<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
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. 24
[x]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
[x]
AMENDMENT NO. 26
[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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(800) 725-6666
------------------------
MICHAEL S. HYLAND
SALOMON BROTHERS ASSET MANAGEMENT INC
7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPY TO:
GARY S. SCHPERO, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NY 10017
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
this Registration Statement becomes effective.
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485(b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[X] on January 2, 1998 pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] 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
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,
1996 ON FEBRUARY 27, 1997.
________________________________________________________________________________
<PAGE>
<PAGE>
SALOMON BROTHERS SERIES FUNDS INC
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET APPLICABLE TO:
SALOMON BROTHERS INTERNATIONAL GROWTH FUND AND
SALOMON BROTHERS SMALL CAP GROWTH FUND
PURSUANT TO RULE 495(a) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION PROSPECTUS CAPTION
- --------- ------------------------------------ -----------------------------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page.......................... Cover Page
Item 2. Synopsis............................ Summary; Expense Information
Item 3. Condensed Financial Information..... Not Applicable
Item 4. General Description of Registrant... Summary; Investment Objectives and Policies; Additional
Investment Activities and Risk Factors; Investment Limitations;
Capital Stock
Item 5. Management of the Fund.............. Summary; 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 Value; Dividends and Distributions; Shareholder Services
Item 8. Redemption or Repurchase............ Multiple Pricing System; Redemption of Shares; Determination of
Net Asset Value; Shareholder Services
Item 9. Pending Legal Proceedings........... Not Applicable
</TABLE>
<TABLE>
<CAPTION>
N-1A STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
- --------- -----------------------------------------------------------------
<S> <C> <C>
PART B
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 Limitations
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
Item 20. Tax Status.......................... Additional Information Concerning Taxes
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
N-1A STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
- --------- -----------------------------------------------------------------
<S> <C> <C>
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>
<PAGE>
EXPLANATORY NOTE
The prospectus for Salomon Brothers Asia Growth Fund, Salomon Brothers
Capital Fund Inc, Salomon Brothers Investors Fund Inc, Salomon Brothers Total
Return Fund, Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic
Bond Fund, Salomon Brothers U.S. Government Income Fund, Salomon Brothers
National Intermediate Municipal Fund, Salomon Brothers New York Municipal Money
Market Fund and Salomon Brothers Cash Management Fund is incorporated herein by
reference to the Registrant's filing of Post-Effective Amendment No. 23 pursuant
to Rule 485 under the Securities Act of 1933, as amended, on April 29, 1997.
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1997
- ------------------------------------------------------------------------------
Salomon Brothers
International Growth Fund
7 WORLD TRADE CENTER NEW YORK, NEW YORK 10048 [(800) 446-1013]
SALOMON BROTHERS INTERNATIONAL GROWTH FUND (THE 'FUND') IS A DIVERSIFIED
INVESTMENT PORTFOLIO OF SALOMON BROTHERS SERIES FUNDS INC, AN OPEN-END
MANAGEMENT INVESTMENT COMPANY ('SERIES FUNDS'). THE FUND, TOGETHER WITH OTHER
INVESTMENT PORTFOLIOS OF SERIES FUNDS AND OTHER INVESTMENT COMPANIES (EACH A
'PORTFOLIO'), IS INCLUDED AS PART OF THE SALOMON BROTHERS INVESTMENT SERIES (THE
'INVESTMENT SERIES'). THE FUND'S INVESTMENT OBJECTIVE IS CAPITAL GROWTH. THE
FUND WILL SEEK TO MEET ITS OBJECTIVE BY INVESTING PRIMARILY IN AN
INTERNATIONALLY DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES THAT ARE CONSIDERED
BY THE SUB-ADVISER TO HAVE POTENTIAL FOR APPRECIATION. THE FUND WILL INVEST
PRIMARILY IN SECURITIES OF ISSUERS IN DEVELOPED MARKETS. THERE CAN BE NO
ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THIS PROSPECTUS
CONTAINS INFORMATION RELATING ONLY TO THE FUND. FOR A PROSPECTUS AND INFORMATION
REGARDING THE OTHER PORTFOLIOS COMPRISING THE INVESTMENT SERIES, CALL [(800)
446-1013.]
------------------------------------------------------------------
THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE
AND THE FUND MAY EMPLOY CERTAIN INVESTMENT PRACTICES WHICH INVOLVE SPECIAL RISK
CONSIDERATIONS. SEE 'ADDITIONAL INVESTMENT ACTIVITIES AND RISK FACTORS.'
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund and should be read and retained for
future reference. A Statement of Additional Information dated January 2, 1998
containing additional information about the Fund (the 'Statement of Additional
Information') has been filed with the Securities and Exchange Commission (the
'SEC') and is incorporated herein by reference. It is available without charge
and can be obtained by writing to the Fund at the address, or by calling the
toll-free telephone number, listed above. The SEC maintains a Web site at
http://www.sec.gov that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.
------------------------------------------------------------------
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
JANUARY 2, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
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 STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Page 1
<PAGE>
<PAGE>
- ------------------------------------------------------------------------------
Table of Contents
Summary 3
Expense Information 6
Investment Objectives and Policies 8
Additional Investment Activities and Risk
Factors 11
Multiple Pricing System 18
Investment Limitations 22
Management 23
Determination of Net Asset Value 26
Purchase of Shares 27
Redemption of Shares 33
Performance Information 37
Dividends and Distributions 39
Taxation 40
Shareholder Services 42
Account Services 46
Capital Stock 46
Appendix A A-1
Appendix B B-1
PAGE 2
<PAGE>
<PAGE>
- -----------------------------------------------------------------
Summary
THE FUND
The Fund is a newly organized investment portfolio of the Series Funds, an open-
end investment company incorporated in Maryland on April 17, 1990. The Fund is
classified as a diversified Fund under the Investment Company Act of 1940, as
amended (the '1940 Act').
THE FUND'S OBJECTIVE AND POLICIES
The investment objective of the Fund is capital growth. The Fund will seek to
meet its objective by investing primarily in an internationally diversified
portfolio of equity securities that are considered by the Sub-Adviser (as
defined below) to have potential for appreciation. The Fund will invest
primarily in securities of issuers in developed markets.
There can be no assurance that the Fund will achieve its investment objective.
See 'Investment Objectives and Policies.'
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc ('SBAM'), an affiliate of Salomon
Brothers Inc ('Salomon Brothers'), is the Fund's investment manager. SBAM also
serves as investment manager to other investment companies and numerous
individuals and institutions. See 'Management.'
Subject to the supervision of SBAM, Mastholm Asset Management, L.L.C. (the
'Sub-Adviser') serves as sub-adviser to the Fund. The Sub-Adviser is
compensated by SBAM at no additional cost to the Fund. For a discussion of
these arrangements, see 'Management.'
RISK FACTORS
Prospective investors should consider certain risks associated with an
investment in the Fund. The Fund may use various investment practices that
involve special considerations, including investing in foreign securities, high
yield and/or illiquid securities (including emerging markets securities),
warrants, loan participations and assignments, entering into repurchase and
reverse repurchase agreements, entering into securities transactions on a firm
commitment or when issued basis, engaging in short sales, lending portfolio
securities and high portfolio turnover rates. The Fund may engage in
derivatives trading, which involve special risks. See 'Investment Objective and
Policies' and 'Additional Investment Activities and Risk Factors.'
PURCHASE OF SHARES
Shares of the 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 of the 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 the 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 the
Automatic Investment Plan, Automatic Dividend Diversification and Systematic
Investing. See 'Purchase of Shares' and 'Shareholder Services.'
PAGE 3
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
REDEMPTION OF SHARES
The 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. See 'Redemption of Shares.'
CLASSES OF SHARES
The 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, the Fund offers Class O shares for sale only to existing Class O
shareholders in Portfolios of the Investment Series. 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%. In addition, Class A shares
are subject to an ongoing Rule 12b-1 service fee at an annual rate of .25% of
their respective average daily net assets. 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. 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 Rule
12b-1 distribution fee at an annual rate of .75% of their respective average
daily net assets and an ongoing Rule 12b-1 service fee at an annual rate of
.25% of their respective average daily net assets. Class B shares will
automatically convert, based upon relative net asset value, to Class A shares
of the 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. 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 Rule 12b-1 distribution fee
at an annual rate of .75% of their respective average daily net assets and an
ongoing Rule 12b-1 service fee at an annual rate of .25% of their respective
average daily net assets. Class C shares will automatically convert, based upon
relative net asset value, to Class A shares of the Fund ten years after
purchase. Upon conversion, these shares will no longer be subject to an annual
distribution fee.
CLASS O SHARES. The 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 Rule 12b-1 fees.
PAGE 4
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
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
The Fund will declare dividends from net investment income annually and pay them
annually. The Fund will pay net realized long-term capital gains annually. It is
anticipated that the expenses incurred by each class of shares of the 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 the 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. See 'Multiple
Pricing System' and 'Dividends and Distributions.'
The information in the Summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus and in the
Statement of Additional Information.
PAGE 5
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
The Fund offers multiple classes of shares. Each share of the 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 borne by each class of shares of the Fund:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS O(d)
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases of Shares (as a percentage of
offering price) 4.75%(a) None None None
Sales Charge Imposed on Reinvested
Dividends None None None None
Contingent Deferred Sales Charge
(as a percentage of original purchase
price or redemption price, whichever is
lower) 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)
Redemption Fees None None None None
Exchange Fee None None None None
</TABLE>
------------------------------------------------------------------
* Under certain circumstances, certain broker/dealers may impose additional
transaction fees on the purchase and/or sale of shares. See 'Purchase of
Shares.'
(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 Class O shares of the
Fund.
PAGE 6
<PAGE>
<PAGE>
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 waiver and expense reimbursement, as indicated].
<TABLE>
<CAPTION>
FUND CLASS A CLASS B CLASS C CLASS O
<S> <C> <C> <C> <C>
Management Fees [(after waivers)] [`D'] % % % %
Rule 12b-1 Fees* .25% 1.00% 1.00% --
Other Expenses [(after reimbursements)]** [`D'] % % % %
Total fund operating expenses [(after waivers and reimbursements)] [`D'] % % % %
</TABLE>
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<TABLE>
<S> <C>
`D' [Reflects the voluntary agreement by SBAM to impose an expense cap for the fiscal year ending
December 31, 1998 on the Fund's total fund operating expenses (exclusive of taxes, interest and
extraordinary expenses such as litigation and indemnification expenses) at the amounts shown in
the table through the waiver of management fees and the reimbursement of expenses. The amounts
shown are estimates and SBAM may impose an expense cap that results in lower total fund operating
expenses for the Fund than the amounts shown in the table, though there can be no assurance to
this effect. Absent such waiver, the ratio of management fees to average daily net assets would
be %, and the ratio of total fund operating expenses to average daily net assets would be %,
%, % and % for Class A, Class B, Class C and Class O shares, respectively.]
* Upon conversion to Class A shares, Class B and Class C shares will no longer be subject to a
distribution fee. Salomon Brothers receives an annual Rule 12b-1 service fee of .25% of the value
of average daily net assets of Class A shares, and receives an annual Rule 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.'
** As of the date of this Prospectus, the Fund had not 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, administration, custody, legal and accounting
services, printing and registration.
</TABLE>
------------------------------------------------------------------
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 -- Distribution Fees.'
For additional information with respect to the expenses identified in the table
above, see 'Management' in the Statement of Additional Information.
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 the Fund. The example assumes
payment by the Fund of operating expenses at the levels set forth in the
preceding table 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>
FUND 1 YEAR 3 YEARS
<S> <C> <C>
Class A Shares* $ $
Class B Shares** $ $
Class B No Redemption $ $
Class C Shares** $ $
Class O Shares $ $
</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.
THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES FOR THE FUND MAY BE HIGHER OR LOWER THAN THE
AMOUNTS SHOWN. Moreover, while the example assumes a 5% annual return, the
Fund's performance will vary and may result in a return greater or less than 5%.
PAGE 7
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Investment Objectives
and Policies
The investment objective of the Fund is capital growth. The Fund will seek to
meet its objective by investing primarily in securities of foreign issuers that
meet certain fundamental and technical standards of selection (relating
primarily to acceleration of earnings and revenues) and have, in the opinion of
the Sub-Adviser, potential for appreciation.
The investment objective of the Fund is deemed to be a fundamental policy and
may not be changed without the affirmative vote of the holders of a majority of
its outstanding shares, as defined in the 1940 Act. There can be no assurance
that the Fund will achieve its investment objective.
The Fund will invest primarily in foreign issuers in developed countries and
will invest primarily in equity securities (which include equity equivalents)
of such issuers. Under normal market conditions, the Fund will invest at least
65% of its total assets in equity securities of foreign issuers from at least
three countries outside of the United States.
Foreign issuers include foreign governments and their agencies and companies
which: (a) are domiciled outside the United States; (b) derive at least 50% of
their total revenue from goods produced or sold, investments made or services
performed outside the United States; and/or (c) have securities which are
traded principally on a stock exchange or over-the-counter market in a country
other than the United States.
In order to achieve maximum investment flexibility, there are no prescribed
limits on geographic asset distributions, on either a country-by-country or
region-by-region basis. Investments in each of one or more countries may from
time to time exceed 25% of the Fund's total assets. In addition, more than 25%
of the Fund's total assets may be denominated or quoted in the currencies of
each of one or more countries. While the Fund will invest primarily in foreign
issuers in developed countries, it may also invest up to 25% of its total
assets in securities of foreign issuers in developing or emerging market
countries. Developed countries in which the Fund may invest are the United
States, Canada, Japan, the United Kingdom, Germany, Austria, France, Italy,
Ireland, Spain, Belgium, the Netherlands, Switzerland, Sweden, Finland, Norway,
Denmark, Australia and New Zealand. While securities of U.S. issuers may be
included in the portfolio from time to time, it is the primary intent of the
Sub-Adviser to diversify investments in the Fund across a broad range of foreign
issuers.
Equity securities in which the Fund may invest include common and preferred
stocks (including convertible preferred stock), bonds, notes and debentures
convertible into common and preferred stock, stock purchase warrants and rights,
equity-linked debt securities, equity interests in trusts, partnerships, joint
ventures or similar enterprises, American, Global or other types of Depositary
Receipts and other equity securities. Other equity securities include: (i)
securities that permit the Fund to receive: (a) an equity interest in an
issuer; (b) the opportunity to acquire an equity interest in an issuer; and (c)
the opportunity to receive a return on its investment that permits the Fund to
benefit from the growth over time in the equity of an issuer; and (ii)
securities whose value or return is derived from the value of return of a
different security.
PAGE 8
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
Although the Sub-Adviser expects that most of the equity securities purchased by
the Fund will be traded on a stock exchange or in an over-the-counter market, a
number of foreign securities markets, particularly those located in emerging
market countries, have substantially less volume than U.S. or other established
markets and some of the stock exchanges in foreign countries are in the early
stages of their development. For a more detailed discussion of the special
risks which the Fund is subject to by virtue of its investment in foreign
securities, see 'Additional Investment Activities and Risk Factors -- Foreign
Securities.' An investment in the Fund should not be considered a complete
investment program.
The principal criteria for inclusion of a security in the Fund's portfolio is
its ability to meet the fundamental and technical standards of selection and,
in the opinion of the Sub-Adviser, its potential to achieve better-than-average
appreciation. If, in the opinion of the Sub-Adviser, a particular security
satisfies these principal criteria, the security may be included in the Fund's
portfolio, regardless of the location of the issuer or the percentage of the
Fund's investments in the issuer's country (subject to the investment policies
of the Fund) or region.
At the same time, however, the Sub-Adviser recognizes that both the selection
of the Fund's individual securities and the allocation of the portfolio's
assets across different countries and regions are important factors in managing
an international portfolio. For this reason, the Sub-Adviser will also consider
a number of other factors in making investment selections including: the
prospects for relative economic growth among countries or regions, economic and
political conditions, expected inflation rates, currency exchange fluctuations
and tax considerations.
Although the primary investment of the Fund will be equity securities, the Fund
may also invest in other types of securities consistent with the accomplishment
of the Fund's objective. When the Sub-Adviser believes that the total return
potential of other securities equals or exceeds the potential return of equity
securities, the Fund may invest up to 35% in such other securities.
The other securities in which the Fund may invest are bonds, notes and debt
securities of companies and obligations of domestic or foreign governments and
their agencies. Obligations of governments or their agencies can be in the form
of conventional securities or other types of debt instruments such as 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'), participations in Loans ('Participations') or
assignments of all or a portion of Loans from third parties ('Assignments').
See 'Additional Investment Activities and Risk Factors -- Loan Participations
and Assignments.' The Fund will limit its purchases of non-convertible debt
securities to investment grade obligations. For long-term debt obligations,
this includes securities that are rated Baa or better by Moody's or BBB or
better by S&P or Fitch or that are not rated but are considered by the Sub-
Adviser to be of equivalent quality. See Appendix A to this Prospectus for a
description of such ratings. 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
PAGE 9
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weakened capacity to make principal and interest payments than is the case with
higher grade debt securities. The Fund may invest without limitation in non-U.S.
convertible securities that are rated below investment grade. See 'Additional
Investment Activities and Risk Factors -- High Yield Securities.'
Notwithstanding the Fund's investment objective of capital growth, to meet
operating expenses, to serve as collateral in connection with certain investment
techniques and to meet anticipated redemption requests, the Fund will generally
hold a portion of its assets in short-term fixed-income securities (government
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 the Sub-Adviser deems it appropriate, 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. To the extent the Fund assumes a defensive position, it will
not be pursuing its investment objective of capital growth.
The Fund may enter into repurchase agreements, reverse repurchase agreements,
may purchase securities on a firm commitment basis, including when-issued
securities, and may lend portfolio securities. The Fund may engage in short
sales of securities if it contemporaneously owns or has the right to obtain at
no additional cost securities identical to those being sold short. The Fund may
also invest in investment funds. For a description of these investment practices
and the risks associated therewith, see 'Additional Investment Activities and
Risk Factors.'
The 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.'
As more fully described in the Statement of Additional Information, the Fund
may purchase Rule 144A securities. 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. The Fund is currently authorized to use 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 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 and activities other than the Fund's
investment objective are not fundamental policies and may be changed by vote of
the Series Funds' Board of Directors without the approval of shareholders.
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Additional Investment Activities
and Risk Factors
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 differences
between U.S. and foreign securities markets, including less volume, much
greater price volatility in and illiquidity of certain 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.
Investment in certain emerging market securities is restricted or controlled to
varying degrees which may at times limit or preclude investment in certain
emerging market securities and increase the costs and expenses of the Fund.
Certain emerging market countries require governmental approval prior to
investments by foreign persons, limit the amount of investment by foreign
persons in a particular issuer, limit the investment by foreign persons only to
a specific class of securities of an issuer that may have less advantageous
rights than other classes, restrict investment opportunities in issuers in
industries deemed important to national interests and/or impose additional
taxes on foreign investors.
