, the State
reports its estimated liability for awards and anticipated unfavorable
judgments at $675 million. There can be no assurance that an adverse decision
in any of the above cited proceedings would not exceed the amount of the
1995-96 State Financial Plan reserves for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced 1995-96
State Financial Plan.
NEW YORK CITY
The fiscal health of the State may also be impacted by the fiscal health
of its localities, particularly the City, which has required and continues to
require significant financial assistance from the State. The City's
independently audited operating results for each of its fiscal years from 1981
through 1993, which end on June 30, show a General Fund surplus reported in
accordance with generally accepted accounting principles ("GAAP"). In
addition, the City's financial statements for the 1993 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City has received such an opinion.
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In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among these actions, the
State established MAC to provide financing assistance to the City. The State
also enacted the New York State Financial Emergency Act for The City of New
York (the "Financial Emergency Act") which, among other things, established the
New York State Financial Control Board (the "Control Board") to oversee the
City's financial affairs. The State also established the Office of the State
Deputy Comptroller for the City of New York ("OSDC") to assist the Control
Board in exercising its powers and responsibilities; and a "Control Period"
from 1975 to 1986 during which the City was subject to certain
statutorily-prescribed fiscal-monitoring arrangements. Although the Control
Board terminated the Control Period in 1986 when certain statutory conditions
were met, thus suspending certain Control Board powers, the Control Board, MAC
and OSDC continue to exercise various fiscal-monitoring functions over the
City, and upon the occurrence or "substantial likelihood and imminence" of the
occurrence of certain events, including, but not limited to a City operating
budget deficit of more than $100 million, the Control Board is required by law
to reimpose a Control Period. Currently, the City and its Covered
Organizations (i.e., those which receive or may receive money from the City
directly, indirectly or contingently) operate under a four-year financial plan
which the City prepares annually and periodically updates.
The City submitted to the Control Board on July 21, 1995 a fourth
quarter modification to the City's financial plan for the 1995 fiscal year (the
"1995 Modification"), which projects a balanced budget in accordance with GAAP
for the 1995 fiscal year, after taking into account a discretionary transfer of
$75 million. On July 11, 1995, the City submitted to the Control Board the
financial plan for the 1996 through 1999 fiscal years (the "1996-1999 Financial
Plan"), which relates to the City, the Board of Education (the "BOE") and the
CUNY. The 1996-1999 Financial Plan is based on the City's expense and capital
budgets for the City's 1996 fiscal year, which were adopted on June 14, 1995,
and sets forth proposed actions by the City for the 1996 fiscal year to close
substantial projected budget gaps resulting from lower than projected tax
receipts and other revenues and greater than projected expenditures. In
addition to substantial proposed agency expenditure reductions and
productivity, efficiency and labor initiatives negotiated with the City's labor
unions, the 1996-1999 Financial Plan reflects a strategy to substantially
reduce spending for entitlements for the 1996 and subsequent fiscal years.
Although the City has balanced its budget since 1981, estimates of the
City's revenues and expenditures, which are based on numerous assumptions, are
subject to various uncertainties. If, for example, expected Federal or State
aid is not forthcoming, if unforeseen developments in the economy significantly
reduce revenues derived from economically sensitive taxes or necessitate
increased expenditures for public assistance, if the City should negotiate wage
increases for its employees greater than the amounts provided for in the City's
financial plan or if other uncertainties materialize that reduce expected
revenues or increase projected expenditures, then, to avoid operating deficits,
the City may be required to implement additional actions, including increases
in taxes and reductions in essential City services. The City might also seek
additional assistance from the State.
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The 1996-1999 Financial Plan projects revenues and expenditures for the
1996 fiscal year balanced in accordance with GAAP. The projections for the
1996 fiscal year reflect proposed actions to close a previously projected gap
of approximately $3.1 billion for the 1996 fiscal year. The proposed actions
in the 1996-1999 Financial Plan for the 1996 fiscal year include (i) a
reduction in spending of $400 million, primarily affecting public assistance
and Medicaid payments by the City; (ii) expenditure reductions in agencies,
totaling $1.2 billion; (iii) traditional labor savings, totaling $600 million;
and (iv) the phase-in of the increased annual pension funding cost due to
revisions resulting from an actuarial audit of the city pension systems, which
would reduce such costs in the 1996 fiscal year. Other proposed actions
include (i) welfare savings of $100 million from increased fraud detection;
(ii) $170 million of additional expenditure reductions in agencies and the New
York City Health and Hospitals Corporation ("HHC"); (iii) a delay in the
proposed reduction in the commercial rent tax, which would increase projected
revenues by $62 million in the 1996 fiscal year; (iv) an increase of $75
million in projected tax collections for the 1996 fiscal year; (v) $50 million
of proposed additional State aid not included in the adopted State budget and
$75 million of proposed additional federal aid; (vi) certain revenue
initiatives, including the proposed sale of delinquent tax liens and the U.N.
Plaza for $104 million; and (vii) savings from the proposed refunding of
outstanding debt, totaling $50 million.
The proposed agency spending reductions include the reduction of City
personnel through attrition, government efficiency initiatives, procurement
initiatives and labor productivity initiatives. The substantial agency
expenditure reductions proposed in the 1996-1999 Financial Plan may be
difficult to implement, and the Financial Plan is subject to the ability of the
City to implement proposed reductions in City personnel and other cost
reduction initiatives. In addition, certain initiatives are subject to
negotiation with the City's municipal unions, and various actions, including
proposed anticipated State aid totalling $50 million are subject to approval by
the Governor and the Legislature.
The 1996-1999 Financial Plan also sets forth projections for the 1997
through 1999 fiscal years and outlines a proposed gap-closing program to
eliminate projected gaps of $888 million, $1.5 billion and $1.4 billion for the
1997, 1998 and 1999 fiscal years, respectively, assuming successful
implementation of the $3.1 billion gap-closing program for the 1996 fiscal
year.
The projections for the 1996 through 1999 fiscal years assume (i)
agreement with the City's unions with respect to approximately $100 million of
savings to be derived from efficiencies in management of employee health
insurance programs and other health benefit related savings for each of the
1996 through 1999 fiscal years to be negotiated with the City's unions; (ii)
$200 million of additional anticipated State aid and $75 million of additional
anticipated Federal aid in each of the 1997 through 1999 fiscal years; (iii)
that HHC and BOE will each be able to identify actions to offset substantial
revenue shortfalls reflected in the Financial Plan, including approximately
$254 million annual reduction in revenues for HHC, which results from the
reduction in Medicaid payments proposed by the State and the City, without any
increase in City subsidy payments to HHC; (iv) the continuation of the current
assumption of no wage increases after fiscal year 1995 for City employees
unless offset by productivity increases; (v) $130 million of additional revenue
as a result of increased rent
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payments for the City's airports proposed by the City, which is subject to
further discussion with the Port Authority; and (vi) savings of $45 million in
each of the 1997 through 1999 fiscal years which would result from the
Legislature's enactment of proposed tort reform legislation. In addition, the
1996-1999 Financial Plan anticipates the receipt of substantial amounts of
Federal aid. Certain Federal legislative proposals contemplate significant
reductions in Federal spending, including proposed Federal welfare reform,
which could result in caps on , or block grants of, Federal programs.
The proposed gap-closing actions, a substantial number of which are not
specified in detail, include additional agency expenditure reductions,
primarily resulting from a partial hiring freeze, totalling between $388
million and $684 million in each of the 1997 through 1999 fiscal years;
reductions in expenditures resulting from proposed procurement initiatives
totalling between $50 million and $100 in each of the 1997 through 1999 fiscal
years; revenue initiatives totalling between $100 million and $200 million in
each of the 1997 through 1999 fiscal years; the availability in each of the
1997, 1998 and 1999 fiscal years of $100 million of the general reserve
appropriated in the prior year; and additional reduced expenditures resulting
from further revision in entitlement programs to reduce City expenditures by
$250 million, $400 million and $400 million in the 1997, 1998 and 1999 fiscal
years, respectively, which may be subject to State or Federal approval.
From time to time, the Control Board staff, MAC, OSDC, the City
Comptroller and others issue reports and make public statements regarding the
City's financial condition, commenting on, among other matters, the City's
financial plans, projected revenues and expenditures and actions by the City to
eliminate projected operating deficits. Some of these reports and statements
have warned that the City may have underestimated certain expenditures and
overestimated certain revenues and have suggested that the City may not have
adequately provided for future contingencies. Certain of these reports have
analyzed the City's future economic and social conditions and have questioned
whether the City has the capacity to generate sufficient revenues in the future
to meet the costs of its expenditure increases and to provide necessary
services. It is reasonable to expect that reports and statements will continue
to be issued and to engender public comment.
In July 1995, the City Comptroller issued a report on the 1996-1999
Financial Plan. The report concluded that the 1996-1999 Financial Plan
includes total risks of $749 million to $1.034 billion for the 1996 fiscal
year. These risks include (i) possible tax revenue shortfalls of $53 million;
(ii) a possible $20 million to $60 million shortfall in savings resulting from
unspecified improvements in the City's health benefits system; (iii) a
potential shortfall of up to $40 million in projected savings from an early
retirement program; (iv) the receipt of $125 million of unspecified additional
Federal and State assistance; (v) up to $203 million of projected savings from
the public assistance eligibility review and electronic signature program for
public assistance recipients; (vi) $93 million of greater than projected
expenditures for overtime; (vii) $284 million of greater than projected
expenditures and lower than projected revenues at BOE; and (viii) the receipt
of $130 million of lease payments from the Port Authority. Other potential
uncertainties identified in the report include the projected $253.6 million
deficit for HHC, $160 million of the $600 million in labor savings for the
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1996 fiscal year which are yet to be identified, and the impact on the City of
a possible reduction in Federal entitlement programs.
With respect to the 1997 through 1999 fiscal years, the report noted
that the gap-closing program in the 1996-1999 Financial Plan does not include
information about how the City will implement the various gap-closing programs,
and that the entitlement cost containment and revenue initiatives will require
approval of the State legislature. Taking into account the same categories of
risks for the 1997 through 1999 fiscal years as the report identified for the
1996 fiscal year and the uncertainty concerning the gap-closing program, the
report estimated that the 1996-1999 Financial Plan includes total risk of $2.0
billion to $2.5 billion in the 1997 fiscal year, $2.8 billion to $3.3 billion
in the 1998 fiscal year and $2.9 billion to $3.4 billion in the 1999 fiscal
year. The report further noted that the City Comptroller continues to oppose
the proposed sale of the water system, primarily because of the unwillingness
of the City to guarantee that $1 billion from the $2.3 billion in proceeds of
the sale will be used only to fund capital and not operating expenses, and
concerns about the jurisdiction and composition of the Water Board once title
to the Water Board has been transferred.
In early December, 1994, the City Comptroller issued a report which
noted that the City is seeking to develop and implement plans which will
satisfy the Federal Environmental Protection Agency that the water supplied by
the City watershed areas does not need to be filtered. The City Comptroller
noted that, if the City is ordered to build filtration plants, they could cost
as much as $4.57 billion to construct, with annual debt service and operating
costs of more than $500 million, leading to a water rate increase of 45%.
On December 16, 1994, the City Comptroller issued a report noting that
the capacity of the City to issue general obligation debt could be greatly
reduced in future years due to the decline in value of taxable real property.
The report noted that, under the State constitution, the City is permitted to
issue debt in an amount not greater than 10% of the average full value of
taxable real estate for the current year and preceding four years, that the
latest estimates produced by the State Board of Equalization and Assessment
relating to the full value of real property, using data from a 1992 survey,
indicate a 19% decline in the market value of taxable real property from the
previous survey in 1990, and that the State Board has decided to use a
projected annual growth rate of 8.84%, as compared to its previous projection
of 14% for estimating full value after 1992. The report concludes that the
City will be within the projected legal debt incurring limit in the 1996 fiscal
year. However, the report concluded that, based on the most likely forecast of
full value of real property, the debt incurring power of the City would be
curtailed in the 1997 and 1998 fiscal years substantially. The City
Comptroller recommended, among other things, prioritization of capital projects
to determine which can be delayed or cancelled, and better maintenance of the
City's physical plant and infrastructure, which would result in less capital
spending for repair and replacement of capital structures.
On July 21, 1995, the staff on the Control Board issued a report on the
1996-1999 Financial Plan which identified risks of $873 million, $2.1 billion,
$2.8 billion and $2.8 billion for the 1996 through 1999 fiscal years,
respectively. With respect to the 1996 fiscal
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36
year, the principal risks included (i) possible shortfalls in projected tax
revenues totaling $50 million, (ii) the possibility that revenue actions and
expenditure reduction initiatives for BOE totaling $266 million might not be
successfully implemented, (iii) possible shortfalls totaling $172 million in
proposed welfare savings from increased fraud detection, and (iv) uncertainty
concerning the $50 million of proposed additional State aid and $75 million of
proposed additional Federal aid, the proposed receipt of $130 million of
increased rent payments for the City's airports and the $100 million of savings
to be derived from health benefit-related savings, which are subject to
negotiations with or approvals by other parties. Additional risks identified
for the 1997 through 1999 fiscal years include the possibility of additional
tax revenue shortfalls, uncertainty concerning the ability of the City to
implement the gap-closing actions for such years and uncertainty concerning the
projected receipt of additional anticipated State aid. Other areas of concern
identified in the report included the projected deficit at HHC of approximately
$400 million, reflecting the impact on HHC of the entitlement reductions
contained in the State budget and the City's reduction in the subsidy provided
to HHC, and the assumption in the Financial Plan that the City will realize the
full $400 million of projected savings in public assistance and Medicaid
payments enacted at the State level. The report noted that substantially more
information is needed concerning the proposed gap-closing actions for the
1997-1999 fiscal years.
On June 14, 1995, the staff of the OSDC issued a report with respect to
the 1995 fiscal year. The report noted that, during the 1995 fiscal year, the
City faced adverse financial developments totaling over $2 billion resulting
from the inability to initiate approximately 35% of the City's gap-closing
program, as well as newly-identified spending needs and revenue shortfalls
resulting from the adverse impact on the City's personal income, general
corporation and other tax revenues of the policy of the Federal Reserve of
increasing short-term interest rates and the related downturn in the bond
market and profits and bonus income on Wall Street. The report noted that the
City relied heavily on one-time actions of offset these adverse developments,
using $2 billion in one-time resources in the 1995 fiscal year, or nearly
double the 1994 amount.
On July 24, 1995, the staff of the OSDC issued a report on the 1996-1999
Financial Plan. The report concluded that there remains a budget gap for the
1996 fiscal year of $392 million, largely because the City and its unions have
yet to reach an agreement on how to achieve $160 million in unspecified labor
savings and the remaining $100 million in recurring health insurance savings
from last year's agreement. The report also identified a number of issues that
present a net potential risk of $409 million to the City's revenue and
expenditure forecasts for the 1996 fiscal year, including risks of (i) $160
million associated with anticipated increases in Federal and State assistance,
(ii) $130 million relating to projected Port Authority airport lease payments,
and (iii) $100 million with respect to unfunded BOE mandates. The report also
identified several other concerns regarding the 1996 fiscal year, including
concerns that (i) detailed programs have not yet been fully developed to meet
the $564 million and $400 million cost-reduction targets established for BOE
and HHC, respectively, (ii) State and City initiatives to reduce public
assistance and Medicaid costs, which are expected to reduce City costs by $745
million in the 1996 fiscal year, will require close monitoring to ensure that
financial targets are met; (iii) the City has not provided sufficient
assurances that the bond proceeds from its proposed sale of the water and sewer
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system would be used strictly for capital spending purposes; and (iv) the
1996-1999 Financial Plan makes no provision for wage increases in the
collective bargaining agreements between the City and its unions, which
generally will expire by October, 1995. The report further noted that growth
in City revenues is being constrained by the weak economy in the City, which is
likely to be compounded by the slowing national economy, and that there is a
likelihood of a national recession during the course of the 1996-1999 Financial
Plan. Moreover, the report noted that State and Federal budgets are undergoing
tumultuous changes, and that the potential for far-reaching reductions in
intergovernmental assistance is clearly on the horizon, with greater
uncertainty about the impact on City finances and services.
The City since 1981 has fully satisfied its seasonal financing needs in
the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. The City's current monthly cash flow forecast for the
1996 fiscal year shows a need of $2.4 billion of seasonal financing for the
1996 fiscal year, a portion of which will be met with the proceeds of notes.
Seasonal financing requirements for the 1995 fiscal year increased to $2.2
billion from $1.75 billion and $1.4 billion in the 1994 and 1993 fiscal years,
respectively. The delay in the adoption of the State's budget for its 1992
fiscal year required the City to issue $1.25 billion in short-term notes on May
7, 1991, and the delay in the adoption of the State's budget for its 1991
fiscal year required the City to issue $900 million in short-term notes on May
15, 1990. Seasonal financing requirements were $2.25 billion and $3.65 billion
in the 1992 and 1991 fiscal years, respectively.
The 1996-1999 Financial Plan is based on numerous assumptions, including
the condition of the City's and the region's economy and a modest employment
recovery and the concomitant receipt of economically sensitive tax revenues in
the amounts projected. The 1996-1999 Financial Plan is subject to various
other uncertainties and contingencies relating to, among other factors, the
extent, if any, to which wage increased for City employees exceed the annual
wage cost assumed for the 1996 through 1999 fiscal years; continuation of
interest earnings assumptions for pension fund assets and current assumptions
with respect to wages for City employees affecting the City's required pension
fund contributions; the willingness and ability of the State, in the context of
the State's current financial condition, to provide the aid contemplated by the
1996-1999 Financial Plan and to take various other actions to assist the City,
including the proposed entitlement spending reductions; the ability of HHC, BOE
and other such agencies to maintain balanced budgets; the willingness of the
Federal government to provide the amount of Federal aid contemplated in the
1996-1999 Financial Plan; adoption of the City's budgets by the City Council in
substantially the forms submitted by the Mayor; the ability of the City to
implement proposed reductions in City personnel and other cost reduction
initiatives, which may require in certain cases the cooperation of the City's
municipal unions, and the success with which the City controls expenditures;
savings for health care costs for City employees in the amounts projected in
the 1996-1999 Financial Plan; the impact on conditions in the real estate
market on real estate tax revenues; the City's ability to market its securities
successfully in the public credit markets; and unanticipated expenditures that
may be incurred as a result of the need to maintain the City's infrastructure.
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The projections and assumptions contained in the 1996-1999 Financial
Plan are subject to revision which may involve substantial change, and no
assurance can be given that these estimates and projections, which include
actions which the City expects will be taken but which are not within the
City's control, will be realized. Changes in major assumptions could
significantly affect the City's ability to balance its budget as required by
State law and to meet its annual cash flow and financing requirements. The
City's projections are subject to the City's ability to implement the necessary
service and personnel reduction programs successfully.
On March 1, 1994, proposed legislation enabling Staten Island to
separate from the City was submitted to the Legislature. Separation would take
effect upon approval of such enabling legislation. Based upon the advice of
the State Assembly's "home rule" counsel, the Speaker of the Assembly has
determined that the City must issue a "home rule message", which requires a
formal request of action by the Legislature by either (i) the Mayor and a
majority of the City Council or (ii) two-thirds of the City Council, before the
proposed legislation may be voted upon by the Assembly. In June 1994, a
proceeding was commenced by the members of the Assembly representing Staten
Island against the speaker and the Assembly "home rule" counsel challenging the
validity of their determination and seeking to have it rescinded. On January
17, 1995, the Supreme Court for Albany County dismissed the petition. If any
such enabling legislation were passed, it may be subject to legal challenge and
would require approval by the United States Department of Justice under the
Federal Voting Rights Act. It cannot be determined as of the date of this
Statement of Additional Information what the content of such proposed
legislation will be, whether it will be enacted into law by the Legislature,
and if so, what legal challenges might be commenced contesting the validity of
such legislation.
The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
alleged torts, alleged breaches of contracts and other violations of law and
condemnation proceedings. While the ultimate outcome and fiscal impact, if
any, on the proceedings and claims are not currently predictable, adverse
determinations in certain of them might have a material adverse effect upon the
City's ability to carry out the 1996-99 Financial Plan. The City is a party to
numerous lawsuits and is the subject of numerous claims and investigations.
The City has estimated that its potential future liability on account of
outstanding claims against it as of June 30, 1994 amounted to approximately
$2.6 billion. This estimate was made by categorizing the various claims and
applying a statistical model, based primarily on actual settlements by type of
claim during the preceding ten fiscal years, and by supplementing the estimated
liability with information supplied by the City's Corporation Counsel.
On July 10, 1995, Standard & Poor's revised downward its rating on City
general obligation bonds from A- to BBB+ and removed City bonds from
CreditWatch. Standard & Poor's stated that "structural budgetary balance
remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector". Other factors identified by Standard &
Poor's in lowering its rating on City bonds included a trend of using one-time
measures, including
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debt refinancings, to close projected budget gaps, dependence on unratified
labor savings to help balance the Financial Plan, optimistic projections of
additional federal and State aid or mandate relief, a history of cash flow
difficulties caused by State budget delays and continued high debt levels.
Fitch Investors Service, Inc. rates City general obligation bonds A-. Moody's
rating for City general obligation bonds is Baa1. There is no assurance that
such ratings will continue for any given period of time or that they will not
be revised downward or withdrawn entirely. Any such downward revision or
withdrawal could have an adverse effect on the market prices of the City's
general obligation bonds.
In 1975, Standard & Poor's suspended its A rating of City bonds. This
suspension remained in effect until March 1981, at which time the City received
an investment grade rating of BBB from Standard & Poor's. On July 2, 1985,
Standard & Poor's revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On July 10, 1995, Standard & Poor's revised its
rating of City bonds downward to BBB+, as discussed above. Moody's ratings of
City bonds were revised in November 1981 from B (in effect since 1977) to Ba1,
in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A and again
in February 1991 to Baa1. Since July 15, 1993, Fitch has rated City bonds A-.
On July 12, 1995, Fitch stated that the City's credit trend remains
"declining."
INVESTMENT RESTRICTIONS
Unless otherwise indicated, the investment restrictions described below
as well as those described under "Investment Limitations" in the Prospectus are
fundamental policies which may be changed only when permitted by law, if
applicable, and approved by the holders of a majority of the applicable Fund's
outstanding voting securities, which, as defined by the Investment Company Act
of 1940, as amended (the "1940 Act"), means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares. Except for the
investment restrictions set forth below and in the Prospectus and each Fund's
investment objectives as described in the Prospectus, the other policies and
percentage limitations referred to in this Statement of Additional Information
and the Prospectus are not fundamental policies of the Funds and may be changed
by the applicable Fund's Board of Directors without shareholder approval.
If a percentage restriction on investment or use of assets set forth
below is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.
No Fund will invest in securities of companies for the purpose of
exercising management or control.
CASH MANAGEMENT FUND. The Cash Management Fund may not:
(1) purchase any securities which would cause more than 25% of the
value of its total assets at the time of such purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no
<PAGE> 164
40
limitation with respect to investment in obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities, with respect to bank
obligations or with respect to repurchase agreements collateralized by any of
such obligations (the fundamental policy of the Fund to invest at least 25% of
its assets in bank obligations is described under "Investment Limitations" in
the Prospectus);
(2) own more than 10% of the outstanding voting stock or other
securities, or both, of any one issuer (other than securities of the U.S.
government or any agency or instrumentality thereof);
(3) purchase shares of other investment companies (except as part of
a merger, consolidation or reorganization or purchase of assets approved by the
Fund's shareholders), provided that the Fund may purchase shares of any
registered open-end investment company that determines its net asset value per
share based on the amortized cost-or penny-rounding method, if immediately
after any such purchase the Fund does not (a) own more than 3% of the
outstanding voting stock of any one investment company, (b) invest more than 5%
of the value of its total assets in any one investment company, or (c) invest
more than 10% of the value of its total assets in the aggregate in securities
of investment companies;
(4) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for the
clearance of transactions);
(5) sell securities short;
(6) purchase or sell commodities or commodity contracts, including
futures contracts;
(7) invest for the purposes of exercising control over management of
any company;
(8) make loans, except that the Fund may (a) purchase and hold debt
instruments (including bonds, debentures or other obligations and certificates
of deposit, banker's acceptances and fixed time deposits) in accordance with
its investment objectives and policies; and (b) enter into repurchase
agreements with respect to portfolio securities;
(9) underwrite the securities of other issuers, except to the extent
that the purchase of investments directly from the issuer thereof and later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(10) purchase real estate or real estate limited partnership interests
(other than money market securities secured by real estate or interests therein
or securities issued by companies that invest in real estate or interests
therein);
(11) invest directly in interests in oil, gas or other mineral
exploration development programs or mineral leases; or
(12) purchase warrants.
<PAGE> 165
41
With respect to the Cash Management Fund, for the purpose of applying
the above percentage restrictions and the percentage investment limitations set
forth in the Prospectus to receivables-backed obligations, both the special
purpose entity issuing the receivables-backed obligations and the issuer of the
underlying receivables will be considered an issuer.
NEW YORK MUNICIPAL BOND FUND. The New York Municipal Bond Fund may not:
(1) purchase any securities which would cause more than 25% of the
value of its total assets at the time of such purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to investment in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities or by any state, territory or
possession of the United States or any of their authorities, agencies,
instrumentalities or political subdivisions, or with respect to repurchase
agreements collateralized by any of such obligations;
(2) own more than 10% of the outstanding voting stock or other
securities, or both, of any one issuer (other than securities of the U.S.
government or any agency or instrumentality thereof), provided, however, that
up to 25% of the assets of the Fund may be invested without regard to this
limitation;
(3) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (except for purchasing or
selling futures contracts or from investing in securities or other instruments
backed by physical commodities);
(4) make loans, except that the Fund may (a) purchase and hold debt
instruments (including bonds, debentures or other obligations and certificates
of deposit, banker's acceptances and fixed time deposits) in accordance with
its investment objective and policies; and (b) enter into repurchase agreements
with respect to portfolio securities;
(5) underwrite the securities of other issuers, except to the extent
that the purchase of investments directly from the issuer thereof and later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(6) purchase real estate or real estate limited partnership interests
(other than securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests
therein);
(7) purchase more than 3% of the stock of another investment company,
or purchase stock of other investment companies equal to more than 5% of the
Fund's net assets in the case of any one other investment company and 10% of
such net assets in the case of all other investment companies in the aggregate.
This restriction shall not apply to investment company securities received or
acquired by the Fund pursuant to a merger or plan or reorganization. (The
return on such investments will be reduced by the operating expenses, including
investment advisory and administrative fees of such investment funds and will
be further reduced by the Fund's expenses, including management fees);
<PAGE> 166
42
(8) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for the
clearance of transactions, and except for initial and variation margin payments
in connection with purchases or sales of futures contracts);
(9) sell securities short (except for short positions in a futures
contract or forward contract);
(10) invest for the purposes of exercising control over management of
any company;
(11) invest directly in interests in oil, gas or other mineral
exploration development programs or mineral leases;
(12) purchase warrants;
(13) invest more than 15% of its net assets in securities which are
illiquid; or
(14) pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 20% of the value of its total assets, and then only to secure
borrowings permitted by the second investment restriction in the Prospectus.
Investment restrictions (1) through (6) described above and in the
Prospectus are fundamental policies of the New York Municipal Bond Fund.
Restrictions (7) through (14) are non-fundamental policies of the Fund.
NATIONAL INTERMEDIATE MUNICIPAL FUND, U.S. GOVERNMENT INCOME FUND, HIGH YIELD
BOND FUND, STRATEGIC BOND FUND AND TOTAL RETURN FUND. Each of the National
Intermediate Municipal Fund, U.S. Government Income Fund, High Yield Bond Fund,
Strategic Bond Fund and Total Return Fund may not:
(1) underwrite securities of other issuers, except to the extent that
the purchase of investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an
underwriting;
(2) purchase or sell real estate, although a Fund may purchase and sell
securities of companies which deal in real estate, may purchase and sell
marketable securities which are secured by interests in real estate and may
invest in mortgages and mortgage-backed securities;
(3) purchase or sell commodities or commodity contracts except that a
Fund may engage in hedging and derivative transactions to the extent permitted
by its investment policies as stated in the Prospectus and this Statement of
Additional Information;
(4) make loans, except that (a) a Fund may purchase and hold debt
securities in accordance with its investment objective(s) and policies, (b) a
Fund may enter into repurchase
<PAGE> 167
43
agreements with respect to portfolio securities, subject to applicable
limitations of its investment policies, (c) a Fund may lend portfolio
securities with a value not in excess of one-third of the value of its total
assets, provided that collateral arrangements with respect to options, forward
currency and futures transactions will not be deemed to involve loans of
securities, and (d) delays in the settlement of securities transactions will
not be considered loans;
(5) purchase the securities of other investment companies except as
permitted under the 1940 Act or in connection with a merger, consolidation,
acquisition or reorganization;
(6) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for the
clearance of transactions, and except for initial and variation margin payments
in connection with purchases or sales of futures contracts);
(7) sell securities short (except for short positions in a futures
contract or forward contract);
(8) purchase or retain any securities of an issuer if one or more
persons affiliated with a Fund owns beneficially more than 1/2 of 1% of the
outstanding securities of such issuer and such affiliated persons so owning 1/2
of 1% together own beneficially more than 5% of such securities;
(9) invest in oil, gas and other mineral leases, provided, however,
that this shall not prohibit a Fund from purchasing publicly traded securities
of companies engaging in whole or in part in such activities;
(10) purchase the securities of any issuer if by reason thereof the
value of its investment in all securities of that issuer will exceed 5% of the
value of its total assets;
(11) purchase securities of issuers which it is restricted from selling
to the public without registration under the 1933 Act if by reason thereof the
value of its aggregate investment in such classes of securities will exceed 10%
of its total assets, provided, however, that this limitation shall not apply to
Rule 144A securities;
(12) invest more than 5% of its total assets in securities of
unseasoned issuers (other than securities issued or guaranteed by U.S. federal
or state or foreign governments or agencies, instrumentalities or political
subdivisions thereof) which, including their predecessors, have been in
operation for less than three years;
(13) purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets; or
(14) invest in warrants (other than warrants acquired by a Fund as part
of a unit or attached to securities at the time of purchase) if, as a result,
the investments (valued at the
<PAGE> 168
44
lower of cost or market) would exceed 5% of the value of the Fund's net assets
or if, as a result, more than 2% of the Fund's net assets would be invested in
warrants that are not listed on AMEX or NYSE.
Investment restrictions (1) through (5) described above are fundamental
policies of each of the National Intermediate Municipal Fund, U.S. Government
Income Fund, High Yield Bond Fund, Strategic Bond Fund and Total Return Fund.
Restrictions (6) through (14) are non-fundamental policies of such Fund.
For the purposes of the investment limitations applicable to the New
York Municipal Bond Fund and the National Intermediate Municipal Fund, the
identification of the issuer of a municipal obligation depends on the terms and
conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality, or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, such subdivision would be
regarded as the sole issuer. Similarly, in the case of a private activity
bond, if the bond is backed only by the assets and revenues of the
non-governmental user, such non-governmental user would be regarded as the sole
issuer. If in either case the creating government or another entity guarantees
an obligation, the guarantee would be considered a separate security and
treated as an issue of such government or entity.
INVESTORS FUND. The Investors Fund may not:
(1) purchase any securities on margin (except that the Fund may make
deposits in connection with transactions in options on securities), make any
so-called "short" sales of securities or participate in any joint or joint and
several trading accounts;
(2) act as underwriter of securities of other issuers;
(3) purchase the securities of another investment company or
investment trust except in the open market where no profit to a sponsor or
dealer, other than the customary broker's commission, results from such
purchase (but the aggregate of such investments shall not be in excess of 10%
of the net assets of the Fund), or except when such purchase is part of a plan
of merger or consolidation;
(4) buy securities from, or sell securities to, any of its officers,
directors, employees, investment manager or distributor, as principals;
(5) purchase or retain any securities of an issuer if one or more
persons affiliated with the Fund owns beneficially more than 1/2 of 1% of the
outstanding securities of such issuer and such affiliated persons so owning 1/2
of 1% together own beneficially more than 5% of such securities;
(6) purchase real estate (not including investments in securities
issued by real estate investment trusts) or commodities or commodity contracts,
provided that the Fund may enter into futures contracts, including futures
contracts on interest rates, stock indices and
<PAGE> 169
45
currencies, and options thereon, and may engage in forward currency
transactions and buy, sell and write options on currencies;
(7) invest in warrants (other than warrants acquired by the Investors
Fund as part of a unit or attached to securities at the time of purchase) if,
as a result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the Investors Fund's net assets or if, as a result,
more than 2% of the Investors Fund's net assets would be invested in warrants
that are not listed on AMEX or NYSE;
(8) invest in oil, gas and other mineral leases, provided, however,
that this shall not prohibit the Investors Fund from purchasing publicly traded
securities of companies engaging in whole or in part in such activities; or
(9) purchase or sell real property (including limited partnership
interests) except to the extent described in investment restriction number 6
above.
Investment restrictions (1) through (6) described above are fundamental
policies of the Investors Fund. Restrictions (7) through (9) are
non-fundamental policies of the Investors Fund.
MANAGEMENT
DIRECTORS AND OFFICERS
The principal occupations of the directors and executive officers of the
Series Funds and the Investors Fund for the past five years are listed below.
The address of each, unless otherwise indicated, is Seven World Trade Center,
New York, New York 10048. Certain of the directors and officers are also
directors and officers of one or more other investment companies for which
SBAM, the Fund's investment manager, acts as investment adviser.
SERIES FUNDS (OF WHICH THE CASH MANAGEMENT FUND, THE NEW YORK MUNICIPAL BOND
FUND, THE NATIONAL INTERMEDIATE MUNICIPAL FUND, THE U.S. GOVERNMENT INCOME
FUND, THE HIGH YIELD BOND FUND, THE STRATEGIC BOND FUND AND THE TOTAL RETURN
FUND ARE SEPARATE PORTFOLIOS.)
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
POSITION WITH YEARS AND
NAME, ADDRESS AND AGE THE COMPANY OTHER AFFILIATIONS
--------------------- ------------- -------------------------------------
<S> <C> <C>
Charles F. Barber (2) Director Consultant; formerly Chairman of the
66 Glenwood Drive Board, ASARCO Incorporated.
Greenwich, CT 06830
Age: 77
</TABLE>
<PAGE> 170
46
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
POSITION WITH YEARS AND
NAME, ADDRESS AND AGE THE COMPANY OTHER AFFILIATIONS
--------------------- ------------- -------------------------------------
<S> <C> <C>
Carol L. Colman (2) Director President, Colman Consulting Co.,
Colman Consulting Co., Inc. Inc.; formerly Managing Partner of
P.O. Box 212 Inferential Focus Inc.
North Salem, NY 10560
Age: 48
Daniel P. Cronin (2) Director Vice President and General Counsel,
Pfizer Inc Pfizer International Inc since 1987;
235 East 42nd Street Senior Assistant General Counsel,
New York, NY 10017 Pfizer Inc since 1989.
Age: 48
Michael S. Hyland (1) Director and President President, SBAM and Managing Director,
Age: 49 Salomon Brothers Inc ("Salomon
Brothers") since 1989; formerly
Managing Director, First Boston Asset
Management Corp. and Managing
Director, First Boston Corporation.
Marybeth Whyte Executive Vice President Director, SBAM since January 1995 and
Age: 38 Portfolio Manager since July 1994;
formerly Senior Vice President,
Fiduciary Trust Company International.
Alan Mandel
Age: 37 Treasurer Vice President, SBAM since January
1995; formerly Chief Financial
Officer, Hyperion Capital Management
since 1991; prior to which he was
Assistant Treasurer,
PaineWebber/Mitchell Hutchins Asset
Management.
</TABLE>
<PAGE> 171
47
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING PAST 5
POSITION WITH YEARS AND
NAME, ADDRESS AND AGE THE COMPANY OTHER AFFILIATIONS
--------------------- ------------- -------------------------------------
<S> <C> <C>
Tana E. Tselepis
Age: 59 Secretary Compliance Officer, SBAM since 1993
and Senior Administrator since 1989;
Vice President, Salomon Brothers since
1991; formerly Vice President and
Senior Administrator, First Boston
Asset Management Corp. since 1985.
</TABLE>
- ------------
1. Interested person as defined in the 1940 Act.
2. Audit Committee Member.
COMPENSATION TABLE
The following table provides information concerning the compensation
paid during the fiscal year ended December 31, 1994 to each director of the
Series Fund. The Series Fund does not provide any pension or retirement
benefits to directors. In addition, no remuneration was paid during the
fiscal year ended December 31, 1994 by the Series Fund to officers of the Fund
or to Mr. Hyland, who as an employee of SBAM may be defined as an "interested
person" under the 1940 Act.
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Name of Person, Compensation Other Funds Advised by
Position from the Fund SBAM Total Compensation
------------------ ------------- ------------------------ ------------------
<S> <C> <C> <C>
Charles F. Barber Directorships (A) Directorships (A)
Director $4,250 $108,320 (12) $112,570 (13)
Daniel P. Cronin $25,100 (3) $25,546 (4)
Director $446
Carol Colman
Director $696 $29,750 (3) $30,446 (4)
</TABLE>
- -----------------------
(A) The numbers in parenthesis indicate the applicable number of investment
company directorships held by that director.
<PAGE> 172
48
INVESTORS FUND
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING
POSITION WITH PAST 5 YEARS AND
NAME, ADDRESS AND AGE THE COMPANY OTHER AFFILIATIONS
--------------------- ------------- ---------------------------
<S> <C> <C>
Charles F. Barber (2) Director Consultant; formerly Chairman
66 Glenwood Drive of the Board, ASARCO
Greenwich, CT 06830 Incorporated.
Age: 77
Andrew L. Breech Director President, Dealer Operating
2120 Wilshire Boulevard Control Service, Inc.
Suite 400
Santa Monica, CA 90403
Age: 42
Thomas W. Brock (1) Director Chairman and Chief Executive
Age: 47 Officer, Salomon Brothers Asset
Management Inc; Managing
Director of Salomon Brothers
Inc.
Carol L. Colman (2) Director President, Colman Consulting
Colman Consulting Co., Inc. Co., Inc.; formerly Managing
P.O. Box 212 Partner of Inferential Focus
North Salem, NY 10560 Inc.
Age: 48
William R. Dill (3) Director Consultant; formerly Director,
25 Birch Lane Office of Global Enterprise and
Cunberland Foreside Adjunct Professor, University
Maine 04110 of Southern Maine; prior to
Age: 64 which he was President, Babson
College.
Michael S. Hyland (1) Chairman of the Board, President, SBAM and Managing
Age: 49 Director and President Director, Salomon Brothers
since 1989; formerly Managing
Director, First Boston Asset
Management Corp. and Managing
Director, First Boston
Corporation.
</TABLE>
<PAGE> 173
49
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING
POSITION WITH PAST 5 YEARS AND
NAME, ADDRESS AND AGE THE COMPANY OTHER AFFILIATIONS
--------------------- ------------- ---------------------------
<S> <C> <C>
Clifford M. Kirtland, Jr. (3) Director Formerly Chairman of the Board
9 North Parkway Square and President of Cox
4200 Northside Pkwy, N.W. Communications Inc.; Director
Atlanta, GA 30327 CSX Corp., Oxford Industries,
Age: 70 Shaw Industries, Inc., Graphic
Industries, Inc.
Robert W. Lawless Director President and Chief Executive
Box 4349 Officer, Texas Tech University
Lubbock, TX 79409 and Texas Tech University
Age: 57 Health Sciences Center;
formerly Executive Vice
President and Chief Operating
Officer, Southwest Airlines
Corp.; Director, Central &
Southwest Corp.
Louis P. Mattis Director Chairman and President,
0024 Harlston Green, No. 31 Sterling Winthrop Inc.
SnowMass Village, CO 81615 (pharmaceutical company);
formerly Executive Vice
Age: 53 President of Richardson -
Vicks, Inc.
Thomas F. Schlafly (2)(3) Director Of counsel to Peper, Martin,
720 Olive Street Jensen, Maichel & Hetlage (law
St. Louis, Missouri 63101 firm); President, The Saint
Age: 46 Louis Brewery, Inc.
Ross S. Margolies Executive Vice Director and Portfolio Manager,
Age: 36 President SBAM since 1992; formerly
Senior Vice President and
Analyst, Lehman Brothers Inc.;
prior to which he was Senior
Associate and Analyst,
Prudential Investment
Management Co.
</TABLE>
<PAGE> 174
50
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING
POSITION WITH PAST 5 YEARS AND
NAME, ADDRESS AND AGE THE COMPANY OTHER AFFILIATIONS
--------------------- ------------- ---------------------------
<S> <C> <C>
Allan R. White, III Executive Vice Director, Salomon Brothers
Age: 35 President since 1992; formerly Vice
President; prior to which he
was Vice President, First
Boston Corporation
Alan Mandel Treasurer Vice President, SBAM since
Age: 37 January 1995; formerly, Chief
Financial Officer, Hyperion
Capital Management since 1991;
prior to which he was Assistant
Treasurer, PaineWebber/Mitchell
Hutchins Asset Management.
Tana E. Tselepis Secretary Compliance Officer, SBAM since
Age: 59 1993 and Senior Administrator
since 1989; Vice President,
Salomon Brothers since 1991;
formerly Vice President and
Senior Administrator, First
Boston Asset Management Corp.
since 1985.
</TABLE>
- --------------
1. Interested person as defined in the 1940 Act.
2. Audit Committee Member.
3. Nominating Committee Member.
<PAGE> 175
51
COMPENSATION TABLE
The following table provides information concerning the compensation
paid during the fiscal year ended December 31, 1994 to each director of the
Investors Fund. The Investors Fund does not provide any pension or retirement
benefits to directors. In addition, no remuneration was paid during the
fiscal year ended December 31, 1994 by the Investors Fund to officers of the
Fund or to Messrs. Hyland or Brock, who as employees of SBAM may be defined as
"interested persons" under the 1940 Act.
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Compensation Other Funds Advised by
Name of Person, Position from the Fund SBAM Total Compensation
------------------------ ------------- ----------------------- ------------------
<S> <C> <C> <C>
Charles F. Barber Directorships (A) Directorships (A)
Director $9,750 $102,820 (12) $112,570 (13)
Andrew L. Breech $8,250 $19,250 (2) $27,500 (3)
Director
Carol L. Colman $9,000 $21,446 (3) $30,446 (4)
Director
William R. Dill $8,250 $17,750 (2) $26,000 (3)
Director
Clifford M. Kirtland $9,000 $20,000 (2) $29,000 (3)
Director
Robert W. Lawless $8,250 $18,500 (2) $26,750 (3)
Director
Louis P. Mattis $6,750 $15,500 (2) $22,250 (3)
Director
Thomas F. Schlafly $9,750 $21,500 (2) $21,250 (3)
</TABLE>
- -----------------------
(A) The numbers in parenthesis indicate the applicable number of investment
company directorships held by that director.
Principal Holders of Securities
As of August 28, 1995, Salomon Brothers Holding Company Inc. ("SBH"),
Seven World Trade Center, New York, New York 10048 held a substantial amount of
the outstanding Class A, Class B and Class C shares of each of the Cash
Management Fund, Investors Fund, New York Municipal Bond Fund. In addition SBH
owns a substantial amount of the outstanding Class A, Class B, Class C and
Class O shares of the National Intermediate Municipal Fund, U.S. Government
Income Fund, High Yield Bond Fund,
<PAGE> 176
52
Strategic Bond Fund and all of the outstanding shares of the Total Return Fund
and consequently is a controlling person of such funds.
The following shareholders held 5% or more of the outstanding securities
of the Series Funds as of August 28, 1995:
<TABLE>
<CAPTION>
Fund Class Shareholder Percentage Held
---- ----- ----------- ---------------
<S> <C> <C> <C>
Cash Management Fund O Salomon Brothers NY Municipal Dept. 24.72%
Salomon Brothers Inc. A/C V0300 15.75%
Salomon Brothers A/C XQSSHMF 14.01%
SBAM 12.98%
First Wisconsin Trust Co. Cust.
Merriman Capital Appreciation Fund 5.75%
A Northstar Advantage Funds
FBO Class A Shareholders 90.48%
BSD&T Cust
FBO Gregory B. Norris R0-1RA 5.90%
B Northstar Advantage Funds
FBO Class T Shareholders 65.07%
Northstar Advantage Funds
FBO Class B Shareholders 32.01%
C Bill I. Dowo & Loga B. Dowo JTWROS 40.09%
Salomon Brothers Holding Co. Inc.
Attn. George Betzios 23.34%
BSDT CUST IRA R/O
FBO Donald Burke 19.38%
John E. Viles 11.46%
Sterling Trust Co. Cust.
FBO Lillie Garcia & Linda Kelly
JTWROS IRA & A0203 5.73%
New York Municipal Bond O Salomon Brothers Inc. A/C V0291 6.64%
Attn. Peter Krzystek
Salomon Brothers A/C NYE 3060 6.62%
S. Quintos Von Bonin
Hella Von Bonin 5.63%
A Salomon Brothers Holding Co. Inc.
Attn: George Betzios 91.47%
Charles Giuliana, Jr. 5.10%
B Salomon Brothers Holding Co. Inc.
Attn: George Betzios 62.71%
A. Gloria Quirante 12.16%
Merle M. Tandoc 12.16%
Richard O. Cole 9.25%
C Salomon Brothers Holding Co. Inc.
Attn: George Betzios 100%
U.S. Government Income O Salomon Brothers Holding Co. Inc.
Attn: George Betzios 99.81%
A Salomon Brothers Holding Co. Inc.
Attn: George Betzios 96.75%
B Salomon Brothers Holding Co. Inc.
Attn: George Betzios 62.57%
Kevin A. Mason and Lynn M.
Pitts TTEE 37.43%
C Salomon Brothers Holding Co. Inc.
Attn: George Betzios 100.00%
High Yield Bond O Salomon Brothers Holding Co. Inc.
Attn: George Betzios 100.00%
A Lasalle National Trust as custodian
FBO Doctors Hospital Foundation 36.43%
B Salomon Brothers Holding Co. Inc.
Attn: George Betzios 11.61%
Ann Wetzel
Walter W. Burdick POA 6.61%
C Salomon Brothers Holding Co. Inc.
Attn: George Betzios 44.54%
AG Edwards and Sons Inc C/F
John J. Meckler 19.88%
NFSC FEBO #CL3-30629
Corliss Mac Linklater Succ TTE
Jack C. Brigges Rev Trust 5.55%
Strategic Bond O Salomon Brothers Holding Co. Inc.
Attn: George Betzios 99.70%
A Salomon Brothers Holding Co. Inc.
Attn: George Betzios 58.75%
AG Edwards & Sons Inc C/F
Howard F. Roat 10.91%
B Salomon Brothers Holding Co. Inc.
Attn: George Betzios 28.74%
Southeastern Cal Assoc
Seventh-Day Advent TTEE
Prey Pus Revoc Living 6.73%
Southwest Securities Inc. FBO
Erren J. Nelson MD TTEE
FBO Erren J. Nelson LTD 5.57%
Southwest Securities Inc. FBO
Cindy Bickford 5.50%
C Salomon Brothers Holding Co. Inc.
Attn: George Betzios 77.57%
Bill I. Dowd & Olga B. Dowd 10.35%
Sterling Trust Co Cust
FBO Lillie Garcia & Linda Kelly
JTWROS IRA #A02030 5.93%
National Intermediate
Municipal A Salomon Brothers Holding Co. Inc.