Certain emerging market countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors which could adversely affect the Fund. In
addition, if a deterioration occurs in the country's balance of payments, it
could impose temporary restrictions on foreign capital remittances. Investing
in local markets in emerging market countries may require the Fund to adopt
special procedures, seek local government approvals or take other actions, each
of which may involve additional costs to the Fund.
Other investment risks include the possible imposition of foreign withholding
taxes on certain amounts of the 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
the Fund, the lack of extensive operating experience of eligible foreign
subcustodians and legal limitations on the ability of the Fund to recover
assets held in custody by a foreign subcustodian in the event of the
subcustodian's bankruptcy. Moreover, brokerage commissions and other
transactions costs on foreign securities exchanges are generally higher than in
the United States.
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. In particular, the assets and profits appearing on
the financial statements of an emerging market country issuer may not reflect
its financial position or results of operations in the way they would be
reflected if the financial statements had been prepared in accordance with U.S.
generally accepted accounting principles. In addition, for an issuer that keeps
accounting records in local currency,
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SALOMON BROTHERS INVESTMENT SERIES
inflation accounting rules may require, for both tax and accounting purposes,
that certain assets and liabilities be restated on the issuer's balance sheet in
order to express items in terms of currency of constant purchasing power.
Inflation accounting may indirectly generate losses or profits. Consequently,
financial data may be materially affected by restatements for inflation and may
not accurately reflect the real condition of those issuers and securities
markets. See ' -- High Yield Securities.'
Finally, in the event of a default in any such foreign obligations, it may be
more difficult for the Fund to obtain or enforce a judgment against the issuers
of such obligations. For a further discussion of certain risks involved in
investing in foreign securities, particularly of emerging market issuers, see
'Additional Information on Portfolio Instruments and Investment
Policies -- Foreign Securities' in the Statement of Additional Information.
FIRM COMMITMENTS AND WHEN-ISSUED SECURITIES. The 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. The 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. The 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.
WARRANTS. The Fund 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 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.
REPURCHASE AGREEMENTS. The 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.
The Fund will enter into repurchase agreements only with dealers, domestic banks
or recognized financial institutions which, in the opinion of the Sub-Adviser
based on guidelines established by the Board of Directors, are deemed
creditworthy. SBAM or the Sub-Adviser 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. The 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
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SALOMON BROTHERS INVESTMENT SERIES
repurchase agreement, the Fund could experience losses and experience delays in
connection with the disposition of the underlying security. To the extent that,
in the meantime, the value of the securities that the Fund has purchased has
decreased, the Fund could experience a loss. Repurchase agreements with
maturities of more than seven days will be treated as illiquid securities by the
Fund.
RESTRICTED SECURITIES AND SECURITIES WITH LIMITED TRADING MARKETS. The Fund may
purchase securities for which there is a limited trading market or which are
subject to restrictions on resale to the public. If the Fund were to assume
substantial positions in securities with limited trading markets, the activities
of the Fund could have an adverse effect upon the liquidity and marketability of
such securities and the Fund might not be able to dispose of its holdings in
those securities at then current market prices. Circumstances could also exist
(to satisfy redemptions, for example) when portfolio securities might have to be
sold by the Fund at times which otherwise might be considered to be
disadvantageous so that the Fund might receive lower proceeds from such sales
than it had expected to realize. Investments in securities which are
'restricted' may involve added expenses to the 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, the Fund 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 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 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 the Fund's portfolio. The Sub-Adviser, under the
supervision of the Board of Directors, is responsible for monitoring the
liquidity of Rule 144A securities and the selection of such securities. The
Board of Directors periodically reviews purchases and sales of such securities.
See 'Additional Information on Portfolio Instruments and Investment
Policies -- Rule 144A Securities' in the Statement of Additional Information.
FIXED-INCOME SECURITIES. To the extent that a portion of the Fund's portfolio is
invested in fixed-income securities, changes in market yields will affect the
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 Fund may from time to
time invest in fixed-income securities, the net asset value of the Fund's shares
may change as general levels of interest rates fluctuate. See 'Additional
Information on Portfolio Instruments and Investment Policies -- Fixed Income
Securities' in the Statement of Additional Information.
HIGH YIELD SECURITIES. The Fund may invest without limitation in convertible
non-
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SALOMON BROTHERS INVESTMENT SERIES
U.S. 'high yield' securities, commonly known as 'junk bonds.'
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. 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 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.
The secondary markets for high yield securities are not as liquid as the
secondary markets for higher rated securities. If the Fund is not able to obtain
precise or accurate market quotations for a particular security, it will become
more difficult to value the Fund's portfolio securities, and a greater degree of
judgment may be necessary in making such valuations.
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.
See 'Additional Information on Portfolio Instruments and Investment
Policies -- High Yield Securities' in the Statement of Additional Information.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Fund may invest in Loan Participations
and Assignments. The Fund considers these investments to be investments in debt
securities for purposes of this Prospectus. Loan 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 with purchasing Loan Participations, the Fund
generally will have no right to enforce compliance by the borrower with the
terms of the Loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and the Fund may not benefit directly from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund will assume the credit risk of both the borrower and the Lender that is
selling the 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 Loan Participations only if the Lender interpositioned between the
Fund and the borrower is determined by SBAM 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 Fund may have difficulty disposing of Assignments and Loan 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
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SALOMON BROTHERS INVESTMENT SERIES
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
Loan Participations in response to a specific economic event, such as
deterioration in the creditworthiness of the borrower.
The Board of Directors has adopted policies and procedures for the purpose of
determining whether Assignments and Loan Participations are liquid or illiquid.
Pursuant to those policies and procedures, the Board of Directors has delegated
to the Sub-Adviser the determination as to whether a particular Loan
Participation or Assignment is liquid or illiquid, requiring that consideration
be given to, among other things, the frequency of quotes, the number of dealers
willing to sell and the number of potential purchasers, the nature of the Loan
Participation or Assignment and the time needed to dispose of it and the
contractual provisions of the relevant documentation. The Board of Directors
periodically reviews purchases and sales of Assignments and Loan Participations.
To the extent that liquid Assignments and Loan Participation that the Fund holds
become illiquid, due to the lack of sufficient buyers or market or other
conditions, the percentage of the Fund's assets invested in illiquid assets
would increase. The Sub-Adviser, under the supervision of the Board of
Directors, monitors Fund investments in Assignments and Loan Participations and
will consider appropriate measures to enable the Fund to maintain sufficient
liquidity for operating purposes and to meet redemption requests.
In valuing a Loan Participation or Assignment held by the Fund for which a
secondary trading market exists, the Fund will rely upon prices or quotations
provided by banks, dealers or pricing services. To the extent a secondary
trading market does not exist, the Fund's Loan Participations and Assignments
will be valued in accordance with procedures adopted by the Board of Directors,
taking into consideration, among other factors: (i) the creditworthiness of the
borrower under the Loan and the Lender; (ii) the current interest rate; period
until next rate reset and maturity of the Loan; (iii) recent prices in the
market for similar Loans; and (iv) recent prices in the market for instruments
of similar quality, rate, period until next interest rate reset and maturity.
See 'Net Asset Value.'
LOANS OF PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
generate income. In the event of the bankruptcy of the other party to a
securities loan, the Fund could experience delays in recovering the securities
it lent. To the extent that, in the meantime, the value of the securities the
Fund lent has increased, the Fund could experience a loss. The value of
securities loaned will be marked to market daily. Any securities that the Fund
may receive as collateral will not become a part of its portfolio at the time of
the loan. 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. 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 the Fund may be invested in securities in which the
Fund is permitted to invest. Portfolio securities purchased with cash collateral
are subject to possible depreciation. Voting rights may pass with the lending of
portfolio securities. Loans of securities by the Fund will be subject to
termination at the Fund's or the borrower's option. The Fund may pay
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.
INVESTMENT FUNDS. The Fund may invest in unaffiliated investment funds which
invest principally in securities in which the Fund is authorized to invest.
Under the 1940 Act, the Fund may invest a maximum
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SALOMON BROTHERS INVESTMENT SERIES
of 10% of its total assets in the securities of other investment companies. In
addition, under the 1940 Act, not more than 5% of the Fund's total assets may be
invested in the securities of any one investment company and the Fund may not
purchase more than 3% of the outstanding voting stock of such investment
company. To the extent the Fund invests in other investment funds, the Fund's
shareholders will incur certain duplicative fees and expenses, including
investment advisory fees. The Fund's investment in certain investment funds will
result in special U.S. Federal income tax consequences described below under
'Taxation.' See 'Additional Information on Portfolio Instruments and Investment
Policies -- Investment Funds' in the Statement of Additional Information.
BORROWING. The Fund 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 the Fund's shares and in the return on the Fund's
portfolio. Although the principal of any borrowing will be fixed, the Fund's
assets may change in value during the time the borrowing is outstanding. The
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 the 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. The Fund may use various 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 the Fund, or to seek to increase the Fund's income or
gain. Although these strategies are regularly used by some investment companies
and other institutional investors, with the exception of currency transactions
it is not presently anticipated that any of these strategies will be used to a
significant degree by the Fund. Over time, however, techniques and instruments
may change as new instruments and strategies are developed or regulatory changes
occur.
Subject to the constraints described above, the Fund may 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 the
Fund may enter into interest rate transactions, equity swaps and related
transactions, invest in indexed debt securities and other similar transactions
which may be developed to the extent the Sub-Adviser determines that they are
consistent with the Fund's investment objective and policies and applicable
regulatory requirements (collectively, these transactions are referred to in
this Prospectus as 'Derivatives'). The Fund's interest rate transactions may
take the form of swaps, caps, floors and collars, and the Fund's currency
transactions may take the form of currency forward contracts, currency futures
contracts, currency swaps and options on currencies.
Derivatives may be used to attempt to protect against possible changes in the
market value of securities held or to be purchased for the Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, to
protect the 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 the Fund's portfolio or to establish a
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SALOMON BROTHERS INVESTMENT SERIES
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities or to seek to enhance the Fund's income or gain.
The 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 the
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 the Fund's portfolio securities. The Fund is not 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 the 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 the Fund segregate cash, liquid high
grade debt obligations or other assets to the extent the 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 the Fund, force the
purchase or sale of portfolio securities at inopportune times or for prices
higher or lower than current market values, or cause the Fund to hold a security
it might otherwise sell. The use of currency transactions could result in the
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 the 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. The Fund might not be able to close out certain positions without
incurring substantial losses. To the extent the 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 the 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
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with Derivatives appears in Appendix B to this Prospectus and the Statement of
Additional Information.
The degree of the Fund's use of Derivatives may be limited by certain provisions
of the Code. See 'Taxation.'
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into 'reverse' repurchase
agreements to avoid selling securities during unfavorable market conditions to
meet redemptions. Pursuant to a reverse repurchase agreement, the Fund will sell
portfolio securities and agree to repurchase them from the buyer at a particular
date and price. Whenever the Fund enters into a reverse repurchase agreement, it
will establish a segregated account consisting of liquid assets in an amount at
least equal to the repurchase price marked to market daily (including accrued
interest), and will subsequently monitor the account to ensure that such
equivalent value is maintained. The Fund pays interest on amounts obtained
pursuant to reverse repurchase agreements. Reverse repurchase agreements are
considered to be borrowings by the Fund.
SHORT SALES. The Fund may from time to time sell securities short 'against the
box.' If the Fund enters into a short sale against the box, it will be required
to set aside securities equivalent in kind and amount to the securities sold
short (or securities convertible or exchangeable into such securities at no
additional cost to the Fund) and will be required to hold such securities while
the short sale is outstanding. The Fund will incur transaction costs, including
interest expense, in connection with opening, maintaining, and closing short
sales against the box. If the Fund engages in any short sales against the box,
it will incur the risk that the security sold short will appreciate in value
after the sale, with the result the Fund will lose the benefit of any such
appreciation. The Fund may make short sales both as a form of hedging to offset
potential declines in long positions in similar securities and in order to
maintain portfolio flexibility.
- --------------------------------------------------------------------------------
Multiple Pricing System
The primary distinction between the four classes of Fund shares offered through
this Prospectus lies in their sales charge structures and ongoing expenses, as
summarized below. Each class has distinct advantages and disadvantages for
different investors and investors should choose the class that best suits their
circumstances and objectives.
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. 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 Rule 12b-1
service fee at an annual rate of .25% of their respective average daily net
assets. The annual service fee is compensation for ongoing services provided by
Salomon Brothers, the Fund's distributor (the 'Distributor'), to
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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 Salomon Brothers Cash Management Fund, a
Portfolio of the Investment Series (the 'Cash Management Fund'), and/or the
Salomon Brothers New York Municipal Money Market Fund, also a Portfolio of the
Investment Series (the 'New York Municipal Money Market Fund'), which bear no
CDSC. For example, shares initially purchased as Class B shares of the Cash
Management Fund and the New York Municipal Money Market Fund which are
subsequently exchanged for Class B shares of the Fund will be subject to any
applicable CDSC due at redemption. See 'Shareholder Services -- Exchange
Privilege.' In addition, Class B shares are subject to a Rule 12b-1 distribution
fee at an annual rate of .75% of their respective average daily net assets and a
Rule 12b-1 service fee at an annual rate of .25% of their respective average
daily net assets. 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. 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. Any
CDSC applicable to Class C shares excludes the time the shares were held in the
Cash Management Fund and/or the New York Municipal Money Market Fund. See
'Shareholder Services -- Exchange Privilege.' Class C shares are subject to a
Rule 12b-1 distribution fee at an annual rate of .75% of their respective
average daily net assets and a Rule 12b-1 service fee at an annual rate of .25%
of their respective average daily net assets. Like the service 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
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SALOMON BROTHERS INVESTMENT SERIES
' -- 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. The Fund also offers Class O shares. However, only Class O
shareholders are permitted to purchase Class O shares of the Fund. Class O
Shares are not subject to any sales charge, distribution or service fees.
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
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. If a shareholder effects one or more exchanges among Class B shares
or Class C shares, as the case may be, of the Portfolios of the Investment
Series 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
and the New York Municipal Money Market 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 and/or the New York Municipal Money Market Fund. For example, if Class B
shares of a Portfolio of the Investment Series other than the Cash Management
Fund or the New York Municipal Money Market Fund are exchanged for Class B
shares of the Cash Management Fund or the New York Municipal Money Market Fund
two years after purchase and are subsequently exchanged one year later for Class
B shares of the Fund, the one year of ownership in the Cash Management Fund or
the New York Municipal Money Market 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 and Class C shares may be suspended under
certain limited circumstances, in the event a ruling from the Internal Revenue
Service or an opinion of counsel 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 which the shareholder's order to purchase was
accepted.
FACTORS FOR CONSIDERATION. In evaluating the options offered by the Multiple
Pricing System, investors should consider the foregoing factors, as well as the
following: Class A, Class B and Class C shares all pay an annual Rule 12b-1
service
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SALOMON BROTHERS INVESTMENT SERIES
fee of .25% of average daily net assets, but Class A shares are not subject to
the annual Rule 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 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
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SALOMON BROTHERS INVESTMENT SERIES
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.
Dividends paid by the 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 the Fund may be exchanged for
shares of the same class of any other Portfolio of the Investment Series, but
not for shares of other classes of other Portfolios of the Investment Series.
See 'Shareholder Services -- Exchange Privilege.'
- --------------------------------------------------------------------------------
Investment Limitations
The following investment restrictions and those described in the Statement of
Additional Information are fundamental policies applicable to the Fund which may
be changed only when permitted by law and approved by the holders of a majority
of the 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 the Fund's investment objective, the other policies
and percentage limitations referred to in this Prospectus and in the Statement
of Additional Information are not fundamental policies of the Fund and may be
changed by the Series Funds' 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.
The Fund may not:
(1) purchase securities of any issuer if the purchase would cause more than 5%
of the value of the 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 the Fund, except that up
to 25% of the value of the Fund's total assets may be invested without regard
to this restriction and provided that the 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 the Fund;
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SALOMON BROTHERS INVESTMENT SERIES
(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 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 (the Fund
will not purchase additional securities at any time its borrowings exceed 5% of
total assets, provided, however, that the 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 the Fund while such borrowings are outstanding); or
(3) invest more than 25% of the total assets of the 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 the Fund), provided, however, that the 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 the
Fund.
For purposes of investment limitations (1) and (3) above, both the borrower
under a Loan and the Lender selling a Participation will be considered an
'issuer.' See 'Additional Investment Activities and Risk Factors -- Loan
Participations and Assignments.'
The Fund may, in the future, seek to achieve its investment objective 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 and policies and substantially the same investment
restrictions as those applicable to the 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 the Fund are managed under the direction of the
Series Funds' Board of Directors. The Board of Directors approves all
significant agreements between the Fund and the persons or companies that
furnish services to the Fund, including agreements with its distributor,
investment manager, sub-adviser, administrator, custodian and transfer agent.
The day-to-day operations
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SALOMON BROTHERS INVESTMENT SERIES
of the 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 the Series Funds.
INVESTMENT MANAGER
The Fund retains SBAM, a wholly owned subsidiary of Salomon Brothers Holding
Company Inc, which is in turn wholly owned by Salomon Inc ('SI'), as its
investment manager under an investment management contract to manage the Fund's
investment program, operations and related matters. SBAM was incorporated in
1987 and together with affiliates in London, Frankfurt, Tokyo and Hong Kong,
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. In providing
such services, SBAM has access to SI's more than 400 economists and analysts.
As of July 31, 1997, SBAM and its worldwide investment advisory affiliates
managed approximately $24.2 billion of assets. Michael S. Hyland serves as
President of SBAM. SBAM's business offices are located at 7 World Trade Center,
New York, New York 10048.
Pursuant to a subadvisory agreement, SBAM has delegated to the Sub-Adviser,
whose business address is 10500 N.E. 8th Street, Suite 660, Bellevue, WA 98004,
the responsibility for daily portfolio management of the Fund, subject to the
supervision of SBAM. The Sub-Adviser, which is affiliated with SBAM as a result
of SBAM's indirect minority investment in it, is compensated by SBAM at no
additional cost to the Fund. The Sub-Adviser is owned 80% by individuals who
serve the Sub-Adviser in key professional capacities and 20% by Salomon Brothers
Asset Management G.P., Inc, an indirect wholly-owned subsidiary of SBAM. The
Sub-Adviser, which was organized in 1997, is registered as an investment
adviser in the United States pursuant to the Investment Advisers Act of 1940, as
amended.
Theodore J. Tyson is primarily responsible for the day-to-day management of the
Fund. Mr. Tyson is the Chief Investment Officer and a Senior Manager of the Sub-
Adviser. Prior to forming the Sub-Adviser in April 1997, Mr. Tyson was a Vice
President and Portfolio Manager of Investors Research Corporation. While at
Investors Research Corporation, Mr. Tyson founded the international equity
investment area for American Century Investors and headed the area for American
Century until his departure. Mr. Tyson served as a portfolio manager of the
Twentieth Century International Growth Fund from its inception in May 1991
through March 1997 and as a portfolio manager of the Twentieth Century
International Discovery Fund from its inception in April 1994 through March
1997.
Subject to a policy established by the Board of Directors, which has overall
responsibility for the business and affairs of the Fund, and subject to the
supervision of SBAM, the Sub-Adviser manages the investment and reinvestment of
the Fund's assets pursuant to the subadvisory agreement. In addition to
supervising the Fund's investment program, SBAM furnishes office space,
personnel and certain facilities required for the performance by SBAM of certain
additional services provided by it to the Fund under the management contract,
including supervision of Fund operations, certain administrative and clerical
services, SEC compliance and monitoring the performance of the Fund's outside
service providers. In addition, SBAM pays the compensation of the Fund's
officers, employees and directors affiliated with SBAM. Except for the expenses
paid by SBAM that are described herein, the Fund bears all costs of its
operations.
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SALOMON BROTHERS INVESTMENT SERIES
As compensation for its services, the Fund pays SBAM a monthly fee at an annual
rate of % of the Fund's average daily net assets. For the 1998 fiscal year,
SBAM has voluntarily agreed to impose an expense cap on total Fund operating
expenses (exclusive of taxes, interest and extraordinary expenses such as
litigation and indemnification expenses) at % of the Fund's total Fund
operating expenses. See 'Expense Information -- Annual Fund Operating Expenses.'
SBAM pays the Sub-Adviser, from its investment management fee, as full
compensation for its services provided under the subadvisory agreement, a
subadvisory fee at an annual rate of .25% of the Fund's average daily net
assets.
SBAM may waive all or part of its fee from time to time in order to increase the
Fund's net investment income available for distribution to shareholders. The
Fund 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 the Fund attributable to shares of the Fund held by
customers of such selected dealers.
The services of SBAM and the Sub-Adviser 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 (whether or not their investment objectives and policies are
similar to those of the Fund) or from engaging in other activities.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers (the 'NASD'), and subject to seeking the most favorable
price and execution available, the investment manager may consider sales of
shares of the Fund as a factor in the selection of brokers to execute portfolio
transactions for the Fund. The Fund may use Salomon Brothers and its affiliates
to execute portfolio transactions when the investment manager 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 Fund's policies with respect to portfolio
transactions.
DISTRIBUTOR
Salomon Brothers, located at 7 World Trade Center, New York, New York 10048,
serves as the Fund's distributor. Salomon Brothers is a wholly-owned subsidiary
of Salomon Brothers Holding Company Inc, which is in turn wholly-owned by SI.
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 the Fund in connection with
the execution of portfolio transactions on behalf of the Fund. See 'Purchase of
Shares -- Distribution Fees.'
ADMINISTRATOR
The Fund employs [ ] (the 'Administrator') under an
administration agreement to provide certain administrative services. The
Administrator is not involved in the Fund's investment decisions.
[The services provided by the Administrator under the applicable administration
agreements include certain
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SALOMON BROTHERS INVESTMENT SERIES
accounting, clerical and bookkeeping services, Blue Sky reports, corporate
secretarial services and assistance in the preparation and filing of tax
returns and reports to shareholders and the SEC. For its services, the Fund
pays the Administrator a fee, calculated daily and payable monthly, at an
annual rate of % of the Fund's aggregate average daily net assets.]
EXPENSES
The 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. The Fund also pays for
brokerage fees and commissions 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.
- -------------------------------------------------------------------------
Determination
of Net Asset Value
For the purpose of pricing purchase and redemption orders, the net asset value
per share of each class of the Fund is calculated separately and is determined
once daily as of the close of regularly scheduled trading on the NYSE. With
respect to the 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, Martin
Luther King, Jr. 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 the 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 the Series Funds' 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
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SALOMON BROTHERS INVESTMENT SERIES
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 the 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. Corporate actions by issuers of foreign securities
held by the Fund, such as payment of dividends or distributions, are reflected
in the net asset value on the ex-dividend date therefor, except that such
actions will be so reflected on the date the Fund is actually advised of the
corporate action if subsequent to the ex-dividend date. Further information
regarding the Fund's valuation policies is contained in the Statement of
Additional Information.
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Purchase of Shares
Shares of the Fund may be purchased through First Data Investor Services Group,
Inc. ('Investor Services Group') (the 'Transfer Agent') or from selected
dealers. Purchases of shares made through a selected dealer should be made in
accordance with the procedures prescribed by such selected dealer. The Fund
reserves the right to reject any purchase order in whole or in part.
HOW TO OPEN AN ACCOUNT AND PURCHASE SHARES
Shares may be purchased initially by completing a Purchase Application and
mailing it, together with a check payable to Salomon Brothers Funds to:
Salomon Brothers International Growth Fund
c/o Investor Services Group
P.O. Box 5127
Westborough, MA 01581-5127
Initial purchases of Fund shares may not be made by third party checks.
Subsequent investments may be made at any time through a selected dealer or by
mailing a check to Investor Services Group, 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 Investor Services Group will charge a fee of
$10 to the shareholder's account. Investor Services Group does not intend to
resubmit such checks for collection.
Subsequent investments may also be made by wiring federal funds to Investor
Services Group. Prior notification by telephone is not required. The investor
should instruct the wiring bank to transmit the specified amount in federal
funds to:
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SALOMON BROTHERS INVESTMENT SERIES
Boston Safe Deposit and Trust Company
Boston, Massachusetts
ABA No. 011-001-234
Account #142743
Attn: Salomon Brothers International
Growth Fund
Name of Account:
Account # (As assigned):
Shareholders should note that their bank may charge a fee in connection with
transferring money by bank wire.
To ensure prompt credit to their accounts, investors or their dealers should
call (800) 446-1013 with a reference number for the wire. If wires are received
after 4:00 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 Fund.
MINIMUM INVESTMENT
The minimum initial investment in any class of shares in the 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 the 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 the Fund, investors must specify the class of shares.
The 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 received by selected dealers by the close
of regular trading on the NYSE (currently, 4:00 p.m., New York time) on any day
that the 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 Investor Services Group, through the facilities of
the National Securities Clearing Corporation ('NSCC') by 8:00 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. 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 Investor Services Group
through the facilities of the 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 'How to Open an Account and Purchase Shares' above 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.
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 are issued for fractional shares.
MULTIPLE PRICING SYSTEM
The Fund currently offers three classes of shares to the general public through
the
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Multiple Pricing System. Although the Class A, Class B and Class C shares of the
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 the Fund are sold with a front-end sales charge and may, under limited
circumstances, be subject to a CDSC upon redemption. Class B shares and Class C
shares of the Fund are sold without a front-end sales charge but may be subject
to a CDSC upon redemption. 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 the 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. However, when
Class A shares of the Cash Management Fund or the New York Municipal Money
Market Fund on which no sales charge has been paid or waived are exchanged for
Class A shares of the Fund, the sales charge applicable to purchases of Class A
shares will be assessed at that time.
CLASS A SALES CHARGE TABLE
<TABLE>
<CAPTION>
CONCESSION TO
PERCENTAGE OF BROKER-DEALER AS
AMOUNT OF PERCENTAGE OF THE NET AMOUNT A PERCENTAGE OF
PURCHASE PAYMENT THE OFFERING PRICE INVESTED OFFERING 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
PAGE 29
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SALOMON BROTHERS INVESTMENT SERIES
determined to reallow the entire front-end sales charge to dealers for sales of
Class A shares until further notice.
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 Portfolios of the Investment Series, excluding Class A shares
purchased or held in the Cash Management Fund or the New York Municipal Money
Market Fund. Also, for purposes of the foregoing calculation, Class A shares
(excluding Class A shares purchased or held in the Cash Management Fund or the
New York Municipal Money Market 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 Fund and other
Portfolios of the Investment Series 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 or the New York Municipal Money Market
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.
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 the 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 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
PAGE 30
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
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 the Fund and the members, and must agree to include sales
and other materials related to the Fund 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 the Series Funds 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 that utilizes a Selling
Broker to clear purchases of the Fund's 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, any accounts established on behalf of
registered investment advisers or their clients by broker-dealers that charge a
transaction fee and 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 the 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
will be paid by the Distributor to broker-dealers at the time of sale.
CLASS C SHARES
Class C shares of the 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 shares will be paid by the
PAGE 31
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
Distributor to broker dealers at the time of sale.
CLASS O SHARES
Class O shares of the Fund are available only to current holders of Class O
shares in Portfolios of the Investment Series. Class O shares are not subject
to any sales charges.
DISTRIBUTION FEES
Each class of the 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 promulgated 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 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 respect to Class
B and Class C shares of the 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 Fund's 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 Fund's
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 the 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%
of the purchase price and a quarterly trail fee at an annual rate of .25% which
will begin to accrue 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 quarterly trail fee at an annual
rate of .90% which will begin to accrue 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 quarterly trail commission at an
annual rate of .25% which will begin to accrue immediately after settlement.
Sales personnel of broker/dealers distributing the Fund's shares and any other
persons entitled to receive compensation for selling or servicing the 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
PAGE 32
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
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.
The Plans provide that Salomon Brothers may make payments to assist in the
distribution of the Fund's shares out of the other fees received by it or its
affiliates from the 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 Fund. 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 Fund 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 amounts of shares. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of the Fund's shares or the
amount that the Fund will receive as proceeds from such sales. Dealers may not
use sales of the Fund's 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.
---------------
Under certain circumstances, certain broker/dealers may impose additional
transaction fees on the purchase and/or sale of shares.
- --------------------------------------------------------------------------------
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.
PAGE 33
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
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 the 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 exists, as defined by rules of the SEC, making disposal of portfolio
securities or determination of the value of the net assets of the Fund not
reasonably practicable.
No redemption requests will be processed until the 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. The 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. Redemption 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), or transmitted by the dealer
to Investor Services Group through the facilities of the NSCC by 8:00 p.m. New
York time, are effective that day. Otherwise, the shares will be redeemed at
the applicable net asset value next determined. 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 redemption arrangement is discretionary and
may be withdrawn or modified at any time.
REDEMPTION BY MAIL
Shares may be redeemed by mail by submitting the following documents:
(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: (i) the proceeds are to be paid to someone other than the registered
owner(s) of the shares redeemed; (ii) are to be wired to a bank; or (iii) are
to be sent to other than the registered address. The Transfer Agent has adopted
standards and procedures pursuant to which signature guarantees in proper form
generally will be accepted from domestic banks, brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations, as well as from participants in the
New York Stock Exchange Medallion Signature Program, the Securities Transfer
Agents Medallion Program ('STAMP') and the Stock Exchanges Medallion Program.
Stockholders with any questions regarding signature-guarantees should call the
telephone number listed on the cover; 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.
PAGE 34
<PAGE>
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SALOMON BROTHERS INVESTMENT SERIES
TO EXPEDITE PROCESSING OF REDEMPTIONS BY MAIL, SHAREHOLDERS SHOULD SUBMIT
REDEMPTION REQUESTS AND ALL RELATED DOCUMENTS DIRECTLY TO FIRST DATA INVESTOR
SERVICES GROUP, INC., P.O. BOX 5127, WESTBOROUGH, MA 01581-5127.
Checks for redemption proceeds will be mailed within seven days after redemption
to the shareholder's address of record on file with the Transfer Agent unless
other instructions in proper form are received.
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.
TELEPHONE REDEMPTION PRIVILEGE
Shareholders having direct accounts with Investor Services Group 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
Investor Services Group.
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. The 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 Fund. Neither the Fund nor Investor Services Group 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. The
Fund and Investor Services Group will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. The Fund and/or
Investor Services Group may be liable for any losses due to unauthorized or
fraudulent instructions if they do not follow such 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 Investor Services Group for further information.
You may either:
Telephone the redemption request to Investor Services Group at (800) 446-1013
or mail the request to Investor Services Group at the following address:
Salomon Brothers International Growth Fund
c/o Investor Services Group
P.O. Box 5127
Westborough, MA 01581-5127
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
PAGE 35
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SALOMON BROTHERS INVESTMENT SERIES
guaranteed. Checks for redemption proceeds of less than $500 will be mailed to
the shareholder's address of record.
Shareholders should note that their bank may charge a fee in connection with
transferring money by bank wire.
SMALL ACCOUNTS
Under the Fund's present policy, it reserves the right to redeem upon not less
than 30 days' notice, the shares in an account which have 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. Shares initially
purchased in the Cash Management Fund or the New York Municipal Money Market
Fund which are subsequently exchanged for shares of the Fund will be subject to
any applicable CDSC due at redemption. Shares of the Fund may be exchanged for
shares of any other Portfolio of the Investment Series 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 and the New York Municipal Money
Market 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 the Fund are
held in the Cash Management Fund and/or the New York Municipal Money Market
Fund. For example, if shares of the Fund are exchanged for shares of the Cash
Management Fund or the New York Municipal Money Market 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 the Fund's right
to liquidate 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 mandatory post-retirement distributions and withdrawals from
retirement plans or IRAs; (g) redemption proceeds from other Portfolios of the
Investment Series that are reinvested within 60 days of the
PAGE 36
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
redemption (see 'Shareholder Services -- Reinstatement Privilege'); (h) certain
redemptions of shares of the 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 Salomon Brothers or 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.
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. 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
YEAR(S) SINCE PURCHASE ORDER SUBJECT TO 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.
- --------------------------------------------------------------------------------
Performance Information
From time to time, the Fund may advertise its standardized and nonstandardized
'average annual total return' over various periods of time. Total return is
computed separately for each class of shares of the Fund. Total return figures
show the average annual percentage change in value of an investment in the Fund
from the beginning date of the measuring period to
PAGE 37
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
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 the Fund during the period were reinvested in shares of
the same class. Total return figures for the Fund's Class A shares include the
maximum initial 4.75% 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 the 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 the 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 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.
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, including,
but not limited to, Bank Rate Monitor, Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune, ICB Donaghue's Money Fund
Report, Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. Performance
figures are based on historical earnings and are not intended to indicate future
performance. See 'Performance Data' in the Statement of Additional Information.
PAGE 38
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund will declare dividends from net investment income annually and pay them
annually.
Net investment income is the Fund's investment company taxable income, as that
term is defined in the Code, determined without regard to the deduction for
dividends paid. Net investment income generally includes all taxable income of
the Fund other than net realized long-term capital gains.
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 the Fund are more than the maximum fees payable by the 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
the Fund and the per share dividends on Class A shares of the Fund will
generally be higher than those on Class B and Class C shares.
The Fund distributes annually any 'net capital gain' (i.e., the excess of the
Fund's net realized long-term capital gains over net realized short-term
capital losses) from the sale of securities.
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, the
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, the Fund's total distributions exceed net
investment income and net capital gain, 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 and other applicable laws,
a notice will accompany any distribution paid from sources other than net
investment income. In the event the Fund distributes amounts in excess of its
net investment income and net capital gain, such distributions may have the
effect of decreasing the Fund's total assets, which may increase the Fund's
expense ratio.
Dividend and/or capital gain distributions will be reinvested automatically in
additional shares of the same class of the 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 Investor Services Group, by notice sent to P.O. Box
5127, Westborough, Massachusetts 01581-5127, that he or she wishes to receive
such dividends or distributions in cash directly from Investor Services Group.
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 Investor Services Group. Shareholders may change the
distribution option at any time by mailing written notification to Investor
Services Group at the above address or by calling (800) 446-1013 prior to the
record date of any such dividend or distribution.
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Taxation
FEDERAL INCOME TAX MATTERS. The Fund intends to qualify and elect to be treated
as a regulated investment company under Subchapter M of the Code. If it so
qualifies, the Fund will not be subject to U.S. federal income taxes on its net
investment income and net capital gain, if any, that it distributes to its
shareholders in each taxable year, provided that it distributes to its
shareholders at least 90% of its net investment income for such taxable year. If
in any year the Fund fails to qualify as a regulated investment company, the
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.
The 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.
The Fund is subject to a nondeductible 4% excise tax calculated as a percentage
of certain undistributed amounts of ordinary income and capital gain net income.
To the extent possible, the 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 the Fund of net investment
income will be taxable to shareholders whether paid in cash or reinvested in
additional shares. For federal income tax purposes, distributions of net
investment income (which includes the excess of the Fund's net realized
short-term capital gains over net realized long-term capital losses), are
taxable to shareholders as ordinary income.
Distributions of net capital gains designated by the 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. It is not expected that a significant portion of the Fund's
dividends will qualify for the dividends received deduction available to
corporations. Under recently enacted legislation, the maximum rate of tax on
long-term capital gains of individuals will generally be reduced from 28% to 20%
(10% for gains otherwise taxed at 15%) for long-term capital gains realized
after July 28, 1997 with respect to capital assets held for more than 18 months.
Additionally, beginning after December 31, 2000, the maximum tax rate for
capital assets with a holding period beginning after that date and held for more
than five years will be 18%. Under a literal reading of the legislation, capital
gain dividends paid by a regulated investment company would not appear eligible
for the reduced capital gain rates. However, the legislation authorizes the
Treasury Department to promulgate regulations that would apply the new rates to
capital gain dividends paid by a regulated investment company. 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 will be taxable even
though the net asset value of shares of the Fund is reduced by the distribution.
The Fund may be required to pay withholding or other taxes to foreign
governments on dividends and interest. If the Fund qualifies as a regulated
investment company, the distribution requirements are met, and if more than 50%
in value of the Fund's total assets at the close of any taxable year consists of
stocks or securities of foreign corporations,
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SALOMON BROTHERS INVESTMENT SERIES
the Fund may elect to treat any foreign income taxes paid by it that can be
treated as income taxes under U.S. federal income tax regulations as paid by its
shareholders. The Fund expects to qualify for this election.
The redemption, sale or exchange of shares of the 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 the Fund will be taxed
as capital gain or loss if the shares are capital assets in the shareholder's
hands. If a shareholder sells or otherwise disposes of shares of the 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 the 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.
The Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in the stock of
passive foreign investment companies or securities 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 the 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 the Fund,
the Fund may be required to borrow money or dispose of other securities to be
able to make distributions to its investors. 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.
The Fund may be required to withhold federal income tax at a rate of 31%
('backup withholding') from 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.
Depending on the residence of the shareholder for tax purposes, distributions
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SALOMON BROTHERS INVESTMENT SERIES
may also be subject to state and local taxes or withholding 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 the 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 the Fund.
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Shareholder Services
The 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 the 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.
AUTOMATIC DIVIDEND DIVERSIFICATION ('ADD')
The ADD program allows an investor to have all dividends and any other
distributions from the Fund automatically used to purchase shares of the same
class of any other Portfolio of the Investment Series. The receiving account
must be in the same name as the investor's existing account. The purchase of
shares of the Portfolio of the Investment Series receiving the cross-investment
of the dividends will be made using the net asset value at the close of business
of the dividend payable date.
SYSTEMATIC INVESTING
An investor may request that shares of any class of the Fund be exchanged
monthly for shares of the same class of any other Portfolio of the Investment
Series. 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.'