Attn: George Betzios 48.69%
Southwest Securites Inc. 27.66%
Alice C. Aldrich 15.69%
Dorothy M. Unger TTEE
Louis A. Unger Trust 7.17%
B Salomon Brothers Holding Co. Inc.
Attn: George Betzios 70.55%
Jeanette S. Toll
C/O Mary Toll 15.24%
C Salomon Brothers Holding Co. Inc.
Attn: George Betzios 100.00%
</TABLE>
Directors of the Series Funds and of the Investors Fund not affiliated
with SBAM receive from their respective Funds a fee for each Board of Directors
and Board committee meeting attended and are reimbursed for all out-of-pocket
expenses relating to attendance at
<PAGE> 177
53
meetings. In addition, Directors of the Series Funds and the Investors Fund
not affiliated with SBAM receive an annual fee from their respective Funds.
Directors who are affiliated with SBAM do not receive compensation from their
respective Funds but are reimbursed for all out-of-pocket expenses relating to
attendance at meetings. For the year ended December 31, 1994, such fees and
expenses totaled $2,713, $2,714 and $82,755 for the Cash Management Fund, the
New York Municipal Bond Fund and the Investors Fund, respectively.
As of December 31, 1994 directors and officers of the Series Funds and
the Investors Fund each as a group beneficially owned less than 1% of the
outstanding shares of their respective Funds.
INVESTMENT MANAGER
Each Fund retains SBAM to act as its investment manager. SBAM, a
wholly-owned subsidiary of Salomon Brothers Holding Company Inc, which in turn
is wholly owned by Salomon Inc, serves as the investment manager to numerous
individuals and institutions and other investment companies. On May 1, 1990,
SBAM purchased substantially all of the assets of Lemco, the Investors Fund's
previous investment adviser, and the Investors Fund changed its name from
Lehman Investors Fund, Inc. to Salomon Brothers Investors Fund Inc.
The management contract between SBAM and each respective Fund provides
that SBAM shall manage the operations of the Fund, subject to policy
established by the Board of Directors. Pursuant to the applicable management
contract, SBAM manages each Fund's investment portfolio, directs purchases and
sales of portfolio securities and reports thereon to the Fund's officers and
directors regularly. SBAM also provides the office space, facilities,
equipment and personnel necessary to perform the following services for each
Fund: Commission compliance, including record keeping, reporting requirements
and registration statement and proxies; supervision of Fund operations,
including coordination of functions of administrator, transfer agent,
custodian, accountants, counsel and other parties performing services or
operational functions for each Fund; certain administrative and clerical
services, including certain accounting services, facilitation of redemption
requests, exchange privileges, and account adjustments, development of new
shareholder services and maintenance of certain books and records; and certain
services to each Fund's shareholders, including assuring that investments and
redemptions are completed efficiently, responding to shareholder inquiries and
maintaining a flow of information to shareholders. In addition, SBAM pays the
compensation of each Fund's officers, employees and directors affiliated with
SBAM. Each Fund bears all other costs of its operations, including the
compensation of its directors not affiliated with SBAM.
In connection with SBAM's service as investment manager to the Strategic
Bond Fund, Salomon Brothers Asset Management Limited ("SBAM Limited"), whose
business address is Victoria Plaza, 111 Buckingham Palace Road, London SW1W
OSB, England, provides certain advisory services to SBAM relating to currency
transactions and investments in non-dollar-denominated debt securities for the
benefit of the Strategic Bond Fund pursuant to a subadvisory consulting
agreement. At no additional expense to the Strategic Bond Fund, SBAM pays SBAM
Limited, as full compensation for all services provided under the
<PAGE> 178
54
subadvisory consulting agreement, a fee in an amount equal to the fee payable
to SBAM under its management contract with respect to the Strategic Bond Fund
multiplied by the current value of the net assets of the portion of the assets
of the Strategic Bond Fund as SBAM shall allocate and divided by the current
value of the net assets of the Strategic Bond Fund. Like SBAM, SBAM Limited is
a direct, wholly-owned subsidiary of Salomon Brothers Holding Company Inc.
SBAM Limited is a member of the Investment Management Regulatory Organization
Limited in the United Kingdom and is registered as an investment adviser in the
United States pursuant to the Investment Advisers Act of 1940.
Investment decisions for a particular Fund are made independently from
those of other funds or accounts managed by SBAM. Such other funds or accounts
may also invest in the same securities as a Fund. If those funds or accounts
are prepared to invest in, or desire to dispose of, the same security at the
same time as a Fund, however, transactions in such securities will be made,
insofar as feasible, for the respective funds and accounts in a manner deemed
equitable to all. In some cases, this procedure may adversely affect the size
of the position obtained for or disposed of by a Fund or the price paid or
received by a Fund. In addition, because of different investment objectives, a
particular security may be purchased for one or more funds or accounts when one
or more funds or accounts are selling the same security.
If in any fiscal year expenses borne by a Fund (excluding interest,
taxes, brokerage commissions and other portfolio transaction expenses and any
extraordinary expenses, but including the management fee) exceed expense
limitations imposed by applicable state securities regulations, SBAM, in its
capacity as investment manager, will reimburse the Fund for any such excess to
the extent required by such regulations up to the amount of its fee.
California is the only state which currently imposes such an expense
limitation. The limitation is, on an annual basis, 2.5% of the first $30
million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of the remaining average net daily assets. Such
reimbursement, if any, will be estimated and paid on a monthly basis. There
was no reimbursement to the Investors Fund, the Cash Management Fund or New
York Municipal Bond Fund for the years ended December 31, 1994, 1993 or 1992.
As compensation for its services, SBAM receives from the Cash Management
Fund a management fee payable monthly at an annual rate of .20% of the Cash
Management Fund's average daily net assets. For the fiscal years ended
December 31, 1992, 1993 and 1994, SBAM waived all fees payable to it by the
Cash Management Fund, totaling $29,408, $25,813 and $29,088 respectively. SBAM
receives from the New York Municipal Bond Fund a management fee payable monthly
at an annual rate of .50% of the New York Municipal Bond Fund's average daily
net assets. For the fiscal period from February 1, 1993 (commencement of
operations) through December 31, 1993 and for the fiscal year ended December
31, 1994, SBAM waived all fees payable to it by the New York Municipal Bond
Fund, totaling $32,857 and $36,427, respectively, and absorbed expenses of the
New York Municipal Bond Fund totaling $15,652 and $12,085, respectively. The
National Intermediate Municipal Fund pays SBAM a monthly fee at an annual rate
of .50% of the Fund's average daily net assets; the U.S. Government Income Fund
pays SBAM a monthly fee at an annual rate of .60% of the Fund's average daily
net assets; the High Yield Bond Fund pays SBAM a monthly fee at an
<PAGE> 179
55
annual rate of .75% of the Fund's average daily net assets; the Strategic Bond
Fund pays SBAM a monthly fee at an annual rate of .75% of the Fund's average
daily net assets; and the Total Return Fund pays SBAM a monthly fee at an
annual rate of .55% of the Fund's average daily net assets. SBAM has agreed to
waive all or a portion of its management fee for each Fund other than the
Investors Fund and the Total Return Fund through the fiscal year ending
December 31, 1995. SBAM has also agreed to waive its entire management fee for
the Total Return Fund for a period of six months from the date hereof. See
"Expense Information -- Annual Fund Operating Expenses" in the Prospectus. The
Investors Fund pays SBAM a quarterly fee (the "Base Fee") at the end of each
calendar quarter based on the following rates:
<TABLE>
<CAPTION>
Average Daily Net Assets Annual Fee Rate
------------------------ ---------------
<S> <C>
First $350 million .500%
Next $150 million .400%
Next $250 million .375%
Next $250 million .350%
Over $1 billion .300%
</TABLE>
This fee may be increased or decreased based on the performance of the
Investors Fund relative to the investment record of the S&P 500 Index. At the
end of each calendar quarter, for each percentage point by which the investment
performance of the Investors Fund exceeds or is exceeded by the investment
record of the S&P 500 Index over the one year period ending on the last day of
the calendar quarter for which the adjustment is being calculated, the Base Fee
will be adjusted upward or downward by the product of (i) 1/4 of .01%
multiplied by (ii) the average daily net assets of the Investors Fund for the
one year period preceding the end of the calendar quarter. If the amount by
which the Investors Fund outperforms or underperforms the S&P 500 Index is not
a whole percentage point, a pro rata adjustment shall be made. However, there
will be no performance adjustment unless the investment performance of the
Investors Fund exceeds or is exceeded by the investment record of the S&P 500
Index by at least one percentage point. The maximum quarterly adjustment is
1/4 of .10%, which would occur if the Investors Fund's performance exceeds or
is exceeded by the S&P 500 Index by ten or more percentage points. The first
performance adjustment will be paid on September 30, 1995 for the one year
period ending on that date. Thereafter, the performance adjustment will be
paid quarterly based on a rolling one year period.
For purposes of determining the performance adjustment, the investment
performance of the Investors Fund for any one year period shall mean the sum of
(i) the change in the Fund's net asset value per share during such period, (ii)
the value of cash distributions per share accumulated to the end of such period
and (iii) the value of capital gains taxes per share (if any) paid or payable
on undistributed realized long-term capital gains accumulated to the end of
such period; expressed as a percentage of its net asset value per share at the
beginning of such period. For this purpose, the value of distributions per
share of realized capital gains and of dividends per share paid from investment
income shall be treated as reinvested in shares of the Investors Fund at the
net asset value per share in effect at the close of business
<PAGE> 180
56
on the record date for the payment of such distributions and dividends, after
giving effect to such distributions and dividends. In addition, while the
Investors Fund does not anticipate paying any taxes, the value of any capital
gains taxes per share paid or payable on undistributed realized long-term
capital gains shall be treated as reinvested in shares of the Fund at the net
asset value per share in effect at the close of business on the date on which
provision is made for such taxes, after giving effect to such taxes.
For purposes of calculating the performance adjustment, the investment
record of the S&P 500 Index for any one year period shall mean the sum of (i)
the change in the level of the index during such period and (ii) the value,
computed consistently with the index, of cash distributions made by companies
whose securities comprise the index accumulated to the end of such period;
expressed as a percentage of the index level at the beginning of such period.
For this purpose, cash distributions on the securities which comprise the index
shall be treated as reinvested in the index at least as frequently as the end
of each calendar quarter following the payment of the dividend.
Prior to August 1, 1994, the Investors Fund paid SBAM a management fee
each quarter, based upon the average daily value of the Investors Fund's net
assets, at an annual rate computed as follows: none on the first $25 million;
1/8 of 1% (.50% annually) on the next $325 million; 3/40 of 1% (.30% annually)
on the next $150 million; 1/16 of 1% (.25% annually) on the next $250 million;
and 1/20 of 1% (.20% annually) on the amount in excess of $750 million. SBAM
was paid $1,747,839, $1,721,023 and $1,669,329 in management fees for the years
ended December 31, 1994, 1993 and 1992, respectively.
With respect to each of the Funds, other than the Total Return Fund and
Investors Fund, the continuance of the management contract was approved by the
Board of Directors on September 6, 1995. With respect to the Total Return
Fund, the management contract was approved by the Board of Directors on
September 6, 1995 and by the sole shareholder, SBAM, on September 6, 1995.
With respect to the Investors Fund, the continuance of the management contract
was approved by the Board of Directors on January 25, 1995.
The management contract for each Fund provides that it will continue for
an initial two year period and thereafter for successive annual periods
provided that such continuance is specifically approved at least annually (a)
by the vote of a majority of the directors not parties to the management
contract or interested persons of such parties, which votes are cast in person
at a meeting called for the purpose of voting on such management contract and
(b) either by the Board of Directors or a majority of the outstanding voting
securities. The management contract may be terminated on 60 days' written
notice by either party and will terminate automatically if assigned.
<PAGE> 181
57
Rule 17j-1 under the 1940 Act requires all registered investment
companies and their investment advisers and principal underwriters to adopt
written codes of ethics and institute procedures designed to prevent "access
persons" (as defined in Rule 17j-1, from engaging in any fraudulent, deceptive
or manipulative trading practices. The Board of Directors for the Series Fund
and the Investors Fund have each adopted a code of ethics (the "Fund Code")
that incorporates personal trading policies and procedures applicable to access
persons of each Fund, which includes officers, directors and other specified
persons who may make, participate in or otherwise obtain information concerning
the purchase or sale of securities by the Fund. In addition, the Fund Code
attaches and incorporates personal trading policies and procedures applicable
to access persons of SBAM, as the investment adviser to each Fund, which
policies serve as SBAM's code of ethics (the "Adviser Code"). The Fund and
Adviser Codes have been designed to address potential conflict of interests
that can arise in connection with the personal trading activities of investment
company and investment advisory personnel.
Pursuant to the Fund and Adviser Codes, access persons are generally
permitted to engage in personal securities transactions, provided that a
transaction does not involve securities that are being purchased or sold, are
being considered for purchase or sale, or are being recommended for purchase or
sale by or for a Fund. In addition, the Adviser Code contains specified
prohibitions and blackout periods for certain categories of securities and
transactions, including a prohibition on short-term trading and purchasing
securities during an initial public offering. The Adviser Code, with certain
exceptions, also requires that access persons obtain preclearance to engage in
personal securities transactions. Finally, the Fund and Adviser Codes require
access persons to report all personal securities transactions periodically.
ADMINISTRATOR
Each Fund employs Investors Bank & Trust Company ("Investors Bank")
under its applicable administration agreement to provide certain administrative
services to the respective Fund. The services provided by Investors Bank under
the applicable administration agreement include certain accounting, clerical
and bookkeeping services, Blue Sky compliance, corporate secretarial services
and assistance in the preparation and filing of tax returns and reports to
shareholders and the Commission.
Investors Bank's business address is 89 South Street, Boston,
Massachusetts 02111.
For its services as administrator, each Fund (except the Investors Fund)
pays Investors Bank a fee, calculated daily and payable monthly, at an annual
rate of .08% of the applicable Fund's average daily net assets. Pursuant to a
sub-administration agreement between SBAM and Investors Bank, for its services
as administrator to the Investors Fund and at no additional cost to the
Investors Fund, SBAM pays Investors Bank a fee each month at an annual rate of
.08% of the average daily net assets of the Investors Fund. For its services
as administrator to the Cash Management Fund, the Series Funds paid The Boston
Company Advisors, Inc. ("Boston Company"), the Fund's previous administrator, a
fee, calculated daily and payable monthly, at an annual rate of .08% of the
Cash Management Fund's average daily net assets. For the fiscal years ended
December 31, 1992, 1993 and 1994, Boston Company received fees
<PAGE> 182
58
totaling $11,765, $10,324 and $10,499 and Investors Bank received $1,136 for
the fiscal year ended December 31, 1994 from the Cash Management Fund,
respectively. For its services as administrator to the New York Municipal Bond
Fund, the Series Funds paid Boston Company, the Fund's previous administrator,
a fee, calculated daily and payable monthly, at an annual rate of .08% of the
New York Municipal Bond Fund's average daily net assets. For the fiscal period
from February 1, 1993 (commencement of operations) through December 31, 1993
and the fiscal year ended December 31, 1994, Boston Company received fees
totaling $5,258 and $5,497, and Investors Bank received $328 for the fiscal
year ended December 31, 1994 from the New York Municipal Bond Fund. Pursuant
to a previous sub-administration agreement between SBAM and Boston Company,
SBAM paid Boston Company a fee each month at an annual rate of .08% of the
average daily net assets of the Investors Fund.
DISTRIBUTOR
Salomon Brothers, located at 7 World Trade Center, New York, New York
10048, serves as each Fund's distributor. Salomon Brothers is a wholly owned
subsidiary of Salomon Brothers Holding Company Inc, which is in turn wholly
owned by Salomon Inc. Salomon Brothers received $4,338 as sales charges from
the sale of shares of the Investors Fund for the year ended December 31, 1992
and did not receive any sales charges for the fiscal years ended December 31,
1993 and 1994.
Rule 12b-1 (the "Rule") adopted by the Commission under the 1940 Act
provides, among other things, that an investment company may bear expenses of
distributing its shares only pursuant to a plan adopted in accordance with the
Rule. The Board of Directors of each Fund (other than the Cash Management
Fund) has adopted a services and distribution plan with respect to each class
of shares (other than Class O) of each Fund pursuant to the Rule (the "Plan").
The Board of Directors of each Fund has determined that there is a reasonable
likelihood that the Plan will benefit such Fund and its shareholders.
Under the Plans, each Fund (other than the Cash Management Fund) pays
Salomon Brothers a service fee, accrued daily and paid monthly, calculated at
the annual rate of .25% of the value of the applicable Fund's average daily net
assets attributable to Class A, Class B and Class C shares. In addition, each
Fund (other than the Cash Management Fund) pays Salomon Brothers a distribution
fee with respect to Class B and Class C shares primarily intended to compensate
Salomon Brothers for its initial expense of paying investment representatives a
commission upon sales of Class B shares or Class C shares, as the case may be.
The Class B and Class C distribution fees are each calculated at the annual
rate of .75% of the value of a Fund's average daily net assets attributable to
the Class B or Class C shares, as the case may be. Such fees may be used as
described in the Prospectus. Class O shares and shares of all classes of the
Cash Management Fund pay no Rule 12b-1 distribution or shareholder service fee.
Salomon Brothers is authorized, to the extent indicated in the Prospectus, to
retain all or a portion of the payments made to it pursuant to the applicable
Plan and make payments to third parties that provide assistance in selling Fund
shares, or to institutions that provide certain shareholder support services to
investors. Each Plan provides that Salomon Brothers may make payments to
assist in the distribution of each class of a
<PAGE> 183
59
Fund's shares out of the other fees received by it or its affiliates from a
Fund, its past profits or any other sources available to it.
A quarterly report of the amounts expended with respect to each Fund
under the applicable Plan, and the purposes for which such expenditures were
incurred, must be made to the Board of Directors for its review. In addition,
each Plan provides that it may not be amended with respect to any class of
shares of the applicable Fund to increase materially the costs which may be
borne for distribution pursuant to the Plan without the approval of
shareholders of that class, and that other material amendments of the Plan must
be approved by the Board of Directors, and by the Directors who are neither
"interested persons" (as defined in the 1940 Act) nor have any direct or
indirect financial interest in the operation of the Plan or any related
agreements, by vote cast in person at a meeting called for the purpose of
considering such amendments. Each Plan and any related agreements are subject
to annual approval by such vote cast in person at a meeting called for the
purpose of voting on the Plan. Each Plan may be terminated with respect to a
Fund or any class thereof at any time by vote of a majority of the Directors
who are not "interested persons" and have no direct or indirect financial
interest in the operation of the Plan or in any related agreement or by vote of
a majority of the shares of a Fund or class, as the case may be.
EXPENSES
Each Fund's expenses include taxes, interest, fees and salaries of such
Fund directors and officers who are not directors, officers or employees of the
Fund's service contractors, Commission fees, state securities qualification
fees, costs of preparing and printing prospectuses for regulatory purposes and
for distribution to existing shareholders, advisory and administration fees,
charges of the custodian and of the transfer and dividend disbursing agent,
certain insurance premiums, outside auditing and legal expenses, costs of
shareholder reports and shareholder meetings and any extraordinary expenses.
Each Fund also pays for brokerage fees and commissions (if any) in connection
with the purchase and sale of portfolio securities. Fund expenses are
allocated to a particular class of Fund shares based on either expenses
identifiable to the class or the relative net assets of the class and other
classes of Fund shares.
PORTFOLIO TRANSACTIONS
Subject to policy established by the Board of Directors, SBAM is
primarily responsible for each Fund's portfolio decisions and the placing of
the Fund's portfolio transactions.
Fixed-income, certain short-term securities and certain equities
normally will be purchased or sold from or to issuers directly or to dealers
serving as market makers for the securities at a net price, which may include
dealer spreads and underwriting commissions. Equity securities may also be
purchased or sold through brokers who will be paid a commission.
The general policy of each Fund in selecting brokers and dealers is to
obtain the best results taking into account factors such as the general
execution and operational facilities of the broker or dealer, the type and size
of the transaction involved, the creditworthiness of the
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60
broker or dealer, the stability of the broker or dealer, execution and
settlement capabilities, time required to negotiate and execute the trade,
research services and SBAM's arrangements related thereto (as described below),
overall performance, the dealer's risk in positioning the securities involved,
and the broker's commissions and dealer's spread or mark-up. While SBAM
generally seeks the best price in placing its orders, a Fund may not
necessarily be paying the lowest price available.
Notwithstanding the above, in compliance with Section 28(e) of the
Securities Exchange Act of 1934, SBAM may select brokers who charge a
commission in excess of that charged by other brokers, if SBAM determines in
good faith that the commission to be charged is reasonable in relation to the
brokerage and research services provided to SBAM by such brokers. Research
services generally consist of research or statistical reports or oral advice
from brokers and dealers regarding particular companies, industries or general
economic conditions. SBAM may also have arrangements with brokers pursuant to
which such brokers provide research services to SBAM in exchange for a certain
volume of brokerage transactions to be executed by such broker. While the
payment of higher commissions increases a Fund's costs, SBAM does not believe
that the receipt of such brokerage and research services significantly reduces
its expenses as a Fund's investment manager. SBAM's arrangements for the
receipt of research services from brokers may create conflicts of interest.
During the fiscal year ended December 31, 1994, SBAM, with respect to the
Investors Fund, directed brokerage transactions in an amount of $105, to
certain brokers that furnished research services to SBAM. Commissions on these
transactions totaled $676,229.
Research services furnished to SBAM by brokers who effect securities
transactions for a Fund may be used by SBAM in servicing other investment
companies and accounts which it manages. Similarly, research services
furnished to SBAM by brokers who effect securities transactions for other
investment companies and accounts which SBAM manages may be used by SBAM in
servicing a Fund. Not all of these research services are used by SBAM in
managing any particular account, including the Funds.
Under the 1940 Act, persons affiliated with a Fund are prohibited from
dealing with it as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the Commission.
However, a Fund may purchase securities from underwriting syndicates of which
SBAM or any of its affiliates (including Salomon Brothers) is a member under
certain conditions, in accordance with the provisions of a rule adopted under
the 1940 Act.
Affiliated persons of a Fund, or affiliated persons of such persons, may
from time to time be selected to execute portfolio transactions for such Fund.
Subject to the considerations discussed above and in accordance with procedures
adopted by the Board of Directors, in order for such an affiliated person to be
permitted to effect any portfolio transactions for a Fund, the commissions,
fees or other remuneration received by such affiliated person must be
reasonable and fair compared to the commissions, fees or other remuneration
received by other brokers in connection with comparable transactions. This
standard would allow such an
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61
affiliated person to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction.
Each Fund's Board of Directors has determined that Salomon Brothers may
execute portfolio transactions for such Fund so long as the Fund is charged
commission rates consistent with those charged by other brokers in comparable
transactions with clients that are comparable to the Fund.
Total brokerage commissions paid by the Investors Fund amounted to
$676,229 for 1994, $854,171 for 1993 and $683,057 for 1992. During the 1994,
1993 and 1992 fiscal years, the Investors Fund paid $61,788, $113,090 and
$45,920, respectively, in commissions to Salomon Brothers. Commissions to
Salomon Brothers in 1994 represented 9% of the total brokerage commissions paid
by the Investors Fund, and Salomon Brothers executed 9% of the aggregate dollar
amount of transactions involving commissions during the 1994 fiscal year.
NET ASSET VALUE
The Prospectus discusses the time at which the net asset value of shares
of each class of a Fund is determined for purposes of sales and redemptions.
Because of the differences in service and distribution fees and class-specific
expenses, the per share net asset value of each class may differ. The following
is a description of the procedures used by a Fund in valuing its assets.
In calculating net asset value, portfolio securities listed or traded on
national securities exchanges, or reported by the NASDAQ National Market
reporting system, are valued at the last sale price, or, if there have been no
sales on that day, at the mean of the current bid and ask price which
represents the current value of the security. Over-the-counter securities are
valued at the mean of the current bid and ask price.
Securities that are primarily traded on foreign exchanges generally are
valued at the preceding closing values of such securities on their respective
exchanges, except that when an occurrence subsequent to the time a value was so
established is likely to have changed such value, then the fair value of those
securities will be determined by consideration of other factors by or under the
direction of the Board of Directors or its delegates. In valuing assets, prices
denominated in foreign currencies are converted to U.S. dollar equivalents at
the current exchange rate. Securities may be valued by 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. Short-term obligations with maturities of 60 days or
less are valued at amortized cost, which constitutes fair value as determined
by the Board of Directors. Amortized cost involves valuing an instrument at
its original cost to a Fund and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. All other securities and
other assets of a Fund will be valued at fair value as determined in good faith
pursuant to procedures adopted by the Board of Directors of each Fund.
<PAGE> 186
62
As stated in the Prospectus, the Cash Management Fund seeks to maintain
a net asset value of $1.00 per share and, in this connection, values the Fund's
instruments on the basis of amortized cost pursuant to Rule 2a-7 under the 1940
Act. While this method provides certainty in valuation, it may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument. During such
periods the yield to investors in the Fund may differ somewhat from that
obtained in a similar company which uses market values for all its portfolio
securities. For example, if the use of amortized cost resulted in a lower
(higher) aggregate portfolio value on a particular day, a prospective investor
in the Fund would be able to obtain a somewhat higher (lower) yield than would
result from investment in such a similar company, and existing investors would
receive less (more) investment income. The purpose of using the amortized cost
method of calculation is to attempt to maintain a stable net asset value per
share of $1.00.
The Board of Directors of the Cash Management Fund has established
procedures reasonably designed, taking into account current market conditions
and the Cash Management Fund's investment objective, to stabilize the net asset
value per share as computed for the purposes of sales and redemptions at $1.00.
These procedures include periodic review, as the Board of Directors deem
appropriate and at such intervals as are reasonable in light of current market
conditions, of the relationship between the amortized cost value per share and
net asset value per share based upon available indications of market value.
In the event of a deviation of 1/2 of 1% between the Cash Management
Fund's net asset value based upon available market quotations or market
equivalents and $1.00 per share based on amortized cost, the Board of Directors
will promptly consider what action, if any, should be taken. The Board of
Directors will also take such action as they deem appropriate to eliminate or
to reduce to the extent reasonably practicable any material dilution or other
unfair result which might arise from differences between the two. Such action
may include redemption in kind, selling instruments prior to maturity to
realize capital gains or losses or to shorten the average maturity, withholding
dividends, or utilizing a net asset value per share as determined by using
available market quotations.
ADDITIONAL PURCHASE INFORMATION
Information on how to purchase and redeem a Fund's shares is included in
the Prospectus. The issuance of shares is recorded on a Fund's books.
DETERMINATION OF PUBLIC OFFERING PRICE
Each Fund offers its shares to the public on a continuous basis. The
public offering price per Class A share of each Fund is equal to the net asset
value per share at the time of purchase plus a sales charge (except with
respect to the Cash Management Fund) based on the aggregate amount of the
investment. The public offering price per Class B share, Class C share and
Class O share (and Class A share purchases, including applicable rights of
accumulation, equaling or exceeding $1 million) is equal to the net asset value
per share at the time of purchase and no sales charge is imposed at the time of
purchase. A contingent
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63
deferred sales charge ("CDSC"), however, is imposed on certain redemptions of
Class A shares, Class B shares and Class C shares.
CLASS A SHARES
VOLUME DISCOUNTS. The schedule of sales charges on Class A shares
described in the Prospectus relating to Class A shares applies to purchases
made by any "purchaser," which is defined to include the following: (a) an
individual; (b) an individual, his or her spouse and their children under the
age of 21 purchasing shares for his or her own account; (c) a trustee or other
fiduciary purchasing shares for a single trust estate or single fiduciary
account; (d) a pension, profit-sharing or other employee benefit plan qualified
under Section 401(a) of the Code, and qualified employee benefit plans of
employers who are "affiliated persons" of each other within the meaning of the
1940 Act; (e) tax-exempt organizations enumerated in Section 501(c)(3) or (13)
of the Code; (f) any other organized group of persons, provided that the
organization has been in existence for at least six months and was organized
for a purpose other than the purchase of investment company securities at a
discount; or (g) a trustee or other professional fiduciary (including a bank,
or an investment adviser registered with the Commission under the Investment
Advisers Act of 1940, as amended) purchasing shares of a Fund for one or more
trust estates or fiduciary accounts. Purchasers who wish to combine purchase
orders to take advantage of volume discounts on Class A shares should call
(800) SALOMON or (800) 725-6666.
RIGHT OF ACCUMULATION. Reduced sales charges, in accordance with the
schedule in the Prospectus relating to Class A shares, apply to any purchase of
Class A shares if the aggregate investment in Class A shares of all Funds in
the Salomon Brothers Investment Series, excluding holdings in Class B and Class
C shares and shares purchased or held in the Cash Management Fund, and
including the purchase being made, of any purchaser is $100,000 or more. The
reduced sales charge is subject to confirmation of the shareholder's holdings
through a check of appropriate records. A Fund reserves the right to terminate
or amend the combined right of accumulation at any time after written notice to
shareholders. For further information regarding the combined right of
accumulation, shareholders should call (800) SALOMON or (800) 725-6666.
ADDITIONAL REDEMPTION INFORMATION
If the Board of Directors shall determine that it is in the best
interests of the remaining shareholders of a Fund, such Fund may pay the
redemption price in whole, or in part, by a distribution in kind from the
portfolio of the Fund, in lieu of cash, taking such securities at their value
employed for determining such redemption price, and selecting the securities in
such manner as the Board of Directors may deem fair and equitable. However,
each Fund has made an election pursuant to Rule 18f-1 under the 1940 Act
requiring that all redemptions be effected in cash to each redeeming
shareholder, during periods of 90 days, up to the lesser of $250,000 or 1% of
the net assets of such Fund. A shareholder who receives a distribution in kind
may incur a brokerage commission upon a later disposition of such securities
and may receive less than the redemption value of such securities or property
upon sale, particularly
<PAGE> 188
64
where such securities are sold prior to maturity. Redemption in kind is not as
liquid as a cash redemption.
Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
New York Stock Exchange is closed, other than customary weekend and holiday
closings, or during which trading on said Exchange is restricted, or during
which (as determined by the Commission by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is
not reasonably practicable, or for such other periods as the Commission may
permit. (A Fund may also suspend or postpone the recordation of the transfer
of its shares upon the occurrence of any of the foregoing conditions.)
ADDITIONAL INFORMATION CONCERNING TAXES
TAXATION OF A FUND
The following discussion is a brief summary of certain additional tax
considerations affecting a Fund and its shareholders. No attempt is made to
present a detailed explanation of all federal, state, local and foreign tax
concerns, and the discussions set forth here and in the Prospectus do not
constitute tax advice. Investors are urged to consult their own tax advisers
with specific questions relating to federal, state, local or foreign taxes.
Each Fund intends to qualify and elect to be treated as a regulated
investment company (a "RIC") under Subchapter M of the Code. As a RIC, a Fund
will not be subject to federal income tax on its net investment income (i.e.,
its investment company taxable income, as that term is defined in the Code,
determined without regard to the deduction for dividends paid) and net realized
gains, if any, that it distributes in each taxable year to its shareholders,
provided that it distributes 90% of its net investment income and net realized
gains for such taxable year.
Qualification as a RIC requires, among other things, that a Fund: (a)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
(b) derive less than 30% of its gross income in each taxable year from the sale
or other disposition of any of the following held for less than three months:
stock, securities, options, futures, certain forward contracts, or foreign
currencies (or any options, futures or forward contracts on foreign currencies)
but only if such currencies are not directly related to a Fund's principal
business of investing in stock or securities; and (c) diversify its holdings so
that, at the end of each quarter of each taxable year, (i) at least 50% of the
market value of a Fund's assets is represented by cash, cash items, U.S.
government securities, securities of other regulated investment companies and
other securities with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the value of a Fund's assets and
10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of
<PAGE> 189
65
the value of its assets is invested in the securities of any one issuer (other
than U.S. government securities or the securities of other regulated investment
companies).
A Fund will be subject to a non-deductible 4% excise tax to the extent
that a Fund does not distribute by the end of each calendar year: (a) at least
98% of its ordinary income for such calendar year; (b) at least 98% of the
excess of its capital gains over its capital losses for the one-year period
ending, as a general rule, on October 31 of each year; and (c) the
undistributed income and gains from the preceding calendar year (if any)
pursuant to the calculations in (a) and (b).
A Fund's investment in options, swaps and related transactions, futures
contracts and forward contracts, options on futures contracts and stock indices
and certain other securities, including transactions involving actual or deemed
short sales or foreign exchange gains or losses are subject to many complex and
special tax rules. For example, over-the-counter options on debt securities
and equity options, including options on stock and on narrow-based stock
indexes, will be subject to tax under Section 1234 of the Code, generally
producing a long-term or short-term capital gain or loss upon exercise, lapse
or closing out of the option or sale of the underlying stock or security. By
contrast, a Fund's treatment of certain other options, futures and forward
contracts entered into by a Fund is generally governed by Section 1256 of the
Code. These "Section 1256" positions generally include listed options on debt
securities, options on broad-based stock indexes, options on securities
indexes, options on futures contracts, regulated futures contracts and certain
foreign currency contracts and options thereon.
Absent a tax election to the contrary, each such Section 1256 position
held by a Fund will be marked-to-market (i.e. treated as if it were sold for
fair market value) on the last business day of a Fund's fiscal year, and all
gain or loss associated with fiscal year transactions and mark-to-market
positions at fiscal year end (except certain currency gain or loss covered by
Section 988 of the Code) will generally be treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. The effect of Section
1256 mark-to market rules may be to accelerate income or to convert what
otherwise would have been long-term capital gains into short-term capital gains
or short-term capital losses into long-term capital losses within a Fund. The
acceleration of income on Section 1256 positions may require a Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, a Fund may be
required to dispose of portfolio securities that they otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares. In these ways, any or all of these rules may affect the amount,
character and timing of income earned and in turn distributed to shareholders
by a Fund.
When a Fund holds options or contracts which substantially diminish
their risk of loss with respect to other positions (as might occur in some
hedging transactions), this combination of positions could be treated as a
"straddle" for tax purposes, resulting in possible deferral of losses,
adjustments in the holding periods of Fund securities and conversion of
short-term capital losses into long-term capital losses. Certain tax elections
exist for mixed
<PAGE> 190
66
straddles i.e., straddles comprised of at least one Section 1256 position and
at least one non-Section 1256 position which may reduce or eliminate the
operation of these straddle rules.
As a RIC a Fund is also subject to the requirement that less than 30% of
its annual gross income be derived from the sale or other disposition of
securities and certain other investment held for less than three months
("short-short income"). This requirement may limit a Fund's ability to engage
in options, spreads, straddles, hedging transactions, forward or futures
contracts or options on any of these positions because these transactions are
often consummated in less than three months, may require the sale of portfolio
securities held less than three months and may, as in the case of short sales
of portfolio securities reduce the holding periods of certain securities within
a Fund, resulting in additional short-short income for such Fund.
A Fund will monitor its transactions in such options and contracts and
may make certain other tax elections in order to mitigate the effect of the
above rules and to prevent disqualification of the Fund as a RIC under
Subchapter M of the Code.
A Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in POs or
other obligations having original issue discount (i.e., an amount equal to the
excess of the stated redemption price of the security at maturity over its
issue price), or market discount (i.e., an amount equal to the excess of the
stated redemption price of the security over the basis of such bond immediately
after it was acquired) if the Fund elects to accrue market discount on a
current basis. In addition, income may continue to accrue for federal income
tax purposes with respect to a non-performing investment. Any such income would
be treated as income earned by a Fund and therefore would be subject to the
distribution requirements of the Code. Because such income may not be matched
by a corresponding cash distribution to a Fund, such Fund may be required to
borrow money or dispose of other securities to be able to make distributions to
its investors. The extent to which a Fund may liquidate securities at a gain
may be limited by the 30% limitation discussed above. In addition, if an
election is not made to currently accrue market discount with respect to a
market discount bond, all or a portion of any deduction for any interest
expense incurred to purchase or hold such bond may be deferred until such bond
is sold or otherwise disposed.
Certain of a Fund's investments in structured products may, for federal
income tax purposes, constitute investment in shares of foreign corporations.
If a Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies" ("PFICs"), the Fund may be subject to
U.S. federal income tax on a portion of any "excess distribution" or gain from
the disposition of shares even if the income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature of
interest may be imposed on either a Fund or its shareholders with respect to
deferred taxes arising from the distributions or gains. If a fund were to
invest in a PFIC and (if the Fund received the necessary information available
from the PFIC, which may be difficult to obtain) elected to treat the PFIC as a
"qualified electing fund" under the Code, in lieu of the foregoing
requirements, the Fund might be required to include in income each year a
portion of the ordinary earnings and net capital gains of the PFIC, even if not
distributed to the Fund, and
<PAGE> 191
67
the amounts would be subject to the 90% and excise tax distribution
requirements described above. Because of the expansive definition of a PFIC,
it is possible that a Fund may invest a potion of its assets in PFICs.
TAXATION OF SHAREHOLDERS
The Prospectus describes each Fund's policy with respect to distribution
of net investment income and any net-realized short-term capital and long-term
capital gains. Shareholders should consider the tax implications of buying
shares just prior to a distribution. Although the price of shares purchased at
that time may reflect the amount of the forthcoming distribution, those
purchasing just prior to a distribution will receive a distribution which will
nevertheless be taxable to them.
Shareholders receiving a distribution in the form of shares will be
treated for federal income tax purposes as receiving a distribution in an
amount equal to the fair market value, determined as of the distribution date,
of the shares received and will have a cost basis in each share received equal
to the fair market value of a share of a Fund on the distribution date.
Shareholders will be notified annually as to the federal tax status of
distributions, and shareholders receiving distributions in the form of shares
will receive a report as to the fair market value of the shares received.
Gain or loss on the sale or other disposition of Fund shares will result
in capital gain or loss to shareholders. Generally, a shareholder's capital
gain or loss will be long-term gain or loss if the shares have been held for
more than one year. In general, the maximum federal income tax rate imposed on
individuals with respect to net realized long-term capital gains will be
limited to 28%, whereas the maximum federal income tax rate imposed on
individuals with respect to net realized short-term capital gains (which are
taxed at ordinary income rates) will be 39.6%. With respect to corporate
taxpayers, long-term capital gains are taxed at the same federal income tax
rates as short-term capital gains, which is 35%. If a shareholder redeems or
exchanges shares of a Fund before he or she has held them for more than six
months, any short-term capital loss on such redemption or exchange will be
treated as a long-term capital loss to the extent of any long-term capital gain
distributions received by the shareholder (or credited to the shareholder as an
undistributed capital gain) with respect to such shares.
It is expected that a portion of the dividends of net investment income
received by corporate shareholders from a Fund (other than the Cash Management
Fund) will qualify for the federal dividends received deduction generally
available to corporations. The dividends received deduction for corporate
shareholders may be reduced if the securities with respect to which dividends
are received by a Fund are (1) considered to be "debt-financed" (generally,
acquired with borrowed funds), (2) held by a Fund for less than 46 days (91
days in the case of certain preferred stock) or (3) subject to certain forms of
hedges or short sales. The amount of any dividend distribution eligible for
the corporate dividends received deduction will be designated by a Fund in a
written notice within 60 days of the close of the taxable year.
<PAGE> 192
68
Under the Omnibus Budget Reconciliation Act of 1993, all or a portion of
the Fund's gain from the sale or redemption of tax-exempt obligations acquired
after April 30, 1993 attributable to market discount will be treated as
ordinary income rather than capital gain. This rule may increase the amount of
ordinary income dividends received by shareholders.
Each Portfolio of the Fund will be treated as a separate entity for
federal income tax purposes.
THE NEW YORK MUNICIPAL BOND FUND AND NATIONAL INTERMEDIATE MUNICIPAL FUND
The New York Municipal Bond Fund and the National Intermediate Municipal
Fund each intends to qualify to pay "exempt-interest dividends," as that term
is defined in the Code, by holding at the end of each quarter of its taxable
year at least 50% of the value of its total assets in the form of obligations
described in section 103(a) of the Code. Each Fund's policy is to pay in each
taxable year exempt-interest dividends equal to at least 90% of such Fund's
interest from tax-exempt obligations net of certain deductions. Except as
discussed below, exempt-interest dividends will be exempt from regular federal
income tax. In addition, dividends from the New York Municipal Bond Fund will
not be subject to New York State and New York City personal income taxes to the
extent that such distributions qualify as exempt-interest dividends and
represent interest income attributable to federally tax-exempt obligations of
the State of New York and its political subdivisions (as well as certain other
federally tax-exempt obligations the interest on which is exempt from New York
State and New York City personal income taxes). Dividends from the New York
Municipal Bond Fund, however, are not excluded in determining New York State or
New York City franchise taxes on corporations and financial institutions.
Because the New York Municipal Bond Fund and the National Intermediate
Municipal Fund will primarily invest in municipal obligations, dividends from
these Funds will generally be exempt from regular federal income tax in the
hands of shareholders, however, a portion may be subject to the alternative
minimum tax. Federal tax law imposes an alternative minimum tax with respect
to both corporations and individuals based on certain items of tax preference.
Interest on certain municipal obligations, such as bonds issued to make loans
for housing purposes or to private entities (but not to certain tax-exempt
organizations such as universities and non-profit hospitals) is included as an
item of tax preference in determining the amount of a taxpayer's alternative
minimum taxable income. To the extent the New York Municipal Bond Fund or the
National Intermediate Municipal Fund makes such an investment, a portion of the
exempt-interest dividends paid, although otherwise exempt from federal income
tax, will be taxable to shareholders to the extent that their tax liability
will be determined under the alternative minimum tax. The New York Municipal
Bond Fund and the National Intermediate Municipal Fund will annually supply
shareholders with a report indicating the percentage of Fund income
attributable to municipal obligations subject to the alternative minimum tax.
Additionally, taxpayers must disclose to the Internal Revenue Service on their
tax returns the entire amount of tax-exempt interest (including exempt-interest
dividends on shares of the Fund) received or accrued during the year.
<PAGE> 193
69
In addition, for corporations, the alternative minimum taxable income is
increased by a percentage of the amount by which an alternative measure of
income ("adjusted current earnings," referred to as "ACE") exceeds the amount
otherwise determined to be the alternative minimum taxable income. Interest on
all municipal obligations, and therefore all exempt-interest dividends paid by
the New York Municipal Bond Fund or the National Intermediate Municipal Fund,
is included in calculating ACE.
The Superfund Act of 1986 imposes a separate tax on corporations at a
rate of 0.12% of the excess of such corporation's "modified alternative minimum
taxable income" over $2,000,000. A portion of a corporate shareholder's
tax-exempt interest, including exempt-interest dividends from the New York
Municipal Bond Fund or the National Intermediate Municipal Fund, may be
includible in calculating such shareholder's modified alternative minimum
taxable income.
Taxpayers that may be subject to the alternative minimum tax should
consult their tax advisers before investing in the New York Municipal Bond Fund
or the National Intermediate Municipal Fund.
Shares of the New York Municipal Bond Fund and the National Intermediate
Municipal Fund would not be a suitable investment for tax-exempt institutions
and may not be a suitable investment for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts,
because such plans and accounts are generally tax-exempt or tax deferred and,
therefore, would not gain any additional benefit from the receipt of
exempt-interest dividends from the Fund. Moreover, subsequent distributions of
such dividends to the beneficiaries will be taxable.
In addition, the New York Municipal Bond Fund and the National
Intermediate Municipal Fund may not be an appropriate investment for entities
that are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. A "substantial user" is defined under U.S.
Treasury Regulations to include a non-exempt person who regularly uses a part
of such facilities in his trade or business and, unless such facility, or part
thereof, is constructed, reconstructed or acquired specifically for the
non-exempt person, whose gross revenue derived with respect to the facilities
financed by the issuance of bonds is more than 5% of the total revenue derived
by all users of such facilities. "Related persons" include certain related
natural persons, affiliated corporations, partnerships and their partners and S
Corporations and their shareholders. The foregoing is not a complete statement
of all of the provisions of the Code covering the definitions of "substantial
user" and "related person". For additional information, investors should
consult their tax advisers before investing in the New York Municipal Bond Fund
or the National Intermediate Municipal Fund.
All or a portion of the exempt-interest dividends received by certain
foreign corporations may be subject to the federal branch profits tax.
Likewise, all or a portion of the exempt-interest dividends may be taxable to
certain Subchapter S Corporations that have Subchapter C earnings and profits
and substantial passive investment income. In addition, the exempt-interest
dividends may reduce the deduction for loss reserves for certain insurance
<PAGE> 194
70
companies. Such corporations and insurance companies should consult their tax
advisers before investing in the New York Municipal Bond Fund or the National
Intermediate Municipal Fund. The Code may also require shareholders that
receive exempt-interest dividends to treat as taxable income a portion of
certain otherwise nontaxable social security and railroad retirement benefit
payments.
PERFORMANCE DATA
As indicated in the Prospectus, from time to time, a Fund may quote its
"yield," "tax-equivalent yield," "effective yield," "average annual total
return" and/or "aggregate total return" for all classes of shares in
advertisements or in reports and other communications to shareholders and
compare its performance figures to those of other funds or accounts with
similar objectives and to relevant indices. Such performance information may
include time periods prior to the implementation of the Multiple Pricing System
described in the Prospectus, and will be calculated as described below.
AVERAGE ANNUAL TOTAL RETURN
A Fund's "average annual total return" figures, as described and shown
in the Prospectus, are computed according to a formula prescribed by the
Commission. The formula can be expressed as follows:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000 payment
made at the beginning of a 1, 5, or 10 year period at the end of such period
(or fractional portion thereof), assuming reinvestment of all dividends and
distributions.
In calculating the ending redeemable value, for Class A shares, the
current maximum front end sales charge of 4.75% (as a percentage of the
offering price) is deducted from the initial $1,000 payment, and for Class A,
Class B and Class C shares, the applicable CDSC imposed on redemption is
deducted. The schedule of CDSCs due upon redemption is described under
"Redemption of Shares" in the Prospectus.
The existing Funds implemented the Multiple Pricing System by
reclassifying the then existing shares of each such Fund as shares of a
particular class of each such Fund. This reclassification was effected in such
a manner so that the shares of each existing Fund outstanding at December 31,
1994 would be subject to identical distribution and service fees both before
and after the reclassification. Specifically, all outstanding shares of the
Cash
<PAGE> 195
71
Management Fund, the New York Municipal Bond Fund and the Investors Fund were
reclassified as Class O shares of each such Fund.
The percentages shown in the tables below are, for all classes, restated
to reflect front end sales charges and CDSCs currently payable by each class of
shares under the Multiple Pricing System, and are based on the fees and
expenses actually paid by each Fund for the periods presented, rather than the
distribution and service fees and expenses currently payable by each class of
shares under the Multiple Pricing System which in certain cases are different
(as indicated in the footnotes to the tables). Until December 31, 1994, each
of the New York Municipal Bond Fund and the Investors Fund paid no distribution
or service fees. The distribution and service fees currently payable by each
class of shares under the Multiple Pricing System are described in "Purchase of
Shares -- Distributor" in the Prospectus.
The following tables set forth the average annual total returns for each
class of shares of each of the New York Municipal Bond Fund (after management
fee waiver and reimbursement of certain expenses) and the Investors Fund for
certain periods of time ending June 30, 1995 restated to reflect the effects of
the maximum applicable front end sales charges and any applicable CDSCs payable
by an investor under the Multiple Pricing System.