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EXCHANGE PRIVILEGE
Shareholders of the Fund may exchange all or part of their shares for shares of
the same class of any other Portfolio of the Investment Series, 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 the 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 Portfolio of the Investment
Series. Fund shares may be exchanged for shares of any of the following
Portfolios:
SALOMON BROTHERS 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.
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND. The objective of the New
York Municipal Money Market Fund is to seek as high a level of current income
exempt from federal, New York State and New York City personal income taxes as
is consistent with liquidity and the stability of principal. The Fund seeks to
achieve its objective by investing primarily in high-quality, short-term
municipal obligations issued by or on behalf of the State of New York or by its
instrumentalities or political subdivisions, the interest on which is exempt
from federal, New York State and New York City personal income taxes. The Fund
seeks to maintain a stable net asset value of $1.00 per share.
SALOMON BROTHERS 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 investment grade
municipal obligations.
SALOMON BROTHERS 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.
SALOMON BROTHERS HIGH YIELD BOND FUND. The objective of the High Yield Bond Fund
is to maximize current income. As a secondary objective, the Fund seeks capital
appreciation. The Fund seeks to achieve its objectives by investing primarily in
a diversified portfolio of high yield fixed-income securities rated in medium or
lower rating categories or determined by its investment manager to be of
comparable quality.
SALOMON BROTHERS 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 its 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.
SALOMON BROTHERS 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
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SALOMON BROTHERS INVESTMENT SERIES
objectives primarily through investments in a broad variety of securities,
including equity securities, fixed-income securities and short-term obligations.
SALOMON BROTHERS ASIA GROWTH FUND. The Asia Growth Fund's objective is long-term
capital appreciation. The Fund seeks to achieve its objective by investing at
least 65% of its total assets in equity and equity-related securities of
companies organized under the laws of Bangladesh, China, Hong Kong, India,
Indonesia, Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka,
Taiwan, Thailand or any other country in the Asian region (other than Japan,
Australia and New Zealand) that currently or in the future permits foreign
investment.
SALOMON BROTHERS SMALL CAP GROWTH FUND. The investment objective of the Small
Cap Growth Fund is long-term growth of capital. The Fund will seek to meet its
objective by investing primarily in securities of U.S. issuers with market
capitalizations of less than $1 billion at the time of initial purchase.
SALOMON BROTHERS 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.
SALOMON BROTHERS CAPITAL FUND. The objective of the Capital Fund is to seek
capital appreciation through investments primarily in common stock, or
securities convertible into common stocks, which are believed to have
above-average price appreciation potential and which may also involve
above-average risk. Current income is an incidental consideration.
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 and/or the New York Municipal Money
Market Fund. For example, if shares of the Fund subject to a CDSC are exchanged
for shares of the Cash Management Fund or the New York Municipal Money Market
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 or New York Municipal Money Market Fund shares are
exchanged for shares of the Fund, the CDSC becomes applicable to those shares
commencing at the time of exchange. If such shares are subsequently redeemed,
only time of ownership spent in Portfolios of the Investment Series that impose
a CDSC counts toward determining the applicable CDSC.
The 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 the Fund. Neither the Fund nor Investor
Services Group 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 Fund and Investor Services Group may employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
The Fund and/or Investor Services Group may be liable for any losses due to
unauthorized or fraudulent instructions if they do not follow such 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 the Fund for shares of another Portfolio is treated
for
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SALOMON BROTHERS INVESTMENT SERIES
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 Portfolio being acquired may be legally sold. Each
Portfolio reserves the right to reject any exchange request. The exchange
privilege may be modified or terminated at any time upon written notice to
shareholders.
AUTOMATIC WITHDRAWAL PLAN
A shareholder may establish a plan for redemptions to be made automatically at
monthly or quarterly 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
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. 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 the date selected by the shareholder on the
account application (or the next business day if the selected day falls on a
weekend or holiday) or on the 10th day of the month if no date is selected, 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 the
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 Portfolio of the
Investment Series 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 the Fund and/or certain other
mutual funds managed by SBAM. Shareholders should consult with a financial
adviser regarding such plan.
INDIVIDUAL RETIREMENT ACCOUNTS
A prototype Individual Retirement Account ('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
Fund may be invested in shares of the 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 the Fund are kept informed through semi-annual reports showing
current investments and other financial data for the Fund. Annual reports for
the Fund includes audited financial statements. Shareholders of the Fund will
receive a Statement of Account following each share transaction. Shareholders
can write or call the Fund at the address and telephone number on the first page
of this Prospectus with any questions relating to their investment in shares of
the 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 eleven series of shares, each representing shares in one of Salomon
Brothers' separate investment portfolios; namely, the Fund, Salomon Brothers
National Intermediate Municipal
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SALOMON BROTHERS INVESTMENT SERIES
Fund, Salomon Brothers U.S. Government Income Fund, Salomon Brothers High Yield
Bond Fund, Salomon Brothers Strategic Bond Fund, Salomon Brothers Total Return
Fund, Salomon Brothers Small Cap Growth Fund, Salomon Brothers Asia Growth Fund,
Salomon Brothers Cash Management Fund, Salomon Brothers New York Municipal Money
Market Fund and Salomon Brothers Institutional Money Market Fund (formerly, the
U.S. Treasury Securities Money Market Fund). The Fund and the Salomon Brothers
Small Cap Growth Fund are newly organized portfolios of the Series Funds. The
assets of each Portfolio of the Series Funds 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. As of the date of this Prospectus, Salomon
Brothers Holding Company Inc, the parent company of SBAM, owns all of the
outstanding shares of the Fund and consequently is deemed to be a 'control
person,' as defined in the 1940 Act, of the Fund. Shares of each class of the
Fund represent interests in the Fund in proportion to each share's net asset
value. The per share net asset value of each class of shares in the 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 the 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 the Fund will, when issued, be fully paid and
nonassessable. The Fund will not issue any senior securities. Under the
corporate law of Maryland, the state of incorporation of the Series Funds, and
the By-Laws of the Series Funds, the Series Funds is not 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 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 to
a 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.
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SALOMON BROTHERS INVESTMENT SERIES
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.
S&P's CORPORATE BOND RATINGS
AAA -- This is the highest rating assigned by S&P 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 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
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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 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.
S&P's 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.
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 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 the 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 the Fund. However, the 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 or S&P may change as a result of changes in such organizations or
their rating systems, the 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 the Fund follows below. The 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, the purchase and sale of indexed debt securities or
trading in other similar types of instruments.
The Fund's ability to pursue certain of these strategies may be limited by the
Commodity Exchange Act, as amended, applicable regulations of the 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 of the obligation to buy, the underlying
security, index, currency or other instrument at the exercise price. The 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. The 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 performance of the
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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.
The 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.
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. The 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 the
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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 the Fund and
the amount of the 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 the 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 the Fund.
The 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 the 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
the 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.
The 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.
The 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, the 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
The 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 the 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.
The 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 fluctuates.
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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.
The 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
The 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
The 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 difference among two or more currencies and
operates similarly to an interest rate swap, which is
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described below under 'Swaps, Caps, Floors and Collars.' The 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. The 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.
The 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, the 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 the 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
The 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 the 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
The Fund may enter into interest rate, currency and equity swaps, the purchase
or sale of related caps, floors and collars and other similar arrangements. The
Fund will enter into these transactions primarily to seek to preserve a return
or spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a
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SALOMON BROTHERS INVESTMENT SERIES
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 notional 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.
The 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. The 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 percentage restriction on investments in
securities that are not readily marketable.
The Fund will maintain cash, cash equivalents or other appropriate liquid
assets (i.e., high grade debt securities) in a segregated custodial account to
cover its current obligations under swap agreements. If the 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 the 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.
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INDEXED SECURITIES
The Fund may purchase securities whose prices are indexed to the prices of other
securities, securities indices, currencies, or other financial indicators.
Indexed securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Currency-indexed securities typically are short-term
to intermediate-term debt securities whose maturity values or interest rates
are determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign currency-denominated instrument, or their maturity value
may decline when foreign currencies increase, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
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 the 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 the 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 the
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, the Fund might not be able to close out a transaction without incurring
substantial losses. Although the 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 the 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 ongoing 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 the
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 the 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 the 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. To the extent
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the 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.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the 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 the 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 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.
Because the amount of interest and/or principal payments which the issuer of
indexed debt securities is obligated to make is linked to the prices of other
securities, securities indices, currencies, or other financial indicators, such
payments may be significantly greater or less than payment obligations in
respect of other types of debt securities. As a result, an investment in
indexed debt securities may be considered speculative. Moreover, the
performance of indexed securities depends to a great extent on the performance
of and may be more volatile than the security, currency, or other instrument to
which they are indexed, and may also be influenced by interest rate changes in
the United States and abroad. At the same time, indexed securities are subject
to the credit risks associated with the issuer of the security, and their
values may decline substantially if the issuer's creditworthiness deteriorates.
Losses resulting from the use of Derivatives will reduce the 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
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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 the Fund will require, among other things, that the
Fund segregate cash, cash equivalents, 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 the 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, cash equivalents or other 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 the 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 the 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 the Fund will require the
Fund to segregate liquid high grade debt obligations equal to the exercise
price. Except when the 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 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 the 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 the 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 the 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, the 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. The 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
PAGE B-9
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
segregate with its custodian, or designated sub-custodian, an amount of cash,
cash equivalents or other 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. The 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. The 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
contract or forward contract, the 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-10
<PAGE>
<PAGE>
FOR CUSTOMER SERVICE
(800) 446-1013
FOR BROKER/DEALER INQUIRIES
(800) SALOMON
(800) 725-6666
Dial 11 for a representative
DISTRIBUTOR
Salomon Brothers Inc
7 World Trade Center
New York, New York 10048
INVESTMENT MANAGER
Salomon Brothers Asset
Management Inc
7 World Trade Center
New York, New York 10048
SUB-ADVISER
Mastholm Asset Management, L.L.C.
10500 N.E. 8th Street, Suite 660
Bellevue, WA 98004
CUSTODIAN
[ ]
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
First Data Investor Services Group, Inc.
P.O. Box 5127
Westborough, Massachusetts 01581-5127
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
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 THE FUND, THE DISTRIBUTOR, THE INVESTMENT MANAGER OR
THE SUB-ADVISER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-----------------------------------------------
SALOMON BROTHERS ASSET MANAGEMENT
-----------------------------------------------
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1997
- ------------------------------------------------------------------------------
Salomon Brothers
Small Cap Growth Fund
7 WORLD TRADE CENTER NEW YORK, NEW YORK 10048 [(800) 446-1013]
SALOMON BROTHERS SMALL CAP GROWTH FUND (THE 'FUND') IS A DIVERSIFIED INVESTMENT
PORTFOLIO OF SALOMON BROTHERS SERIES FUNDS INC, AN OPEN-END MANAGEMENT
INVESTMENT COMPANY ('SERIES FUNDS'). THE FUND, TOGETHER WITH OTHER INVESTMENT
PORTFOLIOS OF SERIES FUNDS AND OTHER INVESTMENT COMPANIES (EACH A 'PORTFOLIO'),
IS INCLUDED AS PART OF THE SALOMON BROTHERS INVESTMENT SERIES (THE 'INVESTMENT
SERIES'). THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE
FUND WILL SEEK TO MEET ITS OBJECTIVE BY INVESTING PRIMARILY IN SECURITIES OF
U.S. ISSUERS WITH MARKET CAPITALIZATIONS OF LESS THAN $1 BILLION AT THE TIME OF
INITIAL PURCHASE. THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS
INVESTMENT OBJECTIVE. THIS PROSPECTUS CONTAINS INFORMATION RELATING ONLY TO THE
FUND. FOR A PROSPECTUS AND INFORMATION REGARDING THE OTHER PORTFOLIOS COMPRISING
THE INVESTMENT SERIES, [CALL (800) 446-1013].
------------------------------------------------------------------
THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE
AND THE FUND MAY EMPLOY CERTAIN INVESTMENT PRACTICES WHICH INVOLVE SPECIAL RISK
CONSIDERATIONS. SEE 'ADDITIONAL INVESTMENT ACTIVITIES AND RISK FACTORS.'
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund and should be read and retained for
future reference. A Statement of Additional Information dated January 2, 1998
containing additional information about the Fund (the 'Statement of Additional
Information') has been filed with the Securities and Exchange Commission (the
'SEC') and is incorporated herein by reference. It is available without charge
and can be obtained by writing to the Fund at the address, or by calling the
toll-free telephone number, listed above. The SEC maintains a Web site at
http://www.sec.gov that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.
------------------------------------------------------------------
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
JANUARY 2, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
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 STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Page 1
<PAGE>
<PAGE>
- ------------------------------------------------------------------------------
Table of Contents
Summary 3
Expense Information 6
Investment Objectives and Policies 8
Additional Investment Activities and Risk
Factors 10
Multiple Pricing System 17
Investment Limitations 21
Management 22
Determination of Net Asset Value 24
Purchase of Shares 25
Redemption of Shares 32
Performance Information 36
Dividends and Distributions 37
Taxation 38
Shareholder Services 41
Account Services 45
Capital Stock 45
Appendix A A-1
Appendix B B-1
PAGE 2
<PAGE>
<PAGE>
- -----------------------------------------------------------------
Summary
THE FUND
The Fund is a newly organized investment portfolio of the Series Funds, an open-
end investment company incorporated in Maryland on April 17, 1990. The Fund is
classified as a diversified Fund under the Investment Company Act of 1940, as
amended (the '1940 Act').
THE FUND'S OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term growth of capital. The Fund
will seek to meet its objective by investing primarily in securities of U.S.
issuers with market capitalizations of less than $1 billion at the time of
initial purchase.
There can be no assurance that the Fund will achieve its investment objective.
See 'Investment Objectives and Policies.'
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc ('SBAM'), an affiliate of Salomon
Brothers Inc ('Salomon Brothers'), is the Fund's investment manager. SBAM also
serves as investment manager to other investment companies and numerous
individuals and institutions. See 'Management.'
RISK FACTORS
Prospective investors should consider certain risks associated with an
investment in the Fund. The Fund may use various investment practices that
involve special considerations, including investing in smaller capitalized
companies, foreign securities, high yield and/or illiquid securities (including
emerging markets securities), warrants, entering into repurchase and reverse
repurchase agreements, entering into securities transactions on a firm
commitment or when issued basis, engaging in short sales, lending portfolio
securities and high portfolio turnover rates. The Fund may engage in
derivatives trading, which involve special risks. See 'Investment Objective and
Policies' and 'Additional Investment Activities and Risk Factors.'
PURCHASE OF SHARES
Shares of the 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 of the 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 the 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 the
Automatic Investment Plan, Automatic Dividend Diversification and Systematic
Investing. See 'Purchase of Shares' and 'Shareholder Services.'
REDEMPTION OF SHARES
The 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. See 'Redemption of Shares.'
PAGE 3
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
CLASSES OF SHARES
The 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, the Fund offers Class O shares for sale only to existing Class O
shareholders in Portfolios of the Investment Series. 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%. In addition, Class A shares
are subject to an ongoing Rule 12b-1 service fee at an annual rate of .25% of
their respective average daily net assets. 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. 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 Rule
12b-1 distribution fee at an annual rate of .75% of their respective average
daily net assets and an ongoing Rule 12b-1 service fee at an annual rate of
.25% of their respective average daily net assets. Class B shares will
automatically convert, based upon relative net asset value, to Class A shares
of the 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. 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 Rule 12b-1 distribution fee
at an annual rate of .75% of their respective average daily net assets and an
ongoing Rule 12b-1 service fee at an annual rate of .25% of their respective
average daily net assets. Class C shares will automatically convert, based upon
relative net asset value, to Class A shares of the Fund ten years after
purchase. Upon conversion, these shares will no longer be subject to an annual
distribution fee.
CLASS O SHARES. The 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 Rule 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
The Fund will declare dividends from net investment income annually and pay them
annually. The Fund will pay net realized long-term capital gains annually. It is
PAGE 4
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
anticipated that the expenses incurred by each class of shares of the 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 the 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. See 'Multiple
Pricing System' and 'Dividends and Distributions.'
The information in the Summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus and in the
Statement of Additional Information.
PAGE 5
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Expense Information
The Fund offers multiple classes of shares. Each share of the 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 borne by each class of shares of the Fund:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS O(d)
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on
Purchases of Shares (as a percentage of
offering price) 4.75%(a) None None None
Sales Charge Imposed on Reinvested
Dividends None None None None
Contingent Deferred Sales Charge
(as a percentage of original purchase
price or redemption price, whichever
is lower) 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)
Redemption Fees None None None None
Exchange Fee None None None None
</TABLE>
------------------------------------------------------------------
* Under certain circumstances, certain broker/dealers may impose additional
transaction fees on the purchase and/or sale of shares. See 'Purchase of
Shares.'
(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 Class O shares of the
Fund.
PAGE 6
<PAGE>
<PAGE>
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 waiver and expense reimbursement, as indicated].
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS O
<S> <C> <C> <C> <C>
Management Fees [(after waivers)] [`D'] % % % %
Rule 12b-1 Fees* .25% 1.00% 1.00% --
Other Expenses [(after reimbursements)]** [`D'] % % % %
Total fund operating expenses [(after waivers and reimbursements)] [`D'] % % % %
</TABLE>
------------------------------------------------------------------
<TABLE>
<S> <C>
`D' [Reflects the voluntary agreement by SBAM to impose an expense cap for the fiscal year ending
December 31, 1998 on the Fund's total fund operating expenses (exclusive of taxes, interest and
extraordinary expenses such as litigation and indemnification expenses) at the amounts shown in
the table through the waiver of management fees and the reimbursement of expenses. The amounts
shown are estimates and SBAM may impose an expense cap that results in lower total fund operating
expenses for the Fund than the amounts shown in the table, though there can be no assurance to
this effect. Absent such waiver, the ratio of management fees to average daily net assets would be
%, and the ratio of total fund operating expenses to average daily net assets would be %, %,
% and % for Class A, Class B, Class C and Class O shares, respectively.]
* Upon conversion to Class A shares, Class B and Class C shares will no longer be subject to a
distribution fee. Salomon Brothers receives an annual Rule 12b-1 service fee of .25% of the value
of average daily net assets of Class A shares, and receives an annual Rule 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.'
** As of the date of this Prospectus, the Fund had not 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, administration, custody, legal and accounting
services, printing and registration.
</TABLE>
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 -- Distribution Fees.'
For additional information with respect to the expenses identified in the table
above, see 'Management' in the Statement of Additional Information.
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 the Fund. The example assumes payment
by the Fund of operating expenses at the levels set forth in the preceding table
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>
FUND 1 YEAR 3 YEARS
<S> <C> <C>
Class A Shares* $ $
Class B Shares** $ $
Class B No Redemption $ $
Class C Shares** $ $
Class O Shares $ $
</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.
THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES FOR THE FUND MAY BE HIGHER OR LOWER THAN THE
AMOUNTS SHOWN.
Moreover, while the example assumes a 5% annual return, the Fund's performance
will vary and may result in a return greater or less than 5%.
PAGE 7
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Investment Objectives
and Policies
The investment objective of the Fund is long-term growth of capital. The Fund
will seek to meet its objective by investing primarily in securities of U.S.
issuers with market capitalizations (total current market value of a company's
outstanding common stock) of less than $1 billion ('Small Cap Companies') at
the time of initial purchase. Under normal market conditions the Fund will
invest at least 65% of its total assets in equity securities of Small Cap
Companies. The Fund also may invest up to 20% of its total assets in equity
securities of foreign issuers. The Fund may continue to hold
securities of a company whose market capitalization grows above $1 billion
subsequent to purchase if the company continues to satisfy the other investment
policies of the Fund. Up to 35% of the Fund's total assets may be invested in
securities of companies whose market capitalizations exceed the Fund's size
standard.
The investment objective of the Fund is deemed to be a fundamental policy and
may not be changed without the affirmative vote of the holders of a majority of
its outstanding shares, as defined in the 1940 Act. There can be no assurance
that the Fund will achieve its investment objective.
In selecting portfolio securities, the investment manager will emphasize
companies which it believes have favorable growth prospects and potential for
significant capital appreciation. The investment manager will seek to identify
Small Cap Companies that either occupy a dominant position in an emerging
industry or a growing market share in larger fragmented industries. While these
companies may present above average risk, the investment manager believes that
they may have the potential to achieve long-term earnings growth rates
substantially in excess of the growth of earnings of other companies.
In making decisions whether to continue to hold or sell portfolio securities,
the investment manager will evaluate a variety of things including near-term
earnings trends of the applicable companies and, accordingly, portfolio
turnover can be expected to be fairly high and the Fund will likely have
greater volatility than the stock market in general.
Investments in Small Cap Companies may involve greater risks and volatility than
investments in larger companies. See 'Additional Investment Activities and Risk
Factors.' Accordingly, the Fund is not intended as a complete investment vehicle
but rather as an investment for persons who are in a financial position to
assume above-average risk and share price volatility over time. Since realizing
the full potential of Small Cap Companies frequently takes time, the Fund
should be considered as a long-term investment vehicle.
Equity securities in which the Fund may invest include common and preferred
stocks (including convertible preferred stock), bonds, notes and debentures
convertible into common and preferred stock, stock purchase warrants and rights,
equity-linked debt securities, equity interests in trusts, partnerships, joint
ventures or similar enterprises, American, Global or other types of Depositary
Receipts and other equity securities. Other equity securities include: (i)
securities that permit the Fund to receive: (a) an equity interest in an
issuer; (b) the opportunity to acquire an equity interest in an issuer; and (c)
the opportunity to receive a return on
PAGE 8
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
its investment that permits the Fund to benefit from the growth over time in the
equity of an issuer; and (ii) securities whose value or return is derived from
the value of return of a different security.
[The investment manager expects that most of the equity securities purchased by
the Fund will be traded on a stock exchange or in an over-the-counter market.]
The Fund may invest up to 35% of its total assets in non-convertible bonds,
notes and debt securities when the investment manager believes that their total
return potential equals or exceeds the potential return of equity securities.
The Fund will limit its purchases of non-convertible debt securities to
investment grade obligations. For long-term debt obligations, this includes
securities that are rated Baa or better by Moody's or BBB or better by S&P or
Fitch or that are not rated but are considered by SBAM to be of equivalent
quality. See Appendix A to this Prospectus for a description of such ratings.
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 Fund may invest without limitation in convertible securities
that are rated below investment grade. See 'Additional Investment Activities
and Risk Factors -- High Yield Securities.'
Notwithstanding the Fund's investment objective of capital growth, to meet
operating expenses, to serve as collateral in connection with certain investment
techniques and to meet anticipated redemption requests, the Fund will generally
hold a portion of its assets in short-term fixed-income securities (government
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 the investment manager deems it appropriate,
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. To the extent the Fund assumes a defensive position,
it will not be pursuing its investment objective of capital growth.
The Fund may enter into repurchase agreements, reverse repurchase agreements,
may purchase securities on a firm commitment basis, including when-issued
securities, and may lend portfolio securities. The Fund may engage in short
sales of securities if it contemporaneously owns or has the right to obtain at
no additional cost securities identical to those being sold short. The Fund may
also invest in investment funds. For a description of these investment practices
and the risks associated therewith, see 'Additional Investment Activities and
Risk Factors.'
The 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.'
As more fully described in the Statement of Additional Information, the Fund
may purchase Rule 144A securities. The Fund's holdings of Rule 144A
PAGE 9
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTMENT SERIES
securities which are liquid securities will not be subject to the 15%
limitation on investments in illiquid securities.
The Fund is currently authorized to use the various investment strategies
referred to under 'Additional Investment Activities and Risk
Factors -- Derivatives.' 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 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 and activities other than the Fund's
investment objective are not fundamental policies and may be changed by vote of
the Series Funds' Board of Directors without the approval of shareholders.
- --------------------------------------------------------------------------------
Additional Investment Activities
and Risk Factors
SMALL CAP COMPANIES. Investments in Small Cap Companies may involve greater
risks and volatility than investments in larger companies. Small Cap Companies
may be at an earlier stage of development, may be subject to greater business
risks, may have limited product lines, reduced market liquidity for, and more
abrupt or erratic price movements in, the trading of their shares, limited
financial resources and less depth in management than more established
companies. In addition, Small Cap Companies may have difficulty withstanding
competition from larger more established companies in their industries.
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 differences
between U.S. and foreign securities markets, including less volume, much
greater price volatility in and illiquidity of certain 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.
Investment in certain emerging market securities is restricted or controlled to
varying degrees which may at times limit or preclude investment in certain
emerging market securities and increase the costs and expenses of the Fund.
Certain emerging market countries require governmental approval prior to
investments by foreign persons, limit the amount of investment by foreign
persons in a particular issuer, limit the investment by foreign persons only to
a specific class
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SALOMON BROTHERS INVESTMENT SERIES
of securities of an issuer that may have less advantageous rights than other
classes, restrict investment opportunities in issuers in industries deemed
important to national interests and/or impose additional taxes on foreign
investors.
Certain emerging market countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors which could adversely affect the Fund. In
addition, if a deterioration occurs in the country's balance of payments, it
could impose temporary restrictions on foreign capital remittances. Investing
in local markets in emerging market countries may require the Fund to adopt
special procedures, seek local government approvals or take other actions, each
of which may involve additional costs to the Fund.
Other investment risks include the possible imposition of foreign withholding
taxes on certain amounts of the 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
the Fund, the lack of extensive operating experience of eligible foreign
subcustodians and legal limitations on the ability of the Fund to recover
assets held in custody by a foreign subcustodian in the event of the
subcustodian's bankruptcy. Moreover, brokerage commissions and other
transactions costs on foreign securities exchanges are generally higher than in
the United States.
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. In particular, the assets and profits appearing
on the financial statements of an emerging market country issuer may not
reflect its financial position or results of operations in the way they would
be reflected if the financial statements had been prepared in accordance with
U.S. generally accepted accounting principles. In addition, for an issuer that
keeps accounting records in local currency, inflation accounting rules may
require, for both tax and accounting purposes, that certain assets and
liabilities be restated on the issuer's balance sheet in order to express items
in terms of currency of constant purchasing power. Inflation accounting may
indirectly generate losses or profits. Consequently, financial data may be
materially affected by restatements for inflation and may not accurately
reflect the real condition of those issuers and securities markets. See
' -- High Yield Securities.'
Finally, in the event of a default in any such foreign obligations, it may be
more difficult for the Fund to obtain or enforce a judgment against the issuers
of such obligations. For a further discussion of certain risks involved in
investing in foreign securities, particularly of emerging market issuers, see
'Additional Information on Portfolio Instruments and Investment
Policies -- Foreign Securities' in the Statement of Additional Information.
FIRM COMMITMENTS AND WHEN-ISSUED SECURITIES. The 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
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time of delivery. The 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. The 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.
WARRANTS. The Fund 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 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.
REPURCHASE AGREEMENTS. The 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.
The Fund will enter into repurchase agreements only with dealers, domestic
banks or recognized financial institutions which, in the opinion of SBAM based
on guidelines established by the Board of Directors, are deemed creditworthy.
SBAM 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. The 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, the Fund could experience losses and experience delays in connection
with the disposition of the underlying security. To the extent that, in the
meantime, the value of the securities that the Fund has purchased has decreased,
the Fund could experience a loss. Repurchase agreements with maturities of more
than seven days will be treated as illiquid securities by the Fund.
RESTRICTED SECURITIES AND SECURITIES WITH LIMITED TRADING MARKETS. The Fund may
purchase securities for which there is a limited trading market or which are
subject to restrictions on resale to the public. If the Fund were to assume
substantial positions in securities with limited trading markets, the
activities of the Fund could have an adverse effect upon the liquidity and
marketability of such securities and the Fund might not be able to dispose of
its holdings in those securities at then current market prices. Circumstances
could also exist (to satisfy redemptions, for example) when portfolio
securities might have to be sold by the Fund at times which otherwise might be
considered to be disadvantageous so that the Fund might receive lower proceeds
from such sales than it had expected to realize. Investments in securities
which are 'restricted' may involve added expenses to the 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
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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, the Fund 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 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 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 the Fund's portfolio. SBAM,
under the supervision of the Board of Directors, is responsible for monitoring
the liquidity of Rule 144A securities and the selection of such securities. The
Board of Directors periodically reviews purchases and sales of such securities.
See 'Additional Information on Portfolio Instruments and Investment
Policies -- Rule 144A Securities' in the Statement of Additional Information.
FIXED-INCOME SECURITIES. To the extent that a portion of the Fund's portfolio is
invested in fixed-income securities, changes in market yields will affect the
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 Fund may from time
to time invest in fixed-income securities, the net asset value of the Fund's
shares may change as general levels of interest rates fluctuate. See
'Additional Information on Portfolio Instruments and Investment Policies --
Fixed-Income Securities' in the Statement of Additional Information.
HIGH YIELD SECURITIES. The Fund may invest without limitation in convertible
'high yield' securities, commonly known as 'junk bonds.'
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. 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 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.
The secondary markets for high yield securities are not as liquid as the
secondary markets for higher rated securities. If the Fund is not able to
obtain precise or accurate market quotations for a particular security, it will
become more difficult to value the Fund's portfolio securities, and a greater
degree of judgment may be necessary in making such valuations. While the market
values
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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. See 'Additional Information on
Portfolio Instruments and Investment Policies -- High Yield Securities' in the
Statement of Additional Information.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
generate income. In the event of the bankruptcy of the other party to a
securities loan, the Fund could experience delays in recovering the securities
it lent. To the extent that, in the meantime, the value of the securities the
Fund lent has increased, the Fund could experience a loss. The value of
securities loaned will be marked to market daily. Any securities that the Fund
may receive as collateral will not become a part of its portfolio at the time
of the loan. 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. 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 the Fund may be invested in securities
in which the Fund is permitted to invest. Portfolio securities purchased with
cash collateral are subject to possible depreciation. Voting rights may pass
with the lending of portfolio securities. Loans of securities by the Fund will
be subject to termination at the Fund's or the borrower's option. The Fund may
pay 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.
INVESTMENT FUNDS. The Fund may invest in unaffiliated investment funds which
invest principally in securities in which the Fund is authorized to invest.
Under the 1940 Act, the Fund may invest a maximum of 10% of its total assets in
the securities of other investment companies. In addition, under the 1940 Act,
not more than 5% of the Fund's total assets may be invested in the securities
of any one investment company and the Fund may not purchase more than 3% of the
outstanding voting stock of such investment company. To the extent the Fund
invests in other investment funds, the Fund's shareholders will incur certain
duplicative fees and expenses, including investment advisory fees. The Fund's
investment in certain investment funds will result in special U.S. Federal
income tax consequences described below under 'Taxation.' See 'Additional
Information on Portfolio Instruments and Investment Policies -- Investment
Funds' in the Statement of Additional Information.
BORROWING. The Fund 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 the Fund's shares and in the
return on the Fund's portfolio. Although the principal of any borrowing will be
fixed, the Fund's assets may change in value during the time the borrowing is
outstanding. The 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
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shareholders. Furthermore, if the 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. The Fund may use various 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 the Fund, or to seek to increase the Fund's income or
gain. 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 the Fund. Over time,
however, techniques and instruments may change as new instruments and
strategies are developed or regulatory changes occur.
Subject to the constraints described above, the Fund may 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 the
Fund may enter into interest rate transactions, equity swaps and related
transactions, invest in indexed debt securities and other similar transactions
which may be developed to the extent SBAM determines that they are consistent
with the Fund's investment objective and policies and applicable regulatory
requirements (collectively, these transactions are referred to in this
Prospectus as 'Derivatives'). The Fund's interest rate transactions may take the
form of swaps, caps, floors and collars, and the Fund's currency transactions
may take the form of currency forward contracts, currency futures contracts,
currency swaps and options on currencies.
Derivatives may be used to attempt to protect against possible changes in the
market value of securities held or to be purchased for the Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, to
protect the 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 the 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 the Fund's income or gain.
The 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 the
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 the Fund's portfolio securities. The Fund is not 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 the 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
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calculating the 5% limitation. The use of certain Derivatives in certain
circumstances will require that the Fund segregate cash, liquid high grade debt
obligations or other assets to the extent the 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 the Fund,
force the purchase or sale of portfolio securities at inopportune times or for
prices higher or lower than current market values, or cause the Fund to hold a
security it might otherwise sell. The use of currency transactions could result
in the 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 the 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. The Fund might not be able to close out certain positions without
incurring substantial losses. To the extent the 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 the 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 the Fund's use of Derivatives may be limited by certain
provisions of the Code. See 'Taxation.'
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into 'reverse' repurchase
agreements to avoid selling securities during unfavorable market conditions to
meet redemptions. Pursuant to a reverse repurchase agreement, the Fund will sell
portfolio securities and agree to repurchase them from the buyer at a
particular date and price. Whenever the Fund enters into a reverse repurchase
agreement, it will establish a segregated account consisting of liquid assets
in an amount at least equal to the repurchase price marked to market daily
(including accrued interest), and will subsequently monitor the account to
ensure that such equivalent value is maintained. The Fund pays interest on
amounts obtained pursuant to reverse repurchase agreements. Reverse repurchase
agreements are considered to be borrowings by the Fund.
SHORT SALES. The Fund may from time to time sell securities short 'against the
box.' If the Fund enters into a short sale against the box, it will be required
to set aside securities equivalent in kind and amount to the securities sold
short (or securities convertible or exchangeable into
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such securities at no additional cost to the Fund) and will be required to hold
such securities while the short sale is outstanding. The Fund will incur
transaction costs, including interest expense, in connection with opening,
maintaining, and closing short sales against the box. If the Fund engages in
any short sales against the box, it will incur the risk that the security sold
short will appreciate in value after the sale, with the result the Fund will
lose the benefit of any such appreciation. The Fund may make short sales both
as a form of hedging to offset potential declines in long positions in similar
securities and in order to maintain portfolio flexibility.
- --------------------------------------------------------------------------------
Multiple Pricing System
The primary distinction between the four classes of Fund shares offered through
this Prospectus lies in their sales charge structures and ongoing expenses, as
summarized below. Each class has distinct advantages and disadvantages for
different investors and investors should choose the class that best suits their
circumstances and objectives.
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. 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 Rule 12b-1
service fee at an annual rate of .25% of their respective average daily net
assets. The annual service fee is compensation for ongoing services provided by
Salomon Brothers, the Fund's distributor (the 'Distributor'), 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 Salomon Brothers Cash Management Fund, a
Portfolio of the Investment Series (the 'Cash Management Fund'), and/or the
Salomon Brothers New York Municipal Money Market Fund, also a Portfolio of the
Investment Series (the 'New York Municipal Money Market Fund'), which bear no
CDSC. For example, shares initially purchased as Class B shares of the Cash
Management Fund and the New York Municipal Money Market Fund which are
subsequently exchanged for
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Class B shares of the Fund will be subject to any applicable CDSC due at
redemption. See 'Shareholder Services -- Exchange Privilege.' In addition,
Class B shares are subject to a Rule 12b-1 distribution fee at an annual rate
of .75% of their respective average daily net assets and a Rule 12b-1 service
fee at an annual rate of .25% of their respective average daily net assets.
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. 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. Any
CDSC applicable to Class C shares excludes the time the shares were held in the
Cash Management Fund and/or the New York Municipal Money Market Fund. See
'Shareholder Services -- Exchange Privilege.' Class C shares are subject to a
Rule 12b-1 distribution fee at an annual rate of .75% of their respective
average daily net assets and a Rule 12b-1 service fee at an annual rate of .25%
of their respective average daily net assets. Like the service 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. The Fund also offers Class O shares. However, only Class O
shareholders are permitted to purchase Class O shares of the Fund. Class O
Shares are not subject to any sales charge, distribution or service fees.
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
Distributor to have been substantially compensated for distribution-related
expenses incurred in connection
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with Class B shares or Class C shares, as the case may be. If a shareholder
effects one or more exchanges among Class B shares or Class C shares, as the
case may be, of the Portfolios of the Investment Series 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 and the New York
Municipal Money Market 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
and/or the New York Municipal Money Market Fund. For example, if Class B shares
of a Portfolio of the Investment Series other than the Cash Management Fund or
the New York Municipal Money Market Fund are exchanged for Class B shares of
the Cash Management Fund or the New York Municipal Money Market Fund two years
after purchase and are subsequently exchanged one year later for Class B shares
of the Fund, the one year of ownership in the Cash Management Fund or the New
York Municipal Money Market 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 and Class C shares may be suspended under
certain limited circumstances, in the event a ruling from the Internal Revenue
Service or an opinion of counsel 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 which the shareholder's order to
purchase was accepted.
FACTORS FOR CONSIDERATION. In evaluating the options offered by the Multiple
Pricing System, investors should consider the foregoing factors, as well as the
following: Class A, Class B and Class C shares all pay an annual Rule 12b-1
service fee of .25% of average daily net assets, but Class A shares are not
subject to the annual Rule 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
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SALOMON BROTHERS INVESTMENT SERIES
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 Share -- 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 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. Dividends paid by the 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
PAGE 20
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SALOMON BROTHERS INVESTMENT SERIES
value per share will also differ among the classes. Shares of the Fund may be
exchanged for shares of the same class of any other Portfolio of the Investment
Series, but not for shares of other classes of other Portfolios of the
Investment Series. See 'Shareholder Services -- Exchange Privilege.'
- --------------------------------------------------------------------------------
Investment Limitations
The following investment restrictions and those described in the Statement of
Additional Information are fundamental policies applicable to the Fund which may
be changed only when permitted by law and approved by the holders of a majority
of the 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 the Fund's investment objective, the other policies
and percentage limitations referred to in this Prospectus and in the Statement
of Additional Information are not fundamental policies of the Fund and may be
changed by the Series Funds' 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.