NEW YORK MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
From commencement of operations
1 year on February 1, 1993 through June 30, 1995
------ -----------------------------------------
<S> <C> <C>
Class A _____%** 3.95%**
Class B _____%** 3.90%**
Class C _____%** 7.90%**
Class O 7.27% 3.96%
</TABLE>
** The return figures do not reflect the distribution and service fees
currently paid with respect to a class of shares of a Fund.
As described in the Prospectus under the caption "Expense Information,"
the New York Municipal Bond Fund has been and still is subject to certain fee
waivers and expense reimbursements. Absent such waiver and reimbursement, the
returns shown above for the New York Municipal Bond Fund would be lower.
INVESTORS FUND
<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
Class A _____%** _____%** _____%**
Class B _____%** _____%** _____%**
Class C _____%** _____%** _____%**
Class O 20.24% 11.21% 12.27%
</TABLE>
<PAGE> 196
72
**The return figures do not reflect the distribution and service fees currently
paid with respect to a class of shares of a Fund.
The performance data quoted represents past performance; investment
returns 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.
AGGREGATE TOTAL RETURN
The "aggregate total return" figures for each class of a Fund, as
described in the Prospectus, represent the cumulative change in the value of an
investment in Fund shares of such class for the specified period and are
computed by the following formula:
AGGREGATE TOTAL RETURN = ERV - P
-------
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of a 1-, 5-, or 10-year period at the end of
such period (or fractional portion thereof), assuming reinvestment of all
dividends and distributions.
YIELD
With respect to the Cash Management Fund, yield quotations are expressed
in annualized terms and may be quoted on a compounded basis.
The current yield for the Cash Management Fund is computed by (a)
determining the net change in the value of a hypothetical pre-existing account
in the Fund having a balance of one share at the beginning of a seven calendar
day period for which yield is to be quoted; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e. multiplying the base period
return by 365/7). The net change in the value of the account reflects the
value of additional shares, but does not include realized gains and losses or
unrealized appreciation and depreciation. In addition, the Cash Management
Fund may calculate a compound effective annualized yield by adding 1 to the
base period return (calculated as described above), raising the sum to a power
equal to 365/7 and subtracting 1.
For the seven-day period ended June 30, 1995 the annualized yield and
effective yield (before implementation of the Multiple Pricing System) of the
Cash Management Fund were 5.63% and 5.79%, respectively. Because Class A, B
and C shares of the Cash Management Fund, like Class O shares, are not subject
to any sales charges or service or distribution fees, the yield and effective
yield figures for Class A, B and C shares of the Cash Management Fund would be
the same as those for Class O shares.
<PAGE> 197
73
In periods of declining interest rates the Cash Management Fund's yield
will tend to be somewhat higher than prevailing market rates on short-term
obligations, and in periods of rising interest rates the Fund's yield will tend
to be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the Cash Management Fund from the continuous sale of shares will
likely be invested in portfolio instruments producing lower yields than the
balance of the Fund's portfolio, thereby reducing the Fund's current yield. In
periods of rising interest rates, the opposite can be expected to occur.
THIRTY DAY YIELD
Certain Funds may advertise the yields for each class of such Funds
based on a 30-day (or one month) period according to the following formula:
a-b
---- 6
Yield = 2 [ ( cd + 1) - 1 ]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
Under this formula, interest earned on debt obligations for purposes of
"a" above, is calculated by (1) computing the yield to maturity of each
obligation held by the New York Municipal Bond Fund or the National
Intermediate Municipal Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last day of
each month, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest), (2) dividing that figure by 360
and multiplying the quotient by the market value of the obligation (including
actual accrued interest as referred to above) to determine the interest income
on the obligation in the Fund's portfolio (assuming as month of 30 days) and
(3) computing the total of the interest earned on all debt obligations during
the 30-day or one month period. Any amounts representing sales charges will
not be included among these expenses; however, the New York Municipal Bond Fund
and the National Intermediate Municipal Fund will disclose the maximum sales
charge as well as any amount or specific rate of any nonrecurring account
charges. Undeclared dividends, computed in accordance with SEC guidelines, may
be subtracted from the maximum offering price calculation required pursuant to
"d" above.
The thirty day yield (before implementation of the Multiple Pricing
System) of the New York Municipal Bond Fund at June 30, 1995 was 5.58%.
<PAGE> 198
74
The tax equivalent yield of the New York Municipal Bond Fund and the
National Intermediate Municipal Fund is computed by dividing that portion of
the respective Fund's yield (computed as described above) that is tax-exempt by
one minus the stated combined regular federal income and, in the case of the
New York Municipal Bond Fund, the New York State personal and, if applicable,
New York City personal income tax rate and adding the result to that portion,
if any, of the yield of the Fund that is not tax-exempt.
The tax equivalent yield (before implementation of the Multiple Pricing
System) of the New York Municipal Bond Fund at June 30, 1995 was 10.63%.
Any quotation of performance stated in terms of yield (whether or not
based on a 30-day period) will be given no greater prominence than the
information prescribed under Commission rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing that
such performance data represents past performance and that 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.
Yield and total return figures are calculated separately for Class A,
Class B, Class C and Class O shares of a Fund. In the examples above, these
calculations adjust for the different front end sales charges and CDSCs
currently payable with respect to each class and are based on expenses actually
paid by each Fund for the periods presented.
Advertisements and communications may compare a Fund's performance with
that of other mutual funds, as reported by Lipper Analytical Services, Inc. or
similar independent services or financial publications. From time to time,
advertisements and other Fund materials and communications may cite statistics
to reflect a Fund's performance over time utilizing, for example, with respect
to the New York Municipal Bond Fund and the National Intermediate Municipal
Fund, comparisons to indices such as the Bond Buyer 40-Bond Index and, with
respect to the New York Municipal Bond Fund, the Lipper Composite New York
Municipal Bond Fund Returns.
A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and operating expenses.
Consequently, any given performance quotation should not be considered
representative of the performance of Fund shares for any specified period in
the future. Because performance will vary, it may not provide a basis for
comparing an investment in Fund shares with certain bank deposits or other
investments that pay a fixed return for a stated period of time. Investors
comparing a Fund's performance with that of other mutual funds should give
consideration to the nature, quality and maturity of the respective investment
companies' portfolio securities and market conditions. An investor's principal
is not guaranteed by any Fund.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE. Shareholders may exchange all or part of their Fund
shares for shares of the same class of other Funds in the Salomon Brothers
Investment Series, as
<PAGE> 199
75
indicated in the Prospectus, to the extent such shares are offered for sale in
the shareholder's state of residence.
The exchange privilege enables shareholders of a Fund to acquire shares
in a Fund with different investment objectives when they believe that a shift
between Funds is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the Fund shares being
acquired may legally be sold.
Exercise of the exchange privilege is treated as a sale and repurchase
for federal income tax purposes and, depending on the circumstances, a short-
or long-term capital gain or loss may be realized. The price of the shares of
the fund into which shares are exchanged will be the new cost basis for tax
purposes.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value and the proceeds immediately invested in shares of the Fund being
acquired at a price equal to the then current net asset value of such shares
plus any applicable sales charge.
All accounts involved in a telephone or telegram exchange must have the
same registration. If a new account is to be established, the dollar amount to
be exchanged must be at least as much as the minimum initial investment of the
Fund whose shares are being purchased. Any new account established by exchange
will automatically be registered in the same way as the account from which
shares are exchanged and will carry the same dividend option.
The exchange privilege is not designed for investors trying to catch
short-term savings in market prices by making frequent exchanges. A Fund
reserves the right to impose a limit on the number of exchanges a shareholder
may make. Call or write the applicable Fund for further details.
AUTOMATIC WITHDRAWAL PLAN. With respect to any Fund, an Automatic
Withdrawal Plan may be opened with an account having a minimum account value as
described in the Prospectus. All dividends and distributions on the shares
held under the Withdrawal Plan are automatically reinvested at net asset value
in full and fractional shares of the same class of a Fund. Withdrawal payments
are made by The Shareholders Services Group, Inc. ("TSSG"), as agent, from the
proceeds of the redemption of such number of shares as may be necessary to make
each periodic payment. As such redemptions involve the use of capital, over a
period of time they may exhaust the share balance of an account held under a
Withdrawal Plan. Use of a Withdrawal Plan cannot assure realization of
investment objectives, including capital growth or protection against loss in
declining markets. A Withdrawal Plan can be terminated at any time by the
investor, a Fund or TSSG upon notice in writing.
The Withdrawal Plan will not be carried over on exchanges between Funds
or classes. A new Withdrawal Plan application is required to establish the
Withdrawal Plan in the new Fund or class. For additional information,
shareholders should call (800) SALOMON or (800) 725-6666.
<PAGE> 200
76
SELF EMPLOYED RETIREMENT PLANS. Each Fund offers a prototype retirement
plan for self-employed individuals. Under such plan, self-employed individuals
may contribute out of earned income to purchase shares of a Fund and/or certain
other mutual funds managed by SBAM.
Each Fund's custodian has agreed to serve as custodian and furnish the
services provided for in the plan and the related custody agreement. Each
Fund's custodian will charge individuals adopting a self employed retirement
plan an application fee as well as certain additional fees for its services
under the custody agreement.
For information required for adopting a self employed retirement plan,
including information on fees, obtain the form of the plan and custody
agreement available from a Fund. Because application of particular tax
provisions will vary depending on each individual's situation, consultation
with a financial adviser regarding a self employed retirement plan is
recommended.
IRAS. A prototype individual retirement account ("IRA") is available,
which has been approved as to form by the Internal Revenue Service ("IRS").
Contributions to an IRA made available by a Fund may be invested in shares of
such Fund and/or certain other mutual funds managed by SBAM.
Each Fund's custodian has agreed to serve as custodian of the IRA and
furnish the services provided for in the custody agreement. Each Fund's
custodian will charge each IRA an application fee as well as certain additional
fees for its services under the custody agreement. In accordance with IRS
regulations, an individual may revoke an IRA within seven calendar days after
it is established.
Contributions in excess of allowable limits, premature distributions to
an individual who is not disabled before age 59-1/2 or insufficient
distributions after age 70-1/2 will generally result in substantial adverse tax
consequences.
For information required for adopting an IRA, including information
fees, obtain the form of custody agreement and related materials, including
disclosure materials, available from a Fund. Consultation with a financial
adviser regarding an IRA is recommended.
CAPITAL STOCK
As used in this Statement of Additional Information and the Prospectus,
the term "majority", when referring to the approvals to be obtained from
shareholders in connection with matters affecting a particular Fund or any
other single portfolio (e.g., approval of investment management contracts) or
any particular class (e.g., approval of plans of distribution) and requiring a
vote under the 1940 Act means the vote of the lesser of (i) 67% of the shares
of that particular portfolio or class, as appropriate, represented at a meeting
if the holders of more than 50% of the outstanding shares of such portfolio or
class, as appropriate, are present in person or by proxy or (ii) more than 50%
of the outstanding shares
<PAGE> 201
77
of such portfolio or class, as appropriate. Shareholders are entitled to one
vote for each full share held and fractional votes for fractional shares held.
Shares of each class of each Fund are entitled to such dividends and
distributions out of the assets belonging to that class as are declared in the
discretion of the applicable Board of Directors. In determining the net asset
value of a class of a Fund, assets belonging to a particular class are credited
with a proportionate share of any general assets of the Fund not belonging to a
particular class and are charged with the direct liabilities in respect of that
class of the Fund and with a share of the general liabilities of the investment
company which are normally allocated in proportion to the relative net asset
values of the respective classes of the Funds at the time of allocation.
In the event of the liquidation or dissolution of the investment
company, shares of each class of a Fund are entitled to receive the assets
attributable to it that are available for distribution, and a proportionate
distribution, based upon the relative net assets of the classes of each Fund,
of any general assets not attributable to a portfolio that are available for
distribution. Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid, non-assessable, fully transferable and
redeemable at the option of the holder.
Subject to the provisions of the applicable investment company's
charter, determinations by the Board of Directors as to the direct and
allocable liabilities and the allocable portion of any general assets of the
investment company, with respect to a particular Fund or class are conclusive.
The shares of the Investors Fund have non-cumulative voting rights.
This means that the holders of more than 50% of the shares voting for the
election of directors can elect 100% of the directors, if they choose to do so.
In such event, the holders of the remaining less than 50% of the shares voting
for such election will not be able to elect any person or persons to the Board
of Directors.
CUSTODIAN AND TRANSFER AGENT
Investors Bank, which is located at 89 South Street, Boston,
Massachusetts 02111, serves as custodian for each Fund. As a Fund's custodian,
Investors Bank, among other things, maintains a custody account or accounts in
the name of the Fund; receives and delivers all assets for the Fund upon
purchase and upon sale or maturity; collects and receives all income and other
payments and distributions on account of the assets of the Fund; and makes
disbursements on behalf of the Fund. The custodian does not determine the
investment policies of a Fund, nor decide which securities a Fund will buy or
sell. For its services, the custodian receives a monthly fee based upon the
daily average market value of securities held in custody and also receives
securities transaction charges, including out-of-pocket expenses. The assets
of each Fund are held under bank custodianship in compliance with the 1940 Act.
A Fund may also periodically enter into arrangements with other qualified
custodians with respect to certain types of securities or other transactions
such as repurchase agreements or hedging transactions.
<PAGE> 202
78
TSSG, a subsidiary of First Data Corporation, which is located at One
Exchange Place, Boston, Massachusetts 02109, serves as transfer agent for each
Fund. As a Fund's transfer agent, TSSG registers and processes transfers of
the Fund's stock, processes purchase and redemption orders, acts as dividend
disbursing agent for the Fund and maintains records and handles correspondence
with respect to shareholder accounts, pursuant to a transfer agency agreement.
For these services, TSSG receives a monthly fee computed separately for each
class of a Fund's shares and is reimbursed separately by each class for
out-of-pocket expenses.
VALIDITY OF SHARES
The validity of the shares of each Fund will be passed upon by Piper & Marbury,
Baltimore, Maryland.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP (hereafter "Price Waterhouse") provides audit
services, tax return preparation and assistance and consultation in connection
with review of Commission filings. The financial statements and financial
highlights included or incorporated by reference in the Prospectus and included
in this Statement of Additional Information have been included in reliance on
the report of Price Waterhouse, independent accountants, given on the authority
of that firm as experts in auditing and accounting. Price Waterhouse's address
is 1177 Avenue of the Americas, New York, New York 10036.
COUNSEL
Simpson Thacher & Bartlett serves as counsel to each Fund (a partnership
which includes professional corporations), and is located at 425 Lexington
Avenue, New York, New York 10017-3954.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not
contain all the information included in the Registration Statement filed with
the Commission under the 1933 Act with respect to the securities offered by the
Prospectus. Certain portions of the Registration Statement have been omitted
from the Prospectus and this Statement of Additional Information pursuant to
the rules and regulations of the Commission. The Registration Statement
including the exhibits filed therewith may be examined at the office of the
Commission in Washington, DC.
<PAGE> 203
79
Statements contained in the Prospectus or in this Statement of
Additional Information as to the contents of any contract or other document
referred to are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectus and this Statement of Additional
Information form a part, each such statement being qualified in all respects by
such reference.
FINANCIAL STATEMENTS
<PAGE> 204
Statement of Net Assets Salomon Brothers Investors Fund Inc
December 31, 1994
<TABLE>
<CAPTION>
Value
Shares COMMON STOCKS-86.0% Cost (Note 1a)
- ------ -------- -----------
Basic Industries-16.2%
<S> <C> <C> <C>
200,000 Albemarle ............................ $ 2,952,775 $ 2,775,000
50,000 Broken Hill Proprietary-ADR .......... 2,121,750 3,081,250
156,000 Crown Cork & Seal* ................... 5,801,422 5,889,000
18,000 Dupont (E.I.) de Nemours ............. 1,040,751 1,012,500
135,000 Eastman Kodak ........................ 5,831,644 6,446,250
47,500 First U.S.A. ......................... 1,647,538 1,561,563
68,500 International Paper .................. 3,297,503 5,163,188
225,000 Morton International.................. 6,450,850 6,412,500
150,000 Payless Cashways* .................... 1,834,030 1,387,500
91,250 Rayonier ............................. 2,641,968 2,783,125
107,500 Temple-Inland ........................ 5,221,518 4,850,938
175,000 Tyco International ................... 8,268,460 8,312,500
147,100 Willamette Industries ................ 5,462,822 6,950,475
------------ ------------
52,573,031 56,625,789
------------ ------------
Consumer Products & Services-15.1%
200,000 Albertson's .......................... 5,102,363 5,800,000
250,000 Dillard Department Stores, Class A ... 8,371,532 6,687,500
422,800 Federated Department Stores* ......... 8,561,787 8,138,900
250,000 Kroger* .............................. 6,134,328 6,031,250
125,000 Penn Traffic* ........................ 5,003,199 4,750,000
82,500 Philip Morris Companies .............. 4,742,548 4,743,750
75,000 Sherwin-Williams ..................... 2,438,899 2,484,375
550,000 Stop and Shop Companies* ............. 10,996,029 14,025,000
------------ ------------
51,350,685 52,660,775
------------ ------------
Defense-2.6%
140,000 Raytheon ............................. 8,420,124 8,942,500
------------ ------------
Financial Services-12.5%
175,000 American Express ..................... 3,614,124 5,162,500
172,500 Bank of New York ..................... 4,726,911 5,002,500
58,500 Chemical Banking ..................... 2,131,920 2,098,688
77,000 Federal National Mortgage Association 5,945,395 5,611,375
150,000 First Data ........................... 5,163,373 7,106,250
125,000 Grupo Financiero Banorte, Series C ... 545,815 303,550
21,512 Grupo Mexicano de Desarrollo,
Series B-ADR* ....................... 377,970 164,029
48,500 Grupo Posadas-GDR* ................... 1,079,125 757,813
26,250 Mellon Bank .......................... 1,008,497 803,906
154,000 MGIC Investment ...................... 4,363,631 5,101,250
</TABLE>
10
<PAGE> 205
Statement of Net Assets (continued) Salomon Brothers Investors Fund Inc
December 31, 1994
<TABLE>
<CAPTION>
Value
Shares COMMON STOCKS (continued Cost (Note 1a)
- ------ -------- -----------
Financial Services (continued)
<S> <C> <C> <C>
160,800 SunAmerica ........................... $ 5,861,130 $ 5,829,000
167,666 Travelers ............................ 2,429,894 5,449,145
------------ ------------
37,247,785 43,390,006
------------ ------------
Food & Beverage-2.7%
150,000 Coca-Cola ............................ 5,990,236 7,725,000
60,000 Dr Pepper/Seven-Up Companies*(a) ..... 1,268,975 1,537,500
------------ ------------
7,259,211 9,262,500
------------ ------------
Health Care-1.5%
225,000 Beverly Enterprises* ................. 2,879,604 3,234,375
66,000 Mallinckrodt Group ................... 2,170,988 1,971,750
------------ ------------
5,050,592 5,206,125
------------ ------------
Machinery & Equipment-6.4%
300,000 Albany International, Class A ........ 5,152,874 5,775,000
130,000 Deere ................................ 9,886,010 8,612,500
97,500 General Electric ..................... 312,433 4,972,500
90,000 Potash Corporation of Saskatchewan ... 2,966,427 3,060,000
------------ ------------
18,317,744 22,420,000
------------ ------------
Oil & Gas-9.9%
90,000 Amoco ................................ 5,119,736 5,321,250
140,000 Chevron .............................. 4,858,373 6,247,500
400,000 MetroGas, Class B-ADR* ............... 5,190,125 4,050,000
80,000 Mobil ................................ 5,718,500 6,740,000
70,000 Royal Dutch Petroleum, 5 Guilder ..... 3,888,670 7,525,000
45,000 Texaco ............................... 2,349,236 2,694,375
62,500 TOTAL-ADR ............................ 1,861,263 1,843,750
------------ ------------
28,985,903 34,421,875
------------ ------------
Technology-6.4%
80,000 Apple Computer ....................... 2,959,300 3,110,000
235,000 BISYS Group* ......................... 4,337,495 5,170,000
50,000 Hewlett-Packard ...................... 3,020,065 4,993,750
48,500 National Data ........................ 785,119 1,248,875
60,000 Plantronics* ......................... 1,683,091 1,800,000
60,000 Stratus Computer* .................... 1,682,753 2,280,000
102,500 Sun Microsystems*(a) ................. 2,894,695 3,632,344
------------ ------------
17,362,518 22,234,969
------------ ------------
</TABLE>
11
<PAGE> 206
Statement of Net Assets (continued) Salomon Brothers Investors Fund Inc
December 31, 1994
<TABLE>
<CAPTION>
Value
Shares COMMON STOCKS (continued) Cost (Note 1a)
- ------ -------- -----------
Telecommunications & Utilities-6.2%
<S> <C> <C> <C>
107,000 AirTouch Communications* ............. $ 1,806,578 $ 3,116,375
119,000 AT&T ................................. 5,815,237 5,979,750
160,000 Motorola(a) .......................... 1,596,329 9,260,000
80,000 Telefonos de Mexico, Series L-ADR .... 2,638,838 3,280,000
------------ ------------
11,856,982 21,636,125
------------ ------------
Transportation-6.5%
135,000 AlliedSignal ......................... 3,609,925 4,590,000
245,000 Ford Motor ........................... 7,570,770 6,860,000
130,000 General Motors, Class H .............. 5,033,587 4,533,750
60,000 Norfolk Southern ..................... 3,662,800 3,637,500
70,000 Union Pacific ........................ 3,379,820 3,193,750
------------ ------------
23,256,902 22,815,000
------------ ------------
TOTAL COMMON STOCKS 261,681,477 299,615,664
------------ ------------
PREFERRED STOCKS-3.5%
Financial Services-0.0%
1,500 American Express Decs 6.25%, 10/15/96 66,465 63,938
------------ ------------
Technology-1.8%
100,000 Ceridian 5.50%, Convertible .......... 5,640,630 6,300,000
------------ ------------
Telecommunications & Utilities-1.4%
65,000 Nokia-ADR ............................ 3,847,819 4,875,000
------------ ------------
Transportation-0.3%
10,000 Ford Motor 8.40%, Convertible ........ 926,225 920,000
------------ ------------
TOTAL PREFERRED STOCKS 10,481,139 12,158,938
------------ ------------
Principal
Amount BONDS & NOTES-5.6%
------ Basic Industries-1.3%
$3,500,000 Fort Howard Zero Coupon to 11/1/94,
14.125% thereafter, due 11/1/04 ..... 3,592,849 3,530,622
1,000,000 IMO Industries, 12.25%, due 8/15/97 .. 1,015,000 1,007,500
------------ ------------
4,607,849 4,538,122
------------ ------------
Consumer Products & Services-1.5%
1,000,000 Marriott, 9.00%, Senior Notes,
Series I, due 5/24/95 ............... 1,015,030 1,010,000
2,000,000 Pathmark Stores 9.625%, Senior Sub.
Notes due 5/01/03 ................... 1,821,875 1,755,000
3,000,000 Pathmark Stores Zero Coupon to 11/1/99,
10.75% thereafter, due 11/1/03 ...... 1,513,553 1,518,750
1,000,000 Penn Traffic 9.625%, due 4/15/05 ..... 908,750 870,000
------------ ------------
5,259,208 5,153,750
------------ ------------
Financial Services-1.4%
350,000 Banco Nacional de Mexico 7.00%,
due 12/15/99 ........................ 392,000 276,500
500,000 Kroger 6.375%, due 12/01/99 .......... 612,000 655,000
4,000,000 Liberty Property Trust, 8.00%
Exchangeable Sub. Debs., due 7/01/01 4,001,875 3,880,000
------------ ------------
5,005,875 4,811,500
------------ ------------
</TABLE>
12
<PAGE> 207
Statement of Net Assets (continued) Salomon Brothers Investors Fund Inc
December 31, 1994
<TABLE>
<CAPTION>
Principal Value
Amount BONDS & NOTES (continued) Cost (Note 1a)
- --------- ------ -----------
U.S. Government-1.1%
<S> <C> <C> <C>
$4,000,000 U.S. Treasury Note, 6.50%, due 9/30/96 $ 3,978,281 $ 3,928,800
------------ ------------
Health Care-0.3%
1,000,000 American Medical International,
9.50%, due 4/15/06 ................. 1,003,750 988,750
------------ ------------
TOTAL BONDS & NOTES .................. 19,854,963 19,420,922
------------ ------------
No. of Premium
Contracts PURCHASED CALL OPTION-0.4% Paid (Received)
- --------- -----------------
200 Standard & Poors Index @ $400
Exp. 3/18/95 ........................ 1,310,280 1,262,500
------------ ------------
TOTAL INVESTMENTS-95.5% $293,327,859 332,458,024
============ ===========
WRITTEN CALL OPTIONS-(0.1)%
(175) DrPepper/Seven-UpCompanies@$25Exp.
1/21/95 ............................ $ (35,926) (19,688)
(425) DrPepper/Seven-UpCompanies@$22.50Exp.
1/21/95 ............................ (73,098) (138,125)
(200) Motorola @ $60 Exp. 4/22/95 .......... (59,398) (62,500)
(825) Sun Microsystems @ $35 Exp. 2/18/95 .. (187,831) (201,094)
(200) Sun Microsystems @ $35 Exp. 4/22/95 .. (71,898) (70,000)
------ --------- --------
(1,825) TOTAL WRITTEN OPTIONS(a) ............. $(428,151) (491,407)
====== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount REPURCHASE AGREEMENT-4.9%
- ---------
<C> <C> <C> <C>
$17,000,000 J.P. Morgan Securities, 5.30%, cost $17,000,000,
dated 12/30/94, $17,010,011 due 1/03/95,
collateralized by $11,746,000 U.S. Treasury
Bond, 14.00%, due 11/15/11, valued at $17,545,588 ... 17,000,000
------------
CASH AND RECEIVABLES-1.7% ............ (6,092,264)
LIABILITIES-(2.0)% ................... (6,844,645) (752,381)
------------ ------------
NET ASSETS-equivalent to $13.63, offering and
redemption price per share on 25,551,783
shares outstanding .................................. $348,214,236
============
Net Assets Consist of:
Paid-in capital ....................................... $307,610,607
Undistributed net realized gain ....................... 1,536,720
Net unrealized appreciation ........................... 39,066,909
------------
Net Assets ............................................ $348,214,236
============
<FN>
- ---------
*Non-income producing security.
(a)60,000, 20,000, and 102,500 shares of Dr Pepper/Seven-Up Companies, Motorola,
and Sun Microsystems, respectively, are held by the Fund's custodian in a
segregated account in connection with written call options outstanding at
December 31, 1994.
</FN>
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 208
Statement of Operations Salomon Brothers Investors Fund Inc
Year Ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment Income
Income
Dividends (net of foreign withholding tax of $58,310) ............ $ 7,015,773
Interest ......................................................... 2,069,822
------------
9,085,595
------------
Expenses
Management fee .................................... $ 1,747,839
Shareholder services .............................. 294,550
Printing .......................................... 99,215
Legal ............................................. 90,555
Directors' fees and expenses ...................... 82,755
Audit and tax return preparation fees ............. 66,370
Custodian ......................................... 46,550
Postage ........................................... 41,125
Other ............................................. 109,172 2,578,131
------------ ------------
Net investment income ............................................ 6,507,464
------------
Net Realized Gain on Investments, Options
and Foreign Currency Transactions .............................. 26,937,166
Net Unrealized Appreciation of Investments and Options
Beginning of year ................................. 77,335,908
End of year ....................................... 39,066,909
------------
Decrease in net unrealized appreciation .......................... (38,268,999)
------------
Net realized gain and decrease in net unrealized appreciation .... (11,331,833)
------------
Net decrease in net assets from operations ....................... $ (4,824,369)
============
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 209
Statement of Changes in Net Assets Salomon Brothers Investors Fund Inc
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
------------ ------------
<S> <C> <C>
Operations
Net investment income ............................................... $ 6,507,464 $ 7,121,760
Net realized gain on investments, options, and foreign currency
transactions ...................................................... 26,937,166 62,894,440
Decrease in net unrealized appreciation ............................. (38,268,999) (15,986,212)
------------ ------------
Increase (decrease) in net assets from operations ................... (4,824,369) 54,029,988
------------ ------------
Net Equalization Credit
Undistributed net investment income included in price of shares
issued and redeemed(a) ............................................ - 619,541
------------ ------------
Distributions to Shareholders from
Net investment income ............................................... (6,555,567) (7,289,166)
Net realized gains .................................................. (36,204,568) (55,947,930)
------------ ------------
(42,760,135) (63,237,096)
------------ ------------
Capital Share Transactions
Proceeds from sales of 1,535,504 and 244,382 shares,
respectively ...................................................... 22,813,829 3,947,724
Net asset value of 2,324,823 and 3,096,845 shares, respectively,
issued in reinvestment of net investment income and net
realized gain distributions ....................................... 32,449,031 46,474,136
Payment for redemption of 3,057,955 and 1,600,872 shares,
respectively ...................................................... (45,611,321) (26,037,035)
------------ ------------
Increase in net assets resulting from capital share transactions,
representing net increases of 802,372 and 1,740,355 shares,
respectively ...................................................... 9,651,539 24,384,825
------------ ------------
Total increase (decrease) in net assets ............................. (37,932,965) 15,797,258
------------ ------------
Net Assets
Beginning of year ................................................... 386,147,201 370,349,943
------------ ------------
End of year (includes undistributed net investment income of
$48,103 for 1993) ................................................. $348,214,236 $386,147,201
============ ============
<FN>
- ----------
(a) The Fund discontinued the accounting practice of equalization during 1993.
</FN>
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 210
Notes to Financial Statements Salomon Brothers Investors Fund Inc
1. Significant Accounting Policies
The Fund is registered as a diversified, open-end, management investment
company under the Investment Company Act of 1940, as amended. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
(a) Securities 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 ask price which represents the
current value of the security. Over-the-counter securities are valued at the
mean of the current bid and ask price. Securities for which no quotations
are readily available (as may be the case for securities of limited
marketability) and other assets are valued at fair value determined pursuant
to procedures established by the Board of Directors.
(b) Written Option Contracts. When the Fund writes a call option or a
put option, an amount equal to the premium received is recorded as a
liability, the value of which is marked-to-market daily to reflect the
current market value of the written option. When a written option expires,
the Fund realizes a gain equal to the amount of the premium received. When
the Fund enters into a closing purchase transaction, it realizes a gain (or
loss if the cost of the closing purchase transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
eliminated. When a call option is exercised, the Fund realizes a gain or
loss from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. When a put option is
exercised, the amount of the premium received reduces the cost of the
security that the Fund purchased upon exercise.
(c) Federal Income Taxes. The Fund has complied and intends to continue
to comply with the requirements of the Internal Revenue Code applicable to
regulated investment companies, including the distribution requirements of
the Tax Reform Act of 1986, and to distribute all of its taxable income, to
shareholders. Therefore, no Federal income tax or excise tax provision is
required.
(d) Repurchase Agreements. When entering into repurchase agreements, it
is the Fund's policy to take possession, through its custodian, of the
underlying collateral and to monitor the collateral's value at the time the
agreement is entered into and at all times during the term of the repurchase
agreement to ensure that it always equals or exceeds the repurchase price.
In the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.
(e) Dividends and Distributions. Dividends and distributions to
shareholders are recorded on the ex-dividend date, and determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles primarily due to deferral of wash sale and
post-October losses.
(f) Other. Securities transactions are recorded as of the trade date.
Dividend income is recorded on the ex-dividend date. Gains or losses on
sales of securities are calculated for financial accounting and Federal
income tax purposes on the identified cost basis. Interest is recognized as
interest income when earned.
16
<PAGE> 211
Notes to Financial Statements (continued) Salomon Brothers Investors Fund Inc
2. Distribution After December 31, 1994
On January 24, 1995, the Fund declared a distribution from net long-term
gains of $.07 per share. The distribution was payable February 9 to shareholders
of record January 25, 1995.
3. Capital Stock
At December 31, 1994, there were 50,000,000 shares of authorized capital
stock, $1.00 par value. The par value of capital stock outstanding at that date
amounted to $25,551,783. The amount payable for Fund shares redeemed at December
31, 1994 amounted to $48,763.
4. Management Fee and Other Agreements
The Fund retains Salomon Brothers Asset Management Inc ("SBAM"), an
indirect, wholly-owned subsidiary of Salomon Inc, to act as investment manager
of the Fund subject to the supervision by the Board of Directors of the Fund.
SBAM furnishes the Fund with office space and pays the compensation of its
officers.
At its annual meeting on April 21, 1994, the shareholders of the Fund
approved an amendment to the Management Agreement between the Fund and SBAM to
change the structure of the management fee to a performance-based fee
arrangement. The new performance-based fee arrangement became effective on
August 1, 1994.
Under the new fee arrangement, the Fund pays SBAM a base fee subject to an
increase or decrease depending on the extent, if any, to which the investment
performance of the Fund exceeds or is exceeded by the investment record of the
Standard & Poor's 500 Index of Composite Stocks ("S&P 500 Index") over a rolling
one-year period. 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 .500%
Next $150 million .400%
Next $250 million .375%
Next $250 million .350%
Over $1 billion .300%
</TABLE>
For each percentage point by which the investment performance of the Fund
exceeds or is exceeded by the investment record of the S&P 500 Index, the base
fee will be adjusted upward or downward by .01% (annualized). The maximum annual
adjustment is .10% which would occur if the Fund's performance exceeds or is
exceeded by the S&P 500 Index by ten or more percentage points. The first
performance adjustment will be paid based on the one-year period ending
September 30, 1995. Thereafter, the performance adjustment will be paid
quarterly based on a rolling one-year period.
Prior to August 1, 1994, the management fee for these services had been
payable quarterly based on the following annual percentages of the Funds'
average daily net assets: first $25 million-none; next $325 million-.50%; next
$150 million-.30%; next $250 million-.25%; excess over $750 million-.20%. For
the three months ended December 31, 1994, the S&P 500 Index's performance
exceeded the Fund's performance by two percent. Under the performance fee
arrangement, the Fund would be entitled to a .02% reduction in its management
fee payable to SBAM for the year ended September 30, 1995 should this
performance continue at the same level through September 30, 1995.
Brokerage commissions of $61,788 were paid to Salomon Brothers Inc, the
Fund's distributor and an indirect wholly-owned subsidiary of Salomon Inc, for
transactions executed on behalf of the Fund for the year ended December 31,
1994.
17
<PAGE> 212
Notes to Financial Statements (continued) Salomon Brothers Investors Fund Inc
If in any fiscal year the total expenses of the Fund, excluding taxes,
interest, brokerage and extraordinary expenses, but including the management
fee, exceed the most stringent expense limitation imposed by state securities
regulations applicable to the Fund, SBAM will pay or reimburse the Fund for the
excess. Currently, this limitation on an annual basis is 2.5% of the first $30
million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of average daily net assets in excess of $100 million.
For the year ended December 31, 1994 there was no such reimbursement.
As of December 1, 1994, Investors Bank and Trust Company ("IBT") serves as
the Fund's custodian and administrator. IBT performs custodial and certain
administrative services in connection with the operation of the Fund. Prior to
December 1, 1994, administrative services were provided by The Shareholder
Services Group, Inc. ("TSSG") and custodial services were provided by Boston
Safe Deposit and Trust Company. TSSG continues to serve as the Fund's transfer
and shareholder services agent.
5. Portfolio Activity
The cost of securities purchased and proceeds from securities sold (other
than short-term investments and written options) during the year ended December
31, 1994 aggregated $238,342,172 and $272,683,079, respectively. Amounts payable
for securities purchased at December 31, 1994 aggregated $6,251,105. Cost of
securities held (excluding short-term investments and written options) on
December 31, 1994 for Federal income tax purposes was $293,513,010. As of
December 31, 1994, total unrealized appreciation and depreciation, based on cost
for Federal income tax purposes, was to $48,668,719 and $9,723,705,
respectively, resulting in net unrealized appreciation of $38,945,014.
Transactions in options written during the year ended December 31, 1994 were
as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
--------- --------
<S> <C> <C>
Options outstanding at December 31, 1993 ............ (900) $(176,544)
Options written ..................................... (83,054) (994,435)
Options terminated in closing purchase transactions . 55,882 501,094
Options expired ...................................... 25,997 206,548
Options exercised ................................... 250 35,186
-------- ----------
Options outstanding at December 31, 1994 ............. (1,825) $(428,151)
-------- ----------
</TABLE>
During the year ended December 31, 1994 net realized gain from written
option transactions amounted to $463,347. During the year ended December 31,
1994 net realized loss from purchased option transactions amounted to $879,193,
for a net realized loss on all option transactions of $415,846.
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. A risk in writing a put option is that the Fund may incur a
loss if the market price of the underlying security decreases and the option is
exercised. In addition, there is the risk that the Fund may not be able to enter
a closing transaction because of an illiquid secondary market.
6. Subsequent Event
Subsequent to December 31, 1994, the Fund implemented a multiple class
pricing system. In connection with such implementation, the Fund designated all
outstanding shares of capital stock as Class O shares and created three new
classes of shares designated Class A, Class B and Class C shares. Each of the
new classes of shares has its own distribution plan and sales charge structure.
18
<PAGE> 213
Financial Highlights Salomon Brothers Investors Fund Inc
Selected data per share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990(D) 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of year . $15.60 $16.10 $17.10 $14.54 $16.65 $15.55 $14.77 $17.37 $19.86 $17.61
Net investment income 0.27 0.32 0.41 0.44 0.49 0.66* 0.52 0.49 0.51 0.59
Net gains (losses) on
securities (both
realized and
unrealized) ....... (0.48) 2.025 0.79 3.675 (1.555) 2.66 1.885 (0.32) 2.085 3.71
Total from investment
operations ........ (0.21) 2.345 1.20 4.115 (1.065) 3.32 2.405 0.17 2.595 4.30
Less dividends and
distributions:
Dividends from net
investment income . (0.27) (0.325) (0.41) (0.455) (0.55) (0.63) (0.525) (0.51) (0.535) (0.545)
Distributions from
net realized gain
on investments,
options and
foreign currency
transactions ...... (1.49) (2.52) (1.79) (1.10) (.495) (1.59) (1.10) (2.26) (4.55) (1.505)
Total dividends and
distributions ... (1.76) (2.845) (2.20) (1.555) (1.045) (2.22) (1.625) (2.77) (5.085) (2.05)
Net asset value,
end of year ....... $13.63 $15.60 $16.10 $17.10 $14.54 $16.65 $15.55 $14.77 $17.37 $19.86
Total investment
return based on net
asset value per
share ............. -1.3% +15.1% +7.4% +29.3% -6.5% +21.8% +16.9% +0.7% +14.4% +26.9%
Ratios/Supplemental Data:
Net assets end of
year (thousands) .. $348,214 $386,147 $370,350 $378,615 $330,814 $393,747 $362,742 $352,272 $398,610 $403,399
Ratio of expenses to
average net assets. 0.69% 0.68% 0.68% 0.70% 0.68% 0.63% 0.67% 0.58% 0.57% 0.62%
Ratio of net
investment income
to average net
assets ............ 1.75% 1.90% 2.47% 2.67% 3.13% 3.76% 3.32% 2.37% 2.56% 3.32%
Portfolio turnover
rate .............. 66% 79% 48% 44% 22% 36% 54% 80% 62% 46%
<FN>
- ----------
*Includes $.05 per share of noncash income and special dividends received in
1989.
(D)Since May 1, 1990, the Fund has been managed by SBAM. Prior thereto, the
Lehman Management Co. division of Shearson Lehman Brothers Inc. served as the
Fund's investment manager.
</FN>
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 214
Report of Independent Accountants Salomon Brothers Investors Fund Inc
To the Board of Directors and Shareholders of
Salomon Brothers Investors Fund Inc
In our opinion, the accompanying statement of net assets 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
Salomon Brothers Investors Fund Inc (the "Fund") at December 31, 1994, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the ten years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1994 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 17, 1995
20
<PAGE> 215
PORTFOLIO OF INVESTMENTS SALOMON BROTHERS CASH MANAGEMENT FUND
DECEMBER 31, 1994
<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRNICIPAL ON DATE OF MATURITY VALUE
AMOUNT PURCHASE* DATE (NOTE 1a)
- --------- ---------- -------- ---------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER-36.5%
$ 700,000 American Express Credit Corporation ....................... 5.80% 01/03/95 $ 699,774
595,000 Fairfax County, Virginia Economic
Development Agency ...................................... 6.25 01/12/95 595,000
800,000 General Mills ............................................. 5.97 01/03/95 799,735
500,000 Gillette Company .......................................... 5.70 01/03/95 499,842
700,000 Goldman Sachs Group ....................................... 5.95 01/09/95 699,074
500,000 Idaho Housing Agency ...................................... 5.60 01/05/95 499,689
500,000 Koch Industries ........................................... 5.90 01/03/95 499,836
500,000 Merrill Lynch ............................................. 5.80 01/03/95 499,839
600,000 Methodist Hospital ........................................ 5.75 01/06/95 600,000
500,000 Quaker Oats Company ....................................... 6.18 01/04/95 499,509
500,000 Smith Barney .............................................. 5.45 01/06/95 499,621
600,000 Sunshine State Governmental Financing
Commission, Florida ..................................... 6.33 01/17/95 598,313
-----------
TOTAL COMMERCIAL PAPER (cost $6,990,232) ......................................... 6,990,232
-----------
FLOATING RATE NOTES-32.5%
600,000 Community Health Systems, VR .............................. 6.40 01/04/95 600,000
500,000 Florida State Housing Finance Agency VR ................... 6.10 01/04/95 500,000
610,000 Fulton County, New York
Industrial Development Agency VR ........................ 6.35 01/05/95 610,000
500,000 Health Insurance Plan, Greater New York VR ................ 6.45 01/04/95 500,000
500,000 Illinois Student Assistance Commission VR ................. 6.17 01/04/95 500,000
315,000 New Jersey,
Economic Development Authority VR ....................... 6.41 01/03/95 315,000
285,000 New Jersey,
Economic Development Authority VR ....................... 6.29 01/03/95 285,000
400,000 New York, New York
Industrial Development Agency VR ........................ 6.30 01/04/95 400,000
200,000 New York, New York
Industrial Development Agency VR ........................ 6.30 01/04/95 200,000
500,000 Pasadena, California
Certificates of Participation VR ........................ 6.30 01/03/95 500,000
500,000 Selma, Alabama
Industrial Development Board VR ......................... 6.56 01/10/95 500,000
600,000 Tyler, Texas
Health Facilities Development VR ........................ 6.40 01/04/95 600,000
700,000 Virginia State,
Housing Development Authority VR ........................ 6.75 01/03/95 700,000
-----------
TOTAL FLOATING RATE NOTES (cost $6,210,000) ...................................... 6,210,000
-----------
</TABLE>
3
<PAGE> 216
PORTFOLIO OF INVESTMENTS SALOMON BROTHERS CASH MANAGEMENT FUND
DECEMBER 31, 1994
<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE OF MATURITY VALUE
AMOUNT PURCHASE* DATE (NOTE 1a)
- --------- ---------- -------- ---------
<S> <C> <C> <C> <C>
SHORT-TERM BONDS-7.6%
$ 700,000 Metro Pier & Export Authority, MBIA ....................... 5.50% 06/15/95 $ 700,000
750,000 Richmond County, Georgia
Development Authority PUT ............................... 5.71 06/01/95 750,000
-----------
TOTAL SHORT-TERM BONDS (cost $1,450,000) ......................................... 1,450,000
-----------
REPURCHASE AGREEMENT-18.5%
3,530,399 J.P. Morgan Securities, dated 12/30/94, with a
maturity value of $3,532,478, collateralized
by $3,727,000 U.S. Treasury Note, 5.625%,
due 8/31/97, valued at $3,671,095
(cost $3,530,399) ....................................... 5.30 01/03/95 3,530,399
-----------
TOTAL INVESTMENTS-95.1% OF NET ASSETS
(cost $18,180,631) ............................................................. $18,180,631
===========
</TABLE>
------------
*Yield to maturity on date of purchase, except in the case of
Variable Rate Demand Notes (VR), whose yields are determined on
date of the last interest rate change. For Variable Rate
Demand Notes, maturity date shown is the date of next interest
rate change.
Abbreviations used in this statement:
MBIA Insured as to principal and interest by the Municipal Bond
Investors Assurance Corporation.
PUT Optional or mandatory put. Maturity date shown is the put
date as well as the date of next interest rate change.
See accompanying notes to financial statements.
4
<PAGE> 217
STATEMENT OF ASSETS AND LIABILITIES SALOMON BROTHERS CASH MANAGEMENT FUND
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investments at value (cost $14,650,232) ............................................... $14,650,232
Repurchase Agreement .................................................................. 3,530,399
Receivable for Fund shares sold ....................................................... 1,136,727
Interest receivable ................................................................... 46,104
Unamortized organization expenses ..................................................... 9,071
-----------
Total assets ...................................................................... 19,372,533
-----------
LIABILITIES
Payable for Fund shares redeemed ...................................................... 208,949
Dividend payable ...................................................................... 17,659
Accrued expenses ...................................................................... 19,109
-----------
Total liabilities ................................................................. 245,717
-----------
NET ASSETS (equivalent to $1.00 per share on 19,128,930 shares of $.001 par value
capital stock outstanding; 1,333,333,334 shares authorized) ....................... $19,126,816
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
INCOME
Interest .............................................................................. $ 640,634
EXPENSES
Management fee .............................................................. $ 29,088
Registration and filing fees ................................................ 17,044
Amortization of organization expenses ....................................... 12,000
Administration fee .......................................................... 11,635
Custodian ................................................................... 9,800
Shareholder services ........................................................ 9,642
Legal ....................................................................... 8,961
Audit and tax return preparation fees ....................................... 8,007
Printing .................................................................... 7,249
Directors' fees ............................................................. 2,713
Other ....................................................................... 2,279
-------
118,418
Management fee waived ....................................................... (29,088) 89,330
------- -----------
Net investment income ................................................................. 551,304
Net realized loss on securities sold .................................................. (415)
-----------
Net increase in net assets resulting from operations .................................. $ 550,889
===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 218
STATEMENT OF CHANGES IN NET ASSETS SALOMON BROTHERS CASH MANAGEMENT FUND
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income ...................................................... $ 551,304 $ 346,089
Net realized loss on securities sold ....................................... (415) (257)
----------- -----------
Net increase in net assets resulting from operations ....................... 550,889 345,832
----------- -----------
DIVIDENDS FROM NET INVESTMENT INCOME ....................................... (551,304) (346,089)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares .............................................. 75,796,036 80,014,866
Net asset value of shares issued in reinvestment of dividends .............. 401,895 215,401
Payment for redemption of shares ........................................... (72,120,070) (76,793,905)
----------- -----------
Net increase in net assets resulting from capital share transactions ....... 4,077,861 3,436,362
----------- -----------
Total increase in net assets ............................................... 4,077,446 3,436,105
NET ASSETS
Beginning of year .......................................................... 15,049,370 11,613,265
----------- -----------
End of year ................................................................ $19,126,816 $15,049,370
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
---------------------------------------- DECEMBER 31,
1994 1993 1992 1991 1990*
------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ........................................ $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------
Net investment income ............................ .038+ .027+ .033+ .055+ .019+
Dividends from net investment
income ......................................... (.038) (.027) (.033) (.055) (.019)
------ ------ ------ ------ ------
Net asset value, end of period ................... $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
Net assets end of period
(thousands) .................................... $19,127 $15,049 $11,613 $22,982 $10,293
Total investment return .......................... +3.9% +2.7% +3.4% +5.7% +1.9%
Ratios to average net assets:
Expenses ..................................... 0.61%+ 0.65%+ 0.65%+ 0.65%+ 0.65%**+
Net investment income ........................ 3.79% 2.68% 3.41% 5.43% 7.46%**
</TABLE>
- ------------
*October 2, 1990, commencement of operations, through December 31, 1990.
**Annualized.
+Net investment income would have been $.036, $.025, $.030, $.053 and $.018
and the expense ratios would have been .81%, .85%, .85%, .85% and .97%,
respectively, for the periods ended December 31, 1994, 1993, 1992, 1991 and
1990 before waiver of management fee and/or expenses absorbed by Salomon
Brothers Asset Management Inc ("SBAM").
See accompanying notes to financial statements.
6
<PAGE> 219
PORTFOLIO OF INVESTMENTS SALOMON BROTHERS NEW YORK MUNICIPAL
DECEMBER 31, 1994 MONEY MARKET FUND
<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE MATURITY VALUE
AMOUNT MUNICIPAL BONDS AND NOTES OF PURCHASE* DATE (NOTE 1a)
- --------- ------------ -------- ---------
<S> <C> <C> <C> <C>
NEW YORK-100.1%
$2,745,000 Albany County, New York
Industrial Development Agency PUT ....................... 4.65% 08/15/95 $ 2,745,000
3,300,000 Albany County, New York
Industrial Development Agency VR ........................ 5.75 01/05/95 3,300,000
1,210,000 Albany County, New York
Industrial Development Agency PUT ....................... 5.00 12/01/95 1,210,000
875,000 Albany County, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 875,000
2,540,000 Albany, New York
Industrial Development Agency PUT ....................... 4.25 07/01/95 2,540,000
1,169,000 Albany, New York
Housing Authority VR .................................... 3.80 01/03/95 1,169,000
3,015,000 Amherst, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 3,015,000
400,000 Amherst, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 400,000
950,000 Auburn, New York
Industrial Development Agency VR ........................ 5.75 01/04/95 950,000
1,175,000 Babylon, New York
Industrial Development Agency VR ........................ 5.95 01/05/95 1,175,000
2,350,000 Broome County, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 2,350,000
650,000 Broome County, New York
Industrial Development Agency VR ........................ 4.90 01/04/95 650,000
2,450,000 Chautaugua County, New York
Industrial Development Agency VR ........................ 5.75 01/04/95 2,450,000
3,760,000 Colonie, New York
Industrial Development Agency PUT ....................... 5.00 12/01/95 3,760,000
630,000 Colonie, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 630,000
750,000 Colonie, New York
Housing Development Corporation VR ...................... 3.80 01/04/95 750,000
2,000,000 Dutchess County, New York
Industrial Development Agency VR ........................ 5.10 01/05/95 2,000,000
1,400,000 Dutchess County, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 1,400,000
500,000 Erie County, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 500,000
</TABLE>
7
<PAGE> 220
PORTFOLIO OF INVESTMENTS SALOMON BROTHERS NEW YORK MUNICIPAL
DECEMBER 31, 1994 MONEY MARKET FUND
<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE MATURITY VALUE
AMOUNT MUNICIPAL BONDS AND NOTES (CONTINUED) OF PURCHASE* DATE (NOTE 1a)
- --------- ------------ -------- ---------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 450,800 Erie County, New York
Industrial Development Agency VR ........................ 5.85% 01/05/95 $ 450,800
590,000 Erie County, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 590,000
1,240,000 Erie County, New York
Industrial Development Agency,
Series B VR ............................................. 5.85 01/05/95 1,240,000
1,330,000 Fulton County, New York
Industrial Development Agency PUT ....................... 5.00 12/01/95 1,330,000
1,910,000 Fulton County, New York
Industrial Development Agency VR ........................ 5.35 01/05/95 1,910,000
800,000 Lewis County, New York
Industrial Development Agency VR ........................ 5.40 01/04/95 800,000
6,500,000 Monroe County, New York
Industrial Development Agency VR ........................ 5.75 01/04/95 6,500,000
250,000 Monroe County, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 250,000
3,325,000 Monroe County, New York
Industrial Development Agency VR ........................ 5.40 01/05/95 3,325,000
2,050,000 Monroe County, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 2,050,000
4,825,000 Monroe County, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 4,825,000
1,950,000 Monroe County, New York
Industrial Development Agency PUT ....................... 4.60 06/01/95 1,950,000
1,005,000 Monroe County, New York
Industrial Development Agency VR ........................ 5.95 01/05/95 1,005,000
1,620,000 Monroe County, New York
Industrial Development Agency VR ........................ 5.95 01/05/95 1,620,000
2,550,000 Monroe County, New York
Industrial Development Agency VR ........................ 5.95 01/05/95 2,550,000
700,000 Monroe County, New York
Industrial Development Agency PUT ....................... 4.40 06/15/95 700,000
1,700,000 Monroe County, New York
Industrial Development Agency VR ........................ 5.85 01/04/95 1,700,000
7,000,000 Nassau County, New York
Series B TAN ............................................ 4.50 03/15/95 7,003,445
</TABLE>
8
<PAGE> 221
PORTFOLIO OF INVESTMENTS SALOMON BROTHERS NEW YORK MUNICIPAL
DECEMBER 31, 1994 MONEY MARKET FUND
<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE MATURITY VALUE
AMOUNT MUNICIPAL BONDS AND NOTES (CONTINUED) OF PURCHASE* DATE (NOTE 1a)
- --------- ------------ -------- ---------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$10,000,000 Nassau County, New York
Series A RAN ............................................ 4.00% 04/14/95 $ 10,010,978
7,685,000 Nassau County, New York
Series D BAN ............................................ 5.00 08/15/95 7,724,341
10,000,000 Nassau County, New York
Series C TAN ............................................ 5.40 09/28/95 10,021,311
1,230,000 Nassau County, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 1,230,000
1,100,000 New York State, Environment
Facilities Corporation VR ............................... 6.10 01/03/95 1,100,000
4,400,000 New York State,
Energy Research & Development TECP ...................... 4.50 01/03/95 4,400,000
1,915,000 New York State,
Job Development Authority VR ............................ 3.75 01/03/95 1,915,000
110,000 New York State,
Job Development Authority VR ............................ 3.75 01/03/95 110,000
115,000 New York State,
Job Development Authority VR ............................ 3.75 01/03/95 115,000
1,035,000 New York State,
Job Development Authority VR ............................ 3.75 01/03/95 1,035,000
85,000 New York State,
Job Development Authority VR ............................ 3.85 01/03/95 85,000
535,000 New York State,
Job Development Authority VR ............................ 3.85 01/03/95 535,000
7,100,000 New York State,
Housing Finance Agency VR ............................... 5.50 01/04/95 7,100,000
500,000 New York State,
Energy Research & Development VR ........................ 3.55 01/03/95 500,000
3,400,000 New York State,
Energy Research & Development VR ........................ 5.00 01/03/95 3,400,000
2,600,000 New York State,
Local Government Assistance
Corporation VR .......................................... 5.10 01/04/95 2,600,000
7,600,000 New York State,
Energy Research & Development VR ........................ 5.00 01/03/95 7,600,000
300,000 New York State,
Energy Research & Development VR ........................ 5.00 01/03/95 300,000
1,200,000 New York State, Dormitory Authority VR .................... 4.80 01/04/95 1,200,000
16,235,000 New York State, Dormitory Authority
TECP .................................................... 4.25 01/09/95 16,235,000
</TABLE>
9
<PAGE> 222
PORTFOLIO OF INVESTMENTS SALOMON BROTHERS NEW YORK MUNICIPAL
DECEMBER 31, 1994 MONEY MARKET FUND
<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE MATURITY VALUE
AMOUNT MUNICIPAL BONDS AND NOTES (CONTINUED) OF PURCHASE* DATE (NOTE 1a)
- --------- ------------ ---- ---------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$3,000,000 New York State,
Dormitory Authority TECP ............................. 4.00% 01/10/95 $ 3,000,000
1,500,000 New York State, Medical Care Facility
Finance Agency FHA P/R ............................... 2.65-2.70 01/15/95 1,533,960
3,675,000 New York, New York
Series A RAN ......................................... 4.50 04/12/95 3,681,833
4,000,000 New York, New York
Series B RAN ......................................... 4.75 06/30/95 4,013,121
860,000 New York, New York
Industrial Development Agency VR ..................... 5.95 01/05/95 860,000
1,600,000 New York, New York
Industrial Development Agency VR ..................... 5.85 01/05/95 1,600,000
230,000 New York, New York
Industrial Development Agency VR ..................... 5.85 01/05/95 230,000
1,255,000 New York, New York
Industrial Development Agency VR ..................... 5.85 01/05/95 1,255,000
475,000 New York, New York
Industrial Development Agency VR ..................... 5.80 01/05/95 475,000
700,000 New York, New York
Industrial Development Agency VR ..................... 5.95 01/05/95 700,000
2,400,000 New York, New York
Industrial Development Agency VR ..................... 5.40 01/04/95 2,400,000
3,000,000 New York, New York
Industrial Development Agency VR ..................... 5.25 01/05/95 3,000,000
1,765,000 New York, New York
Industrial Development Agency VR ..................... 5.95 01/05/95 1,765,000
300,000 New York, New York
Industrial Development Agency VR ..................... 5.35 01/04/95 300,000
4,500,000 New York, New York
Industrial Development Agency VR ..................... 5.15 01/03/95 4,500,000
2,000,000 New York, New York
Industrial Development Agency VR ..................... 4.80 01/04/95 2,000,000
16,000,000 New York, New York
Housing Development Corporation VR ................... 6.00 01/05/95 16,000,000
1,900,000 New York, New York
Housing Development Corporation VR ................... 6.00 01/05/95 1,900,000
2,000,000 New York, New York
Housing Development Corporation VR ................... 6.00 01/05/95 2,000,000
6,600,000 New York, New York
Housing Development Corporation VR ................... 5.40 01/04/95 6,600,000
</TABLE>
10
<PAGE> 223
PORTFOLIO OF INVESTMENTS SALOMON BROTHERS NEW YORK MUNICIPAL
DECEMBER 31, 1994 MONEY MARKET FUND
<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE MATURITY VALUE
AMOUNT MUNICIPAL BONDS AND NOTES (CONTINUED) OF PURCHASE* DATE (NOTE 1a)
- --------- ------------ ---- ---------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$3,000,000 New York, New York
Housing Development Corporation VR ...................... 5.75% 01/04/95 $ 3,000,000
1,700,000 New York, New York Series A VR ............................ 6.00 01/03/95 1,700,000
2,000,000 New York, New York VR ..................................... 6.50 01/03/95 2,000,000
400,000 New York, New York VR ..................................... 6.00 01/03/95 400,000
600,000 New York, New York VR ..................................... 6.00 01/03/95 600,000
1,500,000 New York, New York VR ..................................... 6.00 01/03/95 1,500,000
3,350,000 New York, New York VR ..................................... 6.05 01/03/95 3,350,000
5,000,000 New York, New York
Municipal Water TECP .................................... 4.50 01/06/95 5,000,000
100,000 New York City
Trust for Cultural Resources VR ......................... 5.00 01/04/95 100,000
1,000,000 New York, New York Water Authority VR ..................... 6.00 01/03/95 1,000,000
3,600,000 Newburgh, New York
Industrial Development Agency VR ........................ 5.30 01/04/95 3,600,000
3,090,000 Niagara County, New York
Industrial Development Agency VR ........................ 5.65 01/04/95 3,090,000
1,250,000 Niagara County, New York
Industrial Development Agency VR ........................ 5.95 01/05/95 1,250,000
3,500,000 Onondaga County, New York
Industrial Development Agency,
Series B VR ............................................. 5.60 01/04/95 3,500,000
1,300,000 Onondaga County, New York
Industrial Development Agency,
Series 1989 VR .......................................... 5.60 01/04/95 1,300,000
3,100,000 Onondaga County, New York
Industrial Development Agency VR ........................ 5.50 01/05/95 3,100,000
379,000 Oneida County, New York
Industrial Development Agency VR ........................ 5.75 01/05/95 379,000
400,000 Port Authority,
New York & New Jersey VR ................................ 5.40 01/03/95 400,000
1,690,000 Rockland County, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 1,690,000
1,800,000 Rockland County, New York
Industrial Development Agency VR ........................ 5.95 01/05/95 1,800,000
1,010,000 Saratoga County, New York
Industrial Development Agency VR ........................ 5.95 01/05/95 1,010,000
430,000 Schoharie County, New York
Industrial Development Agency VR ........................ 5.75 01/05/95 430,000
</TABLE>
11
<PAGE> 224
PORTFOLIO OF INVESTMENTS SALOMON BROTHERS NEW YORK MUNICIPAL
DECEMBER 31, 1994 MONEY MARKET FUND
<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE MATURITY VALUE
AMOUNT MUNICIPAL BONDS AND NOTES (CONTINUED) OF PURCHASE* DATE (NOTE 1a)
- --------- ------------ ---- ---------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 80,000 St. Lawrence County, New York
Industrial Development Agency VR ........................ 5.75% 01/04/95 $ 80,000
8,000,000 Suffolk County, New York
Water Authority VR ...................................... 4.85 01/04/95 8,000,000
1,930,000 Suffolk County, New York
Industrial Development Agency VR ........................ 5.50 01/04/95 1,930,000
3,000,000 Suffolk County, New York
Industrial Development Agency VR ........................ 5.25 01/04/95 3,000,000
500,000 Suffolk County, New York
Industrial Development Agency VR ........................ 4.85 01/04/95 500,000
3,550,000 Syracuse, New York
Industrial Development Agency VR ........................ 5.85 01/04/95 3,550,000
1,550,000 Syracuse, New York
Industrial Development Agency PUT ....................... 4.40 06/15/95 1,550,000
725,000 Wyoming County, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 725,000
1,580,000 Yates County, New York
Industrial Development Agency VR ........................ 5.35 01/05/95 1,580,000
1,000,000 Yonkers, New York
Industrial Development Agency VR ........................ 5.95 01/03/95 1,000,000
1,230,000 Yonkers, New York
Industrial Development Agency VR ........................ 5.85 01/05/95 1,230,000
------------
TOTAL INVESTMENTS-100.1% OF NET ASSETS
(cost $270,042,789) ............................................................ $270,042,789
============
</TABLE>
------------
*Yield to maturity on date of purchase, except in the case of
Variable Rate Demand Notes (VR) and Put Bonds, whose yields are
determined on date of the last interest rate change.
Abbreviations used in this statement:
BAN Bond Anticipation Note
FHA Mortgage Insured by Federal Housing Administration
RAN Revenue Anticipation Note
P/R Pre-refunded in U.S. Treasury Securities
PUT Optional or mandatory put. Maturity date shown is the put
date as well as the date of the next interest rate change
TAN Tax Anticipation Note
TECP Tax Exempt Commercial Paper
VR Variable Rate Demand Note. Maturity date shown is the date
of next interest rate change
See accompanying notes to financial statements.
12
<PAGE> 225
STATEMENT OF ASSETS AND LIABILITIES SALOMON BROTHERS NEW YORK MUNICIPAL
DECEMBER 31, 1994 MONEY MARKET FUND
<TABLE>
<S> <C>
ASSETS
Investments at value (cost $270,042,789) .............................................. $270,042,789
Cash .................................................................................. 38,083
Receivable for securities sold ........................................................ 30,000
Receivable for Fund shares sold ....................................................... 1,749,838
Interest receivable ................................................................... 1,458,308
Unamortized organization expenses ..................................................... 9,071
------------
Total assets ...................................................................... 273,328,089
------------
LIABILITIES
Payable for Fund shares redeemed ...................................................... 3,408,802
Dividend payable ...................................................................... 16,954
Management fee payable ................................................................ 40,457
Accrued expenses ...................................................................... 73,881
------------
Total liabilities ................................................................. 3,540,094
------------
NET ASSETS equivalent to $1.00 per share on 270,044,096 shares of $.001 par
value capital stock outstanding; 3,333,333,333 shares authorized) ................... $269,787,995
============
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<S> <C> <C>
INCOME
Interest ................................................................... $ 7,132,055
EXPENSES
Management fee ............................................................. $468,902
Administration fee ......................................................... 190,022
Shareholder services ....................................................... 114,737
Audit and tax return preparation fee ....................................... 49,325
Legal ...................................................................... 45,727
Custodian .................................................................. 36,572
Printing ................................................................... 29,876
Amortization of organization expenses ...................................... 11,968
Registration and filing fees ............................................... 7,330
Directors' fees ............................................................ 2,714
Other ...................................................................... 13,928 971,101
-------- ------------
Net investment income ................................................................. 6,160,954
Net realized loss on securities sold .................................................. (65,622)
------------
Net increase in net assets resulting from operations .................................. $ 6,095,332
============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 226
STATEMENT OF CHANGES IN NET ASSETS SALOMON BROTHERS NEW YORK MUNICIPAL
MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993
------------- ------------
<S> <C> <C>
OPERATIONS
Net investment income .................................................. $ 6,160,954 $ 5,102,444
Net realized gain (loss) on securities sold ............................ (65,622) 49,102
------------ ------------
Net increase in net assets resulting from operations ................... 6,095,332 5,151,546
------------ ------------
DIVIDENDS FROM NET INVESTMENT INCOME ................................... (6,160,954) (5,102,444)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares .......................................... 424,692,601 516,356,557
Net asset value of shares issued in reinvestment of dividends .......... 5,955,238 4,803,596
Payment for redemption of shares ....................................... (423,206,832) (522,482,028)
------------ ------------
Net change in net assets resulting from capital share transactions ..... 7,441,007 (1,321,875)
------------ ------------
Total change in net assets ............................................. 7,375,385 (1,272,773)
NET ASSETS
Beginning of year ...................................................... 262,412,610 263,685,383
------------ ------------
End of year ............................................................ $269,787,995 $262,412,610
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
---------------------------------------------- DECEMBER 31,
1994 1993 1992 1991 1990*
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ................................ $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------
Net investment income ................... .027 .023 .031 .047 .014(D)
Dividends from net investment
income ................................ (.027) (.023) (.031) (.047) (.014)
------ ------ ------ ------ ------
Net asset value, end of period .......... $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
Net assets end of period
(thousands) ........................... $269,788 $262,413 $263,685 $154,782 $34,529
Total investment return ................. +2.7% +2.3% +3.1% +4.8% +1.4%
Ratios to average net assets:
Expenses ............................ 41% .41% .42% .60% .64%**+
Net investment income ............... 2.63% 2.31% 3.07% 4.63% 5.79%**
</TABLE>
- ---------
**October 2, 1990, commencement of operations, through December 31, 1990.
**Annualized.
+Net investment income would have been $.012, and the expense ratio would
have been 1.23% for the period ended December 31, 1990 before waiver of
management fee and expenses absorbed by SBAM.
See accompanying notes to financial statements.
14
<PAGE> 227
PORTFOLIO OF INVESTMENTS SALOMON BROTHERS U.S. TREASURY SECURITIES
DECEMBER 31, 1994 MONEY MARKET FUND
<TABLE>
<CAPTION>
YIELD TO
MATURITY
PRINCIPAL ON DATE MATURITY VALUE
AMOUNT OF PURCHASE DATE (NOTE 1a)
- -------- ----------- ---- --------
<S> <C> <C> <C> <C>
U.S. TREASURY BILLS-103.8%
$8,049,000 U.S. Treasury Bill ....... 4.71% 02/02/95 $ 8,015,302
807,000 U.S. Treasury Bill ....... 4.65 02/09/95 802,935
3,260,000 U.S. Treasury Bill ....... 4.87 02/09/95 3,242,801
3,667,000 U.S. Treasury Bill ....... 5.20 02/09/95 3,646,342
2,200,000 U.S. Treasury Bill ....... 5.22 02/09/95 2,187,559
5,000,000 U.S. Treasury Bill ....... 5.33 03/09/95 4,950,401
6,000,000 U.S. Treasury Bill ....... 5.77 05/18/95 5,868,256
------------
28,713,596
------------
TOTAL U.S. TREASURY BILLS
(cost $28,713,596) ............................... 28,713,596
------------
TOTAL INVESTMENTS-103.8% OF NET ASSETS .............. $28,713,596
===========
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 228
STATEMENT OF ASSETS AND LIABILITIES SALOMON BROTHERS U.S. TREASURY SECURITIES
DECEMBER 31, 1994 MONEY MARKET FUND
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $28,713,596) ........................ $28,713,596
Cash ............................................................ 8
Receivable for Fund shares sold ................................. 23,658
Unamortized organization expenses ............................... 11,241
-----------
Total assets ................................................ 28,748,503
-----------
LIABILITIES
Payable for Fund shares redeemed ................................ 1,052,863
Dividend payable ................................................ 14,563
Management fee payable .......................................... 2,203
Accrued expenses ................................................ 12,184
-----------
Total liabilities ........................................... 1,081,813
-----------
NET ASSETS (equivalent to $1.00 per share on 27,720,532
shares of $.001 par value capital stock outstanding;
2,000,000,000 shares authorized) .............................. $27,666,690
===========
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C> <C>
INCOME
Interest ............................................... $1,177,203
EXPENSES
Management fee ......................................... $29,658
Administration fee ..................................... 23,727
Registration and filing fees ........................... 12,960
Shareholder services ................................... 12,852
Amortization of organization expenses .................. 12,000
Custodian .............................................. 10,997
Printing ............................................... 8,873
Audit and tax return preparation fees .................. 7,850
Legal .................................................. 5,309
Directors' fees ........................................ 2,713
Other .................................................. 5,015 131,954
------- ----------
Net investment income ........................................... 1,045,249
Net realized loss on securities sold ............................ (2,037)
----------
Net increase in net assets resulting from operations ............ $1,043,212
==========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 229
STATEMENT OF CHANGES IN NET ASSETS SALOMON BROTHERS U.S. TREASURY SECURITIES
MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993
---------- -----------
<S> <C> <C>
OPERATIONS
Net investment income ................................................ $ 1,045,249 $ 1,135,069
Net realized loss on securities sold ................................. (2,037) (4,000)
----------- -----------
Net increase in net assets resulting from operations ................. 1,043,212 1,131,069
----------- -----------
DIVIDENDS FROM NET INVESTMENT INCOME ................................. (1,045,249) (1,135,069)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares ........................................ 127,781,043 78,899,102
Net asset value of shares issued in reinvestment of dividends ........ 881,270 963,319
Payment for redemption of shares ..................................... (135,113,944) (96,292,490)
----------- -----------
Net decrease in net assets resulting from capital share transactions . (6,451,631) (16,430,069)
----------- -----------
Total decrease in net assets ......................................... (6,453,668) (16,434,069)
NET ASSETS
Beginning of year .................................................... 34,120,358 50,554,427
----------- -----------
End of year .......................................................... $27,666,690 $34,120,358
=========== ===========
</TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------------------------------ DECEMBER 31,
1994 1993 1992 1991 1990*
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------
Net investment income .............. .036 .028 .034 (.054)+ .005+
Dividends from net investment
income ............................ (.036) (.028) (.034) (.054) (.005)
------ ------ ------ ------ ------
Net asset value, end of period ..... $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
Net assets end of period (thousands) $27,667 $34,120 $50,554 $35,414 $4,596
Total investment return ............ +3.6% +2.9% +3.4% +5.5% +0.5%
Ratios to average net assets:
Expenses ....................... .45% .35% .44% .54%+ .74%**+
Net investment income .......... 3.53% 2.83% 3.42% 5.23% 6.45%**
</TABLE>
- ---------
*December 7, 1990, commencement of operations, through December 31, 1990.
**Annualized.
+Net investment income would have been $.052 and $.004, and the expense
ratios would have been .64% and 1.72%, respectively, for the years ended
December 31, 1991 and December 31, 1990 before waiver of management fee and
expenses absorbed by SBAM.
See accompanying notes to financial statements.
17
<PAGE> 230
PORTFOLIO OF INVESTMENTS SALOMON BROTHERS NEW YORK MUNICIPAL
DECEMBER 31, 1994 BOND FUND
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL CREDIT VALUE
AMOUNT MUNICIPAL SECURITIES RATING (NOTE 1a)
- --------- ---------- ---------
<S> <C> <C> <C>
NEW YORK-84.4%
$ 110,000 Metropolitan Transportation Authority New York
6.50%, 07/01/16 ............................... Baa1/BBB $ 102,320
120,000 Metropolitan Transportation Authority
5.75%, 07/01/15 ............................... Baa1/BBB 102,068
300,000 New York City Health & Hospital Corporation
6.30%, 02/15/20 ............................... Baa/BBB 267,855
300,000 New York Municipal Water Finance Authority
6.00%, 06/15/17 ............................... A/A- 270,648
100,000 New York State, Medical Care Finance Agency
6.00%, 02/15/11 ............................... Baa1/BBB+ 89,701
250,000 New York State, Local Government Assistance
6.00%, 04/01/18 ............................... A/A 226,500
100,000 New York State,
Dormitory Authority 5.75%, 07/01/18 ........... Baa1/BBB 84,873
315,000 New York State,
Dormitory Authority 6.00%, 05/15/17 ........... Baa1/BBB+ 276,088
55,000 New York State,
Dormitory Authority 6.00%, 07/01/16 ........... Baa1/BBB 48,379
250,000 New York State,
Thruway Authority Services 6.00%, 04/01/10 .... Baa1/BBB 231,608
100,000 New York State, Urban Development 5.50%, 01/01/18 Baa1/BBB 81,029
300,000 New York, New York 6.75%, 10/01/17 .............. Baa1/A- 284,952
300,000 New York, New York 7.375%, 08/15/13 ............. Baa1/A- 305,469
250,000 Onondaga County, New York Industrial Development
Agency 6.625%, 01/01/18 ....................... Baa/BBB 222,215
250,000 Port Authority of New York & New Jersey
6.00%, 01/15/28 ................................ A1/AA- 220,554
---------
TOTAL NEW YORK (COST $3,077,171) ................ 2,814,259
---------
PUERTO RICO-22.7%
250,000 Commonwealth of Puerto Rico 6.00%, 07/01/14 ..... Baa1/A 229,075
250,000 Puerto Rico, Commonwealth Highway Authority
6.00%, 07/01/20 ................................ Baa1/A 223,170
325,000 Puerto Rico,
Electric Power Authority 6.00%, 07/01/10 ....... Baa1/A- 302,972
---------
TOTAL PUERTO RICO (COST $823,516) .......................... 755,217
---------
TOTAL INVESTMENTS-107.1% OF NET ASSETS
(cost $3,900,687) ....................................... $3,569,476
==========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 231
STATEMENT OF ASSETS SALOMON BROTHERS NEW YORK MUNICIPAL
DECEMBER 31, 1994 BOND FUND
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $3,900,687) ........................ $3,569,476
Cash ........................................................... 18,145
Receivable from SBAM ........................................... 12,085
Interest receivable ............................................ 82,108
Unamortized organization expenses .............................. 41,896
----------
Total assets .............................................. 3,723,710
----------
LIABILITIES
Payable for Fund shares redeemed .............................. 359,878
Dividend payable................................................ 23,550
Accrued expenses ............................................... 6,852
----------
Total liabilities ......................................... 390,280
----------
NET ASSETS (equivalent to $8.98 per share on 371,007 shares
of $.001 par value capital stock outstanding;
3,333,333,333 shares authorized) .............................. $3,333,430
==========
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C> <C>
INCOME
Interest ............................................. $ 453,076
EXPENSES
Management fee ....................................... $ 36,428
Amortization of organization expenses ................ 14,001
Printing ............................................. 7,817
Shareholder services ................................. 6,017
Administration fee ................................... 5,825
Audit and tax return preparation fees ................ 5,620
Directors' fees ...................................... 2,714
Registration and filing fees ......................... 1,208
Legal ................................................ 1,099
Custodian ............................................ 147
Other ................................................ 4,065
--------
84,941
Management fee waived and expenses absorbed by SBAM .. (48,513) 36,428
-------- ----------
Net investment income ................................ 416,648
----------
NET REALIZED LOSS ON SECURITIES SOLD ................. (552,459)
----------
NET UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENTS
Beginning of year .................................... 304,835
End of year .......................................... (331,211)
--------
Decrease in net unrealized appreciation ........................ (636,046)
----------
Net realized loss and decrease in net unrealized appreciation .. (1,188,505)
----------
Net decrease in net assets resulting from operations ........... $ (771,857)
==========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 232
STATEMENT OF CHANGES IN NET ASSETS SALOMON BROTHERS NEW YORK MUNICIPAL
DECEMBER 31, 1994 BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1994 1994
----------- ------------
<S> <C> <C>
OPERATIONS
Net investment income $ 416,648 $ 327,999
Net realized gain (loss) on securities sold and futures transactions ............. (552,459) 9,043
Change in net unrealized appreciation ............................................ (636,046) 304,835
--------- ---------
Net change in net assets resulting from operations ............................... (771,857) 641,877
--------- ---------
DIVIDENDS TO SHAREHOLDERS FROM
Net investment income ............................................................ (416,648) (327,999)
Net realized gain on securities sold and futures ................................. - (15,783)
--------- ---------
(416,648) (343,782)
--------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of 194,976 and 985,472 shares, respectively .................. 1,960,677 9,956,475
Net asset value of 40,650 and 27,528 shares, respectively, issued in
reinvestment of dividends ...................................................... 390,961 283,762
Payment for redemption of 665,997 and 211,632 shares, respectively ............... (6,193,972) (2,174,163)
--------- ---------
Net change in net assets resulting from capital share transactions representing
a net decrease of 430,371 and a net increase of 801,368 shares,
respectively ................................................................... (3,842,334) 8,066,074
--------- ---------
Total change in net assets ....................................................... (5,030,839) 8,364,169
NET ASSETS
Beginning of year ................................................................ 8,364,269 100
--------- ---------
End of year ...................................................................... $3,333,430 $8,364,269
========== ==========
</TABLE>
FINANCIAL HIGHLIGHTS
SELECTED DATA PER SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1994 1994*
----------- ------------
<S> <C> <C>
Net asset value, beginning of period ............................................. $10.44 $10.00
------ ------
Net investment income ............................................................ .55+ .46+
Net gains (losses) on securities and futures (both realized and unrealized) ...... (1.46) .46
------ ------
Total from investment operations ................................................. (.91) .92
------ ------
Dividends from net investment income ............................................. (.55) (.46)
Distibutions from net realized gain on securities and futures .................... - (.02)
------ ------
Total dividends and distributions ................................................ (.55) (.48)
------ ------
Net asset value, end of period ................................................... $ 8.98 $10.44
====== ======
Net assets end of period (thousands) ............................................. $3,333 $8,364
Total investment return .......................................................... -8.8%** +9.4%**
Ratios to average net assets:
Expenses ....................................................................... .50%+ .50%***+
Net investment income .......................................................... 5.72% 4.99%***
Portfolio turnover rate .......................................................... 63% 24%
</TABLE>
- ----------
*February 1, 1993, commencement of operations, through December 31, 1993.
**Dividends are declared daily and paid the first day of the following month in
which declared. For the purpose of the total return calculation, the
reinvestment is assumed using the end of month net asset value per share.
***Annualized.
+Net investment income would have been $.49 and $.40, and the expense ratios
would have been 1.17% and 1.24% for the year ended December 31, 1994 and the
period ended December 31, 1993, respectively, before waiver of management fee
and expenses absorbed by SBAM.
See accompanying notes to financial statements.
20
<PAGE> 233
NOTES TO FINANCIAL STATEMENTS SALOMON BROTHERS SERIES FUNDS INC
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers Series Funds Inc (the "Company") was incorporated in
Maryland on April 17, 1990 as an open-end management investment company, and
currently operates as a series company comprising three money market portfolios
(individually, the "Fund"): Salomon Brothers Cash Management Fund (the "Cash
Fund"), Salomon Brothers New York Municipal Money Market Fund (the "Municipal
Fund") and Salomon Brothers U.S. Treasury Securities Money Market Fund (the
"U.S. Treasury Fund"); and one long-term bond portfolio, Salomon Brothers New
York Municipal Bond Fund (the "Bond Fund").
Certain costs incurred in connection with the Company's organization, which
were payable to Salomon Brothers Asset Management Inc ("SBAM") have been
deferred and are being amortized by the Company over a 60 month period from the
date each Fund commenced operations. In the event that any of the 100,000 shares
purchased by SBAM on September 27, 1990 (the "Initial Shares") are redeemed
during the amortization period by any holder thereof, the Company will be
reimbursed by SBAM for any remaining unamortized costs in the same proportion as
the number of Initial Shares redeemed bears to the total number of Initial
Shares outstanding at the time of redemption.
Following is a summary of significant accounting policies followed by the
Company in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
(a) Securities Valuation. Portfolio securities for the money market fund
portfolios are valued using the amortized cost method, which involves
initially valuing an investment at its cost and thereafter assuming a
constant amortization to maturity of any premium or discount. This method
results in a value approximating market value.
For the Bond Fund, portfolio 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.
Securities for which reliable quotations or prices from pricing services are
not readily available and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Board of Directors.
Short-term securities, held by the Bond Fund, with less than 60 days
remaining to maturity when acquired by the Fund will be valued at amortized
cost which approximates market value. If the Fund acquires such securities
with more than 60 days remaining to maturity, they will be valued at current
market value (using the bid price) until the 60th day prior to maturity, and
will then be valued on an amortized cost basis.
(b) Futures Contracts. The Bond Fund may use futures contracts, which
involves paying or receiving variation margin, which will be recorded as
unrealized gain or loss until the contract is closed, at such time, a
realized gain or loss will be recognized. Outstanding contracts involve
elements of market risk in excess of amounts reported in the financial
statements.
(c) Federal Income Taxes. Each Fund has complied and intends to continue
to comply with the requirements of the Internal Revenue Code applicable to
regulated investment companies, including the distribution requirements of
the Tax Reform Act of 1986, and to distribute all of its income, including
any net realized gains, to shareholders. Therefore, no Federal income tax or
excise tax provision is required.
21
<PAGE> 234
NOTES TO FINANCIAL STATEMENTS (CONTINUED) SALOMON BROTHERS SERIES FUNDS INC
(d) Dividends. Dividends on the shares of each Fund are declared each
business day to shareholders of record that day, and for the Cash Fund,
Municipal Fund and U.S. Treasury Fund, paid on the last day of the month.
For the Bond Fund, dividends are paid the first day of the month following
that in which the dividends have been declared. Distributions of net
realized gains to shareholders, if any, are declared annually and recorded
on the ex-dividend date.
(e) Expenses. Direct expenses are charged to the Fund that incurred
them, and general expenses are allocated to the Funds based on each Fund's
relative average net assets for the period.
(f) Other. Investment transactions are recorded as of the trade date.
Interest income, including the amortization of discounts or premiums, is
recognized when earned. Gains or losses on sales of securities are
calculated on the identified cost basis.
2. MANAGEMENT FEE AND OTHER AGREEMENTS
The Company retains SBAM, an indirect wholly owned subsidiary of Salomon
Inc, to act as investment manager of each Fund, subject to the supervision by
the Board of Directors of the Company. SBAM furnishes the Company with office
space and certain services and facilities required for conducting the business
of the Company and pays the compensation of its officers. The management fee for
these services is payable monthly and is based on the following annual
percentages of the Funds' average daily net assets: .20% for the Cash Fund and
the Municipal Fund, .10% for the U.S. Treasury Fund and .50% for the Bond Fund.
For the year ended December 31, 1994, SBAM waived its management fees of $29,088
and $36,428 for the Cash Fund and Bond Fund, respectively, and voluntarily
absorbed $12,085 of expenses for the Bond Fund.
If in any fiscal year total expenses of any Fund, excluding taxes,
interest, brokerage and extraordinary expenses, but including the management
fee, exceed the most stringent expense limitations imposed by state securities
regulations applicable to the Fund, SBAM will pay or reimburse the Fund for the
excess. Currently, the most restrictive of these limitations on an annual basis
is 2.5% of the first $30 million of average daily net assets, 2.0% of the next
$70 million of average daily net assets and 1.5% of average daily net assets in
excess of $100 million. No such expense reimbursement was required for the year
ended December 31, 1994.
At December 31, 1994, the Bond Fund has a receivable from SBAM of $12,085
relating to expenses voluntarily absorbed by SBAM.
As of December 1, 1994, Investors Bank and Trust Company ("IBT") serves as
the Company's custodian and administrator. IBT performs custodial and certain
administrative services in connection with the operation of the Company. Prior
to December 1, 1994, administrative services were provided by The Shareholder
Services Group, Inc. ("TSSG") and custodial services were provided by Boston
Safe Deposit and Trust Company. TSSG continues to serve as the Company's
transfer and shareholder services agent.
Each Fund has an agreement with Salomon Brothers Inc to distribute its
shares.
22
<PAGE> 235
NOTES TO FINANCIAL STATEMENTS (CONTINUED) SALOMON BROTHERS SERIES FUNDS INC
3. CAPITAL STOCK
At December 31, 1994, the Company had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share.
The authorized shares are allocated as follows: Cash Fund-1,333,333,334
shares, Municipal Fund-3,333,333,333 shares, U.S. Treasury Fund-2,000,000,000
shares and Bond Fund-3,333,333,333 shares.
<TABLE>
<CAPTION>
Net assets consist of:
CASH FUND MUNICIPAL FUND U.S. TREASURY FUND BOND FUND
--------- -------------- ------------------ ---------
<S> <C> <C> <C> <C>
Par value .......................... $ 19,129 $ 270,044 $ 27,721 $ 371
Paid-in capital in excess of par ... 9,109,801 269,774,052 27,692,811 4,222,749
Accumulated net realized loss on
investments ....................... (2,114) (256,101) (53,842) (558,479)
Net unrealized depreciation ........ - - - (331,211)
----------- ------------ ------------ ----------
Net assets ......................... $19,126,816 $269,787,995 $27,666,690 $3,333,430
=========== ============ =========== ==========
</TABLE>
4. PORTFOLIO ACTIVITY
The Cash Fund and Municipal Fund invest in money market instruments
maturing in thirteen months or less whose credit ratings are within the highest
ratings category of two nationally recognized statistical rating organizations
("NRSROs") or if rated by only one NRSRO, the highest rating of that NRSRO, or,
if not rated, are believed by the investment manager to be of comparable
quality. The U.S. Treasury Fund invests in U.S. Treasury Securities maturing in
thirteen months or less. The Municipal Fund and the Bond Fund each pursue their
investment objectives by investing at least 65% of their net assets in
obligations that are exempt from regular Federal income tax and from personal
income taxes of the State and City of New York. Because the Municipal Fund and
the Bond Fund invest primarily in obligations of the State and City of New York,
they are more susceptible to factors adversely affecting issuers of such
obligations than a fund that is more diversified.
When entering into repurchase agreements, it is the Company's policy to
take possession, through its custodian, of the underlying collateral and to
monitor the collateral value at the time the agreement is entered into and at
all times during the term of the repurchase agreement to ensure that such
collateral always equals or exceeds the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the Company has the
right to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
At December 31, 1994, the Cash Fund, Municipal Fund, U.S. Treasury Fund and
Bond Fund had net capital loss carryovers available to offset future capital
gains as follows:
<TABLE>
<CAPTION>
YEAR OF
EXPIRATION CASH FUND MUNICIPAL FUND U.S. TREASURY FUND BOND FUND
- ---------- --------- -------------- ------------------ ---------
<S> <C> <C> <C> <C>
1999 .......... $ 894 $ 94,844 - -
2000 .......... 396 94,778 $48,666 -
2001 .......... 409 - 4,363 -
2002 .......... 415 65,321 2,005 $305,822
------ -------- ------- --------
$2,114 $254,943 $55,034 $305,822
====== ======== ======= ========
</TABLE>
23
<PAGE> 236
NOTES TO FINANCIAL STATEMENTS (CONTINUED) SALOMON BROTHERS SERIES FUNDS INC
At December 31, 1994, as permitted under Federal income tax regulations,
the Municipal Fund, U.S. Treasury Fund and the Bond Fund have elected to defer
$301, $32 and $252,597, respectively, of Post-October losses to the next taxable
year.
The Bond Fund's cost of securities for Federal income tax purposes is the
same as for financial statement purposes, which amounted to $3,900,687. As of
December 31, 1994, total unrealized appreciation and depreciation, based on cost
for Federal income tax purposes, amounted to $12,169 and $343,380, respectively,
resulting in net unrealized depreciation of $331,211. Cost of securities
purchased and proceeds from securities sold (other than short-term investments)
during the year ended December 31, 1994 aggregated $4,451,411 and $8,247,502,
respectively.
5. SUBSEQUENT EVENT
Subsequent to December 31, 1994, the Company implemented a multiple class
pricing system with respect to the Cash Fund and the Bond Fund. In connection
with such implementation, the Fund designated all outstanding shares of the Cash
Fund and the Bond Fund as Class O shares, added four new portfolios, The
National Intermediate Municipal Fund, The U.S. Government Income Fund, The High
Yield Bond Fund and The Strategic Bond Fund and created three new classes of
shares designated Class A, Class B and Class C shares. Each of the new classes
of shares has its own distribution plan and sales charge structure.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
SALOMON BROTHERS SERIES FUNDS INC
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Salomon Brothers
Cash Management Fund, Salomon Brothers New York Municipal Money Market Fund,
Salomon Brothers U.S. Treasury Securities Money Market Fund and Salomon
Brothers New York Municipal Bond Fund (constituting Salomon Brothers Series
Funds Inc, hereafter referred to as the "Fund") at December 31, 1994, the
results of each of their operations for the year then ended, the changes in each
of their net assets for each of the two years in the period then ended (for
Salomon Brothers New York Municipal Bond Fund, for the year ended December 31,
1994 and the period from February 1, 1993 (commencement of operations) through
December 31, 1993) and the financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1994 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 27, 1995
24
<PAGE> 237
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
PORTFOLIO OF INVESTMENTS
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
SALOMON BROTHERS CASH MANAGEMENT FUND
- ---------------------------------------------------------------------------------------------------------------
YIELD TO
MATURITY ON
PRINCIPAL DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- 36.3%
$ 200,000 BASF . . . . . . . . . . . . . . . . . . . . . . 6.000% 07/05/95 $ 199,867
400,000 Bell South . . . . . . . . . . . . . . . . . . . 6.100 07/05/95 399,729
400,000 Cargill . . . . . . . . . . . . . . . . . . . . 6.100 07/03/95 399,864
400,000 Central Illinois . . . . . . . . . . . . . . . . 6.200 07/03/95 399,862
500,000 De Kalb County, Georgia
Development Authority . . . . . . . . . . . . 6.000 07/06/95 501,953
400,000 General Electric . . . . . . . . . . . . . . . . 5.970 07/07/95 399,602
200,000 KFW International Finance . . . . . . . . . . . 6.200 07/06/95 199,828
400,000 Methodist Hospital (Houston, Texas) . . . . . . 5.900 08/04/95 400,000
200,000 PHH . . . . . . . . . . . . . . . . . . . . . . 6.000 07/18/95 199,433
322,000 Philip Morris . . . . . . . . . . . . . . . . . 6.100 07/03/95 321,891
235,000 Unilever . . . . . . . . . . . . . . . . . . . . 6.030 07/06/95 234,803
-----------
TOTAL COMMERCIAL PAPER
(cost $3,656,832) . . . . . . . . . . . . . . 3,656,832
-----------
FLOATING RATE NOTES -- 61.2%
400,000 Community Health Systems VR . . . . . . . . . . 6.400 07/05/95 400,000
400,000 Florida Housing Finance Agency VR . . . . . . . 6.100 07/05/95 400,000
400,000 Fulton County, New York
Industrial Development Agency VR . . . . . . . 6.300 07/06/95 400,000
200,000 Genesis Health Systems VR . . . . . . . . . . . 6.200 07/05/95 200,000
400,000 Greensboro, North Carolina GO VR . . . . . . . . 6.150 07/05/95 400,000
400,000 Health Insurance Plan, Greater New York VR . . . 6.170 07/05/95 400,000
400,000 Illinois Student Assistance Commission VR . . . 6.170 07/05/95 400,000
300,000 New Jersey Economic Development
Authority VR . . . . . . . . . . . . . . . . . 6.440 07/03/95 300,000
260,000 New Jersey Economic Development
Authority VR . . . . . . . . . . . . . . . . . 6.320 07/03/95 260,000
400,000 New York, New York GO VR . . . . . . . . . . . . 6.050 07/05/95 400,000
400,000 New York, New York
Industrial Development Agency VR . . . . . . . 6.200 07/05/95 400,000
200,000 New York, New York
Industrial Development Agency VR . . . . . . . 6.200 07/05/95 200,000
400,000 Pasadena, California
Certificates of Participation VR . . . . . . . 6.000 07/05/95 400,000
400,000 Selma, Alabama
Industrial Development Board VR . . . . . . . 6.460 07/11/95 400,000
400,000 Texas State GO VR . . . . . . . . . . . . . . . 6.100 07/05/95 400,000
400,000 Tyler, Texas
Health Facilities Development VR . . . . . . . 6.400 07/05/95 400,000
400,000 Virginia State,
Housing Development Authority VR . . . . . . . 6.170 07/05/95 400,000
-----------
TOTAL FLOATING RATE NOTES
(cost $6,160,000) . . . . . . . . . . . . . . 6,160,000
-----------
</TABLE>
See accompanying notes to financial statements
PAGE 2
<PAGE> 238
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
SALOMON BROTHERS CASH MANAGEMENT FUND (concluded)
- ---------------------------------------------------------------------------------------------------------------
YIELD TO
MATURITY ON
PRINCIPAL DATE OF MATURITY VALUE
AMOUNT DESCRIPTION PURCHASE* DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT -- 1.9%
$ 187,000 Repurchase Agreement dated 06/30/95, with
Merrill Lynch, collateralized by $220,000
U.S. Treasury Strips, Zero-coupon, due
11/15/97, valued at $192,500; proceeds:
$187,094 (Cost $187,000) . . . . . . . . . . . 6.000% 07/03/95 $ 187,000
-----------
TOTAL INVESTMENTS -- 99.4%
(cost $10,003,832) . . . . . . . . . . . . . . 10,003,832
Other assets in excess of liabilities -- 0.6% . 57,850
-----------
NET ASSETS -- 100.0% . . . . . . . . . . . . . . $10,061,682
===========
</TABLE>
* Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR), whose yields are determined on date of the last
interest rate change. For Variable Rate Demand Notes, maturity date shown
is the date of next interest rate change.