The Fund may not:
(1) purchase securities of any issuer if the purchase would cause more than 5%
of the value of the 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 the Fund, except that up
to 25% of the value of the Fund's total assets may be invested without regard
to this restriction and provided that the 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 the 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 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 (the Fund
will not purchase additional securities at any time its borrowings exceed 5% of
total assets, provided, however, that the 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 the Fund while such borrowings are outstanding); or
(3) invest more than 25% of the total assets of the Fund in the securities of
issuers having their principal activities in any particular industry, except for
PAGE 21
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SALOMON BROTHERS INVESTMENT SERIES
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 the Fund), provided, however, that the 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 the
Fund. The Fund may, in the future, seek to achieve its investment objective 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 and policies and substantially the same
investment restrictions as those applicable to the 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 the Fund are managed under the direction of the
Series Funds' Board of Directors. The Board of Directors approves all
significant agreements between the 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 the 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 the
Series Funds.
INVESTMENT MANAGER
The Fund retains SBAM, a wholly owned subsidiary of Salomon Brothers Holding
Company Inc, which is in turn wholly owned by Salomon Inc ('SI'), as its
investment manager under an investment management contract to manage the Fund's
investment program, operations and related matters. SBAM was incorporated in
1987 and together with affiliates in London, Frankfurt, Tokyo and Hong Kong,
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. In providing
such services, SBAM has access to SI's more than 400 economists and analysts.
As of July 31, 1997, SBAM and its worldwide investment advisory affiliates
managed approximately $24.2 billion of assets. Michael S. Hyland serves as
President of SBAM. SBAM's business offices are located at 7 World Trade Center,
New York, New York 10048.
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SALOMON BROTHERS INVESTMENT SERIES
Pamela P. Milunovich is primarily responsible for the day-to-day management of
the Fund. Ms. Milunovich has been a Director of SBAM since January 1997, and a
portfolio manager since joining SBAM in June 1992. Prior to June 1992, Ms.
Milunovich was an associate at James Capel Wardley Inc.
Subject to a policy established by the Board of Directors, which has overall
responsibility for the business and affairs of the Fund, SBAM manages the
investment and reinvestment of the Fund's assets pursuant to the 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 the Fund under the management contract, including supervision of Fund
operations, certain administrative and clerical services and SEC compliance. In
addition, SBAM pays the compensation of the Fund's officers, employees and
directors affiliated with SBAM. Except for the expenses paid by SBAM that are
described herein, the Fund bears all costs of its operations.
As compensation for its services, the Fund pays SBAM a monthly fee at an annual
rate of . % of the Fund's average daily net assets. For the 1998 fiscal year,
SBAM has voluntarily agreed to impose an expense cap on total Fund operating
expenses (exclusive of taxes, interest and extraordinary expenses such as
litigation and indemnification expenses) at % of the Fund's total Fund
operating expenses. See 'Expense Information -- Annual Fund Operating Expenses.'
SBAM may waive all or part of its fee from time to time in order to increase the
Fund's net investment income available for distribution to shareholders. The
Fund 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 the Fund attributable to shares of the Fund held by
customers of such selected dealers.
The services of SBAM are not deemed to be exclusive, and nothing in the
management contract will prevent SBAM or its affiliates from providing similar
services to other investment companies and other clients (whether or not their
investment objectives and policies are similar to those of the Fund) or from
engaging in other activities.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers (the 'NASD'), and subject to seeking the most favorable
price and execution available, the investment manager may consider sales of
shares of the Fund as a factor in the selection of brokers to execute portfolio
transactions for the Fund. The Fund may use Salomon Brothers and its affiliates
to execute portfolio transactions when the investment manager 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 Fund's policies with respect to portfolio
transactions.
DISTRIBUTOR
Salomon Brothers, located at 7 World Trade Center, New York, New York 10048,
serves as the Fund's distributor. Salomon Brothers is a wholly-owned subsidiary
of Salomon Brothers Holding Company Inc, which is in turn wholly-owned by SI.
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
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SALOMON BROTHERS INVESTMENT SERIES
financial advisory services to governments, international corporations, and
institutional investors. Salomon Brothers from time to time may receive fees
from the Fund in connection with the execution of portfolio transactions on
behalf of the Fund. See 'Purchase of Shares -- Distribution Fees.'
ADMINISTRATOR
The Fund employs [ ] (the 'Administrator') under an administration
agreement to provide certain administrative services. The Administrator is not
involved in the Fund's investment decisions.
The services provided by the Administrator under the applicable administration
agreements include certain accounting, clerical and bookkeeping services, Blue
Sky reports, corporate secretarial services and assistance in the preparation
and filing of tax returns and reports to shareholders and the SEC. For its
services, the Fund pays the Administrator a fee, calculated daily and payable
monthly, at an annual rate of [ %] of the Fund's aggregate average daily net
assets.
EXPENSES
The 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. The Fund also pays for
brokerage fees and commissions 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.
- -------------------------------------------------------------------------
Determination
of Net Asset Value
For the purpose of pricing purchase and redemption orders, the net asset value
per share of each class of the Fund is calculated separately and is determined
once daily as of the close of regularly scheduled trading on the NYSE. With
respect to the 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, Martin
Luther King, Jr. 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 the Fund is calculated
by dividing the value of the portion of the Fund's securities and
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SALOMON BROTHERS INVESTMENT SERIES
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 the Series Funds' 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 the 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. Corporate actions by
issuers of foreign securities held by the Fund, such as payment of dividends or
distributions, are reflected in the net asset value on the ex-dividend date
therefor, except that such actions will be so reflected on the date the Fund is
actually advised of the corporate action if subsequent to the ex-dividend date.
Further information regarding the Fund's valuation policies is contained in the
Statement of Additional Information.
- --------------------------------------------------------------------------------
Purchase of Shares
Shares of the Fund may be purchased through First Data Investor Services Group,
Inc. ('Investor Services Group') (the 'Transfer Agent') or from selected
dealers. Purchases of shares made through a selected dealer should be made in
accordance with the procedures prescribed by such selected dealer. The Fund
reserves the right to reject any purchase order in whole or in part.
HOW TO OPEN AN ACCOUNT AND PURCHASE SHARES
Shares may be purchased initially by completing a Purchase Application and
mailing it, together with a check payable to Salomon Brothers Funds to:
Salomon Brothers Small Cap Growth Fund
c/o Investor Services Group
P.O. Box 5127
Westborough, MA 01581-5127
Initial purchases of Fund shares may not be made by third party checks.
Subsequent investments may be made at any time through a selected dealer or by
mailing a check to Investor Services Group, at the address set forth above,
along with the detachable stub from the Statement of Account (or a letter
providing the account number).
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SALOMON BROTHERS INVESTMENT SERIES
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
Investor Services Group will charge a fee of $10 to the shareholder's account.
Investor Services Group does not intend to resubmit such checks for collection.
Subsequent investments may also be made by wiring federal funds to Investor
Services Group. Prior notification by telephone is not required. 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: Salomon Brothers Small Cap
Growth Fund
Name of Account:
Account # (As assigned):
Shareholders should note that their bank may charge a fee in connection with
transferring money by bank wire.
To ensure prompt credit to their accounts, investors or their dealers should
call (800) 446-1013 with a reference number for the wire. If wires are received
after 4:00 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 Fund.
MINIMUM INVESTMENT
The minimum initial investment in any class of shares in the 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 the 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 the Fund, investors must specify the class of shares.
The 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 received by selected dealers by the close
of regular trading on the NYSE (currently, 4:00 p.m., New York time) on any day
that the 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 Investor Services Group, through the facilities of
the National Securities Clearing Corporation ('NSCC') by 8:00 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. 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 Investor Services Group
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 'How to Open an Account and Purchase Shares' above 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
PAGE 26
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SALOMON BROTHERS INVESTMENT SERIES
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.
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 are issued for fractional shares.
MULTIPLE PRICING SYSTEM
The 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 the 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 the Fund are sold with a front-end sales charge and may, under
limited circumstances, be subject to a CDSC upon redemption. Class B shares and
Class C shares of the Fund are sold without a front-end sales charge but may be
subject to a CDSC upon redemption. 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 the 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. However, when
Class A shares of the Cash Management Fund or the New York Municipal Money
Market Fund on which no sales charge has been paid or waived are exchanged for
Class A shares of the 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
PERCENTAGE OF BROKER-DEALER AS
AMOUNT OF PERCENTAGE OF THE NET AMOUNT A PERCENTAGE OF
PURCHASE PAYMENT THE OFFERING PRICE INVESTED OFFERING 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 until further notice.
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 Portfolios of the Investment Series, excluding Class A shares
purchased or held in the Cash Management Fund or the New York Municipal Money
Market Fund. Also, for purposes of the foregoing calculation, Class A shares
(excluding Class A shares purchased or held in the Cash Management Fund or the
New York Municipal Money Market 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 Fund and other
Portfolios of the Investment Series to be achieved over a thirteen-month period
and may purchase Class A shares during such period at the
PAGE 28
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SALOMON BROTHERS INVESTMENT SERIES
applicable reduced front-end sales charge. All Class A shares (excluding Class A
shares purchased or held in the Cash Management Fund or the New York Municipal
Money Market 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.
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 the 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 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 the Fund and the members,
and must agree to include sales and other materials related to the Fund 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
PAGE 29
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SALOMON BROTHERS INVESTMENT SERIES
officer of the Series Funds 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 that utilizes a Selling Broker to clear purchases of the
Fund's 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, any
accounts established on behalf of registered investment advisers or their
clients by broker-dealers that charge a transaction fee and 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 the 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
will be paid by the Distributor to broker-dealers at the time of sale.
CLASS C SHARES
Class C shares of the 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 shares will be paid by the
Distributor to broker dealers at the time of sale.
CLASS O SHARES
Class O shares of the Fund are available only to current holders of Class O
shares in Portfolios of the Investment Series. Class O shares are not subject
to any sales charges.
DISTRIBUTION FEES
Each class of the 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 promulgated 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 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 respect to Class
B and Class C shares of the 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 Fund's Prospectus,
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SALOMON BROTHERS INVESTMENT SERIES
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 Fund's
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 the 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%
of the purchase price and a quarterly trail fee at an annual rate of .25% which
will begin to accrue 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 quarterly trail fee at an annual
rate of .90% which will begin to accrue 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 quarterly trail commission at an
annual rate of .25% which will begin to accrue immediately after settlement.
Sales personnel of broker/dealers distributing the Fund's shares and any other
persons entitled to receive compensation for selling or servicing the 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.
The Plans provide that Salomon Brothers may make payments to assist in the
distribution of the Fund's shares out of the other fees received by it or its
affiliates from the 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 Fund. 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
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SALOMON BROTHERS INVESTMENT SERIES
applicable, pay a bonus or other consideration or incentives to dealers who
sell a minimum dollar amount of shares of the Fund 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 amounts of shares. Any such bonus
or incentive programs will not change the price paid by investors for the
purchase of the Fund's shares or the amount that the Fund will receive as
proceeds from such sales. Dealers may not use sales of the Fund's 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.
---------------
Under certain circumstances, certain broker/dealers may impose additional
transaction fees on the purchase and/or sale of shares.
- --------------------------------------------------------------------------------
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 the 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 exists, as defined by rules of the SEC, making disposal of portfolio
securities or determination of the value of the net assets of the Fund not
reasonably practicable.
No redemption requests will be processed until the 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. The 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
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SALOMON BROTHERS INVESTMENT SERIES
investors. Redemption 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), or
transmitted by the dealer to Investor Services Group through the facilities of
the NSCC by 8:00 p.m. New York time, are effective that day. Otherwise, the
shares will be redeemed at the applicable net asset value next determined. 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 redemption
arrangement is discretionary and may be withdrawn or modified at any time.
REDEMPTION BY MAIL
Shares may be redeemed by mail by submitting the following documents:
(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: (i) the proceeds are to be paid to someone other than the registered
owner(s) of the shares redeemed; (ii) are to be wired to a bank; or (iii) are
to be sent to other than the registered address. The Transfer Agent has adopted
standards and procedures pursuant to which signature guarantees in proper form
generally will be accepted from domestic banks, brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations, as well as from participants in the
New York Stock Exchange Medallion Signature Program, the Securities Transfer
Agents Medallion Program ('STAMP') and the Stock Exchanges Medallion Program.
Stockholders with any questions regarding signature-guarantees should call the
telephone number listed on the cover; 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 FIRST DATA INVESTOR
SERVICES GROUP, INC., P.O. BOX 5127, WESTBOROUGH, MA 01581-5127.
Checks for redemption proceeds will be mailed within seven days after redemption
to the shareholder's address of record on file with the Transfer Agent unless
other instructions in proper form are received.
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.
TELEPHONE REDEMPTION PRIVILEGE
Shareholders having direct accounts with Investor Services Group 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.
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SALOMON BROTHERS INVESTMENT SERIES
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
Investor Services Group.
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. The 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 Fund. Neither the Fund nor Investor Services Group 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. The
Fund and Investor Services Group will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. The Fund and/or
Investor Services Group may be liable for any losses due to unauthorized or
fraudulent instructions if they do not follow such 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 Investor Services Group for further information.
You may either:
Telephone the redemption request to Investor Services Group at (800) 446-1013
or mail the request to Investor Services Group at the following address:
Salomon Brothers Small Cap Growth Fund
c/o Investor Services Group
P.O. Box 5127
Westborough, MA 01581-5127
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. Checks for redemption proceeds of less than $500 will be mailed to
the shareholder's address of record.
Shareholders should note that their bank may charge a fee in connection with
transferring money by bank wire.
SMALL ACCOUNTS
Under the Fund's present policy, it reserves the right to redeem upon not less
than 30 days' notice, the shares in an account which have 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. Shares initially
purchased in the Cash Management Fund or the New York Municipal Money Market
Fund which are subsequently exchanged for shares of the Fund will be subject to
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SALOMON BROTHERS INVESTMENT SERIES
any applicable CDSC due at redemption. Shares of the Fund may be exchanged for
shares of any other Portfolio of the Investment Series 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 and the New York Municipal Money
Market 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 the Fund are
held in the Cash Management Fund and/or the New York Municipal Money Market
Fund. For example, if shares of the Fund are exchanged for shares of the Cash
Management Fund or the New York Municipal Money Market 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 the Fund's right
to liquidate 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 mandatory post-retirement distributions and withdrawals from
retirement plans or IRAs; (g) redemption proceeds from other Portfolios of the
Investment Series that are reinvested within 60 days of the redemption (see
'Shareholder Services -- Reinstatement Privilege'); (h) certain redemptions of
shares of the 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 Salomon
Brothers or 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.
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. The amount
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SALOMON BROTHERS INVESTMENT SERIES
of any CDSC payable upon redemp-tion 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
YEAR(S) SINCE PURCHASE ORDER DOLLAR AMOUNT SUBJECT TO 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.
- --------------------------------------------------------------------------------
Performance Information
From time to time, the Fund may advertise its standardized and nonstandardized
'average annual total return' over various periods of time. Total return is
computed separately for each class of shares of the Fund. Total return figures
show the average annual percentage change in value of an investment in the 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 the Fund
during the period were reinvested in shares of the same class. Total return
figures for the Fund's Class A shares include the maximum initial 4.75% 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 the 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 the 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
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SALOMON BROTHERS INVESTMENT SERIES
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 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.
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, including,
but not limited to, Bank Rate Monitor, Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune, ICB Donaghue's Money Fund
Report, Institutional Investor, Investors Daily, Money, Morningstar Mutual Fund
Values, The New York Times, USA Today and The Wall Street Journal. Performance
figures are based on historical earnings and are not intended to indicate future
performance. See 'Performance Data' in the Statement of Additional Information.
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund will declare dividends from net investment income annually and pay them
annually.
Net investment income is the Fund's investment company taxable income, as that
term is defined in the Code, determined without regard to the deduction for
dividends paid. Net investment income generally includes all taxable income of
the Fund other than net realized long-term capital gains.
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 the Fund are more than the maximum fees payable by the 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
PAGE 37
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SALOMON BROTHERS INVESTMENT SERIES
generally be higher than Class A, Class B and Class C shares of the Fund and the
per share dividends on Class A shares of the Fund will generally be higher than
those on Class B and Class C shares.
The Fund distributes annually any 'net capital gain' (i.e., the excess of the
Fund's net realized long-term capital gains over net realized short-term
capital losses) from the sale of securities.
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, the
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, the Fund's total distributions exceed net
investment income and net capital gain, 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 and other applicable laws,
a notice will accompany any distribution paid from sources other than net
investment income. In the event the 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.
Dividend and/or capital gain distributions will be reinvested automatically in
additional shares of the same class of the 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 gain distributions in cash. A shareholder who does not have a
brokerage account may inform Investor Services Group, by notice sent to P.O. Box
5127, Westborough, Massachusetts 01581-5127, that he or she wishes to receive
such dividends or distributions in cash directly from Investor Services Group.
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 Investor Services Group. Shareholders may change the
distribution option at any time by mailing written notification to Investor
Services Group at the above address or by calling (800) 446-1013 prior to the
record date of any such dividend or distribution.
- ----------------------------------------------------------------
Taxation
FEDERAL INCOME TAX MATTERS. The Fund intends to qualify and elect to be treated
as a regulated investment company under Subchapter M of the Code. If it so
qualifies, the Fund will not be subject to U.S. federal income taxes on its net
PAGE 38
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SALOMON BROTHERS INVESTMENT SERIES
investment income and net capital gain, if any, that it distributes to its
shareholders in each taxable year, provided that it distributes to its
shareholders at least 90% of its net investment income for such taxable year.
If in any year the Fund fails to qualify as a regulated investment company, the
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.
The 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.
The Fund is subject to a nondeductible 4% excise tax calculated as a percentage
of certain undistributed amounts of ordinary income and capital gain net
income. To the extent possible, the 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 the Fund of net investment
income will be taxable to shareholders whether paid in cash or reinvested in
additional shares. For federal income tax purposes, distributions of net
investment income which includes the excess of the Fund's net realized short-
term capital gains over net realized long-term capital losses, are taxable to
shareholders as ordinary income.
Distributions of net capital gain designated by the 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. A portion of the Fund's dividends may qualify for the
dividends received deduction available to corporations. Under recently enacted
legislation, the maximum rate of tax on long-term capital gains of individuals
will generally be reduced from 28% to 20% (10% for gains otherwise taxed at
15%) for long-term capital gains realized after July 28, 1997 with respect to
capital assets held for more than 18 months. Additionally, beginning after
December 31, 2000, the maximum tax rate for capital assets with a holding
period beginning after that date and held for more than five years will be 18%.
Under a literal reading of the legislation, capital gain dividends paid by a
regulated investment company would not appear eligible for the reduced capital
gain rates. However, the legislation authorizes the Treasury Department to
promulgate regulations that would apply the new rates to capital gain dividends
paid by a regulated investment company. 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 will be taxable even though the net
asset value of shares of the Fund is reduced by the distribution.