Abbreviation used in this statement:
GO -- General Obligation
See accompanying notes to financial statements
PAGE 3
<PAGE> 239
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
PORTFOLIO OF INVESTMENTS
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
SALOMON BROTHERS NEW YORK MUNICIPAL BOND FUND
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL SECURITIES
NEW YORK -- 73.2%
$ 120,000 Metropolitan Transportation Authority New York . 5.750% 07/01/15 $ 110,507
300,000 New York City, New York GO . . . . . . . . . . . 7.375 08/15/13 321,423
300,000 New York City, New York GO . . . . . . . . . . . 6.750 10/01/17 302,208
200,000 New York City, New York
Health & Hospital Corporation . . . . . . . . 6.300 02/15/20 192,726
300,000 New York City, New York
Municipal Water Finance Authority . . . . . . 6.000 06/15/17 290,748
100,000 New York State, Dormitory Authority
(City University System of New York) . . . . . 5.750 07/01/18 92,906
315,000 New York State, Dormitory Authority
(State University Educational Facilities) . . 6.000 05/15/17 298,825
200,000 New York State GO . . . . . . . . . . . . . . . 6.000 03/15/20 200,476
250,000 New York State,
Local Government Assistance Corporation . . . 6.000 04/01/18 245,110
100,000 New York State,
Medical Care Facilities Finance Agency . . . . 6.000 02/15/11 96,649
200,000 New York State, Mortgage Agency . . . . . . . . 6.500 04/01/13 204,256
250,000 New York State, Thruway Authority . . . . . . . 6.000 04/01/10 242,597
250,000 Onondaga County, New York
Industrial Development Agency . . . . . . . . 6.625 01/01/18 242,195
-----------
2,840,626
-----------
PUERTO RICO -- 20.8%
250,000 Puerto Rico Commonwealth, GO . . . . . . . . . . 6.000 07/01/14 245,278
250,000 Puerto Rico Commonwealth,
Highway Authority . . . . . . . . . . . . . . 6.000 07/01/20 242,755
325,000 Puerto Rico, Electric Power Authority . . . . . 6.000 07/01/10 321,831
-----------
809,864
-----------
TOTAL INVESTMENTS -- 94.0%
(cost $3,686,346) . . . . . . . . . . . . . . 3,650,490
Other assets in excess of liabilities -- 6.0% . 231,403
-----------
NET ASSETS -- 100.0% . . . . . . . . . . . . . . $ 3,881,893
===========
</TABLE>
Abbreviation used in this statement:
GO -- General Obligation
See accompanying notes to financial statements
PAGE 4
<PAGE> 240
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
SALOMON BROTHERS
NATIONAL INTERMEDIATE MUNICIPAL FUND
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL SECURITIES
CALIFORNIA -- 6.4%
$ 180,000 California State GO . . . . . . . . . . . . . . 6.250% 06/01/06 $ 190,962
285,000 Los Angeles, California AMBAC . . . . . . . . . 6.000 08/01/03 298,919
180,000 Los Angeles County, California
Industrial Development Authority VR . . . . . 4.400 07/03/95 180,000
-----------
669,881
-----------
CONNECTICUT -- 4.7%
500,000 Connecticut State GO . . . . . . . . . . . . . . 5.250 03/15/06 498,335
-----------
FLORIDA -- 2.4%
250,000 Florida Housing Finance Agency . . . . . . . . . 6.150 07/01/06 257,248
-----------
ILLINOIS -- 6.9%
300,000 Chicago, Illinois Metropolitan Water GO . . . . 5.900 12/01/06 310,575
400,000 Illinois Student Assistance Commission . . . . . 6.400 03/01/04 416,960
-----------
727,535
-----------
INDIANA -- 6.5%
650,000 Indiana Transportation Finance Authority . . . . 6.250 11/01/03 686,632
-----------
LOUISIANA -- 6.4%
450,000 Louisiana Public Facilities Authority . . . . . 6.750 09/01/06 468,369
200,000 Louisiana State, Offshore Terminal Authority VR 4.200 07/03/95 200,000
-----------
668,369
-----------
MASSACHUSETTS -- 4.0%
400,000 Commonwealth of Massachusetts,
Health & Educational Facilities Authority . . 6.500 12/01/05 422,604
-----------
MICHIGAN -- 4.5%
475,000 Michigan State,
Housing Development Authority FGIC . . . . . . 6.300 04/01/03 475,884
-----------
MISSISSIPPI -- 4.8%
500,000 Mississippi Higher Education . . . . . . . . . . 6.050 09/01/07 500,985
-----------
NEW JERSEY -- 4.4%
450,000 Passaic Valley, New Jersey
Sewer Commission AMBAC . . . . . . . . . . . . 5.750 12/01/07 462,155
-----------
NEW YORK -- 30.4%
450,000 New York, New York GO . . . . . . . . . . . . . 6.500 02/01/02 469,008
300,000 New York State GO . . . . . . . . . . . . . . . 6.250 08/15/04 322,404
450,000 New York State, Dormitory Authority
(City University of New York) . . . . . . . . 6.375 07/01/08 451,670
400,000 New York State, Dormitory Authority
(State University of New York) . . . . . . . . 6.625 07/01/04 427,224
500,000 New York State, Mortgage Agency . . . . . . . . 5.900 10/01/06 509,415
1,000,000 Port Authority of New York & New Jersey . . . . 5.700 08/01/05 1,019,140
-----------
3,198,861
-----------
</TABLE>
See accompanying notes to financial statements
PAGE 5
<PAGE> 241
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
PORTFOLIO OF INVESTMENTS
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
SALOMON BROTHERS
NATIONAL INTERMEDIATE MUNICIPAL FUND (concluded)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA -- 4.0%
$ 400,000 Geisinger Authority, Pennsylvania
Health System . . . . . . . . . . . . . . . . 6.000% 07/01/01 $ 417,364
-----------
SOUTH CAROLINA -- 7.8%
750,000 South Carolina State,
Public Service Authority FGIC . . . . . . . . 6.500 01/01/05 818,265
-----------
UTAH -- 4.2%
400,000 Intermountain Power Agency of Utah AMBAC . . . . 8.375 07/01/12 436,236
-----------
TOTAL INVESTMENTS -- 97.4%
(cost $10,097,958) . . . . . . . . . . . . . . 10,240,354
Other assets in excess of liabilities -- 2.6% . 276,354
-----------
NET ASSETS -- 100.0% . . . . . . . . . . . . . . $10,516,708
===========
</TABLE>
Abbreviations used in this statement:
AMBAC -- Insured as to principal and interest by the AMBAC Indemnity
Corporation.
FGIC -- Insured as to principal and interest by the Financial Guarantee
Insurance Company.
GO -- General Obligation.
VR -- Variable Rate Demand Note. Maturity date shown is the date of next
interest rate change.
See accompanying notes to financial statements
PAGE 6
<PAGE> 242
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
SALOMON BROTHERS U.S. GOVERNMENT INCOME FUND
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY NOTES -- 43.8%
$3,200,000 U.S. Treasury Note . . . . . . . . . . . . . . . 7.125% 02/29/00 $ 3,342,496
1,200,000 U.S. Treasury Note . . . . . . . . . . . . . . . 6.250 05/31/00 1,212,744
-----------
TOTAL U.S. TREASURY NOTES
(cost $4,422,670) . . . . . . . . . . . . . . 4,555,240
-----------
U.S. GOVERNMENT AGENCY -- 33.7%
100,000 Federal Home Loan Bank . . . . . . . . . . . . . 5.940 06/13/00 98,702
400,000 Federal Home Loan Mortgage Corporation
CMO, PAC Bonds . . . . . . . . . . . . . . . . 5.250 11/15/13 388,372
1,600,000 Federal National Mortgage Association CMO,
PAC Bonds . . . . . . . . . . . . . . . . . . 6.250 03/25/18 1,583,489
1,500,000 Federal National Mortgage Association . . . . . 6.500 03/01/24 1,443,281
-----------
TOTAL U.S. GOVERNMENT AGENCY
(cost $3,500,357) . . . . . . . . . . . . . . 3,513,844
-----------
REPURCHASE AGREEMENTS -- 35.4%
1,842,000 Repurchase Agreement dated 06/30/95, with
Merrill Lynch, collateralized by $1,890,000
U.S. Treasury Notes, 5.625%, due 06/30/97,
valued at $1,883,291; proceeds: $1,842,921 . . 6.000 07/03/95 1,842,000
1,843,000 Repurchase Agreement dated 06/30/95, with
State Street Bank and Trust Company,
collateralized by $1,835,000 U.S. Treasury
Notes, 6.25%, due 08/31/96, valued at
$1,880,875; proceeds: $1,843,922 . . . . . . . 6.000 07/03/95 1,843,000
-----------
TOTAL REPURCHASE AGREEMENTS
(cost $3,685,000) . . . . . . . . . . . . . . 3,685,000
-----------
TOTAL INVESTMENTS -- 112.9%
(cost $11,608,027) . . . . . . . . . . . . . . 11,754,084
Liabilities in excess of other assets -- (12.9%) (1,344,785)
-----------
NET ASSETS -- 100.0% . . . . . . . . . . . . . . $10,409,299
===========
</TABLE>
Abbreviations used in this statement:
CMO -- Collateralized Mortgage Obligation.
PAC -- Planned Amortization Class.
See accompanying notes to financial statements
PAGE 7
<PAGE> 243
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
PORTFOLIO OF INVESTMENTS
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
SALOMON BROTHERS HIGH YIELD BOND FUND
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS -- 73.1%
BASIC INDUSTRIES -- 12.7%
$ 500,000 Harris Chemical (Zero Coupon until 01/15/96,
10.25% thereafter) (a) . . . . . . . . . . . . 11.110% 07/15/01 $ 453,750
500,000 International Semi-Technology (Zero Coupon
until 08/15/00, 11.50% thereafter) (a) . . . . 14.240 08/15/03 247,500
250,000 Renco Metals . . . . . . . . . . . . . . . . . . 12.000 07/15/00 256,875
500,000 Repap Wisconsin . . . . . . . . . . . . . . . . 9.875 05/01/06 483,750
250,000 Stone Container . . . . . . . . . . . . . . . . 9.875 02/01/01 247,813
250,000 Valcor . . . . . . . . . . . . . . . . . . . . . 9.625 11/01/03 228,750
-----------
1,918,438
-----------
CONSUMER CYCLICALS -- 9.6%
250,000 Cole National . . . . . . . . . . . . . . . . . 11.250 10/01/01 233,750
550,000 Finlay Fine Jewelry . . . . . . . . . . . . . . 10.625 05/01/03 525,250
250,000 Flagstar . . . . . . . . . . . . . . . . . . . . 10.750 09/15/01 235,000
500,000 Specialty Retailer . . . . . . . . . . . . . . . 11.000 08/15/03 460,000
-----------
1,454,000
-----------
CONSUMER NON-CYCLICALS -- 27.9%
250,000 Bally's Grand . . . . . . . . . . . . . . . . . 10.375 12/15/03 243,750
250,000 Berry Plastics . . . . . . . . . . . . . . . . . 12.250 04/15/04 253,750
250,000 Comcast . . . . . . . . . . . . . . . . . . . . 9.375 05/15/05 249,375
500,000 Consolidated Cigar . . . . . . . . . . . . . . . 10.500 03/01/03 497,500
250,000 Dade International . . . . . . . . . . . . . . . 13.000 02/01/05 263,750
250,000 National Medical Enterprises . . . . . . . . . . 10.125 03/01/05 264,063
250,000 Pathmark Stores . . . . . . . . . . . . . . . . 9.625 05/01/03 243,750
500,000 Penn Traffic . . . . . . . . . . . . . . . . . . 9.625 04/15/05 471,250
500,000 Ralphs Grocery . . . . . . . . . . . . . . . . . 11.000 06/15/05 481,250
250,000 Selmer . . . . . . . . . . . . . . . . . . . . . 11.000 05/15/05 243,750
250,000 Showboat . . . . . . . . . . . . . . . . . . . . 9.250 05/01/08 229,375
250,000 Telex Communications . . . . . . . . . . . . . . 12.000 07/15/04 255,000
356,912 Trump Taj Mahal . . . . . . . . . . . . . . . . 11.350 11/15/99 282,853
250,000 Williamhouse Regency . . . . . . . . . . . . . . 11.500 06/15/05 248,750
-----------
4,228,166
-----------
FINANCIAL -- 3.4%
250,000 Indah Kiat International Finance . . . . . . . . 12.500 06/15/06 252,500
250,000 Olympic Financial . . . . . . . . . . . . . . . 13.000 05/01/00 256,250
-----------
508,750
-----------
INDUSTRIAL/MANUFACTURING -- 8.6%
250,000 Foamex . . . . . . . . . . . . . . . . . . . . . 11.875 10/01/04 237,500
450,000 Jordan Industries (Zero Coupon until 08/01/98,
11.75% thereafter) (a) . . . . . . . . . . . . 14.010 08/01/05 267,750
250,000 Truck Components . . . . . . . . . . . . . . . . 12.250 06/30/01 266,250
500,000 UCAR Global Enterprises . . . . . . . . . . . . 12.000 01/15/05 540,000
-----------
1,311,500
-----------
MEDIA/TELECOMMUNICATIONS -- 9.2%
250,000 Adelphia Communications . . . . . . . . . . . . 12.500 05/15/02 248,750
400,000 In Flight Phone (Zero Coupon until 05/15/98,
14.00% thereafter) (a) . . . . . . . . . . . . 14.000 05/15/02 228,000
250,000 Katz . . . . . . . . . . . . . . . . . . . . . . 12.750 11/15/02 271,250
500,000 People's Choice TV (Zero Coupon until 06/01/00,
13.125% thereafter) (a) . . . . . . . . . . . 13.125 06/01/04 247,500
250,000 ProNet . . . . . . . . . . . . . . . . . . . . . 11.875 06/15/05 251,250
250,000 United International Holdings (a) . . . . . . . 13.890 11/15/99 142,500
-----------
1,389,250
-----------
</TABLE>
See accompanying notes to financial statements
PAGE 8
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<TABLE>
<CAPTION>
SALOMON BROTHERS HIGH YIELD BOND FUND (concluded)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION -- 1.7%
$ 250,000 Petro PSC Properties . . . . . . . . . . . . . . 12.500% 06/01/02 $ 251,250
-----------
TOTAL CORPORATE BONDS
(cost $10,971,126) . . . . . . . . . . . . . . 11,061,354
-----------
SOVEREIGN BONDS -- 13.5%
500,000 Republic of Argentina* . . . . . . . . . . . . . 7.313 03/31/05 308,125
250,000 Republic of Argentina, Par Bonds, Series L-GP . 5.000 03/31/23 119,063
891,808 Republic of Brazil, C Bond (b) . . . . . . . . . 8.000 04/15/14 441,445
250,000 Republic of Bulgaria, Discount Bonds, Series A* 7.563 07/28/24 124,688
350,000 Republic of Ecuador, Par Bonds* . . . . . . . . 3.000 02/28/25 113,750
507,378 Republic of Ecuador, PDI Bonds* (b) . . . . . . 7.250 02/28/15 169,655
500,000 Republic of Poland, PDI Bonds* . . . . . . . . . 3.250 10/27/14 300,000
350,000 Republic of Poland, Series RSTA* . . . . . . . . 2.750 10/27/24 164,935
500,000 United Mexican States, Par Bonds, Series A . . . 6.250 12/31/19 304,375
-----------
TOTAL SOVEREIGN BONDS
(cost $1,801,441) . . . . . . . . . . . . . . 2,046,036
-----------
LOAN PARTICIPATION -- 2.0%
500,000 Kingdom of Morocco, Tranche A* (c)
(Chase Manhattan Bank, N.A. and
Morgan Guaranty Trust Company)
(cost $312,253) . . . . . . . . . . . . . . . 7.375 01/01/09 294,375
-----------
<CAPTION>
SHARES
- -----------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCK -- 1.6%
2,573 K-III Communications, 11.625%, convertible
until 5/01/05 (cost $243,750) . . . . . . . . 244,709
-----------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS -- 26.1%
$1,977,000 Repurchase Agreement dated 06/30/95, with
Merrill Lynch, collateralized by $2,025,000
U.S. Treasury Notes, 5.625%, due 06/30/97,
valued at $2,017,406; proceeds: $1,977,989 . . 6.000 07/03/95 1,977,000
1,978,000 Repurchase Agreement dated 06/30/95, with
State Street Bank and Trust Company,
collateralized by $1,970,000 U.S. Treasury
Notes, 6.25%, due 08/31/96, valued at
$2,019,250; proceeds: $1,978,989 . . . . . . . 6.000 07/03/95 1,978,000
-----------
TOTAL REPURCHASE AGREEMENTS
(cost $3,955,000) . . . . . . . . . . . . . . 3,955,000
-----------
TOTAL INVESTMENTS -- 116.3%
(cost $17,283,570) . . . . . . . . . . . . . . 17,601,474
Liabilities in excess of other assets -- (16.3%) (2,469,845)
----------
NET ASSETS -- 100.0% . . . . . . . . . . . . . . $15,131,629
===========
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
(a) Zero or step coupon bond. Interest rate shown reflects yield to maturity
on date of purchase.
(b) Payment-in-kind security for which part of the interest earned is paid by
the issuance of additional bonds.
(c) Participation interest was acquired through the financial institutions
indicated parenthetically.
Abbreviation used in this statement:
PDI -- Past Due Interest.
See accompanying notes to financial statements
PAGE 9
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S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
PORTFOLIO OF INVESTMENTS
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
SALOMON BROTHERS STRATEGIC BOND FUND
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS -- 45.1%
BASIC INDUSTRIES -- 6.8%
$ 250,000 Renco Metals . . . . . . . . . . . . . . . . . . 12.000% 07/15/00 $ 256,875
250,000 Stone Container . . . . . . . . . . . . . . . . 9.875 02/01/01 247,813
250,000 Valcor . . . . . . . . . . . . . . . . . . . . . 9.625 11/01/03 228,750
-----------
733,438
-----------
CONSUMER CYCLICALS -- 4.2%
250,000 Cole National . . . . . . . . . . . . . . . . . 11.250 10/01/01 233,750
200,000 U.S. Leasing International . . . . . . . . . . . 8.450 01/25/05 217,198
-----------
450,948
-----------
CONSUMER NON-CYCLICALS -- 16.4%
250,000 Bally's Grand . . . . . . . . . . . . . . . . . 10.375 12/15/03 243,750
250,000 Berry Plastics . . . . . . . . . . . . . . . . . 12.250 04/15/04 253,750
250,000 Comcast . . . . . . . . . . . . . . . . . . . . 9.375 05/15/05 249,375
250,000 Dade International . . . . . . . . . . . . . . . 13.000 02/01/05 263,750
250,000 Pathmark Stores . . . . . . . . . . . . . . . . 9.625 05/01/03 243,750
250,000 Penn Traffic . . . . . . . . . . . . . . . . . . 9.625 04/15/05 235,625
356,912 Trump Taj Mahal . . . . . . . . . . . . . . . . 11.350 11/15/99 282,853
-----------
1,772,853
-----------
FINANCIAL -- 2.4%
250,000 Olympic Financial . . . . . . . . . . . . . . . 13.000 05/01/00 256,250
-----------
INDUSTRIAL/MANUFACTURING -- 9.6%
250,000 Foamex . . . . . . . . . . . . . . . . . . . . . 11.875 10/01/04 237,500
450,000 Jordan Industries (Zero Coupon until 08/01/98,
11.75% thereafter) (a) . . . . . . . . . . . . 14.010 08/01/05 267,750
250,000 Truck Components . . . . . . . . . . . . . . . . 12.250 06/30/01 266,250
250,000 UCAR Global Enterprises . . . . . . . . . . . . 12.000 01/15/05 270,000
-----------
1,041,500
-----------
MEDIA/TELECOMMUNICATIONS -- 5.7%
400,000 In Flight Phone (Zero Coupon until 05/15/98,
14.00% thereafter) (a) . . . . . . . . . . . . 14.000 05/15/02 228,000
500,000 People's Choice TV (Zero Coupon until 06/01/00,
13.125% thereafter) (a) . . . . . . . . . . . 13.125 06/01/04 247,500
250,000 United International Holdings (a) . . . . . . . 13.890 11/15/99 142,500
-----------
618,000
-----------
TOTAL CORPORATE BONDS
(cost $4,826,651) . . . . . . . . . . . . . . 4,872,989
-----------
</TABLE>
See accompanying notes to financial statements
PAGE 10
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<TABLE>
<CAPTION>
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOVEREIGN BONDS -- 27.3%
$ 250,000 Republic of Argentina* . . . . . . . . . . . . 7.312% 03/31/05 $ 154,063
$ 250,000 Republic of Argentina, Par Bonds,
Series L-GP* . . . . . . . . . . . . . . . . 5.000 03/31/23 119,063
BEF 1,000,000 Kingdom of Belgium, Series 19 . . . . . . . . 6.500 03/31/05 32,641
$ 884,340 Republic of Brazil, C Bond (b) . . . . . . . . 8.000 04/15/14 441,445
$ 500,000 Republic of Bulgaria, Discount Bonds,
Series A* . . . . . . . . . . . . . . . . . 7.562 07/28/24 249,373
DKK 90,000 Kingdom of Denmark . . . . . . . . . . . . . . 9.000 11/15/98 17,285
DKK 50,000 Kingdom of Denmark . . . . . . . . . . . . . . 7.000 12/15/04 8,361
$ 850,000 Republic of Ecuador, Par Bonds* . . . . . . . 3.000 02/28/25 276,250
FRF 170,000 Government of France OAT . . . . . . . . . . . 7.500 04/25/05 34,795
FRF 300,000 Government of France Treasury . . . . . . . . 8.000 05/12/98 63,743
DEM 170,000 Government of Germany, Series 107 . . . . . . 6.375 05/20/98 125,360
DEM 240,000 Government of Germany, Series 95 . . . . . . . 6.875 05/12/05 172,812
ITL 120,000,000 Government of Italy Treasury . . . . . . . . . 9.500 01/01/05 62,160
ITL 15,000,000 Government of Italy Treasury . . . . . . . . . 9.500 12/01/97 8,715
JPY 20,600,000 Government of Japan, Series 106 . . . . . . . 4.900 03/20/98 266,276
JPY 3,050,000 Government of Japan, Series 177 . . . . . . . 4.600 03/21/05 41,007
NLG 60,000 Netherlands Government . . . . . . . . . . . . 6.250 07/15/98 39,220
NLG 20,000 Netherlands Government . . . . . . . . . . . . 7.000 06/15/05 12,874
$ 500,000 Republic of Poland, PDI Bonds* . . . . . . . . 3.250 10/27/14 300,000
$ 500,000 Republic of Poland, Series RSTA* . . . . . . . 2.750 10/27/24 235,625
ESP 7,700,000 Government of Spain . . . . . . . . . . . . . 10.000 02/28/05 57,250
GBP 26,000 United Kingdom Treasury . . . . . . . . . . . 8.500 12/07/05 41,489
GBP 25,000 United Kingdom Treasury . . . . . . . . . . . 7.250 03/30/98 39,236
$ 250,000 United Mexican States, Par Bonds,
Series A . . . . . . . . . . . . . . . . . . 6.250 12/31/19 152,188
-----------
TOTAL SOVEREIGN BONDS
(cost $2,692,081) . . . . . . . . . . . . . . 2,951,231
-----------
LOAN PARTICIPATION -- 2.7%
$ 500,000 Kingdom of Morocco, Tranche A* (c)
(Morgan Guaranty Trust Company)
(cost $312,253) . . . . . . . . . . . . . . 7.375 01/01/09 294,375
-----------
U.S. GOVERNMENT AGENCY -- 17.3%
$ 525,000 Federal National Mortgage Association
CMO, PAC Bonds . . . . . . . . . . . . . . . 6.250 03/25/18 519,582
$ 1,400,000 Federal National Mortgage Association . . . . 6.500 03/01/24 1,347,063
-----------
TOTAL U.S. GOVERNMENT AGENCY
(cost $1,867,563) . . . . . . . . . . . . . 1,866,645
-----------
</TABLE>
See accompanying notes to financial statements
PAGE 11
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S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
PORTFOLIO OF INVESTMENTS
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
SALOMON BROTHERS STRATEGIC BOND FUND (concluded)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT -- 18.3%
$1,980,000 Repurchase Agreement dated 06/30/95, with
State Street Bank and Trust Company,
collateralized by $1,975,000 U.S. Treasury
Notes, 6.250%, due 08/31/95, valued at
$2,024,375; proceeds: $1,980,990
(cost $1,980,000) . . . . . . . . . . . . . . 6.000% 07/03/95 $ 1,980,000
-----------
TOTAL INVESTMENTS -- 110.7%
(cost $11,678,548) . . . . . . . . . . . . . . 11,965,240
Liabilities in excess of other assets -- (10.7%) (1,153,809)
-----------
NET ASSETS -- 100.0% . . . . . . . . . . . . . . $10,811,431
===========
</TABLE>
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY CONTRACTS
- ----------------------------------------------------------------------------------------------------------------
UNREALIZED
CURRENCY TO APPRECIATION
DELIVER IN EXCHANGE FOR MATURITY DATES (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Belgian Francs . . . . . . . . . 952,364 $ 33,068 09/22/95 $ (554)
British Pound Sterling . . . . . 52,012 82,855 09/22/95 90
Danish Krone . . . . . . . . . . 145,898 26,541 09/22/95 (453)
French Francs . . . . . . . . . . 483,987 97,730 09/22/95 (1,948)
German Deutschemarks . . . . . . 418,589 298,555 09/22/95 (5,255)
Italian Lira . . . . . . . . . . 125,983,020 75,451 07/03/95 to 09/22/95 (773)
Japanese Yen . . . . . . . . . . 26,234,327 314,184 09/22/95 940
Netherlands Guilders . . . . . . 84,713 54,026 09/22/95 (908)
Spanish Pesetas . . . . . . . . . 7,187,264 58,244 09/22/95 (683)
--------
$(9,544)
========
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
(a) Zero or step coupon bond. Interest rate shown reflects yield to maturity
on date of purchase.
(b) Payment-in-kind security for which part of the interest earned is paid by
the issuance of additional bonds.
(c) Participation interest was acquired through the financial institutions
indicated parenthetically.
Abbreviations used in this statement:
CMO -- Collateralized Mortgage Obligation.
PAC -- Planned Amortization Class.
PDI -- Past Due Interest.
BEF -- Belgian Franc
DEM -- German Deutschemarks
DKK -- Danish Krone
ESP -- Spanish Peseta
FRF -- French Franc
GBP -- British Pound Sterling
ITL -- Italian Lira
JPY -- Japanese Yen
NLG -- Netherlands Guilder
See accompanying notes to financial statements
PAGE 12
<PAGE> 248
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
SALOMON BROTHERS INVESTORS FUND INC
- ---------------------------------------------------------------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 84.3%
BASIC INDUSTRIES -- 10.0%
150,000 Avery Dennison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,000,000
55,000 Broken Hill Proprietary -- ADR . . . . . . . . . . . . . . . . . . . . . . . . 2,715,625
9,500 Crown Cork & Seal* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476,188
43,000 Dupont (E.I.) de Nemours . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,956,250
92,200 Hercules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,494,750
247,500 Lubrizol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,755,313
60,000 OM Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,710,000
399,000 Praxair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,975,000
54,750 Rayonier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,943,625
------------
39,026,751
------------
CAPITAL GOODS -- 11.8%
200,000 Albany International, Class A . . . . . . . . . . . . . . . . . . . . . . . . 4,775,000
167,500 AlliedSignal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,453,750
88,500 Deere . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,577,813
107,500 General Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,060,313
121,000 Raytheon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,392,625
200,000 Tyco International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,800,000
------------
46,059,501
------------
CONSUMER CYCLICALS -- 11.7%
82,500 Centex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,330,625
85,000 Eastman Kodak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,153,125
390,000 Federated Department Stores* . . . . . . . . . . . . . . . . . . . . . . . . . 10,042,500
188,750 Ford Motor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,615,313
176,000 Host Marriott* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,870,000
73,600 Lennar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,380,000
87,700 MascoTech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,085,288
225,000 Sears, Roebuck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,471,875
133,000 Sherwin-Williams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,738,125
------------
45,686,851
------------
CONSUMER NON-CYCLICALS -- 12.3%
290,000 Albertson's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,627,500
195,000 ConAgra . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,800,625
345,000 Kroger* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,271,875
115,000 Penn Traffic* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,068,125
13,500 Philip Morris Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,004,063
550,000 Stop & Shop Companies* . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,093,750
150,000 Sysco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,425,000
------------
48,290,938
------------
ENERGY -- 12.0%
153,500 Amoco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,226,938
217,500 Chevron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,140,938
105,000 Mobil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,080,000
90,000 Royal Dutch Petroleum, 5 Guilder . . . . . . . . . . . . . . . . . . . . . . . 10,968,750
127,000 TOTAL -- ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,841,750
75,000 Union Texas Petroleum Holdings . . . . . . . . . . . . . . . . . . . . . . . . 1,584,375
------------
46,842,751
------------
</TABLE>
See accompanying notes to financial statements
PAGE 13
<PAGE> 249
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
PORTFOLIO OF INVESTMENTS
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
SALOMON BROTHERS INVESTORS FUND INC (continued)
- ---------------------------------------------------------------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES -- 12.9%
147,500 American Express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,180,938
60,000 Astoria Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,152,500
187,200 Bank of New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,558,200
40,000 Crescent Real Estate Equities . . . . . . . . . . . . . . . . . . . . . . . . 1,275,000
60,000 Federal Home Loan Mortgage Corporation . . . . . . . . . . . . . . . . . . . . 4,125,000
35,000 Federal National Mortgage Association . . . . . . . . . . . . . . . . . . . . 3,303,125
23,750 First USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,053,906
75,000 Highwoods Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,912,500
79,000 MGIC Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,703,125
175,400 St. Paul Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,638,450
80,000 SunAmerica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,080,000
168,843 Travelers Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,386,881
------------
50,369,625
------------
HEALTH CARE -- 2.8%
230,000 Columbia/HCA Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,947,500
22,000 United Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 910,250
------------
10,857,750
------------
TECHNOLOGY -- 3.7%
96,000 BISYS Group* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,124,000
157,000 First Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,929,375
15,000 Hewlett-Packard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,117,500
15,000 HNC Software* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318,750
15,000 National Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346,875
60,000 Plantronics* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,605,000
------------
14,441,500
------------
TELECOMMUNICATIONS & UTILITIES -- 4.6%
313,000 AirTouch Communications* . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,920,500
147,000 AT&T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,809,375
85,000 HighwayMaster Communications* . . . . . . . . . . . . . . . . . . . . . . . . 1,296,250
------------
18,026,125
------------
TRANSPORTATION -- 2.5%
90,000 Norfolk Southern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,063,750
160,000 Pittston Services Group . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,840,000
------------
9,903,750
------------
TOTAL COMMON STOCKS (cost $267,121,633) . . . . . . . . . . . . . . . . . . . 329,505,542
------------
PREFERRED STOCKS -- 6.5%
CAPITAL GOODS -- 0.5%
60,000 Browning-Ferris 7.25% Convertible, 06/30/98 . . . . . . . . . . . . . . . . . 2,190,000
------------
CONSUMER CYCLICALS -- 0.3%
75,000 MascoTech Convertible, 07/01/97 . . . . . . . . . . . . . . . . . . . . . . . 1,068,750
------------
FINANCIAL SERVICES -- 0.4%
17,500 St. Paul Capital 6.00% Convertible, 12/31/49 . . . . . . . . . . . . . . . . . 914,375
15,300 SunAmerica Convertible, 03/01/96 . . . . . . . . . . . . . . . . . . . . . . . 703,800
------------
1,618,175
------------
</TABLE>
See accompanying notes to financial statements
PAGE 14
<PAGE> 250
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1a)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY -- 5.3%
100,000 Ceridian 5.50% Convertible . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,350,000
206,000 Nokia, Class A -- ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,282,745
------------
20,632,745
------------
TOTAL PREFERRED STOCKS (cost $17,077,925) . . . . . . . . . . . . . . . . . . 25,509,670
------------
<CAPTION>
PRINCIPAL
AMOUNT
- -------------
<S> <C> <C>
CONVERTIBLE BONDS -- 3.6%
BASIC INDUSTRIES -- 0.8%
$ 3,000,000 Unifi, 6.00%, due 03/15/02 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,970,000
------------
CONSUMER CYCLICALS -- 1.1%
6,000,000 MascoTech, 4.50%, due 12/15/03 . . . . . . . . . . . . . . . . . . . . . . . . 4,365,000
------------
FINANCIAL SERVICES -- 1.0%
4,000,000 Liberty Property Trust, 8.00%, due 07/01/01 . . . . . . . . . . . . . . . . . 3,960,000
------------
HEALTH CARE -- 0.7%
7,000,000 Roche Holdings, Zero-Coupon, due 04/20/10 . . . . . . . . . . . . . . . . . . 2,782,500
------------
TOTAL CONVERTIBLE BONDS (cost $13,830,912) . . . . . . . . . . . . . . . . . . 14,077,500
------------
<CAPTION>
NO. OF
CONTRACTS
- ------------
<S> <C> <C>
PURCHASED PUT OPTIONS -- 0.0%
525 Allstate (expiring July 1995, exercise price $30) . . . . . . . . . . . . . . 45,938
500 Standard & Poors Index (expiring July 1995, exercise price $485) . . . . . . . 6,250
100 Standard & Poors Index (expiring July 1995, exercise price $500) . . . . . . . 1,875
200 Standard & Poors Index (expiring August 1995, exercise price $500) . . . . . . 15,000
------------
TOTAL PURCHASED PUT OPTIONS (cost $249,631) . . . . . . . . . . . . . . . . . 69,063
------------
<CAPTION>
PRINCIPAL
AMOUNT
- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 5.5%
REPURCHASE AGREEMENT -- 4.4%
$17,239,000 Repurchase Agreement 6.00%, due 07/03/95, dated 06/30/95,
with Morgan Stanley, collateralized by $15,750,000
U.S. Treasury Notes, 7.875%, due 08/15/01, valued
at $17,583,779; proceeds: $17,247,620 . . . . . . . . . . . . . . . . . . . 17,239,000
------------
U.S. TREASURY OBLIGATION -- 1.1%
4,295,000 U.S. Treasury Bill, 6.81%, due 01/11/96 . . . . . . . . . . . . . . . . . . . 4,171,776
------------
TOTAL SHORT-TERM INVESTMENTS (cost $21,376,381) . . . . . . . . . . . . . . . 21,410,776
------------
TOTAL INVESTMENTS -- 99.9% (cost $319,656,482) . . . . . . . . . . . . . . . . 390,572,551
<CAPTION>
SHARES
- ------------
<S> <C> <C>
61,700 Sale of Security to be received (Proceeds $1,810,446) -- (0.5%) . . . . . . . (1,820,150)
Other assets in excess of liabilities -- 0.6% . . . . . . . . . . . . . . . . 2,363,118
---------
NET ASSETS -- 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $391,115,519
============
</TABLE>
* Non-income producing security.
See accompanying notes to financial statements
PAGE 15
<PAGE> 251
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
CASH NEW YORK
MANAGEMENT MUNICIPAL
FUND BOND FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (Note A) . . . . . . . . . . . . . . . . $ 9,816,832 $ 3,650,490
Repurchase agreements, at value and cost . . . . . . . . . . . 187,000 --
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 994 59,330
Receivable for securities sold . . . . . . . . . . . . . . . . -- --
Receivable for fund shares sold . . . . . . . . . . . . . . . . 17,119 61
Interest and dividends receivable . . . . . . . . . . . . . . . 33,385 83,856
Receivable from investment advisor . . . . . . . . . . . . . . -- 50,632
Deferred organization expense . . . . . . . . . . . . . . . . . 3,057 34,953
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 33,185 16,451
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 10,091,572 3,895,773
----------- -----------
LIABILITIES
Payable for:
Securities purchased . . . . . . . . . . . . . . . . . . . . -- --
Sale of security to be received . . . . . . . . . . . . . . -- --
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . 8,412 --
Dividends declared . . . . . . . . . . . . . . . . . . . . . 19,001 3,866
Affiliate transactions:
Management fees . . . . . . . . . . . . . . . . . . . . . . -- --
Service and distribution fees . . . . . . . . . . . . . . . -- 1,926
Unrealized depreciation of forward foreign currency contracts . -- --
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 2,477 8,088
----------- -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 29,890 13,880
----------- -----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $10,061,682 $ 3,881,893
=========== ===========
NET ASSETS CONSIST OF:
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . $10,063,796 $ 4,538,971
Undistributed net investment income . . . . . . . . . . . . . . -- --
Accumulated net realized gain (loss) on investments
and foreign currency transactions . . . . . . . . . . . . . (2,114) (621,222)
Net unrealized appreciation (depreciation) on investments,
foreign currency transactions and other assets . . . . . . . -- (35,856)
----------- -----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $10,061,682 $ 3,881,893
=========== ===========
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,163,315 $ 276,077
----------- -----------
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,382 $ 252,524
----------- -----------
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,283 $ 252,524
----------- -----------
Class O . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,828,702 $ 3,100,768
----------- -----------
SHARES OUTSTANDING
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,163,315 28,716
----------- -----------
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,382 26,267
----------- -----------
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,283 26,267
----------- -----------
Class O . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,830,816 322,423
----------- -----------
NET ASSET VALUE
CLASS A SHARES
Net asset value and redemption price per share . . . . . . . . $ 1.00 $ 9.61
=========== ===========
Maximum offering price per share (based on maximum sales
charge of 4.75%, except Cash Management Fund) . . . . . . . . $ 1.00 $ 10.09
=========== ===========
CLASS B SHARES
Net asset value and offering price per share* . . . . . . . . . $ 1.00 $ 9.61
=========== ===========
CLASS C SHARES
Net asset value and offering price per share* . . . . . . . . . $ 1.00 $ 9.61
=========== ===========
CLASS O SHARES
Net asset value, offering price and redemption price per share $ 1.00 $ 9.62
=========== ===========
Note A: Cost of investments . . . . . . . . . . . . . . . . . . $ 9,816,832 $ 3,686,346
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge (except for the Cash Management Fund).
See accompanying notes to financial statements
PAGE 16
<PAGE> 252
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
NATIONAL U.S.
INTERMEDIATE GOVERNMENT HIGH YIELD STRATEGIC INVESTORS
MUNICIPAL FUND INCOME FUND BOND FUND BOND FUND FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,240,354 $ 8,069,084 $ 13,646,474 $ 9,985,240 $373,333,551
-- 3,685,000 3,955,000 1,980,000 17,239,000
26,831 917 454 95 606
-- -- -- -- 5,708,650
30,008 -- 266,013 22,295 7,211
198,396 97,642 294,378 190,567 819,481
18,857 17,268 9,541 3,749 --
70,596 73,513 98,959 99,445 --
-- -- -- -- --
------------ ----------- ------------ ------------ -----------
10,585,042 11,943,424 18,270,819 12,281,391 397,108,499
------------ ----------- ------------ ------------ -----------
-- 1,453,797 3,018,545 1,356,877 3,591,697
-- -- -- -- 1,820,150
-- 7,131 -- -- 109,668
43,238 50,650 92,331 82,500 --
-- -- -- -- 468,023
2,141 2,194 2,639 2,141 2,110
-- -- -- 9,544 --
22,955 20,353 25,675 18,898 1,332
------------ ----------- ------------ ------------ ------------
68,334 1,534,125 3,139,190 1,469,960 5,992,980
------------ ----------- ------------ ------------ ------------
$ 10,516,708 $10,409,299 $ 15,131,629 $ 10,811,431 $391,115,519
============ =========== ============ ============ ============
$ 10,374,213 $10,169,493 $ 14,674,331 $ 10,352,669 $296,069,420
-- -- -- -- 1,888,024
99 93,749 139,394 181,457 22,251,710
142,396 146,057 317,904 277,305 70,906,365
------------ ----------- ------------ ------------ ------------
$ 10,516,708 $10,409,299 $ 15,131,629 $ 10,811,431 $391,115,519
============ =========== ============ ============ ============
$ 516,073 $ 264,231 $ 4,238,517 $ 335,515 $ 292,205
------------ ----------- ------------ ------------ ------------
$ 334,060 $ 408,701 $ 877,871 $ 526,375 $ 333,032
------------ ----------- ------------ ------------ ------------
$ 253,609 $ 256,125 $ 332,528 $ 268,622 $ 276,260
------------ ----------- ------------ ------------ ------------
$ 9,412,966 $ 9,480,242 $ 9,682,713 $ 9,680,919 $390,214,022
------------ ----------- ------------ ------------ ------------
50,871 25,810 405,182 32,083 18,529
------------ ----------- ------------ ------------ ------------
32,936 39,921 83,945 50,336 21,163
------------ ----------- ------------ ------------ ------------
25,003 25,018 31,803 25,687 17,556
------------ ----------- ------------ ------------ ------------
928,011 926,015 925,966 925,754 24,726,223
------------ ----------- ------------ ------------ ------------
$ 10.14 $ 10.24 $ 10.46 $ 10.46 $ 15.77
============ =========== ============ ============ ============
$ 10.65 $ 10.75 $ 10.98 $ 10.98 $ 16.56
============ =========== ============ ============ ============
$ 10.14 $ 10.24 $ 10.46 $ 10.46 $ 15.74
============ =========== ============ ============ ============
$ 10.14 $ 10.24 $ 10.46 $ 10.46 $ 15.74
============ =========== ============ ============ ============
$ 10.14 $ 10.24 $ 10.46 $ 10.46 $ 15.78
============ =========== ============ ============ ============
$ 10,097,958 $ 7,923,027 $ 13,328,570 $ 9,698,548 $302,417,482
</TABLE>
See accompanying notes to financial statements
PAGE 17
<PAGE> 253
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
CASH NEW YORK
MANAGEMENT MUNICIPAL
FUND BOND FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME (Note A)
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 439,966 $ 115,869
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
----------- -----------
439,966 115,869
EXPENSES
Management fee . . . . . . . . . . . . . . . . . . . . . . . . 14,547 9,466
Custody and administration fees . . . . . . . . . . . . . . . . 7,270 4,946
Amortization of organization expenses . . . . . . . . . . . . . 6,015 6,943
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,816 12,500
Registration and filing fees . . . . . . . . . . . . . . . . . 5,089 5,500
Shareholder services . . . . . . . . . . . . . . . . . . . . . 4,362 3,000
Audit and tax return preparation fees . . . . . . . . . . . . . 3,635 3,750
Printing and postage . . . . . . . . . . . . . . . . . . . . . 2,908 7,500
Directors' fees and expenses . . . . . . . . . . . . . . . . . 1,454 1,375
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,462 2,500
----------- -----------
54,558 57,480
Management fee waived and expenses absorbed by
investment advisor . . . . . . . . . . . . . . . . . . . . (14,547) (48,014)
----------- -----------
40,011 9,466
Distribution and service fees:
Class A shares . . . . . . . . . . . . . . . . . . . . . . . . -- 218
Class B shares . . . . . . . . . . . . . . . . . . . . . . . . -- 854
Class C shares . . . . . . . . . . . . . . . . . . . . . . . . -- 854
----------- -----------
Net expenses . . . . . . . . . . . . . . . . . . . . . . . . . 40,011 11,392
----------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . . . 399,955 104,477
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments and options . . . . . . . . . . . . . . . . . . -- (62,743)
Foreign currency transactions . . . . . . . . . . . . . . . -- --
----------- -----------
Net realized gain (loss) . . . . . . . . . . . . . . . . . -- (62,743)
----------- -----------
Net change in unrealized appreciation (depreciation) on:
Investments and options . . . . . . . . . . . . . . . . . . -- 295,355
Foreign currency transactions and other assets . . . . . . . -- --
----------- -----------
Net unrealized appreciation during the period . . . . . . . -- 295,355
----------- -----------
NET REALIZED AND UNREALIZED GAIN . . . . . . . . . . . . . . . -- 232,612
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . $ 399,955 $ 337,089
=========== ===========
Note A: Net of foreign withholding tax of: . . . . . . . . . . -- --
</TABLE>
* Fund's commencement of investment operations was February 22, 1995.
See accompanying notes to financial statements
PAGE 18
<PAGE> 254
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
NATIONAL U.S.
INTERMEDIATE GOVERNMENT HIGH YIELD STRATEGIC INVESTORS
MUNICIPAL FUND* INCOME FUND* BOND FUND* BOND FUND* FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 188,421 $ 243,060 $ 415,669 $ 369,200 $ 1,257,913
-- -- -- -- 3,325,130
------------ ----------- ------------ ------------ -----------
188,421 243,060 415,669 369,200 4,583,043
17,896 21,386 27,945 26,970 908,540
7,410 9,161 10,660 7,421 29,175
5,325 5,545 7,464 7,501 --
4,103 4,103 4,103 4,103 45,250
4,018 3,947 5,432 4,018 8,145
8,615 8,615 8,615 8,615 146,610
2,051 2,051 3,077 2,051 28,055
2,051 2,051 2,872 2,051 66,970
1,128 1,128 1,128 1,128 41,630
2,052 2,052 3,077 2,462 34,175
------------ ----------- ------------ ------------ -----------
54,649 60,039 74,373 66,320 1,308,550
(36,753) (38,653) (37,486) (30,719) --
------------ ----------- ------------ ------------ -----------
17,896 21,386 36,887 35,601 1,308,550
269 226 489 229 228
985 1,072 1,173 1,010 986
887 896 977 902 896
------------ ----------- ------------ ------------ -----------
20,037 23,580 39,526 37,742 1,310,660
------------ ----------- ------------ ------------ -----------
168,384 219,480 376,143 331,458 3,272,383
------------ ----------- ------------ ------------ -----------
99 93,749 139,394 178,870 22,501,163
-- -- -- 2,587 63
------------ ----------- ------------ ------------ -----------
99 93,749 139,394 181,457 22,501,226
------------ ----------- ------------ ------------ -----------
142,396 146,057 317,904 286,692 31,849,160
-- -- -- (9,387) (9,704)
------------ ----------- ------------ ------------ -----------
142,396 146,057 317,904 277,305 31,839,456
------------ ----------- ------------ ------------ -----------
142,495 239,806 457,298 458,762 54,340,682
------------ ----------- ------------ ------------ -----------
$ 310,879 $ 459,286 $ 833,441 $ 790,220 $57,613,065
============ =========== ============ ============ ===========
-- -- -- $ 98 $ 63,097
</TABLE>
See accompanying notes to financial statements
PAGE 19
<PAGE> 255
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
CASH NEW YORK
MANAGEMENT MUNICIPAL
FUND BOND FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income . . . . . . . . . . . . . . . . . . . $ 399,955 $3,104,477
Net realized gain (loss) on investments, options
and foreign currency transactions . . . . . . . . . . . . . -- (62,743)
Net change in unrealized appreciation
(depreciation) on investments, options, foreign
currency transactions and other assets . . . . . . . . . . -- 295,355
----------- -----------
Net increase in net assets resulting from operations . . . . 399,955 337,089
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . (4,351) (4,557)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . (155) (3,843)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . (141) (3,843)
Class O . . . . . . . . . . . . . . . . . . . . . . . . . . (395,308) (92,234)
----------- -----------
(399,955) (104,477)
----------- -----------
Distributions from net realized gains:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class O . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
----------- -----------
-- --
----------- -----------
NET FUND CAPITAL SHARE TRANSACTIONS
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . 1,163,315 273,879
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . 49,382 250,059
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . 20,283 250,059
Class O . . . . . . . . . . . . . . . . . . . . . . . . . . (10,298,114) (458,146)
----------- -----------
Net increase (decrease) in net assets
derived from share transactions . . . . . . . . . . . . (9,065,134) 315,851
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . (9,065,134) 548,463
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . . . . 19,126,816 3,333,430
----------- -----------
End of period** . . . . . . . . . . . . . . . . . . . . . . $10,061,682 $ 3,881,893
=========== ===========
* Fund's commencement of investment operations was
February 22, 1995.
** Including undistributed net investment income of: -- --
</TABLE>
See accompanying notes to financial statements
PAGE 20
<PAGE> 256
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
NATIONAL U.S.