The Fund may be required to pay withholding or other taxes to foreign
governments on dividends and interest. The investment yield of the Fund 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.
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 the Fund will be taxed
as capital gain or loss if the shares are capital assets in the
PAGE 39
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SALOMON BROTHERS INVESTMENT SERIES
shareholder's hands. If a shareholder sells or otherwise disposes of shares of
the 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 the 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.
The Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in the stock of
passive foreign investment companies or securities 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 the 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
the Fund, the Fund may be required to borrow money or dispose of other
securities to be able to make distributions to its investors. 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.
The Fund may be required to withhold federal income tax at a rate of 31%
('backup withholding') from 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.
Depending on the residence of the shareholder for tax purposes, distributions
may also be subject to state and local taxes or withholding 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 the 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 the Fund.
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Shareholder Services
The 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 the 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.
AUTOMATIC DIVIDEND
DIVERSIFICATION ('ADD')
The ADD program allows an investor to have all dividends and any other
distributions from the Fund automatically used to purchase shares of the same
class of any other Portfolio of the Investment Series. The receiving account
must be in the same name as the investor's existing account. The purchase of
shares of the Portfolio of the Investment Series receiving the cross-investment
of the dividends will be made using the net asset value at the close of
business of the dividend payable date.
SYSTEMATIC INVESTING
An investor may request that shares of any class of the Fund be exchanged
monthly for shares of the same class of any other Portfolio of the Investment
Series. 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 the Fund may exchange all or part of their shares for shares of
the same class of any other Portfolio of the Investment Series, 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 the 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 Portfolio of the Investment
Series. Fund shares may be exchanged for shares of any of the following
Portfolios:
SALOMON BROTHERS 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.
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND. The objective of the New
York Municipal
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SALOMON BROTHERS INVESTMENT SERIES
Money Market Fund is to seek as high a level of current income exempt from
federal, New York State and New York City personal income taxes as is consistent
with liquidity and the stability of principal. The Fund seeks to achieve its
objective by investing primarily in high-quality, short-term municipal
obligations issued by or on behalf of the State of New York or by its
instrumentalities or political subdivisions, the interest on which is exempt
from federal, New York State and New York City personal income taxes. The Fund
seeks to maintain a stable net asset value of $1.00 per share.
SALOMON BROTHERS 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 investment grade
municipal obligations.
SALOMON BROTHERS 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.
SALOMON BROTHERS HIGH YIELD BOND FUND. The objective of the High Yield Bond
Fund is to maximize current income. As a secondary objective, the Fund seeks
capital appreciation. The Fund seeks to achieve its objectives by investing
primarily in a diversified portfolio of high yield fixed-income securities
rated in medium or lower rating categories or determined by its investment
manager to be of comparable quality.
SALOMON BROTHERS 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 its 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.
SALOMON BROTHERS 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.
SALOMON BROTHERS ASIA GROWTH FUND. The Asia Growth Fund's objective is
long-term capital appreciation. The Fund seeks to achieve its objective by
investing at least 65% of its total assets in equity and equity-related
securities of companies organized under the laws of Bangladesh, China, Hong
Kong, India, Indonesia, Korea, Malaysia, Pakistan, the Philippines, Singapore,
Sri Lanka, Taiwan, Thailand or any other country in the Asian region (other
than Japan, Australia and New Zealand) that currently or in the future permits
foreign investment.
SALOMON BROTHERS INTERNATIONAL GROWTH FUND. The investment objective of the
International Growth Fund is capital growth. The Fund will seek to meet its
objective by investing primarily in an internationally diversified portfolio of
equity securities that are considered by the Fund's investment manager to have
potential for appreciation. The Fund will invest primarily in securities of
issuers in developed markets.
SALOMON BROTHERS INVESTORS FUND. The Investors Fund's primary objective is
long-term growth of capital. Current income is a secondary objective. The Fund
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SALOMON BROTHERS INVESTMENT SERIES
seeks to achieve its objectives primarily through investments in common stocks
of well-known companies.
SALOMON BROTHERS CAPITAL FUND. The objective of the Capital Fund is to seek
capital appreciation through investments primarily in common stock, or
securities convertible into common stocks, which are believed to have
above-average price appreciation potential and which may also involve
above-average risk. Current income is an incidental consideration.
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 and/or the New York Municipal Money
Market Fund. For example, if shares of the Fund subject to a CDSC are exchanged
for shares of the Cash Management Fund or the New York Municipal Money Market
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 or New York Municipal Money Market Fund shares are
exchanged for shares of the Fund, the CDSC becomes applicable to those shares
commencing at the time of exchange. If such shares are subsequently redeemed,
only time of ownership spent in Portfolios of the Investment Series that impose
a CDSC counts toward determining the applicable CDSC.
The 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 the Fund. Neither the Fund nor Investor
Services Group 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 Fund and Investor Services Group may employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
The Fund and/or Investor Services Group may be liable for any losses due to
unauthorized or fraudulent instructions if they do not follow such 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 the Fund for shares of another Portfolio 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 Portfolio being acquired may be legally sold. Each
Portfolio reserves the right to reject any exchange request. The exchange
privilege may be modified or terminated at any time upon written notice to
shareholders.
AUTOMATIC WITHDRAWAL PLAN
A shareholder may establish a plan for redemptions to be made automatically at
monthly or quarterly 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
withdrawal plans. Each withdrawal constitutes a redemption of shares on which a
gain or loss may be
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SALOMON BROTHERS INVESTMENT SERIES
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.
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 the date selected by the shareholder on the
account application (or the next business day if the selected day falls on a
weekend or holiday) or on the 10th day of the month if no date is selected, 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 the
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 Portfolio of the
Investment Series 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).
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 the Fund and/or certain other
mutual funds managed by SBAM. Shareholders should consult with a financial
adviser regarding such plan.
INDIVIDUAL RETIREMENT ACCOUNTS
A prototype Individual Retirement Account ('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
Fund may be invested in shares of the 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 the Fund are kept informed through semi-annual reports showing
current investments and other financial data for the Fund. Annual reports for
the Fund includes audited financial statements. Shareholders of the Fund will
receive a Statement of Account following each share transaction. Shareholders
can write or call the Fund at the address and telephone number on the first
page of this Prospectus with any questions relating to their investment in
shares of the 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 eleven series of shares, each representing shares in one of Salomon
Brothers' separate investment portfolios; namely, the Fund, Salomon Brothers
National Intermediate Municipal Fund, Salomon Brothers U.S. Government Income
Fund, Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic Bond
Fund, Salomon Brothers Total Return Fund, Salomon Brothers International Growth
Fund, Salomon Brothers Asia Growth Fund, Salomon Brothers Cash Management Fund,
Salomon Brothers New York Municipal Money Market Fund and Salomon Brothers
Institutional Money Market Fund (formerly, the U.S. Treasury Securities Money
Market Fund). The Fund and the Salomon Brothers International Growth Fund are
newly organized portfolios of the Series Funds. The assets of each Portfolio of
the Series Funds 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. As of
the date of this Prospectus, Salomon Brothers Holding Company Inc, the parent
company of SBAM, owns all of the outstanding shares of the Fund and
consequently is deemed to be a 'control person,' as defined in the 1940 Act, of
the Fund. Shares of each class of the Fund represent interests in the Fund in
proportion to each share's net asset value. The per share net asset value of
each class of shares in the 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 the 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 the Fund will, when issued, be fully
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SALOMON BROTHERS INVESTMENT SERIES
paid and nonassessable. The Fund will not issue any senior securities. Under the
corporate law of Maryland, the state of incorporation of the Series Funds, and
the By-Laws of the Series Funds, the Series Funds is not 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 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 to
a 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 generic rating category; the modifier '2' indicates a
mid-range ranking; and the
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SALOMON BROTHERS INVESTMENT SERIES
modifier '3' indicates that the issue ranks in the lower end of its generic
rating category.
S&P's CORPORATE BOND RATINGS
AAA -- This is the highest rating assigned by S&P 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 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 characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
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SALOMON BROTHERS INVESTMENT SERIES
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.
S&P's 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.
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 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 the 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 the Fund. However, the 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 or S&P may change as a result of changes in such organizations or
their rating systems, the 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 the Fund follows below. The 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, the purchase and sale of indexed debt securities or
trading in other similar types of instruments.
The Fund's ability to pursue certain of these strategies may be limited by the
Commodity Exchange Act, as amended, applicable regulations of the 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 of the obligation to buy, the underlying
security, index, currency or other instrument at the exercise price. The 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. The 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 performance of the
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SALOMON BROTHERS INVESTMENT SERIES
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.
The 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.
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. The 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 the
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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 the Fund and
the amount of the 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 the 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 the Fund.
The 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 the 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
the 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.
The 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.
The 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, the 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
The 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 the 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.
The 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 fluctuates.
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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.
The 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
The 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
The 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 difference
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among two or more currencies and operates similarly to an interest rate swap,
which is described below under 'Swaps, Caps, Floors and Collars.' The 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. The 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.
The 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, the 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 the 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
The 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 the 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
The Fund may enter into interest rate, currency and equity swaps, the purchase
or sale of related caps, floors and collars and other similar arrangements. The
Fund will enter into these transactions primarily to seek to preserve a return
or spread on a particular
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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 notional 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.
The 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. The 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 percentage restriction on investments in
securities that are not readily marketable.
The Fund will maintain cash, cash equivalents or other appropriate liquid
assets (i.e., high grade debt securities) in a segregated custodial account to
cover its current obligations under swap agreements. If the 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 the 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.
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INDEXED SECURITIES
The Fund may purchase securities whose prices are indexed to the prices of other
securities, securities indices, currencies, or other financial indicators.
Indexed securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Currency-indexed securities typically are short-term
to intermediate-term debt securities whose maturity values or interest rates
are determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign currency-denominated instrument, or their maturity value
may decline when foreign currencies increase, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
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 the 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 the 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 the
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, the Fund might not be able to close out a transaction without incurring
substantial losses. Although the 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 the 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 ongoing 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 the
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 the 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 the 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. To the extent
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the 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.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the 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 the 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 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.
Because the amount of interest and/or principal payments which the issuer of
indexed debt securities is obligated to make is linked to the prices of other
securities, securities indices, currencies, or other financial indicators, such
payments may be significantly greater or less than payment obligations in
respect of other types of debt securities. As a result, an investment in
indexed debt securities may be considered speculative. Moreover, the
performance of indexed securities depends to a great extent on the performance
of and may be more volatile than the security, currency, or other instrument to
which they are indexed, and may also be influenced by interest rate changes in
the United States and abroad. At the same time, indexed securities are subject
to the credit risks associated with the issuer of the security, and their
values may decline substantially if the issuer's creditworthiness deteriorates.
Losses resulting from the use of Derivatives will reduce the 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
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SALOMON BROTHERS INVESTMENT SERIES
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 the Fund will require, among other things, that the
Fund segregate cash, cash equivalents, 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 the 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, cash equivalents or other 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 the 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 the 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 the Fund will require the
Fund to segregate liquid high grade debt obligations equal to the exercise
price. Except when the 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 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 the 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 the 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 the 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, the 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. The 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, cash
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equivalents or other 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. The 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. The 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
contract or forward contract, the 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.
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FOR CUSTOMER SERVICE
(800) 446-1013
FOR BROKER/DEALER INQUIRIES
(800) SALOMON
(800) 725-6666
Dial 11 for a representative
DISTRIBUTOR
Salomon Brothers Inc
7 World Trade Center
New York, New York 10048
INVESTMENT MANAGER
Salomon Brothers Asset
Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
[ ]
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
First Data Investor Services Group, Inc.
P.O. Box 5127
Westborough, Massachusetts 01581-5127
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
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
-----------------------------------------------
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
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 STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1997
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 Money Market Fund (the 'New York Municipal Money Market Fund'),
Salomon Brothers National Intermediate Municipal Fund (the 'National
Intermediate Municipal Fund'), Salomon Brothers U.S. Government Income Fund (the
'U.S. Government Income Fund'), Salomon Brothers High Yield Bond Fund (the 'High
Yield Bond Fund'), Salomon Brothers Strategic Bond Fund (the 'Strategic Bond
Fund'), Salomon Brothers Total Return Fund (the 'Total Return Fund'), Salomon
Brothers International Growth Fund (the 'International Growth Fund'), Salomon
Brothers Small Cap Growth Fund (the 'Small Cap Growth Fund'), Salomon Brothers
Asia Growth Fund (the 'Asia Growth Fund'), Salomon Brothers Investors Fund Inc
(the 'Investors Fund') and Salomon Brothers Capital Fund Inc (the 'Capital
Fund') (each, a 'Fund' and collectively, the 'Funds'). Each of the Funds, except
for the Investors Fund and the Capital Fund, is an 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 Asia Growth Fund is a
non-diversified portfolio and the other Funds which are part of the Series Funds
are diversified portfolios. The Investors Fund is a diversified open-end
management investment company incorporated in Maryland on April 2, 1958. The
Capital Fund is a non-diversified open-end management investment company
incorporated in Maryland on August 23, 1976. The Series Funds, Capital Fund and
Investors Fund are, individually, a 'Company,' or collectively, the 'Companies.'
This Statement of Additional Information (the 'SAI') is not a prospectus
and is only authorized for distribution only when preceded or accompanied by one
or more of the Funds' current Prospectuses, dated April 29, 1997 (with respect
to all Funds except the International Growth Fund and the Small Cap Growth Fund)
and January 2, 1998 (with respect to the International Growth Fund and the Small
Cap Growth Fund), (each, a 'Prospectus'). This SAI supplements and should be
read in conjunction with one or more of the Prospectuses, copies of which may be
obtained without charge by writing the Funds at the address, or by calling the
toll-free telephone numbers, listed above.
January 2, 1998
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Additional Information on Portfolio Instruments and Investment Policies......................... 3
Special Factors Affecting the Fund's Investment in New York Municipal Obligations............... 21
Investment Limitations.......................................................................... 45
Management...................................................................................... 50
Investment Manager.............................................................................. 63
Portfolio Transactions.......................................................................... 71
Net Asset Value................................................................................. 72
Additional Purchase Information................................................................. 73
Additional Redemption Information............................................................... 74
Additional Information Concerning Taxes......................................................... 74
Performance Data................................................................................ 80
Shareholder Services............................................................................ 85
Capital Stock................................................................................... 86
Custodian and Transfer Agent.................................................................... 87
Independent Accountants......................................................................... 87
Counsel......................................................................................... 87
Financial Statements............................................................................ 88
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ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
AND INVESTMENT POLICIES
The applicable Prospectus indicates the extent to which each Fund may
purchase the instruments or engage in the investment activities described below.
The discussion below supplements the information set forth in each Prospectus
under 'Investment Objectives and Policies,' 'Additional Investment Activities
and Risk Factors' and 'Appendix B -- General Characteristics and Risks of
Derivatives.' References herein to the investment manager means Salomon Brothers
Asset Management Inc ('SBAM'), except with respect to the Asia Growth Fund, in
which case it means Salomon Brothers Asset Management Asia Pacific Limited
('SBAM AP') and with respect to the International Growth Fund, in which case it
means, with respect to investment matters for the International Growth Fund,
Mastholm Asset Management, L.L.C., the sub-adviser for that Fund.
FOREIGN SECURITIES
As discussed in each Prospectus, investing in the securities of foreign
issuers generally, and particularly in emerging market issuers, involves special
considerations which are not typically associated with investing in securities
of U.S. issuers. The following discussion supplements the discussion contained
in each Prospectus under 'Additional Investment Activities and Risk
Factors -- Foreign Securities' and ' -- High Yield Securities.' See also
' -- Brady Bonds' below.
Certain of the risks associated with international investments and
investing in smaller capital markets are heightened for investments in emerging
market countries. For example, some of the currencies of emerging market
countries have experienced devaluations relative to the U.S. dollar, and major
adjustments have been made periodically in certain of such currencies. Certain
of such countries face serious exchange constraints. In addition, governments of
many emerging market countries have exercised and continue to exercise
substantial influence over many aspects of the private sector. In certain cases,
the government owns or controls many companies. Accordingly, government actions
in the future could have a significant effect on economic conditions in
developing countries which could affect private sector companies and
consequently, the value of certain securities held in a Fund's portfolio.
Certain markets are in only the earliest stages of development. There is
also a high concentration of market capitalization and trading volume in a small
number of issuers representing a limited number of industries, as well as a high
concentration of investors and financial intermediaries. Many of such markets
also may be affected by developments with respect to more established markets in
the region. Brokers in emerging market countries typically are fewer in number
and less capitalized than brokers in the United States. These factors, combined
with the U.S. regulatory requirements for open-end investment companies and the
restrictions on foreign investment, result in potentially fewer investment
opportunities for a Fund and may have an adverse impact on the investment
performance of a Fund.
There generally is less governmental supervision and regulation of
exchanges, brokers and issuers in foreign countries than there is in the United
States. For example, there may be no comparable provisions under certain foreign
laws to insider trading and similar investor protection securities laws that
apply with respect to securities transactions consummated in the United States.
Further, brokerage commissions and other transaction costs on foreign securities
exchanges generally are higher than in the United States.
With respect to investments in certain emerging market countries, different
legal standards may have an adverse impact on a Fund. For example, while the
potential liability of a shareholder in a U.S. corporation with respect to acts
of the corporation is generally limited to the amount of the shareholder's
investment, the notion of limited liability is less clear in certain emerging
market countries. Similarly, the rights of investors in emerging market
companies may be more limited than those of shareholders of U.S. corporations.
In some countries, banks or other financial institutions may constitute a
substantial number of the leading companies or companies with the most actively
traded securities. The Investment Company Act of 1940, as amended (the '1940
Act'), limits a Fund's ability to
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invest in any equity security of an issuer which, in its most recent fiscal
year, derived more than 15% of its revenues from 'securities related
activities,' as defined by the rules thereunder. These provisions may also
restrict a Fund's investments in certain foreign banks and other financial
institutions.
The manner in which foreign investors may invest in companies in certain
emerging market countries, as well as limitations on such investments, also may
have an adverse impact on the operations of a Fund. For example, the Fund may be
required in some countries to invest initially through a local broker or other
entity and then have the shares purchased re-registered in the name of the Fund.
Re-registration may in some instances not occur on a timely basis, resulting in
a delay during which the Fund may be denied certain of its rights as an
investor.