INTERMEDIATE GOVERNMENT HIGH YIELD STRATEGIC INVESTORS
MUNICIPAL FUND* INCOME FUND* BOND FUND* BOND FUND* FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 168,384 $ 219,480 $ 376,143 $ 331,458 $ 272,383
99 93,749 139,394 181,457 22,501,226
142,396 146,057 317,904 277,305 31,839,456
------------ ----------- ------------ ------------ ------------
310,879 459,286 833,441 790,220 57,613,065
------------ ----------- ------------ ------------ ------------
(4,866) (5,398) (18,653) (8,263) (1,015)
(3,694) (5,603) (10,179) (8,160) (1,049)
(3,338) (4,678) (8,900) (7,466) (878)
(156,486) (203,801) (338,411) (307,569) (1,381,417)
------------ ----------- ------------ ------------ ------------
(168,384) (219,480) (376,143) (331,458) (1,384,359)
------------ ----------- ------------ ------------ ------------
-- -- -- -- --
-- -- -- -- --
-- -- -- -- --
-- -- -- -- (1,786,236)
------------ ----------- ------------ ------------ ------------
-- -- -- -- (1,786,236)
------------ ----------- ------------ ------------ ------------
512,962 258,088 4,226,890 323,433 264,517
330,434 401,137 867,063 514,464 303,270
250,010 250,054 320,721 257,185 249,878
9,280,727 9,260,134 9,259,577 9,257,507 (12,358,852)
------------ ----------- ------------ ------------ ------------
10,374,133 10,169,413 14,674,251 10,352,589 (11,541,187)
------------ ----------- ------------ ------------ ------------
10,516,628 10,409,219 15,131,549 10,811,351 42,901,283
80 80 80 80 348,214,236
------------ ----------- ------------ ------------ ------------
$ 10,516,708 $10,409,299 $ 15,131,629 $ 10,811,431 $391,115,519
============ =========== ============ ============ ============
-- -- -- -- $1,888,024
</TABLE>
* Fund's commencement of investment operations was February 22, 1995.
See accompanying notes to financial statements
PAGE 21
<PAGE> 257
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
CASH NEW YORK
MANAGEMENT MUNICIPAL
FUND BOND FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income . . . . . . . . . . . . . . . . . . . $ 551,304 $ 416,648
Net realized gain (loss) on investments, options and foreign
currency transactions . . . . . . . . . . . . . . . . . . . (415) (552,459)
Net change in unrealized appreciation on
investments and options . . . . . . . . . . . . . . . . . . -- (636,046)
----------- -----------
Net increase (decrease) in net assets resulting from operations 550,889 (771,857)
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class O . . . . . . . . . . . . . . . . . . . . . . . . . . (551,304) (416,648)
----------- -----------
(551,304) (416,648)
----------- -----------
Distributions from net realized gains:
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class O . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
----------- -----------
-- --
----------- -----------
NET FUND CAPITAL SHARE TRANSACTIONS
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Class O . . . . . . . . . . . . . . . . . . . . . . . . . . 4,077,861 (3,842,334)
----------- -----------
Net increase (decrease) in net assets
derived from share transactions . . . . . . . . . . . . 4,077,861 (3,842,334)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . . . 4,077,446 (5,030,839)
NET ASSETS
Beginning of year . . . . . . . . . . . . . . . . . . . . . 15,049,370 8,364,269
----------- -----------
End of year . . . . . . . . . . . . . . . . . . . . . . . . $19,126,816 $ 3,333,430
=========== ===========
</TABLE>
See accompanying notes to financial statements
PAGE 22
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S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
NATIONAL U.S.
INTERMEDIATE GOVERNMENT HIGH YIELD STRATEGIC INVESTORS
MUNICIPAL FUND INCOME FUND BOND FUND BOND FUND FUND
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-- -- -- -- $ 6,507,464
-- -- -- -- 26,937,166
-- -- -- -- (38,268,999)
------------ ----------- ------------ ------------ ------------
-- -- -- -- (4,824,369)
------------ ----------- ------------ ------------ ------------
-- -- -- -- --
-- -- -- -- --
-- -- -- -- --
-- -- -- -- (6,555,567)
------------ ----------- ------------ ------------ ------------
-- -- -- -- (6,555,567)
------------ ----------- ------------ ------------ ------------
-- -- -- -- --
-- -- -- -- --
-- -- -- -- --
-- -- -- -- (36,204,568)
------------ ----------- ------------ ------------ ------------
-- -- -- -- (36,204,568)
------------ ----------- ------------ ------------ ------------
-- -- -- -- --
-- -- -- -- --
-- -- -- -- --
-- -- -- -- 9,651,539
------------ ----------- ------------ ------------ ------------
-- -- -- -- 9,651,539
------------ ----------- ------------ ------------ ------------
-- -- -- -- (37,932,965)
-- -- -- -- 386,147,201
------------ ----------- ------------ ------------ ------------
-- -- -- -- $348,214,236
============ =========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements
PAGE 23
<PAGE> 259
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Salomon Brothers Investment Series (the "Investment Series") consists of
certain portfolios of the Salomon Brothers Series Funds Inc (the "Series
Funds"), as indicated below and the Salomon Brothers Investors Fund Inc (the
"Investors Fund"). The Series Funds were incorporated in Maryland on April 17,
1990 as an open-end management investment company, and currently operates as a
series company comprised of eight portfolios: Salomon Brothers Cash Management
Fund (the "Cash Management Fund"), Salomon Brothers New York Municipal Money
Market Fund, (the "New York Municipal Money Fund"), Salomon Brothers U.S.
Treasury Securities Money Market Fund (the "U.S. Treasury Fund"), Salomon
Brothers New York Municipal Bond Fund (the "New York Municipal Bond Fund"),
Salomon Brothers National Intermediate Municipal Fund (the "National
Intermediate Municipal Fund"), Salomon Brothers U.S. Government Income Fund
(the "U.S. Government Income Fund"), Salomon Brothers High Yield Bond Fund
(the "High Yield Bond Fund"), and Salomon Brothers Strategic Bond Fund (the
"Strategic Bond Fund"). Separate financial statements are prepared for the New
York Municipal Money Fund and U.S. Treasury Fund which are not part of the
Investment Series. All of the other portfolios of the Series Funds are included
in the Investment Series. The Investors Fund is a diversified open-end
management investment company incorporated in Maryland on April 2, 1958. The
Investment Series operates under a multiple class pricing structure, with each
Fund or portfolio of the Investment Series (individually, a "Fund") offering
Class A, Class B, Class C, and Class O shares, each with their own expense
structure.
Certain costs incurred in connection with the Series Funds' organization, which
were payable to Salomon Brothers Asset Management Inc ("SBAM") have been
deferred and are being amortized by the Series Funds over a 60 month period
from the date each Fund commenced investment operations. In the event that any
of the 100,000 shares purchased by SBAM on September 27, 1990 (the "Initial
Shares") are redeemed during the amortization period by SBAM, the applicable
Fund will be reimbursed by SBAM for any remaining unamortized costs in the same
proportion as the number of Initial Shares redeemed bears to the total number
of Initial Shares outstanding at the time of redemption. A summary of those
expenditures that remain as of June 30, 1995 for each Fund is as follows:
<TABLE>
<CAPTION>
FUND EXPIRATION OF AMORTIZATION AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Management Fund . . . . . . . . . . . October 1995 $ 3,057
New York Municipal Bond Fund . . . . . . . February 1998 $34,953
National Intermediate Municipal Fund . . . February 2000 $70,596
U.S. Government Income Fund . . . . . . . . February 2000 $73,513
High Yield Bond Fund . . . . . . . . . . . February 2000 $98,959
Strategic Bond Fund . . . . . . . . . . . . February 2000 $99,445
</TABLE>
The following is a summary of significant accounting policies followed by the
Investment Series in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
PAGE 24
<PAGE> 260
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
(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 ask price which represents
the current value of the security. Over-the-counter securities are valued
at the mean of the current bid and ask price. 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 the Fund will be valued at
amortized cost which approximates market value. If a Fund acquires such
securities with more than 60 days remaining to maturity, they will be
valued at current market value (using the bid price), with the exception
of those securities held by the Cash Management Fund, until the 60th day
prior to maturity, and will then be valued on an amortized cost basis.
Portfolio securities for the Cash Management Fund are valued using
the amortized cost method, which involves initially valuing an investment
at its cost and thereafter assuming a constant amortization to maturity of
any premium or discount. This method results in a value approximating
market value.
Foreign securities quoted in a foreign currency are translated into
U.S. dollars at exchange rates at 2:30 p.m. Eastern time 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 will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Board of Directors.
(b) FUTURES CONTRACTS. The New York Municipal Bond Fund, National
Intermediate Municipal Fund, High Yield Bond Fund, Strategic Bond Fund,
and Investors Fund may enter into futures contracts for hedging purposes,
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 will be recognized.
Outstanding contracts involve elements of market risk in excess of amounts
reported in the financial statements.
(c) WRITTEN OPTION CONTRACTS. When a Fund writes a call option or a
put option, an amount equal to the premium received by the Fund is
recorded as a liability, the value of which is marked-to-market daily to
reflect the current market value of the written option. When a written
option expires, the Fund realizes a gain equal to the amount of the
premium received. When the Fund enters into a closing purchase
transaction, it realizes a gain (or loss if the cost of the closing
purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying
security, and
PAGE 25
<PAGE> 261
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
NOTES TO FINANCIAL STATEMENTS
(unaudited)
the liability related to such option is eliminated. When a call option is
exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the
premium originally received. When a put option is exercised, the amount of
the premium received reduces the cost of the security that the Fund
purchased upon exercise.
(d) MORTGAGE ROLLS. The U.S. Government Income Fund and the
Strategic Bond Fund may enter into mortgage "dollar rolls" in which a Fund
sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type,
coupon and maturity) securities on a specified future date. Mortgage
dollar rolls involve 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, its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities.
(e) REPURCHASE AGREEMENTS. When entering into repurchase agreements,
it is each Funds' policy to take possession, through its custodian, of the
underlying collateral and monitor the collateral's value at the time the
agreement is entered into and at all times during the term of the
repurchase agreement to ensure that it always equals or exceeds the
repurchase price. In the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings.
(f) FOREIGN CURRENCY TRANSLATION. The accounting records of each Fund
are maintained in U.S. dollars. Investment securities and other assets and
liabilities of the High Yield Bond Fund, Strategic Bond Fund and Investors
Fund denominated in a foreign currency are translated into U.S. dollars at
the prevailing rates of exchange each day. Purchases and sales of
securities, income receipts and expense payments are translated into U.S.
dollars at the prevailing exchange rate on the respective dates of the
transactions. Net realized gains and losses on foreign currency
transactions represent net gains and losses from sales and maturities of
forward foreign 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 investment in
securities.
(g) FORWARD FOREIGN CURRENCY CONTRACTS. The High Yield Bond Fund,
Strategic Bond Fund and Investors Fund may enter into forward foreign
currency contracts in connection with planned purchases or sales of
securities or to hedge the value of portfolio securities. 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 an
offsetting forward foreign
PAGE 26
<PAGE> 262
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
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 entered
into and the value of the contract at the time it was extinguished or
offset.
(h) LOAN PARTICIPATIONS/ASSIGNMENTS. The High Yield Bond Fund and the
Strategic Bond Fund may invest in floating rate loans arranged through
private negotiations between a foreign sovereign entity and one or more
financial institutions ("lender"). The Fund's investment in any such loan
may be in the form of a participation in or an assignment of the loan. The
market value of the High Yield Bond Fund and the Strategic Bond Fund's
loan participations at June 30, 1995 was $294,375 each.
In connection with purchasing 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 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.
When the Fund purchases assignments from lenders, the Fund will
acquire direct rights against the borrower on the loan, except that under
certain circumstances such rights may be more limited than those held by
the assigning lender.
(i) FEDERAL INCOME TAXES. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies, including the distribution requirements of the Tax
Reform Act of 1986, and to distribute all of its income, including any net
realized gains, to shareholders. Therefore, no Federal income tax or
excise tax provision is required.
(j) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net
investment income on the shares of each of the Funds (except the Investors
Fund) are declared each business day to shareholders of record that day,
and are paid on the last day of the month. Dividends from net investment
income for the Investors Fund are declared on a quarterly basis.
Distributions of net realized gains to shareholders of each Fund, if any,
are declared at least annually. Dividends and distributions to
shareholders of each Fund are recorded on the ex-dividend date and are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles primarily due to deferral of wash
sales and post-October losses incurred by each Fund.
(k) EXPENSES. Operating expenses directly attributable to a class of
shares are charged to that class' operations. Direct expenses are charged
to the Fund that incurred them, and general expenses of the Investment
Series are allocated to the Funds based on each Fund's relative average
daily net assets for the period.
(l) OTHER. Investment transactions are recorded as of the trade date.
Dividend income is recorded on the ex-dividend date. Interest income,
including the accretion of discounts or
PAGE 27
<PAGE> 263
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
NOTES TO FINANCIAL STATEMENTS
(unaudited)
amortization of premiums, is recognized when earned. Gains or losses on
sales of securities are calculated for financial accounting and Federal
income tax purposes on the identified cost basis. Net investment income
(other than distribution fees) and unrealized and realized gains or losses
are allocated daily to each class of shares based upon the relative
proportion of each class's net assets to the Fund's total net assets.
2. MANAGEMENT FEE, TRANSACTIONS WITH AFFILIATES AND OTHER AGREEMENTS
The Investment Series retains SBAM, an indirect wholly-owned subsidiary of
Salomon Inc, to act as investment manager of each Fund, subject to the
supervision by the Board of Directors of each Fund. SBAM furnishes the
Investment Series with office space and certain services and facilities
required for conducting the business of the Investment Series and pays the
compensation of its officers. The management fee for these services for each
Fund (except the Investors Fund) is payable monthly and is based on the
following annual percentages of each Funds' average daily net assets: .20% for
the Cash Management Fund, .50% for the New York Municipal Bond Fund and the
National Intermediate Municipal Fund, .60% for the U.S Government Income Fund
and .75% for the High Yield Bond Fund and Strategic Bond Fund. SBAM Limited
provides certain advisory services to SBAM for the benefit of the Strategic
Bond Fund. SBAM Limited is compensated by SBAM at no additional expense to the
Strategic Bond Fund.
The Investors Fund pays SBAM a base fee subject to an increase or decrease
depending on the extent, if any, to which the investment performance of the
Investors Fund exceeds or is exceeded by the investment record of the Standard
& Poor's 500 Index of Composite Stocks ("S&P 500 Index"). The first performance
adjustment, if any, will be paid on September 30, 1995. Thereafter, the
performance adjustment will be paid quarterly based on a rolling one year
period. The base fee will be paid quarterly based on the following annual
rates:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- -------------------------------------------------------------------------------
<S> <C>
First $350 million . . . . . . . . . . . . . . . . . . . . . . . .500%
Next $150 million . . . . . . . . . . . . . . . . . . . . . . . . .400%
Next $250 million . . . . . . . . . . . . . . . . . . . . . . . . .375%
Next $250 million . . . . . . . . . . . . . . . . . . . . . . . . .350%
Over $1 billion . . . . . . . . . . . . . . . . . . . . . . . . . .300%
</TABLE>
For each percentage point by which the investment performance of the Investors
Fund exceeds or is exceeded by the investment record of the S&P 500 Index, the
base fee will be adjusted upward or downward by .01% (annualized). The maximum
annual adjustment is .10% which would occur if the Investors Fund's performance
exceeds or is exceeded by the S&P 500 Index by ten or more percentage points.
For the nine months ended June 30, 1995, the S&P 500 Index's performance
exceeded the Fund's performance by six percent. Under the performance fee
arrangement, the Fund would be entitled to a .06% reduction in its management
fee payable to SBAM should this performance continue at this level through
September 30, 1995.
PAGE 28
<PAGE> 264
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
If in any fiscal year total expenses of any Fund, excluding taxes, interest,
brokerage and extraordinary expenses, but including the management fee, exceed
the most stringent expense limitations imposed by state securities regulations
applicable to the Fund, SBAM will pay or reimburse the Fund for the excess.
Currently, the most restrictive of these limitations on an annual basis is 2.5%
of the first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of average daily net assets in
excess of $100 million. No such expense reimbursement is expected to be
required for the year ending December 31, 1995. However, for the six months
ended June 30, 1995, SBAM voluntarily waived its management fees of $14,547,
$9,466, $17,896, $21,386, $27,945 and $26,970 for the Cash Management Fund, New
York Municipal Bond Fund, National Intermediate Municipal Fund, U.S.
Government Income Fund, High Yield Bond Fund, and Strategic Bond Fund,
respectively, and voluntarily absorbed expenses of $38,548, $18,857, $17,267,
$9,541, and $3,749 for the New York Municipal Bond Fund, National Intermediate
Municipal Fund, U.S. Government Income Fund, High Yield Bond Fund, and
Strategic Bond Fund, respectively.
Investors Bank & Trust Company serves as custodian and administrator for each
Fund, which includes performing certain administrative services in connection
with the operation of each Fund. The Shareholder Services Group, Inc. ("TSSG")
serves as each Fund's transfer and shareholder services agent.
Each Fund has an agreement with Salomon Brothers Inc ("Salomon Brothers") to
distribute its shares pursuant to a multiple class pricing system. Each class
(other than Class O) of each Fund (other than Cash Management Fund) is
authorized pursuant to a services and distribution plan applicable to that
class of shares (the "Class A Plan," the "Class B Plan," and the "Class C
Plan," collectively, the "Plans") adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"), to pay Salomon
Brothers an annual service fee with respect to Class A, Class B, and Class C
shares of the applicable Funds at the rate of .25% of the value of the average
daily net assets of the respective class. Salomon Brothers is also paid an
annual distribution fee with respect to Class B and Class C shares of each Fund
(other than the Cash Management Fund) at the rate of .75% of the value of the
average daily net assets of the respective class. Class O shares are not
subject to a services and distribution plan.
Brokerage commissions of $52,331 were paid by the Investors Fund to Salomon
Brothers, the Fund's distributor and an indirect wholly-owned subsidiary of
Salomon Inc, for transactions executed on behalf of the Investors Fund for the
six months ended June 30, 1995.
Contingent deferred sales charges of $1,579 were paid to Salomon Brothers in
connection with redemptions of certain Class B and Class C shares of the Funds
during the six months ended June 30, 1995.
PAGE 29
<PAGE> 265
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
NOTES TO FINANCIAL STATEMENTS
(unaudited)
3. CAPITAL STOCK
At June 30, 1995, the Series Funds had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share and the Investors Fund had 50,000,000
shares of authorized capital stock, $1.00 par value. Transactions in Fund
shares for the periods indicated were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------- -------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994 JUNE 30, 1995 DECEMBER 31, 1994
------------------------ --------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- -------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH
MANAGEMENT FUND
Sold . . . . . . . . . . 2,717,378 $2,717,378 -- -- 49,241 $ 49,241 -- --
Issued as
reinvestment . . . . . . 210 210 -- -- 141 141 -- --
Redeemed . . . . . . . . (1,554,273) (1,554,273) -- -- -- -- -- --
---------- ---------- ------- ------- ------- --------- ------- -------
Net increase
(decrease) . . . . . . . 1,163,315 $1,163,315 -- -- 49,382 $ 49,382 -- --
========== ========== ======= ======= ======= ========= ======= =======
NEW YORK MUNICIPAL
BOND FUND
Sold . . . . . . . . . . 28,711 $ 273,830 -- -- 26,263 $ 250,020 -- --
Issued as
reinvestment . . . . . . 7 70 -- -- 6 60 -- --
Redeemed . . . . . . . . (2) (21) -- -- (2) (21) -- --
---------- ---------- ------- ------- ------- --------- ------- -------
Net increase
(decrease) . . . . . . . 28,716 $ 273,879 -- -- 26,267 $ 250,059 -- --
========== ========== ======= ======= ======= ========= ======= =======
NATIONAL
INTERMEDIATE
MUNICIPAL FUND
Sold . . . . . . . . . . 50,789 $ 512,147 -- -- 32,897 $ 330,058 -- --
Issued as
reinvestment . . . . . . 82 835 -- -- 39 396 -- --
Redeemed . . . . . . . . (2) (20) -- -- (2) (20) -- --
---------- ---------- ------- ------- ------- --------- ------- -------
Net increase . . . . . . 50,869 $ 512,962 -- -- 32,934 $ 330,434 -- --
========== ========== ======= ======= ======= ========= ======= =======
U.S. GOVERNMENT
INCOME FUND
Sold . . . . . . . . . . 25,778 $ 257,786 -- -- 39,807 $ 400,000 -- --
Issued as
reinvestment . . . . . . 32 322 -- -- 114 1,157 -- --
Redeemed . . . . . . . . (2) (20) -- -- (2) (20) -- --
---------- ---------- ------- ------- ------- --------- ------- -------
Net increase . . . . . . 25,808 $ 258,088 -- -- 39,919 $ 401,137 -- --
========== ========== ======= ======= ======= ========= ======= =======
HIGH YIELD
BOND FUND
Sold . . . . . . . . . . 406,451 $4,240,232 -- -- 85,774 $ 886,183 -- --
Issued as
reinvestment . . . . . . 547 5,708 -- -- 115 1,198 -- --
Redeemed . . . . . . . . (1,818) (19,050) -- -- (1,946) (20,318) -- --
---------- ---------- ------- ------- ------- --------- ------- -------
Net increase . . . . . . 405,180 $4,226,890 -- -- 83,943 $ 867,063 -- --
========== ========== ======= ======= ======= ========= ======= =======
STRATEGIC BOND FUND
Sold . . . . . . . . . . 32,047 $ 323,085 -- -- 50,299 $ 514,100 -- --
Issued as
reinvestment . . . . . . 36 368 -- -- 37 384 -- --
Redeemed . . . . . . . . (2) (20) -- -- (2) (20) -- --
---------- ---------- ------- ------- ------- --------- ------- -------
Net increase . . . . . . 32,081 $ 323,433 -- -- 50,334 $ 514,464 -- --
========== ========== ======= ======= ======= ========= ======= =======
INVESTORS FUND
Sold . . . . . . . . . . 18,528 $ 264,500 -- -- 21,153 $ 303,120 -- --
Issued as
reinvestment . . . . . . 2 38 -- -- 11 171 -- --
Redeemed . . . . . . . . (1) (21) -- -- (1) (21) -- --
---------- ---------- ------- ------- ------- --------- ------- -------
Net increase
(decrease) . . . . . . . 18,529 $ 264,517 -- -- 21,163 $ 303,270 -- --
========== ========== ======= ======= ======= ========= ======= =======
</TABLE>
PAGE 30
<PAGE> 266
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
CLASS C CLASS O
- ---------------------------------------------- ---------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994 JUNE 30, 1995 DECEMBER 31, 1994
- --------------------- --------------------- ----------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------ -------- -------- -------- -------- -------- -------- ----------
<C> <C> <C> <C> <C> <C> <C> <C>
20,142 $ 20,142 -- -- 28,645,762 $ 28,645,762 75,796,036 $75,796,036
141 141 -- -- 283,967 283,967 401,895 401,895
-- -- -- -- (39,227,843) (39,227,843) (72,120,070) (72,120,070)
------ ---------- ------- ------- ----------- ------------ ----------- -----------
20,283 $ 20,283 -- -- (10,298,114) $(10,298,114) 4,077,861 $ 4,077,861
====== ========== ======= ======= =========== ============ =========== ===========
26,263 $ 250,020 -- -- 2,438 $ 23,211 194,976 $ 1,960,677
6 60 -- -- 11,204 105,407 40,650 390,961
(2) (21) -- -- (62,226) (586,764) (665,997) (6,193,972)
------ ---------- ------- ------- ----------- ------------ ----------- -----------
26,267 $ 250,059 -- -- (48,584) $ (458,146) (430,371) $(3,842,334)
====== ========== ======= ======= =========== ============ =========== ===========
25,000 $ 250,000 -- -- 927,748 $ 9,278,116 -- --
3 30 -- -- 263 2,631 -- --
(2) (20) -- -- (2) (20) -- --
------ ---------- ------- ------- ----------- ------------ ----------- -----------
25,001 $ 250,010 -- -- 928,009 $ 9,280,727 -- --
====== ========== ======= ======= =========== ============ =========== ===========
25,694 $ 257,000 -- -- 925,200 $ 9,252,000 -- --
20 206 -- -- 815 8,154 -- --
(698) (7,152) -- -- (2) (20) -- --
------ ---------- ------- ------- ----------- ------------ ----------- -----------
25,016 $ 250,054 -- -- 926,013 $ 9,260,134 -- --
====== ========== ======= ======= =========== ============ =========== ===========
36,238 $ 367,000 -- -- 925,205 $ 9,252,000 -- --
16 162 -- -- 761 7,597 -- --
(4,453) (46,441) -- -- (2) (20) -- --
------ ---------- ------- ------- ----------- ------------ ----------- -----------
31,801 $ 320,721 -- -- 925,964 $ 9,259,577 -- --
====== ========== ======= ======= =========== ============ =========== ===========
25,667 $ 257,000 -- -- 925,000 $ 9,250,000 -- --
20 205 -- -- 754 7,527 -- --
(2) (20) -- -- (2) (20) -- --
------ ---------- ------- ------- ----------- ------------ ----------- -----------
25,685 $ 257,185 -- -- 925,752 $ 9,257,507 -- --
====== ========== ======= ======= =========== ============ =========== ===========
17,756 $ 253,020 -- -- 142,457 $ 2,047,417 1,535,504 $22,813,829
-- -- -- -- 163,206 2,324,883 2,324,823 32,449,031
(200) (3,142) -- -- (1,131,223) (16,731,152) (3,057,955) (45,611,321)
------ ---------- ------- ------- ----------- ------------ ----------- -----------
17,556 $ 249,878 -- -- (825,560) $(12,358,852) 802,372 $ 9,651,539
====== ========== ======= ======= =========== ============ =========== ===========
</TABLE>
PAGE 31
<PAGE> 267
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
NOTES TO FINANCIAL STATEMENTS
(unaudited)
At June 30, 1995, Salomon Brothers owned approximately the following
percentages of total shares outstanding of each Fund:
<TABLE>
<S> <C>
Cash Management Fund . . . . . . . . . . . . . . . . . . . . . . . 1%
New York Municipal Bond Fund . . . . . . . . . . . . . . . . . . . 20%
National Intermediate Municipal Fund . . . . . . . . . . . . . . . 96%
U.S. Government Income Fund . . . . . . . . . . . . . . . . . . . . 98%
High Yield Bond Fund . . . . . . . . . . . . . . . . . . . . . . . 69%
Strategic Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . 97%
</TABLE>
4. PORTFOLIO ACTIVITY
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations and written options, for the period ended June 30, 1995, were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
New York Municipal Bond Fund . . . . . . . . . . . . . . . $ 397,750 $ 550,377
============ ============
National Intermediate Municipal Fund . . . . . . . . . . . $ 14,536,200 $ 1,013,664
============ ============
U.S. Government Income Fund
U.S. Government Securities . . . . . . . . . . . . . . . $ 20,169,609 $ 12,389,297
============ ============
High Yield Bond Fund . . . . . . . . . . . . . . . . . . . $ 19,447,550 $ 6,341,697
============ ============
Strategic Bond Fund
U.S. Government Securities . . . . . . . . . . . . . . . $ 7,684,578 $ 5,909,906
Other Investments . . . . . . . . . . . . . . . . . . . 12,354,791 4,672,250
------------ ------------
$ 20,039,369 $ 10,582,156
============ ============
Investors Fund
U.S. Government Securities . . . . . . . . . . . . . . . -- $ 3,962,031
Other Investments . . . . . . . . . . . . . . . . . . . $182,413,272 195,091,457
------------ ------------
$182,413,272 $199,053,488
============ ============
</TABLE>
Transactions in options written for the Investors Fund during the six months
ended June 30, 1995 were as follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1994 . . . . . . . . . (1,825) $(428,151)
Options written . . . . . . . . . . . . . . . . . . . . . . (1,115) (289,198)
Options terminated in closing purchase transactions . . . . 2,765 681,423
Options expired . . . . . . . . . . . . . . . . . . . . . . -- --
Options exercised . . . . . . . . . . . . . . . . . . . . . 175 35,926
------- ---------
Options outstanding at June 30, 1995 . . . . . . . . . . . -- --
======= =========
</TABLE>
PAGE 32
<PAGE> 268
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
During the six months ended June 30, 1995, net realized loss from written
option transactions for the Investors Fund amounted to $268,953 and net
realized gain from purchased option transactions amounted to $126,353, for a
net realized loss on all option transactions for the Investors Fund of
$142,600.
5. PORTFOLIO INVESTMENT RISKS
CREDIT RISK. 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.
Consistent with their objective to seek high current income, the High Yield
Bond Fund and the Strategic Bond Fund may invest in instruments whose values
and interest rates may be linked to foreign currencies, interest rates, indices
or some other financial indicator. The value at maturity or interest rates for
these instruments will increase or decrease according to the change in the
indicator to which it is indexed. These securities are generally more volatile
in nature and the risk of loss of principal or interest 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. A risk in writing a put option is that the Fund may incur a loss
if the market price of the underlying security decreases and the option is
exercised. In addition, there is the risk that the Fund may not be able to
enter a closing transaction because of an illiquid secondary market.
The Cash Management Fund invests in money market instruments maturing in
thirteen months or less whose credit ratings are within the highest ratings
category of two nationally recognized statistical rating organizations
("NRSROs") or if rated by only one NRSRO, the highest rating of that NRSRO, or,
if not rated, are believed by the investment manager to be of comparable
quality. The New York Municipal Bond Fund pursues its investment objectives by
investing at least 65% of its net assets in obligations that are exempt from
regular Federal income tax and from personal income taxes of the State and City
of New York. Because the New York Municipal Bond Fund invests primarily in
obligations of the State and City of New York, it is more susceptible to
factors adversely affecting issuers of such obligations than a fund that is
more diversified.
PAGE 33
<PAGE> 269
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
NOTES TO FINANCIAL STATEMENTS
(unaudited)
6. TAX INFORMATION
At December 31, 1994, the Cash Management Fund and New York Municipal Bond Fund
had net capital loss carry-forwards available to offset future capital gains as
follows:
<TABLE>
<CAPTION>
NEW YORK
CASH MUNICIPAL
YEAR OF MANAGEMENT BOND
EXPIRATION FUND FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 894 --
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 396 --
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . 409 --
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 415 $305,822
------- --------
$ 2,114 $305,822
======= ========
</TABLE>
At December 31, 1994, as permitted under federal income tax regulations, the
New York Municipal Bond Fund has elected to defer $252,597 of post-October
losses to the next taxable year.
At June 30, 1995, the cost for Federal income tax purposes and gross unrealized
appreciation and depreciation in value of investments held in each Fund were as
follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
AGGREGATE UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York Municipal Bond Fund . . . . . . . $ 3,686,346 $ 48,623 $ (84,479) $ (35,856)
National Intermediate Municipal Fund . . . 10,097,958 146,719 (4,323) 142,396
U.S. Government Income Fund . . . . . . . . 11,608,027 153,942 (7,885) 146,057
High Yield Bond Fund . . . . . . . . . . . 17,283,570 440,492 (122,588) 317,904
Strategic Bond Fund . . . . . . . . . . . . 11,678,548 391,327 (104,635) 286,692
Investors Fund . . . . . . . . . . . . . . 319,656,482 72,610,474 (1,694,405) 70,916,069
</TABLE>
PAGE 34
<PAGE> 270
[This page intentionally left blank].
PAGE 35
<PAGE> 271
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
FINANCIAL HIGHLIGHTS
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
CASH MANAGEMENT FUND
- ---------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------------------------
PERIOD ENDED JUNE 30, 1995
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . $ 1.000 $ 1.000 $ 1.000
----------- ----------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . 0.017 0.016 0.015
Dividends from net investment income . . . . . . . . . . . (0.017) (0.016) (0.015)
----------- ----------- -----------
Net asset value, end of period . . . . . . . . . . . . . . $ 1.000 $ 1.000 $ 1.000
=========== =========== ===========
Net assets, end of period (thousands) . . . . . . . . . . . $ 1,163 $ 49 $ 20
Total return* . . . . . . . . . . . . . . . . . . . . . . . +1.7 % +1.6 % +1.6 %
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 0.55 %** 0.55 %** 0.55 %**
Net investment income . . . . . . . . . . . . . . . . . . . 6.22 %** 5.60 %** 5.59 %**
Before waiver of management fee and/or expenses
absorbed by Salomon Brothers Asset Management
Inc ("SBAM"), net investment income per share and
expense ratios would have been:
Net investment income per share . . . . . . . . . . . . . . $ 0.016 $ 0.015 $ 0.015
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . 0.75 %** 0.75 %** 0.75 %**
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL BOND FUND
- ---------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------------------------
PERIOD ENDED JUNE 30, 1995
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . $ 8.96 $ 8.96 $ 8.96
----------- ----------- -----------
Net investment income . . . . . . . . . . . . . . . . . . . 0.17 0.15 0.15
Net gain (loss) on securities and futures
(both realized and unrealized) . . . . . . . . . . . . . 0.65 0.65 0.65
----------- ----------- -----------
Total from investment operations . . . . . . . . . . . . . 0.82 0.80 0.80
----------- ----------- -----------
Dividends from net investment income . . . . . . . . . . . (0.17) (0.15) (0.15)
Distributions from net realized gain on securities
and futures . . . . . . . . . . . . . . . . . . . . . . -- -- --
----------- ----------- -----------
Total dividends and distributions . . . . . . . . . . . . . (0.17) (0.15) (0.15)
----------- ----------- -----------
Net asset value, end of period . . . . . . . . . . . . . . $ 9.61 $ 9.61 $ 9.61
=========== =========== ===========
Net assets, end of period (thousands) . . . . . . . . . . . $ 276 $ 253 $ 253
Total return* . . . . . . . . . . . . . . . . . . . . . . . +9.2 % +8.9 % +8.9 %
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 0.75%** 1.50%** 1.50%**
Net investment income . . . . . . . . . . . . . . . . . . . 5.27%** 4.54%** 4.54%**
Portfolio turnover rate . . . . . . . . . . . . . . . . . . 11% 11% 11%
Before waiver of management fee and/or expenses
absorbed by Salomon Brothers Asset Management
Inc ("SBAM"), net investment income per share and
expense ratios would have been:
Net investment income per share . . . . . . . . . . . . . . $ 0.09 $ 0.06 $ 0.06
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . 3.30%** 4.05%** 4.05%**
</TABLE>
(a) October 2, 1990, commencement of investment operations, through December
31, 1990.
(b) February 1, 1993, commencement of investment operations, through December
31, 1993.
* Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the payable date, and a sale at net asset value on the last day
of each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
Due to the recent commencement of their offering, the ratios for Class A, Class
B and Class C shares may not necessarily be comparable to that of the Class O
shares and are not necessarily indicative of future ratios.
See accompanying notes to financial statements
PAGE 36
<PAGE> 272
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CLASS O
- ------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED
JUNE 30, 1995 ---------------------------------------------------- DECEMBER 31,
(UNAUDITED) 1994 1993 1992 1991 1990(a)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- ------- -------
0.027 0.038 0.027 0.033 0.055 0.019
(0.027) (0.038) (0.027) (0.033) (0.055) (0.019)
------- ------- ------- ------- ------- -------
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= =======
$ 8,829 $19,127 $15,049 $11,613 $22,982 $10,293
+2.8 % +3.9 % +2.7 % +3.4 % +5.7 % +1.9 %
0.55 %** 0.61 % 0.65 % 0.65 % 0.65 % 0.65 %**
5.49 %** 3.79 % 2.68 % 3.41 % 5.43 % 7.46 %**
$ 0.026 $ 0.036 $ 0.025 $ 0.030 $ 0.053 $ 0.018
0.75 %** 0.81 % 0.85 % 0.85 % 0.85 % 0.97 %**
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------
CLASS O
- --------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 1995 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1994 1993(b)
- --------------------------------------------
<S> <C> <C>
$ 8.98 $10.44 $10.00
------- ------ ------
0.27 0.55 0.46
0.64 (1.46) 0.46
------- ------ ------
0.91 (0.91) 0.92
------- ------ ------
(0.27) (0.55) (0.46)
-- -- (0.02)
------- ------ ------
(0.27) (0.55) (0.48)
------- ------ ------
$ 9.62 $ 8.98 $10.44
======= ====== ======
$ 3,101 $3,333 $8,364
+10.2 % -8.8 % +9.4 %
0.50%** 0.50% 0.50%**
5.67%** 5.72% 4.99%**
11 % 63 % 24 %
$ 0.15 $ 0.49 $ 0.40
3.05%** 1.17% 1.24%**
</TABLE>
See accompanying notes to financial statements
PAGE 37
<PAGE> 273
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
FINANCIAL HIGHLIGHTS
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
NATIONAL INTERMEDIATE MUNICIPAL FUND
- -------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS O
-----------------------------------------------------
PERIOD ENDED JUNE 30, 1995(a)
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Net investment income . . . . . . . . . . . . . . . . . . . . . . 0.16 0.13 0.13 0.17
Net gain (loss) on investments (both realized and unrealized) . . 0.14 0.14 0.14 0.14
------ ------ ------ ------
Total from investment operations . . . . . . . . . . . . . . . . 0.30 0.27 0.27 0.31
------ ------ ------ ------
Dividends from net investment income . . . . . . . . . . . . . . (0.16) (0.13) (0.13) (0.17)
Distributions from net realized gain on investments . . . . . . . -- -- -- --
------ ------ ------ ------
Total dividends and distributions . . . . . . . . . . . . . . . . (0.16) (0.13) (0.13) (0.17)
------ ------ ------ ------
Net asset value, end of period . . . . . . . . . . . . . . . . . $10.14 $10.14 $10.14 $10.14
====== ====== ====== ======
Net assets, end of period (thousands) . . . . . . . . . . . . . . $ 516 $ 334 $ 254 $9,413
Total return* . . . . . . . . . . . . . . . . . . . . . . . . . . +3.0 % +2.7 % +2.7 % +3.1 %
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.75%** 1.50%** 1.50%** 0.50%**
Net investment income . . . . . . . . . . . . . . . . . . . . . . 4.53%** 3.75%** 3.76%** 4.76%**
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . 12% 12% 12% 12%
Before waiver of management fee and/or expenses absorbed by
Salomon Brothers Asset Management Inc ("SBAM"), net investment
income per share and expense ratios would have been:
Net investment income per share . . . . . . . . . . . . . . . . . $ 0.12 $ 0.10 $ 0.10 $ 0.13
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 1.78%** 2.53%** 2.53%** 1.53%**
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS O
-----------------------------------------------------
PERIOD ENDED JUNE 30, 1995(a)
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Net investment income . . . . . . . . . . . . . . . . . . . . . . 0.21 0.18 0.18 0.22
Net gain (loss) on investments (both realized and unrealized) . . 0.24 0.24 0.24 0.24
------ ------ ------ ------
Total from investment operations . . . . . . . . . . . . . . . . 0.45 0.42 0.42 0.46
------ ------ ------ ------
Dividends from net investment income . . . . . . . . . . . . . . (0.21) (0.18) (0.18) (0.22)
Distributions from net realized gain on investments . . . . . . . -- -- -- --
------ ------ ------ ------
Total dividends and distributions . . . . . . . . . . . . . . . . (0.21) (0.18) (0.18) (0.22)
------ ------ ------ ------
Net asset value, end of period . . . . . . . . . . . . . . . . . $10.24 $10.24 $10.24 $10.24
====== ====== ====== ======
Net assets, end of period (thousands) . . . . . . . . . . . . . . $ 264 $ 409 $ 256 $9,480
Total return* . . . . . . . . . . . . . . . . . . . . . . . . . . +4.6 % +4.3 % +4.3 % +4.7 %
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.85%** 1.60%** 1.60%** 0.60%**
Net investment income . . . . . . . . . . . . . . . . . . . . . . 5.97%** 5.23%** 5.22%** 6.22%**
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . 203% 203% 203% 203%
Before waiver of management fee and/or expenses absorbed by
Salomon Brothers Asset Management Inc ("SBAM"), net investment
income per share and expense ratios would have been:
Net investment income per share . . . . . . . . . . . . . . . . . $ 0.17 $ 0.15 $ 0.15 $ 0.18
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 1.93%** 2.68%** 2.68%** 1.68%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through June 30,
1995
* Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the payable date, and a sale at net asset value on the last day
of each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
Due to the recent commencement of their offering, the ratios for Class A, Class
B and Class C shares may not necessarily be comparable to that of the Class O
shares and are not necessarily indicative of future ratios.
See accompanying notes to financial statements
PAGE 38
<PAGE> 274
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
FINANCIAL HIGHLIGHTS
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND
- -------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS O
-----------------------------------------------------
PERIOD ENDED JUNE 30, 1995(a)
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Net investment income . . . . . . . . . . . . . . . . . . . . . . 0.36 0.33 0.33 0.37
Net gain (loss) on investments (both realized and unrealized) . . 0.46 0.46 0.46 0.46
------ ------ ------ ------
Total from investment operations . . . . . . . . . . . . . . . . 0.82 0.79 0.79 0.83
------ ------ ------ ------
Dividends from net investment income . . . . . . . . . . . . . . (0.36) (0.33) (0.33) (0.37)
Distributions from net realized gain on investments . . . . . . . -- -- -- --
------ ------ ------ ------
Total dividends and distributions . . . . . . . . . . . . . . . . (0.36) (0.33) (0.33) (0.37)
------ ------ ------ ------
Net asset value, end of period . . . . . . . . . . . . . . . . . $10.46 $10.46 $10.46 $10.46
====== ====== ====== ======
Net assets, end of period (thousands) . . . . . . . . . . . . . . $4,239 $ 878 $ 333 $9,683
Total return* . . . . . . . . . . . . . . . . . . . . . . . . . . +8.3 % +8.0 % +8.0 % +8.4 %
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.24%** 1.99%** 1.99%** 0.99%**
Net investment income . . . . . . . . . . . . . . . . . . . . . . 9.54%** 8.67%** 9.11%** 10.21%**
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . 63% 63% 63% 63%
Before waiver of management fee and/or expenses absorbed by
Salomon Brothers Asset Management Inc ("SBAM"), net investment
income per share and expense ratios would have been:
Net investment income per share . . . . . . . . . . . . . . . . . $ 0.32 $ 0.29 $ 0.30 $ 0.33
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 2.25%** 3.00%** 3.00%** 2.00%**
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC BOND FUND
- -------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS O
-----------------------------------------------------
PERIOD ENDED JUNE 30, 1995(a)
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Net investment income . . . . . . . . . . . . . . . . . . . . . . 0.32 0.30 0.30 0.33
Net gain (loss) on investments (both realized and unrealized) . . 0.46 0.46 0.46 0.46
------ ------ ------ ------
Total from investment operations . . . . . . . . . . . . . . . . 0.78 0.76 0.76 0.79
------ ------ ------ ------
Dividends from net investment income . . . . . . . . . . . . . . (0.32) (0.30) (0.30) (0.33)
Distributions from net realized gain on investments . . . . . . . -- -- -- --
------ ------ ------ ------
Total dividends and distributions . . . . . . . . . . . . . . . . (0.32) (0.30) (0.30) (0.33)
------ ------ ------ ------
Net asset value, end of period . . . . . . . . . . . . . . . . . $10.46 $10.46 $10.46 $10.46
====== ====== ====== ======
Net assets, end of period (thousands) . . . . . . . . . . . . . . $ 336 $ 526 $ 269 $9,681
Total return* . . . . . . . . . . . . . . . . . . . . . . . . . . +7.9 % +7.7 % +7.7 % +8.0 %
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.24%** 1.99%** 1.99%** 0.99%**
Net investment income . . . . . . . . . . . . . . . . . . . . . . 9.00%** 8.08%** 8.28%** 9.28%**
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . 123% 123% 123% 123%
Before waiver of management fee and/or expenses absorbed by
Salomon Brothers Asset Management Inc ("SBAM"), net investment
income per share and expense ratios would have been:
Net investment income per share . . . . . . . . . . . . . . . . . $ 0.29 $ 0.26 $ 0.27 $ 0.30
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 2.10%** 2.85%** 2.85%** 1.85%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through June 30,
1995
* Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all dividends at the net asset
value on the payable date, and a sale at net asset value on the last day
of each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
Due to the recent commencement of their offering, the ratios for Class A, Class
B and Class C shares may not necessarily be comparable to that of the Class O
shares and are not necessarily indicative of future ratios.
See accompanying notes to financial statements
PAGE 39
<PAGE> 275
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
FINANCIAL HIGHLIGHTS
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
INVESTORS FUND
- ---------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
-------------------------------------
PERIOD ENDED JUNE 30, 1995
(UNAUDITED)
-------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . $13.61 $13.61 $13.61
------ ------ ------
Net investment income . . . . . . . . . . . . . . . . . . . . . . 0.08 0.04 0.04
Net gain (loss) on investments
(both realized and unrealized) . . . . . . . . . . . . . . . . 2.21 2.21 2.21
------ ------ ------
Total from investment operations . . . . . . . . . . . . . . . . 2.29 2.25 2.25
------ ------ ------
Dividends from net investment income . . . . . . . . . . . . . . (0.06) (0.05) (0.05)
Distributions from net realized gain on investments . . . . . . . (0.07) (0.07) (0.07)
------ ------ ------
Total dividends and distributions . . . . . . . . . . . . . . . . (0.13) (0.12) (0.12)
------ ------ ------
Net asset value, end of period . . . . . . . . . . . . . . . . . $15.77 $15.74 $15.74
====== ====== ======
Net assets, end of period (thousands) . . . . . . . . . . . . . . $ 292 $ 333 $ 276
Total return** . . . . . . . . . . . . . . . . . . . . . . . . . +16.9 % +16.6 % +16.6 %
Ratios to average net assets:
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.96%*** 1.71%*** 1.71%***
Net investment income . . . . . . . . . . . . . . . . . . . . . . 1.54%*** 0.81%*** 0.78%***
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . 52% 52% 52%
</TABLE>
* Since May 1, 1990, the Fund has been managed by SBAM. Prior thereto, the
Lehman Management Co. division of Shearson Lehman Brothers Inc. served as
the Fund's investment manager.
** Total return is calculated assuming a $1,000 investment on the first day
of each period reported, reinvestment of all divdends at the net asset
value on the "ex-dividend" date, and a sale at net asset value on the last
day of each period reported. Initial sales charge or contingent deferred
sales charge is not reflected in the calculation of total return. Total
return calculated for a period of less than one year is not annualized.
*** Annualized.
Due to the recent commencement of their offering, the ratios for Class A, Class
B and Class C shares may not necessarily be comparable to that of the Class O
shares and are not necessarily indicative of future ratios.
See accompanying notes to financial statements
PAGE 40
<PAGE> 276
S A L O M O N B R O T H E R S I N V E S T M E N T S E R I E S
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CLASS O
- ------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1995 ----------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990*
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 13.63 $ 15.60 $ 16.10 $ 17.10 $ 14.54 $ 16.65
---------- ---------- ---------- --------- ---------- -----------
0.13 0.27 0.32 0.41 0.44 0.49
2.15 (0.48) 2.03 0.79 3.68 (1.55)
---------- ---------- ---------- --------- ---------- -----------
2.28 (0.21) 2.35 1.20 4.12 (1.06)
---------- ---------- ---------- --------- ---------- -----------
(0.06) (0.27) (0.33) (0.41) (0.46) (0.55)
(0.07) (1.49) (2.52) (1.79) (1.10) (0.50)
---------- ---------- ---------- --------- ---------- -----------
(0.13) (1.76) (2.85) (2.20) (1.56) (1.05)
---------- ---------- ---------- --------- ---------- -----------
$ 15.78 $ 13.63 $ 15.60 $ 16.10 $ 17.10 $ 14.54
========== ========== ========== ========= ========== ===========
$ 390,214 $ 348,214 $ 386,147 $ 370,350 $ 378,615 $ 330,814
+16.8 % -1.3 % +15.1 % +7.4 % +29.3 % -6.5 %
0.71%*** 0.69% 0.68% 0.68% 0.70% 0.68%
1.78%*** 1.75% 1.90% 2.47% 2.67% 3.13%
52% 66% 79% 48% 44% 22%
</TABLE>
See accompanying notes to financial statements
PAGE 41
<PAGE> 277
SALOMON BROTHERS TOTAL RETURN FUND (Note 1)
STATEMENT OF ASSETS AND LIABILITIES
July 13, 1995
<TABLE>
<S> <C>
Assets:
Cash $ 5,000
Deferred organization expenses (Note 2) 90,000
--------
Total assets 95,000
--------
Liabilities:
Organization expenses payable (Note 2) 90,000
Commitments and contingencies (Note 2 and 3) -
--------
Total liabilities 90,000
--------
Net assets $ 5,000
========
Class A:
- --------
Net assets $ 1,250
Shares outstanding 125
--------
Net asset value and redemption price per share $ 10.00
Maximum offering price per share (net asset value --------
plus sales charge of 4.75% of offering price) $10.50
-------
Class B:*
- ---------
Net assets $ 1,250
Shares outstanding 125
--------
Net asset value and offering price per share $10.00
------
Class C:*
- ---------
Net assets $ 1,250
Shares outstanding 125
--------
Net asset value and offering price per share $10.00
------
Class O:*
- ---------
Net assets $ 1,250
Shares outstanding 125
--------
Net asset value $10.00
------
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statement.
<PAGE> 278
NOTES TO FINANCIAL STATEMENT
NOTE 1
Salomon Brothers Series Funds, Inc. (the "Fund") was incorporated as a
Maryland corporation on April 17, 1990 as an open-end management investment
company and currently operates as a Series company comprising of eight
portfolios. Salomon Brothers Total Return Fund (the "Return Fund"), a new
portfolio of the Fund, was formed on July 13, 1995 and has had no operations to
date other than matters relating to its organization and registration as a
diversified, open-end management investment company under the Investment
Company Act of 1940, as amended, and the sale and issuance to Salomon Brothers
Asset Management Inc. of 125 shares of each of Classes A, B, C and O common
stock for an aggregate purchase price of $5,000. The Fund has authorized
capital stock of 10,000,000,000 shares having a par value of $0.001 per share.
NOTE 2
Organization expenses relating to the Return Fund incurred and to be
incurred by the Investment Adivser will be reimbursed by the Return Fund. Such
expenses, estimated at $90,000, will be deferred and amortized on a
straight-line basis for a five year period beginning at the commencement of
operations of the Fund.
NOTE 3
The Return Fund will enter into a management agreement with the Investment
Adviser pursuant to which the Investment Adviser will provide investment
advisory services to the Return Fund and will be responsible for the management
of the Return Fund's portfolio in accordance with the Return Fund's investment
policies and for making decisions to buy, sell, or hold particular securities.
Investors Bank & Trust Company will serve as the Return Fund's Administrator
(the "Administrator") pursuant to an administration agreement entered into
between the Return Fund and the Administrator.
The Return Fund will pay the Investment Adviser a monthly fee for its
advisory services at an annual rate of .50% of the Return Fund's average daily
net assets. The Return Fund will pay the Administrator a monthly fee for its
administration services at an annual rate of .08% of the Return Fund's average
daily net assets.
<PAGE> 279
The Return Fund will offer four classes of shares each with its own
distribution plan and sales charge structure.
Certain officers and/or directors of the Return Fund are officers
and/or directors of the Investment Adviser.
<PAGE> 280
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors
of Salomon Brothers Total Return Fund (the "Fund")
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of
Salomon Brothers Total Return Fund (one of the portfolios constituting
Salomon Brothers Series Funds Inc) at July 13, 1995, in conformity with
generally accepted accounting principles. This financial statement is
the responsibility of the Fund's management; our responsibility is to
express an opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 13, 1995
<PAGE> 281
SALOMON BROTHERS SERIES FUNDS INC
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part A:
For the Salomon Brothers Cash Management Fund, the Salomon Brothers
New York Municipal Bond Fund, the Salomon Brothers National Intermediate
Municipal Fund, the Salomon Brothers U.S. Government Income Fund, the Salomon
Brothers High Yield Bond Fund, the Salomon Brothers Strategic Bond Fund, and
the Salomon Brothers Investors Fund Inc:
Selected Per Share Data and Ratios for the specified periods for each
Fund are presented under the heading "Financial Highlights" in the Prospectus
Financial Statements included in Part B:
(i) Salomon Brothers Series Funds Inc
Audited
For Salomon Brothers Cash Management Fund and Salomon Brothers New York
Municipal Money Market Fund:
Portfolio of Investments at December 31, 1994
Statement of Assets and Liabilities at December 31, 1994
Statement of Operations for the year ended December 31, 1994
Statement of Changes in Net Assets for the year ended December 31, 1994
Financial Highlights for the years ended December 31, 1994, 1993, 1992 and 1991
and the period from October 2, 1990 (commencement of operations) through
December 31, 1990
For Salomon Brothers U.S. Treasury Securities Money Market Fund:
Portfolio of Investments at December 31, 1994
Statement of Assets and Liabilities at December 31, 1994
Statement of Operations for the year ended December 31, 1994
Statement of Changes in Net Assets for the year ended December 31, 1994
Financial Highlights for the years ended December 31, 1994, 1993, 1992 and 1991
and the period from December 7, 1990 (commencement of operations) through
December 31, 1990
<PAGE> 282
For Salomon Brothers New York Municipal Bond Fund:
Portfolio of Investments at December 31, 1994
Statement of Assets and Liabilities at December 31, 1994
Statement of Operations for the year ended December 31, 1994
Statement of Changes in Net Assets for the year ended December 31, 1994
Financial Highlights for the year ended December 31, 1994 and the period from
February 1, 1993 (commencement of operations) through December 31, 1993
Notes to Financial Statements for Salomon Brothers Series Funds Inc
Report of Independent Accountants
Unaudited
For Salomon Brothers National Intermediate Municipal Fund, Salomon Brothers
U.S. Government Income Fund, Salomon Brothers High Yield Bond Fund and Salomon
Brothers Strategic Bond Fund:
Portfolio of Investments at June 30, 1995 (unaudited)
Statements of Assets and Liabilities at June 30, 1995 (unaudited)
Statements of Operations for the period from February 22, 1995 (commencement or
operations) through June 30, 1995 (unaudited)
Statement of Changes in Net Assets for the period from February 22, 1995
(commencement or operations) through June 30, 1995 (unaudited)
Financial Highlights for the period from February 22, 1995 (commencement of
operations) through June 30, 1995 (unaudited)
Notes to Financial Statements for Salomon Brothers Series Funds Inc (unaudited)
For Salomon Brothers Total Return Fund:
Statement of Assets and Liabilities at June 30, 1995 (unaudited)
Notes to Financial Statement (unaudited)
(ii) Salomon Brothers Investors Fund Inc:
Audited
Statement of Net Assets at December 31, 1994
Statement of Operations for the year ended December 31, 1994
Statement of Changes in Net Assets for the years ended December 31, 1994 and
1993
Notes to Financial Statements for Salomon Brothers Investors Fund Inc
Financial Highlights for the years ended December 31, 1994, 1993, 1992, 1991,
1990, 1989, 1988, 1987, 1986 and 1985.
Report of Independent Accountants
Unaudited
Portfolio of Investments at June 30, 1995 (unaudited)
Statement of Assets and Liabilities at June 30,1995 (unaudited)
Statement of Operations for the period from January 1, 1995 through June 30,
1995 unaudited)
Statement of Changes in Net Assets for period from January 1, 1995 through June
30, 1995 (unaudited)
Financial Highlights for the period from January 1, 1995 through June 30, 1995
(unaudited)
Notes to Financial Statements for Salomon Brothers Series Funds Inc (unaudited)
<PAGE> 283
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
1(a) -- Articles of Incorporation of Registrant (filed as Exhibit 1 to
the Registration Statement on Form N-1A (File Nos. 33-34423
and 811-06087) and incorporated herein by reference).
1(b) -- Articles Supplementary (filed as Exhibit 1(b) to
Post-Effective Amendment No. 6 to the Registration Statement
on Form N-1A and incorporated herein by reference).
1(c) -- Articles Supplementary (filed as Exhibit 1(c) to
Post-Effective Amendment No. 6 to the Registration Statement
on Form N-1A and incorporated herein by reference).
1(d) -- Form of Registrant's Articles of Amendment (filed as Exhibit
1(d) to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A and incorporated herein by reference).
1(e) -- Form of Articles Supplementary (filed as Exhibit 1(e) to
Post-Effective Amendment No. 12 to the Registration Statement
on Form N-1A and incorporated herein by reference).
1(f) -- Form of Articles Supplementary.
2(a) -- Registrant's By-Laws (filed as Exhibit 2 to the Registration
Statement on Form N-1A (File Nos. 33-34423 and 811-06087) and
incorporated herein by reference).
3 -- None.
4(a) -- Form of Stock Certificate for shares of Class A Stock (filed
as Exhibit 4(a) to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File Nos. 33-34423 and
811-06087) and incorporated herein by reference).
4(b) -- Form of Stock Certificate for shares of Class B Stock (filed
as Exhibit 4(b) to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File Nos. 33-34423 and
811-06087) and incorporated herein by reference).
4(c) -- Form of Stock Certificate for shares of Class C Stock (filed
as Exhibit 4(c) to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File Nos. 33-34423 and
811-06087) incorporated herein by reference).
4(d) -- Form of Stock Certificate for shares of Class D Stock (filed
as Exhibit 4(d) to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A and incorporated herein by
reference).
</TABLE>
<PAGE> 284
<TABLE>
<S> <C> <C>
4(e) -- Forms of Specimen Stock Certificates: for Cash Management
Fund - A, New York Municipal Bond Fund - A, National
Intermediate Municipal Fund - A, U.S. Government Income Fund -
A, High Yield Bond Fund - A, Strategic Bond Fund - A, Cash
Management Fund - B, New York Municipal Bond Fund - B,
National Intermediate Municipal Fund - B, U.S. Government
Income Fund - B, High Yield Bond Fund - B, Strategic Bond Fund
- B, Cash Management Fund - C, New York Municipal Bond Fund -
C, National Intermediate Municipal Fund - C, U.S. Government
Income Fund - C, High Yield Bond Fund - C and Strategic Bond
Fund - C, Cash Management Fund - O, New York Municipal Bond
Fund - O, National Intermediate Municipal Fund - O, U.S.
Government Income Fund - O, High Yield Bond Fund - O,
Strategic Bond Fund - O (filed as Exhibit 4(e) to
Post-Effective Amendment No. 12 to the Registration Statement
on Form N-1A and incorporated herein by reference).
4(f) -- Forms of Speciment Stock Certificates for Total Return Fund -
A, Total Return Fund - B, Total Return Fund - C and Total
Return Fund - O.
5(a) -- Management Contract between Registrant and Salomon Brothers
Asset Management Inc dated September 27, 1990 relating to the
Salomon Brothers Cash Management Fund and the Salomon Brothers
New York Municipal Money Market Fund (filed as Exhibit 5(a) to
Post-Effective Amendment No. 7 to the Registration Statement
on Form N-1A and incorporated herein by reference).
5(b) -- Management Contract between Registrant and Salomon Brothers
Asset Management Inc dated December 7, 1990 relating to the
Salomon Brothers U.S. Treasury Securities Money Market Fund
(filed as Exhibit 5 to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A and incorporated herein by
reference).
5(c) -- Management Contract between Registrant and Salomon Brothers
Asset Management Inc dated December 8, 1992 relating to the
Salomon Brothers New York Municipal Bond Fund (filed as
Exhibit 5(c) to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A and incorporated herein by
reference).
5(d) -- Form of Management Contract between Registrant and Salomon
Brothers Asset Management Inc relating to the Salomon Brothers
National Intermediate Municipal Fund (filed as Exhibit 5(d) to
Post-Effective Amendment No. 12 to the Registration Statement
on Form N-1A and incorporated herein by reference).
5(e) -- Form of Management Contract between Registrant and Salomon
Brothers Asset Management Inc relating to the Salomon Brothers
U.S. Government Income Fund (filed as Exhibit 5(e) to
Post-Effective Amendment No. 12 to the Registration Statement
on Form N-1A and incorporated herein by reference).
</TABLE>
<PAGE> 285
<TABLE>
<S> <C> <C>
5(f) -- Form of Management Contract between Registrant and Salomon
Brothers Asset Management Inc relating to the Salomon Brothers
High Yield Bond Fund (filed as Exhibit 5(f) to Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A
and incorporated herein by reference).
5(g) -- Form of Management Contract between Registrant and Salomon
Brothers Asset Management Inc relating to the Salomon Brothers
Strategic Bond Fund (filed as Exhibit 5(g) to Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A
and incorporated herein by reference).
5(h) -- Form of Subadvisory Consulting Agreement between Salomon
Brothers Asset Management Inc and Salomon Brothers Asset
Management Limited relating to the Strategic Bond Fund (filed
as Exhibit 5(h) to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A and incorporated herein by
reference).
5(i) -- Form of Management Contract between Registrant and Salomon
Brothers Asset Management Inc relating to the Salomon Brothers
Total Return Fund.
6(a) -- Distribution Agreement between Registrant and Salomon Brothers
Inc dated September 27, 1990 (filed as Exhibit 6 to Post-
Effective Amendment No. 5 to the Registration Statement on
Form N-1A and incorporated herein by reference).
6(b) -- Distribution Agreement between Registrant and Salomon Brothers
Inc dated December 7, 1990 relating to the Salomon Brothers
U.S. Treasury Money Market Fund (filed as Exhibit 6 to
Post-Effective Amendment No. 5 on Form N-1A and incorporated
herein by reference).
6(c) -- Distribution Agreement between Registrant and Salomon Brothers
Inc dated December 8, 1992 relating to the New York Municipal
Bond Fund (filed as Exhibit 6(c) to Post-Effective Amendment
No. 7 to the Registration Statement on Form N-1A and
incorporated herein by reference).
6(d) -- Distribution Agreement between Registrant and AMT Capital
Services, Inc. dated June 18, 1993 relating to the Salomon
Brothers New York Municipal Money Market Fund and the Salomon
Brothers New York Municipal Bond Fund (filed as Exhibit 6(d)
to Post- Effective Amendment No. 8 to the Registration
Statement on Form N-1A and incorporated herein by reference).
6(e) -- Form of Distribution Agreement between Registrant and Salomon
Brothers Inc relating to Salomon Brothers National
Intermediate Municipal Fund, Salomon Brothers U.S. Government
Income Fund, Salomon Brothers High Yield Bond Fund and Salomon
Brothers Strategic Bond Fund (filed as Exhibit 6(e) to
Post-Effective Amendment No. 12 to the Registration Statement
on Form N-1A and incorporated herein by reference).
6(f) -- Form of Distribution Agreement between Registrant and Salomon
Brothers Inc relating to Salomon Brothers Total Return Fund.
</TABLE>
<PAGE> 286
<TABLE>
<S> <C> <C>
7 -- None.
8(a) -- Custody Agreement between Registrant and Boston Safe Deposit
and Trust Company (filed as Exhibit 8 to Post-Effective
Amendment No. 4 to the Registration Statement on Form N-1A
(File Nos. 33-34423 and 811-06087) and incorporated herein by
reference).
8(b) Form of Custodian Agreement between Registrant and Investors
Bank & Trust Company (filed as Exhibit 8(b) to Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A
and incorporated herein by reference).
9(a) -- Transfer Agency Agreement between Registrant and The
Shareholder Services Group, Inc. (filed as Exhibit 9(a) to
Post- Effective Amendment No. 5 to the Registration Statement
on Form N-1A and incorporated herein by reference).
9(b) -- Administration Agreement between Registrant and The Boston
Company Advisors, Inc. (filed as Exhibit 9(a) to
Post-Effective Amendment No. 4 to the Registration Statement
on Form N-1A (File Nos. 33-34423 and 811-06087) and
incorporated herein by reference).
9(c) -- Form of Administration Agreement between Registrant and
Investors Bank & Trust Company (filed as Exhibit 9(c) to Post-
Effective Amendment No. 12 to the Registration Statement on
Form N-1A and incorporated herein by reference).
9(d) -- Form of Amendment to Transfer Agency Agreement between
Registrant and The Shareholders Services Group, Inc (filed as
Exhibit 9(d) to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A and incorporated herein by
reference).
10 -- Opinion and Consent of Counsel of Piper & Marbury, LLP as to
the Legality of Securities Being Registered.
11 -- Consents of Independent Accountants. (filed as Exhibit 11 to
Post-Effective Amendment No. 14 to the Registration Statement
on Form N-1A and incorporated herein by reference).
12 -- None.
13(a) -- Share Purchase Agreement (filed as Exhibit 13 to
Post-Effective Amendment No. 5 to the Registration Statement
on Form N-1A (File Nos. 33-34423 and 811-06087) and
incorporated herein by reference).
13(b) -- Form of Share Purchase Agreement relating to Salomon Brothers
New York Municipal Bond Fund, Salomon Brothers National
Intermediate Municipal Fund, Salomon Brothers U.S. Government
Income Fund, Salomon Brothers High Yield Bond Fund and the
Strategic Bond Fund (filed as Exhibit 13(b) to
</TABLE>
<PAGE> 287
<TABLE>
<S> <C> <C>
Post-Effective Amendment No. 12 to the Registration Statement
on Form N-1A and incorporated herein by reference).
13(c) -- Form of Purchase Agreement Relating to Salomon Brothers Total
Return Fund.
14 -- None.
15(a) -- Form of Services and Distribution Plan for Salomon Brothers
New York Municipal Bond Fund, Salomon Brothers National
Intermediate Municipal Fund, Salomon Brothers U.S. Government
Income Fund, Salomon Brothers High Yield Bond Fund and Salomon
Brothers Strategic Bond Fund (filed as Exhibit 15(a) to
Post-Effective Amendment No. 12 to the Registration Statement
on Form N-1A and incorporated herein by reference).
15(b) -- Form of Services and Distribution Plan for Salomon Brothers
Total Return Fund.
16(a) -- Performance Data (filed as Exhibit 16 to Post-Effective
Amendment No. 4 to the Registration Statement on Form N-1A
(File Nos. 33-34423 and 811-06087) and incorporated herein by
reference).
16(b) -- Schedule of Performance Data for Class A, Class B, Class C
and Class O Shares for Salomon Brothers New York Municipal
Bond Fund (filed as Exhibit 16(b) to Post-Effective Amendment
No. 12 to the Registration Statement on Form N-1A and
incorporated herein by reference).
17 -- Financial Data Schedules.
18 -- Form of Application and Signature Card for Salomon Brothers
Investment Series (filed as Exhibit 18 to Post-Effective
Amendment No. 13 to the Registration Statement on Form N-1A
and incorporated herein by reference).
18(a) -- Powers of Attorney (filed as an Exhibit to Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
(File Nos. 33-34423 and 811-06087) and incorporated herein by
reference).
18(b) -- Powers of Attorney of Carol L. Colman and Daniel P. Cronin
(filed as an Exhibit to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A (File Nos. 33-34423 and
811-06087) and incorporated herein by reference)
18(c) -- Powers of Attorney of Carol L. Colman, Daniel P. Cronin and
Charles F. Barber (filed as Exhibit 18 (c) to Post-Effective
Amendment No. 13 to the Registration Statement on Form N-1A
(File Nos. 33-34423 and 811-06087) and incorporated herein by
reference)
18(d) -- Form of Multiclass Plan Pursuant to Rule 18f-3 Under the
Investment Company Act of 1940 for the Salomon Brothers Series
Funds Inc. (filed as Exhibit 18 (d) to Post-Effective
Amendment No. 13 to the Registration Statement on Form N-1A
(File Nos. 33- 34423 and 811-06087) and incorporated herein by
reference).
</TABLE>
<PAGE> 288
Item 25. Persons Controlled by or under Common Control with Registrant.
Salomon Brothers Holding Company Inc (SBH"), owns a significant
percentage of the outstanding shares of the National Intermediate Municipal
Fund, U.S. Government Income Fund, High Yield Bond Fund and Strategic Bond Fund
and all of the outstanding shares of the Total Return Fund and consequently is
a controlling person of such Funds. SBH owns the outstanding shares of SBAM,
Salomon Brothers Inc and certain of their affiliates.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record
Holders at
Title of Class August 28, 1995
---------------
<S> <C>
Shares of Salomon Brothers Cash 181
Management Fund, par value
$.001 per share
Class A 12
Class B 3
Class C 6
Class O 160
Shares of Salomon Brothers New 1,044
York Municipal Money Market
Fund, par value $.001 per share
Shares of Salomon Brothers U.S. 131
Treasury Securities Money Market
Fund, par value $.001 per share
Shares of Salomon Brothers New 100
York Municipal Bond Fund, par
value $.001 per share
Class A 3
Class B 5
Class C 1
Class O 91
Shares of Salomon Brothers 16,772
Investors Fund, par value $1.00
per share
Class A 11
Class B 7
Class C 2
Class O 16,752
Shares of Salomon Brothers 13
National Intermediate Municipal
Fund, par value $.001 per share
Class A 6
Class B 4
Class C 1
Class O 2
Shares of Salomon Brothers U.S. 13
Government Income Fund, par
value $.001 per share
Class A 8
Class B 2
Class C 1
Class O 2
Shares of Salomon Brother 318
High Yield Bond Fund, par
value $.001 per share
Class A 191
Class B 106
Class C 17
Class O 4
Shares of Salomon Brothers 92
Strategic Bond Fund, par
value $.001 per share
Class A 29
Class B 52
Class C 10
Class O 1
Shares of Salomon Brothers 1
Total Return Fund, par
value $.001 per share
Class A 0
Class B 0
Class C 0
Class O 1
</TABLE>
<PAGE> 289
<TABLE>
<S> <C>
Shares of Salomon Brothers 0
Total Return Fund, par
value $.001 per share
</TABLE>
Item 27. Indemnification.
Reference is made to Article VII of Registrant's Articles of
Incorporation, Article IV of Registrant's By-Laws and Section 4 of the
Distribution Agreements between the Registrant and Salomon Brothers Inc.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant understands that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
Item 28. Business and Other Connections
of Investment Adviser.
The list required by this Item 28 of officers and directors of SBAM
and Salomon Brothers Asset Management Limited ("SBAM Limited"), together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors during the past
two years, is incorporated by reference to Schedules A and D of their
respective FORM ADV filed by SBAM and SBAM Limited, respectively, pursuant to
the Advisers Act (SEC File Nos. 801-32046 and 801-43335, respectively).
Item 29. Principal Underwriter
(a) Salomon Brothers Inc ("Salomon Brothers") currently acts as
distributor for, in addition to the Registrant, Salomon Brothers Capital Fund
Inc, Salomon Brothers Investors Fund Inc and Salomon Brothers Opportunity Fund
Inc.
(b) The information required by this Item 29 with respect to each
director, officer or partner of Salomon Brothers is incorporated by reference
to Schedule A of Form BD filed by Salomon Brothers pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-26920).
(c) Not applicable.
<PAGE> 290
Item 30. Location of Accounts and Records.
(1) Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
(2) Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
(3) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(4) Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
(5) Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective amendment
containing financial statements as of a reasonably current date, which need not
be certified, within four to six months from the date of commencement of
investment operations for the Total Return Fund.
(c) Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
(c) Registrant hereby undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of one or more of
Registrant's directors when requested in writing to do so by the holders of at
least 10% of Registrant's outstanding shares of common stock and, in connection
with such meeting, to assist in communications with other shareholders in this
regard, as provided under Section 16(c) of the Investment Company Act of 1940,
as amended.
<PAGE> 291
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment
to this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the fifth day of September, 1995.
SALOMON BROTHERS SERIES FUNDS INC
(Registrant)
By /s/ Michael S. Hyland
-------------------------
Michael S. Hyland
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael S. Hyland Director and President 9/5/95
- --------------------- (principal executive officer)
Michael S. Hyland
* Director 9/5/95
- -------------------
Charles F. Barber
* Director 9/5/95
- -------------------
Carol L. Colman
* Director 9/5/95
- -------------------
Daniel P. Cronin
/s/ Alan Mandel Treasurer 9/5/95
- ------------------- (principal financial
Alan Mandel and accounting officer)
*By:/s/ Alan Mandel 9/5/95
-------------------
Alan Mandel as
(Attorney-in-Fact)
</TABLE>
<PAGE> 292
Exhibit Index
<TABLE>
<S> <C>
1(f) Form of Articles Supplementary
4(f) Form of Specimen Stock Certificates for Total Return Fund-A, Total
Return Fund-B, Total Return Fund-C and Total Return Fund-O.
5(i) Form of Management Contract between Registrant and Salomon Brothers
Asset Management Inc relating to the Salomon Brothers Total Return
Fund
6(f) Form of Distribution Agreement between Registrant and Salomon Brothers
Inc relating to the Salomon Brothers Total Return Fund
10 Opinion and consent of Piper & Marbury, L.L.P.
13(c) Form of Purchase Agreement Relating to Salomon Brothers Total Return
Fund
15(b) Form of services and Distribution Plan for Salomon Brothers Total
Return Fund
17 Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 1
SALOMON BROTHERS SERIES FUNDS INC
ARTICLES SUPPLEMENTARY
Salomon Brothers Series Funds Inc, a Maryland corporation
having its principal office in Baltimore, Maryland (hereinafter called the
"Corporation"), certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST: The Corporation's Board of Directors has authorized
the creation of an additional portfolio of the Corporation, and pursuant to the
authority of the Board of Directors to classify and reclassify unissued shares
of capital stock of the Corporation, the Board of Directors has duly
reclassified
(a) 138,888,888 shares of the authorized and unissued shares
of Class A capital stock of the Corporation, par value $.001 per share, of
which 34,722,222 shall be from each of the A Sub-Class, the B Sub-Class, the C
Sub-Class and the O Sub-Class;
(b) 138,888,888 shares of the authorized and unissued shares
of Class B capital stock of the Corporation, par value $.001 per share, of
which 34,722,222 shall be from each of the A Sub-Class, the B Sub-Class, the C
Sub-Class and the O Sub-Class;
(c) 138,888,888 shares of the authorized and unissued shares
of Class C capital stock of the Corporation, par value $.001 per share, of
which 34,722,222 shall be from each of the A Sub-Class, the B Sub-Class, the C
Sub-Class and the O Sub-Class;
(d) 138,888,888 shares of the authorized and unissued shares
of Class D capital stock of the Corporation, par value $.001 per share, of
which 34,722,222 shall be from each of the A Sub-Class, the B Sub-Class, the C
Sub-Class and the O Sub-Class;
(e) 138,888,888 shares of the authorized and unissued shares
of Class E capital stock of the Corporation, par value $.001 per share, of
which 34,722,222 shall be from each of the A Sub-Class, the B Sub-Class, the C
Sub-Class and the O Sub-Class;
(f) 138,888,888 shares of the authorized and unissued shares
of Class F capital stock of the Corporation, par value $.001 per share, of
which 34,722,222 shall be from each of the A Sub-Class, the B Sub-Class, the C
Sub-Class and the O Sub-Class;
(g) 138,888,888 shares of the authorized and unissued shares
of Class G capital stock of the Corporation, par value $.001 per share, of
which 34,722,222 shall be from each of the A Sub-Class, the B Sub-Class, the C
Sub-Class and the O Sub-Class;
<PAGE> 2
2
(h) 138,888,888 shares of the authorized and unissued shares
of Class H capital stock of the Corporation, par value $.001 per share, of
which 34,722,222 shall be from each of the A Sub-Class, the B Sub-Class, the C
Sub-Class and the O Sub-Class;
in each case, into Class I capital stock and has provided for the issuance of
such class.
Any class of capital stock shall be referred to herein
individually as a "Class" and collectively, together with any further classes
from time to time established, as "Classes."
SECOND: The shares of Class I capital stock, as so divided
and reclassified by the Corporation's Board of Directors, shall have and be
subject to all of the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of rights to require redemption set forth in the Corporation's
Articles of Incorporation, except as otherwise set forth in these Articles
Supplementary. These Articles Supplementary do not increase the authorized
capital stock of the Corporation.
THIRD: Notwithstanding any provision to the contrary in the
Articles of Incorporation, including, without limitation, Article V, Section
5(b)(iv) thereof, with respect to determining dividends payable to shareholders
of Class I capital stock, the Board of Directors may determine not to permit
certain dividends to accrue on shares until the proceeds from the sale thereof
are included in assets belonging to the Corporation's Class I capital stock
and/or to permit certain dividends to continue to accrue on shares redeemed
through the day before redemption proceeds are removed from the assets
belonging to the Corporation's Class I capital stock.
FOURTH: (a) The Board of Directors designates the shares of
unissued capital stock in Classe I so that Class I shall have four sub-classes.
Until further changed, the "A" sub-class shall consist of 277,777,776 shares,
the "B" sub-class shall consist of 277,777,776 shares, the "C" sub-class shall
consist of 277,777,776 shares, and the "O" sub-class shall consist of
277,777,776 shares.
(b) Any sub-class of any Class of capital stock shall be
referred to herein individually as a "Sub-Class" and collectively, together
with any further sub-classes from time to time established, as "Sub-Classes."
(c) All Sub-Classes of a particular Class of capital stock of
the Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation, and other rights, terms and conditions
with any other shares of capital stock of that Class; provided however, that
<PAGE> 3
3
notwithstanding anything in the charter of the Corporation to the contrary:
(1) The shares of the A Sub-Class of a Class, B
Sub-Class of a Class and C Sub-Class of a Class shall be
subject to such front-end sales charges and/or contingent
deferred sales charges as may be established by the Board of
Directors from time to time in accordance with the Investment
Company Act of 1940, as amended (the "Investment Company Act")
and applicable rules and regulations of the National
Association of Securities Dealers, Inc. (the "NASD").
(2) The shares of the O Sub-Class of a Class and
all shares of Class A capital stock shall not be subject to
front-end sales charges or contingent deferred sales charges.
(3) Expenses related solely to a particular
Sub-Class of a Class (including, without limitation,
distribution expenses under a Rule 12b-1 plan and
administrative expenses under an administration or service
agreement, plan or other arrangement, however designated)
shall be borne by that Sub-Class and shall be appropriately
reflected (in the manner determined by the Board of Directors)
in the net asset value, dividends, distribution and
liquidation rights of the shares of that Sub-Class.
(4) Except as may be otherwise required by law
pursuant to any applicable order, rule or regulation issued by
the Securities and Exchange Commission (the "SEC") or under
Maryland law or otherwise, the holders of stock of any Class
or Sub-Class created by these Articles Supplementary shall
have respectively (i) exclusive voting rights with respect to
any matter submitted to a vote of stockholders which affects
such Class or Sub-Class (provided that it if it affects one or
more of such Classes or Sub-Classes, but less than all of such
Classes or Sub-Classes, the affected Sub-Classes shall
together have the exclusive vote), including without
limitation, the provisions of any distribution plan adopted by
the Corporation pursuant to Rule 12b-1 under the Investment
Company Act applicable to such Class or Sub-Class and (ii) no
voting rights with respect to the provisions of any Rule 12b-1
plan not applicable to such Class or Sub-Class or with regard
to any other matter submitted to a vote of stockholders that
does not affect the holders of such Class or Sub-Class.
(5) On the sixth anniversary of the first
business day of the month following the month in which shares
of the B Sub-Class of a Class were purchased by
<PAGE> 4
4
a stockholder, such shares of the B Sub-Class of such Class
(as well as a pro rata portion of any shares of such B
Sub-Class of such Class purchased through the reinvestment of
dividends and other distributions paid in respect of all
shares of such B Sub-Class of such Class held by such
stockholder) shall automatically convert to shares of the A
Sub-Class of such Class; provided, however, that such
conversion shall be subject to the continuing availability of
an Internal Revenue Service ruling and an opinion of counsel
to the effect that the conversion of the shares of such B
Sub-Class of such Class does not constitute a taxable event
under federal income tax law. The Board of Directors, in its
sole discretion, may suspend the conversion of shares of any B
Sub-Class of a Class if such ruling and opinion are no longer
available.
(6) On the tenth anniversary of the first
business day of the month following the month in which shares
of the C Sub-Class of a Class were purchased by a stockholder,
such shares of the C Sub-Class of such Class (as well as a pro
rata portion of any shares of such C Sub-Class of such Class
purchased through the reinvestment of dividends and other
distributions paid in respect of all shares of such C
Sub-Class of such Class held by such stockholder) shall
automatically convert to shares of the A Sub-Class of such
Class; provided, however, that such conversion shall be
subject to the continuing availability of an Internal Revenue
Service ruling and an opinion of counsel to the effect that
the conversion of the shares of such C Sub-Class of such Class
does not constitute a taxable event under federal income tax
law. The Board of Directors, in its sole discretion, may
suspend the conversion of shares of any C Sub-Class of a Class
if such ruling and opinion are no longer available.
(7) The number of shares of the A Sub-Class capital stock into
which the B Sub-Class or C Sub-Class capital stock is converted pursuant to
paragraphs (5) and (6) above shall equal the number (including for these
purposes fractional shares) obtained by dividing the net asset value per share
of the B Sub-Class or C Sub-Class capital stock, as the case may be, for
purposes of sales and redemptions on the conversion date by the net asset value
per share of the A Sub-Class capital stock for purposes of sales and
redemptions thereof on the conversion date.
(8) The holders of each Class or Sub-Class of
capital stock classified or designated by these Articles
Supplementary shall have such rights to exchange their shares
for stock of any other Class or Sub-Class or shares of another
investment company upon such terms as may be approved by the
Board of Directors from time to time and set forth in
appropriate disclosure documents under the applicable law,
rules and regulations of the SEC and the
<PAGE> 5
5
rules of the NASD, including but not limited to such rights to
credit holding periods of the stock exchanged with respect to
the stock received in the exchange.
FIFTH: The shares aforesaid have been duly classified or
reclassified by the Corporation's Board of Directors pursuant to authority and
power contained in the Corporation's Charter.
<PAGE> 6
6
IN WITNESS WHEREOF, Salomon Brothers Series Funds Inc has
caused these Articles Supplementary to be executed by its President and
witnessed by its Secretary on this 13th day of July, 1995. The Executive Vice
President of the Corporation who executed these Articles Supplementary
acknowledges them to be the act of the Corporation and states under penalties
of perjury that, to the best of his knowledge, information and belief, the
matters and facts set forth herein relating to authorization and approval
hereof are true in all material respects.
SALOMON BROTHERS SERIES FUNDS INC
(SEAL) By:
-----------------------------
Marybeth Whyte
Executive Vice President
WITNESS:
- -------------------------
Tana E. Tselepis
Secretary
<PAGE> 1
EXHIBIT 4(f)
SALOMON BROTHERS SERIES FUNDS INC
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
------- ------
NUMBERS SHARES
- --------------------- ---------------------
SB
- --------------------- ---------------------
CAPITAL STOCK CAPITAL STOCK
ACCOUNT NO.
CUSIP 79549D-68-1
---------
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.001 PER SHARE
EACH OF THE CAPITAL STOCK OF TOTAL RETURN FUND CLASS A (hereinafter called the
Corporation) transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are
issued and shall be held subject to all the provisions of the Articles of
Incorporation, as amended and supplemented, and the By-Laws, as amended (copies
of which are on file with the Transfer Agent), to all of which the holder by
acceptance hereof assents. This Certificate is not valid unless countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the Facsimile signatures
of its duly authorized officers.
Dated:
<TABLE>
<S> <C> <C> <C>
[SALOMON BROTHERS CORPORATE SEAL]
COUNTERSIGNED and REGISTERED:
THE SHAREHOLDER SERVICES GROUP, INC.
a subsidiary of First Data Corporation,
Transfer Agent
/s/ Michael S. Hyland /s/ Tana E. Tselepis [Boston, Massachusetts]
CHAIRMAN OF THE BOARD SECRETARY
BY
AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
SALOMON BROTHERS SERIES FUNDS INC
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
------- ------
NUMBERS SHARES
- --------------------- ---------------------
SB
- --------------------- ---------------------
CAPITAL STOCK CAPITAL STOCK
ACCOUNT NO.
CUSIP 79549D-67-3
---------
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.001 PER SHARE
EACH OF THE CAPITAL STOCK OF TOTAL RETURN FUND CLASS B (hereinafter called the
Corporation) transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are
issued and shall be held subject to all the provisions of the Articles of
Incorporation, as amended and supplemented, and the By-Laws, as amended (copies
of which are on file with the Transfer Agent), to all of which the holder by
acceptance hereof assents. This Certificate is not valid unless countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the Facsimile signatures
of its duly authorized officers.
Dated:
<TABLE>
<S> <C> <C> <C>
[SALOMON BROTHERS CORPORATE SEAL]
COUNTERSIGNED and REGISTERED:
THE SHAREHOLDER SERVICES GROUP, INC.
a subsidiary of First Data Corporation,
Transfer Agent
/s/ Michael S. Hyland /s/ Tana E. Tselepis [Boston, Massachusetts]
CHAIRMAN OF THE BOARD SECRETARY
BY
AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 3
SALOMON BROTHERS SERIES FUNDS INC
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
------- ------
NUMBERS SHARES
- --------------------- ---------------------
SB
- --------------------- ---------------------
CAPITAL STOCK CAPITAL STOCK
ACCOUNT NO.
CUSIP 79549D-66-5
---------
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.001 PER SHARE
EACH OF THE CAPITAL STOCK OF TOTAL RETURN FUND CLASS C (hereinafter called the
Corporation) transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are
issued and shall be held subject to all the provisions of the Articles of
Incorporation, as amended and supplemented, and the By-Laws, as amended (copies
of which are on file with the Transfer Agent), to all of which the holder by
acceptance hereof assents. This Certificate is not valid unless countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the Facsimile signatures
of its duly authorized officers.
Dated:
<TABLE>
<S> <C> <C> <C>
[SALOMON BROTHERS CORPORATE SEAL]
COUNTERSIGNED and REGISTERED:
THE SHAREHOLDER SERVICES GROUP, INC.
a subsidiary of First Data Corporation,
Transfer Agent
/s/ Michael S. Hyland /s/ Tana E. Tselepis [Boston, Massachusetts]
CHAIRMAN OF THE BOARD SECRETARY
BY
AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 4
SALOMON BROTHERS SERIES FUNDS INC
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
------- ------
NUMBERS SHARES
- --------------------- ---------------------
SB
- --------------------- ---------------------
CAPITAL STOCK CAPITAL STOCK
ACCOUNT NO.
CUSIP 79549D-65-7
---------
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.001 PER SHARE
EACH OF THE CAPITAL STOCK OF TOTAL RETURN FUND CLASS O (hereinafter called the
Corporation) transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are
issued and shall be held subject to all the provisions of the Articles of
Incorporation, as amended and supplemented, and the By-Laws, as amended (copies
of which are on file with the Transfer Agent), to all of which the holder by
acceptance hereof assents. This Certificate is not valid unless countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the Facsimile signatures
of its duly authorized officers.
Dated:
<TABLE>
<S> <C> <C> <C>
[SALOMON BROTHERS CORPORATE SEAL]
COUNTERSIGNED and REGISTERED:
THE SHAREHOLDER SERVICES GROUP, INC.
a subsidiary of First Data Corporation,
Transfer Agent
/s/ Michael S. Hyland /s/ Tana E. Tselepis [Boston, Massachusetts]
CHAIRMAN OF THE BOARD SECRETARY
BY
AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 1
EXHIBIT 5(i)
MANAGEMENT CONTRACT
SALOMON BROTHERS SERIES FUNDS INC
7 World Trade Center
New York, New York 10048
________ __, 1995
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company") and you (the "Investment Manager") as follows:
1. The Company is an open-end investment company which
currently has nine investment portfolios -- Salomon Brothers Cash Management
Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon Brothers
U.S. Treasury Securities Money Market Fund, Salomon Brothers New York Municipal
Bond Fund, Salomon Brothers National Intermediate Municipal Fund, Salomon
Brothers U.S. Government Income Fund, Salomon Brothers High Yield Bond Fund,
Salomon Brothers Strategic Bond Fund and Salomon Brothers Total Return Fund.
The Company proposes to engage in the business of investing and reinvesting the
assets of Salomon Brothers Total Return Fund (the "Fund") in the manner and in
accordance with the investment objective and limitations specified in the
Company's Articles of Incorporation, as amended (the "Articles") and the
currently effective prospectus, including the documents incorporated by
reference therein (the "Prospectus"), relating to the Company and the Fund,
included in the Company's Registration Statement, as amended from time to time
(the "Registration Statement"), filed by the Company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the Securities Act of
1933, as amended. Copies of the documents referred to in the preceding
sentence have been furnished to the Investment Manager. Any amendments to
these documents shall be furnished to the Investment Manager.
2. The Company employs the Investment Manager to (a)
make investment strategy decisions for the Fund, (b) manage the investing and
reinvesting of the Fund's assets as specified in paragraph 1, (c) place
purchase and sale orders on behalf of the Fund and (d) provide continuous
supervision of the Fund's investment portfolio.
3. (a) The Investment Manager shall, at its expense, (i)
provide the Fund with office space, office facilities and personnel reasonably
necessary for performance of the services to be provided by the Investment
Manager pursuant to this Agreement,
<PAGE> 2
2
(ii) provide the Fund with persons satisfactory to the Company's Board of
Directors to serve as officers and employees of the Fund and (iii) provide the
office space, facilities, equipment and personnel necessary to perform the
following services for the Fund: (A) Securities and Exchange Commission ("SEC")
compliance, including record keeping, reporting requirements and registration
statements and proxies; (B) supervision of Fund operations, including
coordination of functions of administrator, transfer agent, custodian,
accountants, counsel and other parties performing services or operational
functions for the Fund; and (C) certain administrative and clerical services,
including certain accounting services, facilitation of redemption requests,
exchange privileges, and account adjustments, development of new shareholder
services and maintenance of certain books and records.
(b) Except as provided in subparagraph (a), the Company
shall be responsible for all of the Fund's expenses and liabilities, including
organizational expenses; taxes; interest; fees (including fees paid to its
directors who are not affiliated with the Investment Manager or any of its
affiliates); fees payable to the SEC; state securities qualification fees;
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory and administration fees;
charges of the custodian and transfer agent; insurance premiums; auditing and
legal expenses; costs of shareholders' reports and shareholders' meetings; any
extraordinary expenses; and brokerage fees and commissions, if any, in
connection with the purchase or sale of portfolio securities; and payments to
the Fund's distributor for activities intended to result in the sale of Fund
shares.
4. As manager of the Fund's assets, the Investment
Manager shall make investments for the Fund's account in accordance with the
investment objective and limitations set forth in the Articles, the Prospectus,
the 1940 Act, the provisions of the Internal Revenue Code of 1986, as amended,
relating to regulated investment companies, applicable banking laws and
regulations, and policy decisions adopted by the Company's Board of Directors
from time to time. The Investment Manager shall advise the Company's officers
and Board of Directors, at such times as the Company's Board of Directors may
specify, of investments made for the Fund's account and shall, when requested
by the Company's officers or Board of Directors, supply the reasons for making
such investments.
5. The Investment Manager is authorized on behalf of the
Company, from time to time when deemed to be in the best interests of the
Company and to the extent permitted by applicable law, to purchase and/or sell
securities in which the Investment Manager or any of its affiliates
underwrites, deals in and/or makes a market and/or may perform or seek to
perform investment banking services for issuers of such securities. The
Investment Manager is further authorized, to the extent permitted
<PAGE> 3
3
by applicable law, to select brokers for the execution of trades for the
Company, which broker may be an affiliate of the Investment Manager, provided
that the best competitive execution price is obtained at the time of the trade
execution.
6. In consideration of the Investment Manager's
undertaking to render the services described in this agreement, the Company
agrees that the Investment Manager shall not be liable under this agreement for
any error of judgment or mistake of law or for any loss suffered by the Company
in connection with the performance of this agreement, provided that nothing in
this agreement shall be deemed to protect or purport to protect the Investment
Manager against any liability to the Company or its stockholders to which the
Investment Manager would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Investment Manager's
duties under this agreement or by reason of the Investment Manager's reckless
disregard of its obligations and duties hereunder.
7. In consideration of the services to be rendered by
the Investment Manager under this agreement, the Company shall pay the
Investment Manager a monthly fee on the first business day of each month at an
annual rate of 0.55% of the average daily value (as determined on the days and
at the time set forth in the Prospectus for determining net asset value per
share) of the Fund's net assets during the preceding month. If the fee payable
to the Investment Manager pursuant to this paragraph 7 begins to accrue before
the end of any month or if this agreement terminates before the end of any
month, the fee for the period from such date to the end of such month or from
the beginning of such month to the date of termination, as the case may be,
shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs. For purposes of
calculating each such monthly fee, the value of the Fund's net assets shall be
computed in the manner specified in the Prospectus and the Articles for the
computation of the value of the Fund's net assets in connection with the
determination of the net asset value of shares of the Fund's capital stock.
8. If the aggregate expenses incurred by, or allocated
to, the Fund in any fiscal year shall exceed the expense limitations applicable
to the Fund imposed by state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, the Investment Manager
shall reimburse the Fund for such excess. The Investment Manager's
reimbursement obligation will be limited to the amount of fees it received
under this agreement during the period in which such expense limitations were
exceeded, unless otherwise required by applicable laws or regulations. With
respect to portions of a fiscal year in which this contract shall be in effect,
the foregoing limitations shall be prorated according to the proportion which
that portion of the fiscal year bears to the full fiscal year. Any payments
required to be made by this
<PAGE> 4
4
paragraph 8 shall be made once a year promptly after the end of the Company's
fiscal year.
9. This agreement shall continue in effect until two
years from the date hereof and thereafter for successive annual periods,
provided that such continuance is specifically approved at least annually (a)
by the vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) or by the Company's Board of Directors and (b) by the
vote, cast in person at a meeting called for the purpose, of a majority of the
Company's directors who are not parties to this agreement or "interested
persons" (as defined in the 1940 Act) of any such party. This agreement may be
terminated at any time, without the payment of any penalty, by a vote of a
majority of the Fund's outstanding voting securities (as defined in the 1940
Act) or by a vote of a majority of the Company's entire Board of Directors on
60 days' written notice to the Investment Manager or by the Investment Manager
on 60 days' written notice to the Company. This agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
10. Upon expiration or earlier termination of this
agreement, the Company shall, if reference to "Salomon Brothers" is made in the
corporate name of the Company or in the name of the Fund and if the Investment
Manager requests in writing, as promptly as practicable change its corporate
name and the name of the Fund so as to eliminate all reference to "Salomon
Brothers", and thereafter the Company and the Fund shall cease transacting
business in any corporate name using the words "Salomon Brothers" or any other
reference to the Investment Manager or "Salomon Brothers". The foregoing
rights of the Investment Manager and obligations of the Company shall not
deprive the Investment Manager, or any affiliate thereof which has "Salomon
Brothers" in its name, of, but shall be in addition to, any other rights or
remedies to which the Investment Manager and any such affiliate may be entitled
in law or equity by reason of any breach of this agreement by the Company, and
the failure or omission of the Investment Manager to request a change of the
Company's or the Fund's name or a cessation of the use of the name of "Salomon
Brothers" as described in this paragraph 10 shall not under any circumstances
be deemed a waiver of the right to require such change or cessation at any time
thereafter for the same or any subsequent breach.
11. Except to the extent necessary to perform the
Investment Manager's obligations under this agreement, nothing herein shall be
deemed to limit or restrict the right of the Investment Manager, or any
affiliate of the Investment Manager, or any employee of the Investment Manager,
to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
<PAGE> 5
5
12. This agreement shall be governed by the laws of the
State of New York.
If the foregoing correctly sets forth the agreement between
the Company and the Investment Manager, please so indicate by signing and
returning to the Company the enclosed copy hereof.
Very truly yours,
SALOMON BROTHERS SERIES FUNDS
INC
By:
----------------------------
Name: Michael S. Hyland
Title: President
ACCEPTED:
SALOMON BROTHERS ASSET
MANAGEMENT INC
By:
-----------------------
Name: Michael S. Hyland
Title: President
<PAGE> 1
EXHIBIT 6(f)
DISTRIBUTION AGREEMENT
August __, 1995
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
Dear Sirs:
This is to confirm that, in consideration of the agreements
hereinafter contained, Salomon Brothers Series Funds Inc (the "Company"), an
open-end, professionally managed investment company organized as a corporation
under the laws of the State of Maryland, has agreed that Salomon Brothers Inc
("Salomon Brothers") shall be, for the period of this Agreement, the
distributor of shares of Salomon Brothers Total Return Fund (the "Fund"), an
investment portfolio of the Company (the "Shares").
1. Services as Distributor
1.1 Salomon Brothers will act as agent for the
distribution of the Shares covered by the registration statement, prospectus
and statement of additional information then in effect under the Securities Act
of 1933, as amended (the "1933 Act"), and the Investment Company Act of 1940,
as amended (the "1940 Act").
1.2 Salomon Brothers agrees to use its best efforts to
solicit orders for the sale of the Shares at the public offering price, as
determined in accordance with the registration statement, and will undertake
such advertising and promotion as it believes is reasonable in connection with
such solicitation.
1.3 All activities by Salomon Brothers as distributor of
the Shares shall comply with all applicable laws, rules and regulations,
including, without limitation, all rules and regulations made or adopted by the
Securities and Exchange Commission (the "SEC") or by any securities association
registered under the Securities Exchange Act of 1934, as amended.
1.4 Salomon Brothers will transmit any orders received
by it for purchase or redemption of shares of the Fund to The Shareholder
Services Group, Inc. ("TSSG"), the Fund's transfer agent and dividend
disbursing agent, or any successor to TSSG of which the Fund has notified
Salomon Brothers in writing.
<PAGE> 2
2
1.5 Salomon Brothers acknowledges that, whenever in the
judgment of the Fund's officers such action is warranted for any reason,
including, without limitation, market, economic or political conditions, those
officers may decline to accept any orders for, or make any sales of, the Shares
until such time as those officers deem it advisable to accept such orders and
to make such sales.
1.6 Salomon Brothers will act only on its own behalf as
principal should it choose to enter into selling agreements in the form of
Exhibit A attached hereto with selected dealers or others.
1.7 As compensation for its services hereunder, Salomon
Brothers shall be entitled to such compensation as is described in the Fund's
current registration statement.
2. Duties of the Fund
2.1 The Fund agrees at its own expense to execute any and
all documents, to furnish any and all information and to take any other actions
that may be reasonably necessary in connection with the qualification of the
Shares for sale in those states that Salomon Brothers may designate.
2.2 The Fund shall furnish from time to time, for use in
connection with the sale of the Shares, such information reports with respect
to the Fund and its Shares as Salomon Brothers may reasonably request, all of
which shall be signed by one or more of the Fund's duly authorized officers;
and the Fund warrants that the statements contained in any such reports, when
so signed by one or more of the Fund's officers, shall be true and correct.
The Fund shall also furnish Salomon Brothers upon request with: (a) annual
audits of the Fund's books and accounts made by independent public accountants
regularly retained by the Fund, (b) semiannual unaudited financial statements
pertaining to the Fund, (c) quarterly earnings statements prepared by the Fund,
(d) a monthly itemized list of the securities in the portfolio of the Fund, (e)
monthly balance sheets as soon as practicable after the end of each month and
(f) from time to time such additional information regarding the Fund's
financial condition as Salomon Brothers may reasonably request.
3. Representations and Warranties
The Fund represents to Salomon Brothers that all registration
statements, prospectuses and statements of additional information filed by the
Fund with the SEC under the 1933 Act and the 1940 Act with respect to the
shares of the Fund have been carefully prepared in conformity with the
requirements of the 1933 Act, the 1940 Act and the rules and regulations of the
SEC thereunder. As used in this Agreement the terms "registration statement",
"prospectus" and "statement of additional information" shall mean any
registration statement,
<PAGE> 3
3
prospectus and statement of additional information filed by the Fund with the
SEC and any amendments and supplements thereto which at any time shall have
been filed with the SEC. The Fund represents and warrants to Salomon Brothers
that any registration statement, prospectus and statement of additional
information, when such registration statement becomes effective, will include
all statements required to be contained therein in conformity with the 1933
Act, the 1940 Act and the rules and regulations of the SEC; that all statements
of fact contained in any registration statement, prospectus or statement of
additional information will be true and correct when such registration
statement becomes effective; and that neither any registration statement nor
any prospectus or statement of additional information when such registration
statement becomes effective will include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading to a purchaser of the Fund's shares.
Salomon Brothers may, but shall not be obligated to, propose from time to time
such amendment or amendments to any registration statement and such supplement
or supplements to any prospectus or statement of additional information as, in
the light of future developments, may, in the opinion of Salomon Brothers'
counsel, be necessary or advisable. If the Fund shall not propose such
amendment or amendments and/or supplement or supplements within fifteen days
after receipt by the Fund of a written request from Salomon Brothers to do so,
Salomon Brothers may, at its option, terminate this Agreement. The Fund shall
not file any amendment to any registration statement or supplement to any
prospectus or statement of additional information without giving Salomon
Brothers reasonable notice thereof in advance; provided, however, that nothing
contained in this Agreement shall in any way limit the Fund's right to file at
any time such amendments to any registration statement and/or supplements to
any prospectus or statement of additional information, of whatever character,
as the Fund may deem advisable, such right being in all respects absolute and
unconditional.
4. Indemnification
4.1 The Fund authorizes Salomon Brothers and any dealers
with whom Salomon Brothers has entered into dealer agreements to use any
prospectus or statement of additional information furnished by the Fund from
time to time, in connection with the sale of the Fund's shares. The Fund
agrees to indemnify, defend and hold Salomon Brothers, its several officers and
directors, and any person who controls Salomon Brothers within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which Salomon Brothers, its officers and directors, or
any such controlling person, may incur under the 1933 Act, the 1940 Act or
common law or
<PAGE> 4
4
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration statement, any
prospectus or any statement of additional information, or arising out of or
based upon any omission or alleged omission to state a material fact required
to be stated in any registration statement, any prospectus or any statement of
additional information, or necessary to make the statements in any of them not
misleading; provided, however, that the Fund's agreement to indemnify Salomon
Brothers, its officers or directors, and any such controlling person shall not
be deemed to cover any claims, demands, liabilities or expenses arising out of
or based upon any statements or representations made by Salomon Brothers or its
representatives or agents other than such statements and representations as are
contained in any registration statement, prospectus or statement of additional
information and in such financial and other statements as are furnished to
Salomon Brothers pursuant to paragraph 2.2 hereof; and further provided that
the Fund's agreement to indemnify Salomon Brothers and the Fund's
representations and warranties hereinbefore set forth in paragraph 3 shall not
be deemed to cover any liability to the Fund or its shareholders to which
Salomon Brothers would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
Salomon Brothers' reckless disregard of its obligations and duties under this
Agreement. The Fund's agreement to indemnify Salomon Brothers, its officers
and directors, and any such controlling person, as aforesaid, is expressly
conditioned upon the Fund's being notified of any action brought against
Salomon Brothers, its officers or directors, or any such controlling person,
such notification to be given by letter or by telegram addressed to the Fund at
its principal office in New York, New York and sent to the Fund by the person
against whom such action is brought, within ten days after the summons or other
first legal process shall have been served. The failure so to notify the Fund
of any such action shall not relieve the Fund from any liability that the Fund
may have to the person against whom such action is brought by reason of any
such untrue or alleged untrue statement or omission or alleged omission
otherwise than on account of the Fund's indemnity agreement contained in this
paragraph 4.1. The Fund's indemnification agreement contained in this paragraph
4.1 and the Fund's representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of Salomon Brothers, its officers and directors, or any
controlling person, and shall survive the delivery of any of the Fund's shares.
This agreement of indemnity will inure exclusively to Salomon Brothers'
benefit, to the benefit of its several officers and directors, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Fund agrees to notify Salomon Brothers promptly of the
commencement of any litigation or proceedings against the Fund or any of its
officers or directors in connection with the issuance and sale of any of the
Fund's shares.
<PAGE> 5
5
4.2 Salomon Brothers agrees to indemnify, defend and hold
the Fund, its several officers and directors, and any person who controls the
Fund within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses (including
the costs of investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) that the Fund, its officers
or directors or any such controlling person may incur under the 1933 Act, the
1940 Act or common law or otherwise, but only to the extent that such liability
or expense incurred by the Fund, its officers or directors or such controlling
person resulting from such claims or demands shall arise out of or be based
upon (a) any unauthorized sales literature, advertisements, information,
statements or representations or (b) any untrue or alleged untrue statement of
a material fact contained in information, furnished in writing by Salomon
Brothers to the Fund and used in the answers to any of these items of the
registration statement or in the corresponding statements made in the
prospectus or statement of additional information, or shall arise out of or be
based upon any omission or alleged omission to state a material fact in
connection with such information furnished in writing by Salomon Brothers to
the Fund and required to be stated in such answers or necessary to make such
information not misleading. Salomon Brothers' agreement to indemnify the Fund,
its officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon Salomon Brothers' being notified of any action
brought against the Fund, its officers or directors, or any such controlling
person, such notification to be given by letter or telegram addressed to
Salomon Brothers at its principal office in New York, New York and sent to
Salomon Brothers by the person against whom such action is brought, within ten
days after the summons or other first legal process shall have been served.
The failure so to notify Salomon Brothers of any such action shall not relieve
Salomon Brothers from any liability that Salomon Brothers may have to the Fund,
its officers or directors, or to such controlling person by reason of any such
untrue or alleged untrue statement or omission or alleged omission otherwise
than on account of Salomon Brothers' indemnity agreement contained in this
paragraph 4.2. Salomon Brothers agrees to notify the Fund promptly of the
commencement of any litigation or proceedings against Salomon Brothers or any
of its officers or directors in connection with the issuance and sale of any of
the Fund's shares.
4.3 In case any action shall be brought against any
indemnified party under paragraph 4.1 or 4.2, and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish to do so, to
assume the defense thereof with counsel satisfactory to such indemnified party.
If the indemnifying party opts to assume the defense of such action, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses subsequently incurred by
<PAGE> 6
6
the indemnified party in connection with the defense thereof other than (a)
reasonable costs of investigation or the furnishing of documents or witnesses
and (b) all reasonable fees and expenses of separate counsel to such
indemnified party if (i) the indemnifying party and the indemnified party shall
have agreed to the retention of such counsel or (ii) the indemnified party
shall have concluded reasonably that representation of the indemnifying party
and the indemnified party by the same counsel would be inappropriate due to
actual or potential differing interests between them in the conduct of the
defense of such action.
5. Effectiveness of Registration
None of the Shares shall be offered by either Salomon Brothers
or the Fund under any of the provisions of this Agreement and no orders for the
purchase or sale of the Shares hereunder shall be accepted by the Fund if and
so long as the effectiveness of the registration statement then in effect or
any necessary amendments thereto shall be suspended under any of the provisions
of the 1933 Act or if and so long as a current prospectus as required by
Section 5(b)(2) of the 1933 Act is not on file with the SEC; provided, however,
that nothing contained in this paragraph 5 shall in any way restrict or have an
application to or bearing upon the Fund's obligation to repurchase its Shares
from any shareholder in accordance with the provisions of the Fund's
prospectus, statement of additional information or articles of incorporation.
6. Notice to Salomon Brothers
The Fund agrees to advise Salomon Brothers immediately in
writing:
(a) of any request by the SEC for amendments to the
registration statement, prospectuses or statements of additional information
then in effect or for additional information;
(b) in the event of the issuance by the SEC of any stop
order suspending the effectiveness of the registration statement, prospectus or
statement of additional information then in effect or the initiation of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement, prospectus or
statement of additional information then in effect or that requires the making
of a change in such registration statement, prospectus or statement of
additional information in order to make the statements therein not misleading;
and
(d) of all actions of the SEC with respect to any
amendment to any registration statement, prospectus or statement
<PAGE> 7
7
of additional information which may from time to time be filed with the SEC.
7. Term of Agreement
This Agreement shall continue for two years from the date
hereof and thereafter shall continue automatically for successive annual
periods, provided such continuance is specifically approved at least annually
by (i) the Company's Board of Directors with respect to the Fund, or (ii) by a
vote of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting securities, provided that in either event the continuance is also
approved by the majority of the Directors of the Company who are not interested
persons (as defined in the 1940 Act) of any party to this Agreement, by vote
cast in person at a meeting called for the purpose of voting on such approval.
This Agreement is terminable, without penalty, on 60 days' notice by the
Company's Board of Directors, by vote of the holders of a majority of the
Fund's shares, or on 90 days' notice by Salomon Brothers. This Agreement will
also terminate automatically in the event of its assignment (as defined in the
1940 Act).
8. Miscellaneous
The Fund recognizes that directors, officers and employees of
Salomon Brothers may from time to time serve as directors, trustees, officers
and employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Salomon" or "Salomon Brothers" as part of their names, and that Salomon
Brothers or its affiliates may enter into distribution or other agreements with
such other corporations and trusts. If Salomon Brothers, or an affiliate,
ceases to act as the distributor of the Fund's shares, the Fund agrees that, at
Salomon Brothers' request, the Fund's license to use the words "Salomon
Brothers" will terminate and that the Fund will take all necessary action to
change the name of the Fund to a name not including the words "Salomon" or
"Salomon Brothers."
<PAGE> 8
8
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance thereof at the place below
indicated, whereupon it shall become a binding agreement between us.
Very truly yours,
SALOMON BROTHERS SERIES FUNDS INC
By:
------------------------------
Michael S. Hyland
President
Accepted:
SALOMON BROTHERS INC
By:
---------------------------
Michael S. Hyland
Managing Director
<PAGE> 9
DEALER CONTRACT AMENDMENT
SALOMON BROTHERS INC
7 World Trade Center
New York, New York 10048
[Name of Broker-Dealer]
- -----------------------
- -----------------------
- -----------------------
Ladies and Gentlemen:
With reference to the Dealer Agreement (the "Agreement")
between you and Salomon Brothers Inc ("Salomon") relating to the sale of shares
of Salomon Brothers Series Fund Inc (the "Company"), this will amend the
Agreement to include in the definition of Funds, the Salomon Brothers Total
Return Fund, a newly organized portfolio of the Company, and any other
investment company or portfolio thereof which may in the future be included in
the Salomon Brothers Investment Series. This Amendment shall be binding upon
both parties hereto when signed by us and accepted by you in the space provided
below, and shall be governed by, and construed in accordance with, the laws of
the State of New York.
SALOMON BROTHERS INC
By:
-----------------------------
(Authorized Signature)
Please return one signed copy of this Contract to:
Salomon Brothers Inc
7 World Trade Center
New York, New York 10048
Attention:
Accepted:
Firm Name: ________________________________________________
By: _______________________________________________________
Address: __________________________________________________
____________________________________________________________
Accepted By (signature): __________________________________
Name (print): __________________ Title: __________________
Date: ______________________________________________________
<PAGE> 10
EXHIBIT A
DEALER CONTRACT
SALOMON BROTHERS INC
7 World Trade Center
New York, New York 10048
[Name of Broker-Dealer]
- -----------------------
- -----------------------
- -----------------------
Ladies and Gentlemen:
We, Salomon Brothers Inc ("Salomon"), have agreements with
certain investment companies for which Salomon Brothers Asset Management Inc
serves as investment adviser (each a "Company") pursuant to which we act as the
distributor for the sale of shares of each Company's capital stock, par value
$.001 per share ("shares"), and as such have the right to distribute shares for
resale. Each Company is an open-end investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act") and the shares
being offered to the public are registered under the Securities Act of 1933, as
amended (the "1933 Act"). You have received copies of the Distribution
Contract (the "Distribution Contract") between ourselves and each Company and
reference is made herein to certain provisions of the Distribution Contract.
Each Company or, in the case of a series investment company, each investment
portfolio of such Company, together with any other investment company or
investment portfolio thereof which may in the future be included in the Salomon
Brothers Investment Series is referred to in this agreement as a "Fund" and
collectively as the "Funds." The term "Prospectus", as used herein, refers to
the prospectus and related statement of additional information (the "Statement
of Additional Information") incorporated therein by reference (as amended or
supplemented) on file with the Securities and Exchange Commission which is part
of the most recent effective Registration Statement of the Fund under the 1933
Act. As principal, we offer to sell to you, as a dealer, shares of each Fund
upon the following terms and conditions:
1. In all sales to the public you shall act as dealer for
your own account, and in no transaction shall you have any authority to act as
agent for the Funds, for us or for any other dealer.
2. Orders received from you will be accepted through us only
at the public offering price per share (i.e. the net asset value per share plus
the applicable sales charge, if any) applicable to each order, and all orders
for redemption of any Fund shares shall be executed at the net asset value per
share less any contingent deferred sales charge, if any, in each case as set
forth in the Prospectus. The procedure relating to the handling of orders
shall be subject to paragraph 4 hereof and
<PAGE> 11
2
instructions which we or the Funds shall forward from time to time to you. All
orders are subject to acceptance or rejection by Salomon or each Fund in the
sole discretion of either. The minimum initial purchase and the minimum
subsequent purchase shall be as set forth in the Prospectus of each Fund.
3. You shall not place orders for any shares unless you have
already received purchase orders for those shares at the applicable public
offering price and subject to the terms hereof and of the Distribution
Contracts. You agree that you will not offer or sell any shares except under
circumstances that will result in compliance with the applicable Federal and
state securities laws, the applicable rules and regulations thereunder and the
rules and regulations of applicable regulatory agencies or authorities and that
in connection with sales and offers to sell shares you will furnish to each
person to whom any such sale or offer is made, at or prior to the time of such
sale or offer, a copy of the Prospectus and, upon request, the Statement of
Additional Information, and will not furnish to any person any information
relating to shares which is inconsistent in any respect with the information
contained in the Prospectus or Statement of Additional Information (as then
amended or supplemented). You shall not furnish or cause to be furnished to
any person or display or publish any information or materials relating to the
shares (including, without limitation, promotional materials and sales
literature, advertisements, press releases, announcements, statements, posters,
signs or other similar material), except such information and materials as may
be furnished to you by us or by the Funds, and such other information and
materials as may be approved in writing by us.
4. As a dealer, you are hereby authorized (i) to place orders
directly with the Funds for shares to be resold by us to you subject to the
applicable terms and conditions governing the placement of orders by us set
forth in the Prospectus and the Distribution Contract and (ii) to tender shares
directly to each Fund or its agent for redemption subject to the applicable
terms and conditions governing the redemption of shares applicable to us set
forth in the Prospectus and the Distribution Contract.
5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding, e.g., by a
change in the "net asset value" from that used in determining the offering
price to your customers.
6. In determining the amount of any sales concession payable
to you hereunder, we reserve the right to exclude any sales which we reasonably
determine are not made in accordance with the terms of the Prospectus and the
provisions of this Agreement. Unless at the time of transmitting an order we
advise you or the transfer agent to the contrary, the shares ordered will be
deemed to be the total holdings of the specified investor.
<PAGE> 12
3
7. (a) You agree that payment for orders from you for the
purchase of shares will be made in accordance with the terms of the Prospectus.
On or before the business day following the settlement date of each purchase
order for shares, you shall transfer same day funds to an account designated by
us with the transfer agent an amount equal to the public offering price on the
date of purchase of the shares being purchased less your sales concession, if
any, with respect to such purchase order determined in accordance with the
Prospectus. If payment for any purchase order is not received in accordance
with the terms of the Prospectus, we reserve the right, without notice, to
cancel the sale and to hold you responsible for any loss sustained as a result
thereof.
(b) If any shares sold under the terms of this Agreement are
sold with a sales charge and are redeemed or are tendered for redemption within
seven (7) business days after confirmation of your purchase order for such
shares: (i) you shall forthwith refund to us the full sales concession
received by you on the sale; and (ii) we shall forthwith pay to the applicable
Fund our portion of the sales charge on the sale which had been retained by us,
if any, and shall also pay to the applicable Fund the amount refunded by you.
(c) We will pay you an ongoing trail commission with respect
to holdings by you of shares of the Funds at such rates and in such manner as
may be described in the Prospectus.
(d) Certificates evidencing shares shall be available only
upon request. Upon payment for shares in accordance with paragraph 7(a) above,
the transfer agent will issue and transmit to you a confirmation statement
evidencing the purchase of such shares. Any transaction in uncertificated
shares, including purchases, transfers, redemptions and repurchases, shall be
effected and evidenced by book-entry on the records of the transfer agent.
8. No person is authorized to make any representations
concerning shares except those contained in the current Prospectus and
Statement of Additional Information and in printed information subsequently
issued by us or the Funds as information supplemental to the Prospectus and the
Statement of Additional Information. In purchasing shares through us you shall
rely solely on the representations contained in the Prospectus, the Statement
of Additional Information and the supplemental information above mentioned.
9. You agree to deliver to each purchaser making a purchase
of shares from you a copy of the Prospectus at or prior to the time of offering
or sale, and, upon request, the Statement of Additional Information. You may
instruct the transfer agent to register shares purchased in your name and
account as nominee for your customers. You agree thereafter to deliver to any
purchaser whose shares you are holding as record holder copies of
<PAGE> 13
4
the annual and interim reports and proxy solicitation materials and any other
information and materials relating to the Funds and prepared by or on behalf of
us, the Funds or the investment adviser, custodian, transfer agent or dividend
disbursing agent for distribution to such customer. The Funds shall be
responsible for the costs associated with forwarding such reports, materials
and other information and shall reimburse you in full for such costs. You
further agree to make reasonable efforts to endeavor to obtain proxies from
such purchasers whose shares you are holding as record holder. You further
agree to obtain from each customer to whom you sell shares any taxpayer
identification number certification required under Section 3406 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder, and to provide us or our designee with timely written notice of any
failure to obtain such taxpayer identification number certification in order to
enable the implementation of any required backup withholding in accordance with
Section 3406 of the Code and the regulations thereunder. Additional copies of
the Prospectus, Statement of Additional Information, annual or interim reports,
proxy solicitation materials and any such other information and materials
relating to the Funds will be supplied to you in reasonable quantities upon
request.
10. (a) In accordance with the terms of the Prospectus, a
reduced sales charge may be available to customers, depending on the amount of
the investment. In each case where a reduced sales charge is applicable, you
agree to furnish to the transfer agent sufficient information to permit
confirmation of qualification for a reduced sales charge, and acceptance of the
purchase order is subject to such confirmation. Reduced sales charges may be
modified or terminated at any time in the sole discretion of each Fund.
(b) You acknowledge that certain classes of investors may be
entitled to purchase shares at net asset value without a sales charge as
provided in the Prospectus and Statement of Additional Information.
(c) You agree to advise us promptly as to the amount of any
and all sales by you qualifying for a reduced sales charge or no sales charge.
(d) Exchanges (i.e., the investment of the proceeds from the
liquidation of shares of one fund in the shares of another fund, each of which
is managed by the Funds' investment adviser) shall, where available, be made in
accordance with the terms of each Prospectus.
11. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of shares entirely. Each party
hereto has the right to cancel this agreement upon notice to the other party.
<PAGE> 14
5
12. We shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the continuous
offering of shares. We shall be under no liability to you except for lack of
good faith and for obligations expressly assumed by us herein. Nothing
contained in this paragraph 12 is intended to operate as, and the provisions of
this paragraph 12 shall not in any way whatsoever constitute a waiver by you of
compliance with, any provisions of the 1933 Act or of the rules and regulations
of the Securities and Exchange Commission issued thereunder.
13. You agree that: (a) you shall not effect any
transactions (including, without limitation, any purchases and redemptions) in
any shares registered in the name of, or beneficially owned by, any customer
unless such customer has granted you full right, power and authority to effect
such transactions on his behalf, (b) we shall have full authority to act upon
your express instructions to sell, repurchase or exchange shares through us on
behalf of your customers under the terms and conditions provided in the
Prospectus and (c) we, the Funds, the transfer agent and our and their
respective officers, directors or trustees, agents, employees and affiliates
shall not be liable for, and shall be fully indemnified and held harmless by
you from and against, any and all claims, demands, liabilities and expenses
(including, without limitation, reasonable attorneys' fees) which may be
incurred by us or any of the foregoing persons entitled to indemnification from
you hereunder arising out of or in connection with (i) the execution of any
transactions in shares registered in the name of, or beneficially owned by, any
customer in reliance upon any oral or written instructions believed to be
genuine and to have been given by or on behalf of you, (ii) any statements or
representations that you or your employees make concerning the Funds that are
inconsistent with the applicable Fund's Prospectus and (iii) any sale of shares
of a Fund where the Fund or its shares were not properly registered or
qualified for sale in any state, any U.S. territory or the District of
Columbia, when we have indicated to you that the Fund or its shares were not
properly registered or qualified. The indemnification agreement contained in
this Paragraph 13 shall survive the termination of this Agreement.
14. You represent that: (a) you are a member in good standing
of the National Association of Securities Dealers, Inc. (the "NASD"), or, if a
foreign dealer who is not eligible for membership in the NASD, that (i) you
will not make any sales of shares in, or to nationals of, the United States of
America, its territories or its possessions, and (ii) in making any sales of
shares you will comply with the NASD's Rules of Fair Practice and (b) you are a
member in good standing of the Securities Investor Protection Corporation
("SIPC"). You agree that you will provide us with timely written notice of any
change in your NASD or SIPC status.
<PAGE> 15
6
15. We shall inform you as to the states or other
jurisdictions in which each Fund has advised us that shares have been qualified
for sale under, or are exempt from the requirements of, the respective
securities laws of such states, but we assume no responsibility or obligation
as to your qualification to sell shares in any jurisdiction.
16. All communications to us should be sent, postage prepaid,
to 7 World Trade Center, New York, New York 10048. Attention: ___________.
Any notice to you shall be duly given if mailed, telegraphed or telecopied to
you at the address specified by you below. Communications regarding placement
of orders for shares should be sent, postage prepaid, to The Shareholder
Services Group, Inc., P.O. Box 9109, Boston, Massachusetts 02205-9109.
<PAGE> 16
7
17. This Agreement shall be binding upon both parties hereto
when signed by us and accepted by you in the space provided below.
18. This Agreement and the terms and conditions set forth
herein shall be governed by, and construed in accordance with, the laws of the
State of New York.
SALOMON BROTHERS INC
By:
------------------------------
(Authorized Signature)
Please return one signed copy of this Contract to:
Salomon Brothers Inc
7 World Trade Center
New York, New York 10048
Attention:
Accepted:
Firm Name: ________________________________________________
By: _______________________________________________________
Address: __________________________________________________
____________________________________________________________
Accepted By (signature): __________________________________
Name (print): __________________ Title: __________________
Date: ______________________________________________________
<PAGE> 1
[PIPER & MARBURY LETTERHEAD]
EXHIBIT 10
September 6, 1995
Salomon Brothers Series Funds Inc
7 World Trade Center
New York, New York 10048
Re: Salomon Brothers Series Funds Inc Registration Statement
Ladies and Gentlemen:
We have acted as Maryland counsel to Salomon Brothers Series
Funds Inc, a Maryland corporation (the "Company"), in connection with the
Company's Registration Statement on Form N-1A, (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, (the "Act") and the issuance of 1,111,111,104 shares of the
Company's Class I capital stock, par value of $0.001 per share (the "Shares"),
pursuant to the Registration Statement.
In this capacity, we have examined the Company's charter and by-laws,
Articles of Supplementary of the Company as filed with the State Department of
Assessments and Taxation of the State of Maryland on or about July 13, 1995,
the prospectus included in the Registration Statement, the proceedings of the
Board of Directors of the Company relating to the issuance of the Shares and
such other statutes, certificates, instruments and documents relating to the
Company and matters of law as we have deemed necessary to
<PAGE> 2
Salomon Brothers Series Funds Inc
September 6, 1995
Page 2
the issuance of this opinion. In such examination, we have assumed the
genuineness of all signatures, the conformity of final documents in all
material respects to the versions thereof submitted to us in draft form, the
authenticity of all documents submitted to us as originals, and the conformity
with originals of all documents submitted to us as copies.
Based upon the foregoing, and limited in all respects to applicable
Maryland law, we are of the opinion and advise you that:
1. The Company has been duly incorporated and is validly
existing as a corporation under the laws of the State of Maryland.
2. The Shares to be issued by the Company pursuant to the
Registration Statement have been duly authorized and, when issued as
contemplated in the Registration Statement, will be validly issued, fully paid
and nonassessable.
Simpson Thacher & Bartlett is authorized to rely upon this opinion in
rendering any opinion to the Company which is to be filed as an exhibit to the
Registration Statement. We hereby consent to the filing of this opinion as an
Exhibit to the Registration Statement and to the reference to our firm in the
Registration Statement and the related Prospectus. In giving our consent, we
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act or the Rules and Regulations of the
Commission thereunder.
Very truly yours,
/s/ Piper & Marbury L.L.P.
<PAGE> 1
EXHIBIT 13(c)
PURCHASE AGREEMENT
Salomon Brothers Series Funds Inc (the "Company"), a Maryland
corporation, and Salomon Brothers Asset Management Inc ("SBAM"), a Delaware
corporation, hereby agree as follows:
1. The Company hereby offers SBAM and SBAM hereby purchases
125 shares of each of A Sub-Class, B Sub-Class, C Sub-Class and O Sub-Class of
the Company's Class I (Total Return Fund) capital stock (par value $.001 per
share) for consideration of $10.00 per share (collectively, the "Shares").
SBAM hereby acknowledges receipt of a purchase confirmation reflecting the
purchase of the Shares, and the Company hereby acknowledges receipt from SBAM
of funds in the amount of $5,000.00 in full payment for the Shares.
2. SBAM represents and warrants to the Company that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
3. SBAM agrees that if it or any direct or indirect
transferee of any of the Shares redeems any of the Shares prior to the fifth
anniversary of the date the Company begins its investment activities, SBAM will
pay to the Company an amount equal to the number resulting from multiplying the
Company's total unamortized organizational expenses by a fraction, the
numerator of which is equal to the number of Shares redeemed by SBAM or such
transferee and the denominator of which is equal to the number of Shares
outstanding as of the date of such redemption, as long as the administration
position of the staff of the Securities Exchange Commission requires such
reimbursement.
<PAGE> 2
2
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 13th day of July, 1995.
SALOMON BROTHERS SERIES FUNDS INC
Attest:
By:
- ----------------------- --------------------------
Tana E. Tselepis Michael S. Hyland
Secretary President
(SEAL)
SALOMON BROTHERS ASSET MANAGEMENT INC
Attest:
By:
- ----------------------- --------------------------
Tana E. Tselepis Michael S. Hyland
President
<PAGE> 1
EXHIBIT 15(b)
SALOMON BROTHERS SERIES FUNDS INC
FORM OF SERVICES AND DISTRIBUTION PLAN
This Services and Distribution Plan (the "Plan") is adopted in
accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by Salomon Brothers Series Funds Inc, a
corporation organized under the laws of the State of Maryland (the "Company"),
with respect to those classes (each, a "Class") of its investment portfolios
(each, a "Fund") listed in Appendix A, as amended from time to time, subject to
the following terms and conditions:
SECTION 1. PAYMENTS FOR DISTRIBUTION AND SERVICES.
(a) Service Fee. Each Fund will pay to the distributor of
its shares, Salomon Brothers Inc, a corporation organized under the laws of the
State of Delaware, or any entity that may in the future act as a distributor
for such Fund (the "Distributor") or its assignees, on behalf of each Class of
such Fund, a service fee under the Plan at the annual rate of 0.25% of the
average daily net assets of such Fund attributable to each such Class (the
"Service Fee"). The Service Fee shall be deemed a "service fee" as defined in
Section 26 of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
(b) Distribution Fee. In addition to the Service Fee, each
Fund will pay to the Distributor, on behalf of each Class of such Fund, a
distribution fee under the Plan at the annual rate set forth opposite the name
of such Class on Appendix A hereto of the average daily net assets of such Fund
attributable to each such Class (the "Distribution Fee").
(c) Payment of Fees. The Service Fee and Distribution Fee
will be calculated daily and paid monthly by each Fund with respect to each
Class at the annual rates indicated above. The Distributor may make payments
to assist in the distribution of all classes of shares of the Funds out of any
portion of any fee paid to the Distributor or any of its affiliates by a Fund,
its past profits or any other sources available to it.
SECTION 2. EXPENSES COVERED BY THE PLAN.
(a) The Service Fee payable with respect to each Class of a
Fund are used by the Distributor for servicing shareholder accounts, including
payments to selected dealers. Such administrative and shareholder services may
include processing purchase, exchange and redemption requests from customers
and placing orders with the Fund's transfer agent; processing dividend and
distribution payments from the Fund on behalf of customers; providing
information periodically to customers showing their positions in shares;
responding to inquiries from customers concerning their investment in shares;
arranging for bank wires;
<PAGE> 2
2
and providing such other similar services as may be reasonably requested. The
Distributor may retain all or a portion of the Service Fee.
(b) The Distribution Fee with respect to each Class of a Fund
is paid to compensate the Distributor for distribution services provided by it
in connection with the offering and sale of shares of such Class, and related
expenses incurred, including payments by the Distributor to compensate or
reimburse selected dealers for providing such distribution services. Such
services and expenses may include, but are not limited to, the following:
costs of printing and distributing the Fund's Prospectus, Statement of
Additional Information and sales literature to prospective investors; an
allocation of overhead and other branch office distribution-related expenses of
the Distributor; payments to and expenses of other persons who provide support
services in connection with the distribution of the shares; any other costs and
expenses relating to distribution or sales support activities; compensation for
the Distributor's initial expense of paying its investment representatives or
introducing brokers a commission upon the sale of the Fund's shares; and
accruals for interest on the amount of the foregoing expenses that exceed the
amount of the distribution fee and the contingent deferred sales charge
("CDSC") received by the Distributor. The Distributor may retain all or a
portion of the Distribution Fee. The portion of the Distribution Fee paid to
selected securities dealers is paid as a continuing fee beginning in the
thirteenth month after settlement based upon the value of the average daily net
assets of the Class of shares that remain invested in the Fund with respect to
accounts that dealers continue to service.
(c) The amount of the Distribution Fee and Service Fee
payable by any Fund under Section 1 hereof is not related directly to expenses
incurred by the Distributor and this Section 2 does not obligate a Fund to
reimburse the Distributor for such expenses. The Distributor may retain any
excess of the fees it receives pursuant to this Plan over its expenses incurred
in connection with providing the services described in this Section 2. The
Distribution Fee and Service Fee set forth in Section 1 will be paid by a Fund
to the Distributor unless and until the Plan is terminated or not renewed with
respect to a Fund or Class thereof, and any distribution or service expenses
incurred by the Distributor on behalf of a Fund in excess of payments of the
Distribution and Service Fees specified in Section 1 hereof which the
Distributor has accrued through the termination date are the sole
responsibility and liability of the Distributor and not an obligation of a
Fund. The Distributor may waive receipt of fees under the Plan for a period of
time while retaining the ability to be paid under the Plan thereafter.
SECTION 3. INDIRECT DISTRIBUTION EXPENSE
To the extent that any payments made by any Fund to the
Distributor or Salomon Brothers Asset Management Inc, in its capacity as
investment adviser to a Fund, including payment of any administrative and other
service fees or investment advisory fees, may be deemed to be indirect payment
of distribution expenses, those indirect payments shall be deemed to be
authorized by this Plan.
<PAGE> 3
3
SECTION 4. APPROVAL OF SHAREHOLDERS.
The Plan will not take effect with respect to a particular
Class of a Fund, and no fee will be payable in accordance with Section 1 of the
Plan, until the Plan has been approved by a vote of at least a majority of the
outstanding voting securities of such Class. The Plan will be deemed to have
been approved with respect to a particular Class of a Fund so long as a
majority of the outstanding voting securities of such Class votes for the
approval of the Plan, notwithstanding that the Plan has not been approved by
any other Class of such Fund.
SECTION 5. APPROVAL BY DIRECTORS.
Neither the Plan nor any related agreements will take effect
with respect to a Class of a Fund until approved by a majority of both (a) the
full Board of Directors of the Company and (b) those Directors who are not
interested persons of the Company and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to it (the
"Independent Directors"), cast in person at a meeting called for the purpose of
voting on the Plan and the related agreements.
SECTION 6. CONTINUANCE OF THE PLAN.
The Plan will continue in effect from year to year with
respect to each Class of a Fund, so long as its continuance is specifically
approved at least annually by the vote of the Company's Board of Directors in
the manner described in Section 5 above.
SECTION 7. TERMINATION.
The Plan may be terminated with respect to a Class of a Fund
at any time, without the payment of any penalty, by the vote of a majority of
the outstanding voting securities (as so defined) of such Class of such Fund or
by a majority vote of the Independent Directors. The Plan may remain in effect
with respect to a particular Class of a Fund even if the Plan has been
terminated in accordance with this Section 7 with respect to any other Class of
the Fund or any other Fund.
SECTION 8. AMENDMENTS.
The Plan may not be amended with respect to a Class of a Fund
so as to increase materially the amounts of the fees described in Section 1
above, unless the amendment is approved by a vote of the holders of at least a
majority of the outstanding voting securities of such Class of such Fund. No
material amendment to the Plan may be made unless approved by the Company's
Board of Directors in the manner described in Section 5 above.
<PAGE> 4
4
SECTION 9. SELECTION OF CERTAIN DIRECTORS.
While the Plan is in effect, the selection and nomination of
the Company's Directors who are not interested persons of the Company will be
committed to the discretion of the Directors then in office who are not
interested persons of the Company.
SECTION 10. WRITTEN REPORTS.
In each year during which the Plan remains in effect, any
person authorized to direct the disposition of monies paid or payable by a Fund
with respect to a Class pursuant to the Plan or any related agreement will
prepare and furnish to the Company's Board of Directors, and the Board will
review, at least quarterly, written reports complying with the requirements of
the Rule which set out the amounts expended under the Plan and the purposes for
which those expenditures were made.
SECTION 11. PRESERVATION OF MATERIALS.
The Company will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 10 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of the Plan, agreement or report.
SECTION 12. MEANINGS OF CERTAIN TERMS.
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the 1940 Act and the rules and regulations
under the 1940 Act, subject to any exemption that may be granted to the Company
under the 1940 Act by the Securities and Exchange Commission.
SECTION 13. LIMITATION OF LIABILITY.
The Articles of Incorporation of the Company, as amended from
time to time, which is on file with the Secretary of State of Maryland,
provides that to the fullest extent permitted by Maryland law, no Director or
officer of the Company shall be personally liable to the Company or its
stockholders for money damages, except to the extent such exemption from
liability or limitation thereof is not permitted by the 1940 Act.
<PAGE> 5
5
SECTION 14. GOVERNING LAW.
This Plan shall be governed by, and construed and interpreted
in accordance with, the law of the State of New York.
SALOMON BROTHERS SERIES FUNDS INC
By:
--------------------------
Michael S. Hyland
President
Dated: __________________, 199
<PAGE> 6
APPENDIX A TO
SERVICES AND DISTRIBUTION PLAN
<TABLE>
<CAPTION>
Distribution Fee (expressed as
an annual rate of the average
daily net assets of the Fund
Name of Fund Name of Class attributable to that Class)
------------ ------------- ------------------------------
<S> <C> <C>
Salomon Brothers New York Class A 0.00%
Municipal Bond Fund
Salomon Brothers New York Class B 0.75%
Municipal Bond Fund
Salomon Brothers New York Class C 0.75%
Municipal Bond Fund
Salomon Brothers National Class A 0.00%
Intermediate Municipal Fund
Salomon Brothers National Class B 0.75%
Intermediate Municipal Fund
Salomon Brothers National Class C 0.75%
Intermediate Municipal Fund
Salomon Brothers U.S. Government Class A 0.00%
Income Fund
Salomon Brothers U.S. Government Class B 0.75%
Income Fund
Salomon Brothers U.S. Government Class C 0.75%
Income Fund
Salomon Brothers High Yield Bond Class A 0.00%
Fund
Salomon Brothers High Yield Bond Class B 0.75%
Fund
Salomon Brothers High Yield Bond Class C 0.75%
Fund
Salomon Brothers Strategic Bond Class A 0.00%
Fund
Salomon Brothers Strategic Bond Class B 0.75%
Fund
Salomon Brothers Strategic Bond Class C 0.75%
Fund
Salomon Brothers Total Return Class A 0.00%
Fund
Salomon Brothers Total Return Class B 0.75%
Fund
Salomon Brothers Total Return Class C 0.75%
Fund
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Cash Management-A
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> CASH MANAGEMENT FUND CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.0
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.17
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.0
<EXPENSE-RATIO> .55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Cash Management-B
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> CASH MANAGEMENT FUND CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.0
<PER-SHARE-NII> .016
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .016
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.0
<EXPENSE-RATIO> .55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Cash Management-C
</LEGEND>
<SERIES>
<NUMBER> 013
<NAME> CASH MANAGEMENT FUND CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.0
<PER-SHARE-NII> .015
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .015
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.0
<EXPENSE-RATIO> .55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Cash Management-O
</LEGEND>
<SERIES>
<NUMBER> 014
<NAME> CASH MANAGEMENT FUND CLASS O
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.0
<PER-SHARE-NII> .027
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .027
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.0
<EXPENSE-RATIO> .55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
NY Municipal Bond-A
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> NY MUNICIPAL BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 8.96
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> .65
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .17
<PER-SHARE-NAV-END> 9.61
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
NY Municipal Bond-B
</LEGEND>
<SERIES>
<NUMBER> 022
<NAME> NY MUNICIPAL BOND FUND CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 8.96
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> .65
<PER-SHARE-DIVIDEND> .15
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .15
<PER-SHARE-NAV-END> 9.61
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
NY Municipal Bond-C
</LEGEND>
<SERIES>
<NUMBER> 023
<NAME> NY MUNICIPAL BOND FUND CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 8.96
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> .65
<PER-SHARE-DIVIDEND> .15
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .15
<PER-SHARE-NAV-END> 9.61
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
NY Municipal Bond-O
</LEGEND>
<SERIES>
<NUMBER> 024
<NAME> NY MUNICIPAL BOND FUND CLASS O
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 8.98
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> .64
<PER-SHARE-DIVIDEND> .27
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .27
<PER-SHARE-NAV-END> 9.62
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Nat. Int. Mun.-A
</LEGEND>
<SERIES>
<NUMBER> 031
<NAME> NATIONAL INTERMED. MUNICIPAL FUND CLASS A
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> .16
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .16
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Nat. Int. Mun. - B
</LEGEND>
<SERIES>
<NUMBER> 032
<NAME> NATIONAL INTERMED. MUNICIPAL FUND CLASS B
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> .13
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .13
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Nat. Int. Mun. - C
</LEGEND>
<SERIES>
<NUMBER> 033
<NAME> NATIONAL INTERMED. MUNICIPAL FUND CLASS C
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> .13
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .13
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
National Intermediate Municipal-O
</LEGEND>
<SERIES>
<NUMBER> 034
<NAME> NATIONAL INTERMED. MUNICIPAL FUND CLASS O
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> ,17
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
U.S. Govt. Income - A
</LEGEND>
<SERIES>
<NUMBER> 041
<NAME> U.S. GOVERNMENT INCOME FUND CLASS A
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> .24
<PER-SHARE-DIVIDEND> .21
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .21
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
U.S. Govt Income - B
</LEGEND>
<SERIES>
<NUMBER> 042
<NAME> U.S. GOVERNMENT INCOME FUND CLASS B
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> .24
<PER-SHARE-DIVIDEND> .18
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .18
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
U.S. Govt. Income - C
</LEGEND>
<SERIES>
<NUMBER> 043
<NAME> U.S. GOVERNMENT INCOME FUND CLASS C
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> .24
<PER-SHARE-DIVIDEND> .18
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .18
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
U.S. Govt Income - O
</LEGEND>
<SERIES>
<NUMBER> 044
<NAME> U.S. GOVERNMENT INCOME FUND CLASS O
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .22
<PER-SHARE-GAIN-APPREC> .24
<PER-SHARE-DIVIDEND> .22
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .22
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
High Yield Bond - A
</LEGEND>
<SERIES>
<NUMBER> 051
<NAME> HIGH YIELD BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> .36
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .36
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
High Yield Bond - B
</LEGEND>
<SERIES>
<NUMBER> 052
<NAME> HIGH YIELD BOND FUND CLASS B
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
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<NET-INVESTMENT-INCOME> 0
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<APPREC-INCREASE-CURRENT> 0
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<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .33
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> .33
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .33
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
High Yield Bond - C
</LEGEND>
<SERIES>
<NUMBER> 053
<NAME> HIGH YIELD BOND FUND CLASS C
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
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<NET-INVESTMENT-INCOME> 0
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<NET-CHANGE-FROM-OPS> 0
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .33
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> .33
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .33
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
High Yield Bond - O
</LEGEND>
<SERIES>
<NUMBER> 054
<NAME> HIGH YIELD BOND FUND CLASS O
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> .37
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .37
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Strategic Bond - A
</LEGEND>
<SERIES>
<NUMBER> 061
<NAME> STRATEGIC BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .32
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> .32
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .32
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Strategic Bond - B
</LEGEND>
<SERIES>
<NUMBER> 062
<NAME> STRATEGIC BOND FUND CLASS B
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> .30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .30
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Strategic Bond - C
</LEGEND>
<SERIES>
<NUMBER> 063
<NAME> STRATEGIC BOND FUND CLASS C
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> .30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .30
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Strategic Bond - O
</LEGEND>
<SERIES>
<NUMBER> 064
<NAME> STRATEGIC BOND FUND CLASS O
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> FEB-22-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
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<NET-CHANGE-FROM-OPS> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .33
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> .33
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<RETURNS-OF-CAPITAL> .33
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Investors - A
</LEGEND>
<SERIES>
<NUMBER> 071
<NAME> INVESTORS FUND CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
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<NET-INVESTMENT-INCOME> 0
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<GROSS-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 13.61
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> 2.21
<PER-SHARE-DIVIDEND> .06
<PER-SHARE-DISTRIBUTIONS> .07
<RETURNS-OF-CAPITAL> .13
<PER-SHARE-NAV-END> 15.77
<EXPENSE-RATIO> .96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Investors - B
</LEGEND>
<SERIES>
<NUMBER> 072
<NAME> INVESTORS FUND CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
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<NET-ASSETS> 0
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<GROSS-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 13.61
<PER-SHARE-NII> .04
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<PER-SHARE-DIVIDEND> .05
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<RETURNS-OF-CAPITAL> .12
<PER-SHARE-NAV-END> 15.74
<EXPENSE-RATIO> 1.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Investors - C
</LEGEND>
<SERIES>
<NUMBER> 073
<NAME> INVESTORS FUND CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Investors - O
</LEGEND>
<SERIES>
<NUMBER> 074
<NAME> INVESTORS FUND CLASS O
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Cash Management - O
</LEGEND>
<SERIES>
<NUMBER> 014
<NAME> CASH MANAGEMENT FUND CLASS O
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
NY Municipal Bond - O
</LEGEND>
<SERIES>
<NUMBER> 024
<NAME> NY MUNICIPAL BOND FUND CLASS O
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Investors - O
</LEGEND>
<SERIES>
<NUMBER> 074
<NAME> INVESTORS FUND CLASS O
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