Foreign markets have different clearance and settlement procedures, and in
certain markets there have been times when settlements have failed to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Further, satisfactory custodial services for investment securities
may not be available in some countries having smaller, emerging capital markets,
which may result in a Fund incurring additional costs and delays in transporting
and custodying such securities outside such countries. Delays in settlement or
other problems could result in periods when assets of a Fund are uninvested and
no return is earned thereon. The inability of a Fund to make intended security
purchases due to settlement problems or the risk of intermediary counterparty
failures could cause a Fund to forego attractive investment opportunities. The
inability to dispose of a portfolio security due to settlement problems could
result either in losses to a Fund due to subsequent declines in the value of
such portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
Rules adopted under the 1940 Act permit a Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and
securities depositories. Certain banks in foreign countries may not be 'eligible
sub-custodians,' as defined in the 1940 Act, for a Fund, in which event the Fund
may be precluded from purchasing securities in certain foreign countries in
which it otherwise would invest or which may result in the Fund's incurring
additional costs and delays in providing transportation and custody services for
such securities outside of such countries. A Fund may encounter difficulties in
effecting on a timely basis portfolio transactions with respect to any
securities of issuers held outside their countries. Other banks that are
eligible foreign sub-custodians may be recently organized or otherwise lack
extensive operating experience. In addition, in certain countries there may be
legal restrictions or limitations on the ability of a Fund to recover assets
held in custody by foreign sub-custodians in the event of the bankruptcy of the
sub-custodian.
U.S. GOVERNMENT OBLIGATIONS
In addition to the U.S. Treasury obligations described in each 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 ('Ginnie Maes')); (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
('Freddie Macs')). 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.
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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
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' above. None of the Funds will
purchase bank obligations which SBAM or the applicable sub-adviser 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.
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.
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
Certain Funds may invest in floating and variable rate obligations.
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 purchased by a 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. A Fund will limit its purchases of floating
and variable rate obligations to those of the same quality as it otherwise is
allowed to purchase. SBAM or the applicable sub-adviser will monitor on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand.
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
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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 in which case the instrument will be characterized as
'not readily marketable' and therefore illiquid.
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.
FIXED-INCOME SECURITIES
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
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.
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. The pool of assets generally represents the obligations
of a number of different parties. Asset-backed securities frequently carry
credit protection in the form of extra collateral, subordinated 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 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.
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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 generally
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
Each of the Funds, except the Cash Management Fund, the New York Municipal
Money Market Fund and the National Intermediate Municipal Fund, may lend
portfolio securities to brokers or dealers or other financial institutions. The
Capital Fund may lend portfolio securities to selected member firms of the New
York Stock Exchange ('NYSE'). 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 or cash equivalents 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. Each of the U.S.
Government Income Fund, the High Yield Bond Fund, the Strategic Bond Fund, the
Total Return Fund, the Asia Growth Fund, the Investors Fund and the Capital Fund
did not lend any of its portfolio securities during 1996 and with the exception
of the Capital Fund and the Investors Fund, each of these Funds has no present
intention to do so. The International Growth Fund and the Small Cap Growth Fund
have no present intention to lend any of their portfolio securities.
The foregoing policy regarding the lending of portfolio securities is a
fundamental policy of the Capital Fund which may be changed only when approved
by the holders of a majority of the Fund's outstanding voting securities, as
defined in the 1940 Act.
RULE 144A SECURITIES
As indicated in each Prospectus, certain Funds may purchase certain
restricted securities ('Rule 144A securities') for which there is a secondary
market of qualified institutional buyers, as defined in Rule 144A promulgated
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 'SEC') 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. Pursuant to those policies
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and procedures, each Board of Directors has delegated to the investment manager
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. The investment manager, 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,
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,
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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' 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, the Federal National
Mortgage Association ('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 '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
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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 known as
'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. The investment manager believes that economic reforms
undertaken by countries in connection with the issuance of Brady Bonds may 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 Standard & Poor's
Corporation ('S&P') or 'Ba' or 'B' by Moody's Investors Service, Inc.
('Moody's') or, in cases in which a rating by S&P or Moody's has not been
assigned, are generally considered by the investment manager 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
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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 1% above the then current six month London Inter-Bank Offered
Rate ('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 these
Funds may invest are likely to be acquired at a discount, which involves certain
considerations discussed below under 'Additional Information Concerning Taxes.'
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
Collateralized Mortgage Obligations ('CMOs ') with a coupon rate that moves
inversely to a designated index, such as LIBOR 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.
INVESTMENT FUNDS
Each Fund may invest in unaffiliated investment funds which invest
principally in securities in which that Fund is authorized to invest, in
accordance with the limits of the 1940 Act. Each Fund may invest a maximum of
10% of its total assets in the securities of other investment companies. In
addition, under the 1940 Act, not more than 5% of the Fund's total assets may be
invested in the securities of any one investment company. To the extent a Fund
invests in other investment funds, the Fund's shareholders will incur certain
duplicative fees
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and expenses, including investment advisory fees. A Fund's investment in certain
investment funds will result in special U.S. Federal income tax consequences
described below under 'Taxation.'
HIGH YIELD SECURITIES
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may affect the value of high yield securities. A description of the
ratings used by Moody's and S&P is set forth in Appendix A to each 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 or liquidity of the
securities. Ratings of a non-U.S. debt instrument, to the extent that those
ratings are undertaken, are related to evaluations of the country in which the
issuer of the instrument is located. Ratings generally take into account the
currency in which a non-U.S. debt instrument is denominated. Instruments issued
by a foreign government in other than the local currency, for example, typically
have a lower rating than local currency instruments due to the existence of an
additional risk that the government will be unable to obtain the required
foreign currency to service its foreign currency-denominated debt. In general,
the ratings of debt securities or obligations issued by a non-U.S. public or
private entity will not be higher than the rating of the currency or the foreign
currency debt of the central government of the country in which the issuer is
located, regardless of the intrinsic creditworthiness of the issuer.
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. 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.
Prices for high yield securities may be affected by legislative and
regulatory developments. These laws could adversely affect a Fund's net asset
value and investment practices, the secondary market for high yield securities,
the financial condition of issuers of these securities and the value of
outstanding high yield securities. For example, federal legislation requiring
the divestiture by federally insured savings and loan associations of their
investments in high yield bonds and limiting the deductibility of interest by
certain corporate issuers of high yield bonds adversely affected the market in
recent years.
Issuers of these securities are often highly leveraged and may not have
more traditional methods of 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.
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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).
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 market 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
U.S. dollars, its ability to make debt payments denominated in U.S. 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 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.
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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 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
'Additional Information Concerning Taxes.'
Sovereign obligors in developing and emerging market 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.
DERIVATIVES
Forward Currency Exchange Contracts. As indicated in each Prospectus, in
order to hedge against currency exchange rate risks or to increase income or
gain, 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 the investment
manager deems creditworthy. In connection with a Fund's forward currency
transactions, the Fund will set aside a segregated account consisting of cash,
cash equivalents or high quality debt securities in an amount equal to the
amount of the contract, to be used
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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 each Prospectus, a
Fund may enter into forward currency exchange contracts when the investment
manager 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 each Prospectus, each Fund may trade
futures contracts: (1) on domestic and foreign exchanges on currencies, interest
rates and bond indices; 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 each Fund, where permitted,
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 Contracts. 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 each class 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 the investment manager 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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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 potential decrease in market value of securities in its portfolio.
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 each Prospectus, in order to hedge against adverse
market shifts or to increase income or gain, 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, cash equivalents, 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 each 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 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
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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 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 ('OTC options') are purchased from or sold to
securities dealers, financial institutions or other parties, through direct
bilateral agreement with such counterparties. The staff of the SEC considers OTC
options to be illiquid securities. A Fund will purchase and sell
over-the-counter options only from and to counterparties which the investment
manager 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
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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 or gain 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 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 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 the investment manager 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 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, the investment manager 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 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 or gain, 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 or gain 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
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or to achieve a particular return on cash balances, or in order to increase
income or gain. 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
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 the investment manager deems to be
creditworthy. The investment manager 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. The
investment manager determined that, as a result, the swap market is 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, cash equivalents or other 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 the
investment manager 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 the investment manager 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 the investment manager 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 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
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and sell caps, floors and collars without limitation, subject to the segregated
account requirement described above.
PORTFOLIO TURNOVER
Purchases and sales of portfolio securities may be made as considered
advisable by the 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. 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. See 'Portfolio Transactions.'
With respect to each of the Cash Management Fund and the New York Municipal
Money Market Fund, SBAM 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 and the New York Municipal Money Market 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 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 and the New York Municipal
Money Market Fund should continue to hold the security. The policy of each of
the Cash Management Fund and the New York Municipal Money Market 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 and the New York Municipal Money
Market Fund in the form of dealer spreads.
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SPECIAL FACTORS AFFECTING THE FUND'S INVESTMENT
IN NEW YORK MUNICIPAL OBLIGATIONS
Some of the significant financial considerations relating to the
investments of the New York Municipal Money Market 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. All information contained in this section
is as of April 29, 1997. 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
general obligation 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 general obligation debt that may be
so authorized and subsequently incurred by the State. With the exception of
general obligation housing bonds (which must be paid in equal annual
installments or installments that result in substantially level or declining
debt service payments, within 50 years after issuance, commencing no more than
three years after issuance), general obligation bonds must be paid in equal
annual installments or installments that result in substantially level or
declining debt service payments, within 40 years after issuance, beginning not
more than one year after issuance of such bonds.
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. State-guaranteed bonds issued by the
Thruway Authority were fully retired on July 1, 1995.
Payments of debt service on State general obligation and State-guaranteed
bonds and notes are legally enforceable obligations of the State.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financing, which involve obligations of public
authorities or municipalities that are State-supported but not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally
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expressly made subject to appropriation by the Legislature and the actual
availability of money to the State for making the payments. The State has also
entered into a contractual-obligation financing arrangement with the New York
Local Government Assistance Corporation ('LGAC') to restructure the way the
States makes certain local aid 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 interested in acquiring operational equipment, or in
certain cases, real property. Legislation enacted in 1986 established
restrictions upon and centralized State control, through the Comptroller and the
Director of the Budget, over the issuance of COPs representing the State's
contractual obligation, subject to annual appropriation by the Legislature and
availability of money, to make installment or lease-purchase payments for the
State's acquisition of such equipment or real property.
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 although there can be no assurance that such a default or call
will not occur in the future.
The State also employs moral obligations financing. Moral obligation
financing generally involves the issuance of debt by a public authority to
finance a revenue-producing project or other activity. The debt is secured by
project revenues and includes statutory provisions requiring the State, subject
to appropriation by the Legislature, to make up any deficiencies which may occur
in the issuer's debt service reserve fund. There has never been a default on any
moral obligation debt of any public authority although there can be no assurance
that such a default will not occur in the future. The State does not intend to
increase statutory authorizations for moral obligation bond programs. From 1976
through 1987, the State was called upon to appropriate and make payments
totaling $162.8 million to make up deficiencies in the debt service reserve
funds of the Housing Finance Agency pursuant to moral obligation provisions. In
the same period, the State also expended additional funds to assist the Project
Finance Agency, the Urban Development Corporation ('UDC') and other public
authorities which had moral obligation debt outstanding. The State has not been
called upon to make any payments pursuant to any moral obligations since the
1986-87 fiscal year and no such requirements are anticipated by the State during
the 1996-97 fiscal year although there can be no assurance in this regard.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and public authorities in the 1996-97 fiscal
year. The State expects to issue $411 million in general obligation bonds
(including $153.6 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $101 million in COPs during the State's 1996-97
fiscal year for equipment purchases. The projection of the State regarding its
borrowings for the 1996-97 fiscal year may change if circumstances require.
Borrowings by other public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total $2.15 billion, including costs of issuances, reserve funds,
and other costs, net of anticipated refundings and other adjustments for 1996-97
capital projects. Included therein are borrowings by (i) DASNY for SUNY, The
City University of New York ('CUNY'), health facilities, and mental health
facilities; (ii) Thruway Authority for the Dedicated Highway and Bridge Trust
Fund and Consolidated Highway Improvement Program; (iii) UDC (doing business as
the Empire State Development Corporation) for prison and youth facilities; (iv)
the Housing Finance Agency ('HFA') for housing programs; and (v) borrowings by
the Environmental Facilities Corporation ('EFC') or other authorities. In
addition, the Legislature has authorized DASNY to refinance a $787 million
pension obligation of the State.
In the 1996 legislative session, the Legislature approved the Governor's
proposal to present to the voters in November 1996 a $1.75 billion State general
obligation bond referendum to finance various environmental improvement and
remediation projects. The Clean Water/Clean Air Bond Act of 1996 was approved by
the voters at a general election in November, 1996. The amount of general
obligation bonds issued during the 1996-97 fiscal
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year may increase above the $411 million currently included in the 1996-97
Borrowing Plan to finance a portion of this new program.
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. In 1995, the State created the Municipal Assistance Corporation for the
City of Troy ('Troy MAC'). The bonds expected to be issued by Troy MAC would not
be subject to the State's moral obligation.
State Financial Operations. During the 1982-83 recession, overall economic
activity in the State declined less than that of the nation as a whole. However,
in the calendar years 1987 through 1995, the State's rate of economic growth was
somewhat slower than that of the nation. In particular, during the 1990-91
recession and post-recession period, the economy of the State, and that of the
rest of the Northeast, was more heavily damaged than that of the nation as a
whole and has been slower to recover. The total employment growth rate in the
State has been below the national average since 1987. The unemployment rate in
the State dipped below the national rate in the second half of 1981 and remained
lower until 1991; since then, it has been higher. According to data published by
the U.S. Bureau of Economic Analysis, during the past ten years, total personal
income in the State rose slightly faster than the national average only from
1986 through 1988.
State per capita personal income has historically been significantly higher
than the national average, although the ratio has varied substantially. Because
the City is a regional employment center for a multi-state region, state
personal income measured on a residence basis understates the relative
importance of the State to the national economy and the size of the base to
which State taxation applies.
The national economy has resumed a more robust rate of growth after a 'soft
landing' in 1995, with over 11 million jobs added nationally since early 1992.
The State economy has continued to expand, but growth remains somewhat slower
than in the nation. Although the State has added approximately 240,000 jobs
since late 1992, employment growth in the State has been hindered during recent
years by significant cutbacks in the computer and instrument manufacturing,
utility, defense, and banking industries. Government downsizing has also
moderated these job gains.
The State Division of Budget ('DOB') forecasts that national economic
growth will be quite strong in the first half of calendar 1996, but will
moderate considerably as the year progresses. The overall growth rate of the
national economy during calendar year 1996 is expected to be just slightly below
the 'consensus' of a widely followed survey of national economic forecasters.
Growth in real Gross Domestic Product during 1996 and 1997 is projected to be
moderate at 2.3 percent followed by a 2.4 percent increase in 1998, with
anticipated declines in federal spending and net exports more than offset by
increases in consumption and investment. Inflation, as measured by the Consumer
Price Index, is projected to be contained at about 3 percent due to moderate
wage growth and foreign competition. The inflation rate is expected to remain
stable at 2.9 percent in 1997 and decrease to 2.8 percent in 1998. Personal
income and wages are projected to increase by about 5 percent and to slow
accordingly in 1997 and 1998.
The forecast of the State's economy shows modest expansion during the first
half of calendar 1996, but some slowdown was projected during the second half of
the year. Although industries that export goods and services are expected to
continue to do well, growth is expected to be slowed by government cutbacks at
all levels and by tight fiscal constraints on health and social services. On an
average annual basis, employment growth in the State for 1996 was expected to be
up slightly from the 1995 rate. Moderate growth is
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projected to continue in 1997 for employment, wages, and personal income,
followed by a slight slowing in 1998. Personal income is estimated to have grown
by 5.2 percent in 1996, fueled in part by an unusually large increase in
financial sector bonus payments, and is projected to grow 4.5 percent in 1997
and 4.2 percent in 1998. Overall employment growth will continue at a modest
rate, reflecting the moderate growth of the national economy, continued spending
restraint in government, and restructuring in the health care, social service,
and banking sectors.
There can be no assurance that these forecasts will prove to be accurate.
For example, the forecast for continued slow growth, and any resultant impact on
the State's 1996-97 Financial Plan, contains some uncertainties.
Stronger-than-expected gains in employment could lead to a significant
improvement in consumption spending. Investments could also remain robust.
Conversely, the prospect of a continuing deadlock on federal budget deficit
reduction or fears of excessively rapid economic growth could create upward
pressures on interest rates. In addition, the State economic forecast could
over- or underestimate the level of future bonus payments or inflation growth,
resulting in forecasted average wage growth that could differ significantly from
actual growth. Similarly, the State forecast could fail to correctly account for
expected declines in government and banking employment and the direction of
employment change that is likely to accompany telecommunications deregulation.
The State's 1996-97 fiscal year commenced on April 1, 1996, and ended on
March 31, 1997, and is referred to herein as the State's 1996-97 fiscal year.
The State's budget for the 1996-97 fiscal year was enacted by the
Legislature on July 13, 1996, more than three 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 necessary appropriations for all State-supported
debt service. The State Financial Plan for the 1996-97 fiscal year was
formulated on July 25, 1996 and is based on the State's budget as enacted by the
Legislature and signed into law by the Governor, as well as actual results for
the first quarter of the current fiscal year. The State is required to issue
three quarterly updates to the cash-basis State Financial Plan in July, October,
and January, respectively. These updates reflect analysis of actual receipts and
disbursements on a cash basis for each respective period, and contain revised
estimates of receipts and disbursements for the then current fiscal year.
The State issued its first update to the cash-basis 1996-97 State Financial
Plan (the 'Mid-Year Update') on October 25, 1996. As part of the release of the
1997-98 Executive Budget, the State updated its 1996-97 cash-basis State
Financial Plan (the 'Third Quarter Update') on January 14, 1997.
After adjustments for comparability between fiscal years, the adopted
1996-97 budget projects a year-over-year increase in General Fund disbursements
of 0.2 percent. Adjusted State Funds (excluding federal grants) disbursements
are projected to increase by 1.6 percent from the prior fiscal year. All
Government Funds projected disbursements increase by 4.1 percent over the prior
fiscal year, after adjustments for comparability.
TABLE 1
CASH DISBURSEMENT COMPARISON
1995-96 TO 1996-97
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
ADOPTED PERCENT
ADJUSTED BUDGET CHANGE
ACTUAL PROJECTION FROM
1995-96 1996-97 1995-96
-------- ---------- --------
<S> <C> <C> <C>
General Fund(1)........................................... 33,042 33,123 0.2
State Funds(2)............................................ 43,057 43,726 1.6
All Governmental Funds(2)................................. 63,499 66,125 4.1
</TABLE>
- ------------
Source: State Division of the Budget.
(footnotes continued on next page)
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(footnotes continued from previous page)
(1) 1995-96 reported totals are increased to reflect the use of $271 million in
LGAC bond proceeds to finance education aid that otherwise would have been
financed in the General Fund, and the reclassification of $92 million of
spending formerly budgeted in Special Revenue Funds that is now budgeted in
the General Fund for 1996-97.
(2) 1995-96 reported totals are increased to reflect the use of $271 million in
LGAC bond proceeds to finance education aid that otherwise would have been
financed in the General Fund.
The 1996-97 State Financial Plan is projected to be balanced on a cash
basis. As compared to the Governor's proposed budget as revised on March 20,
1996, the State's adopted budget for 1996-97 increases General Fund spending by
$842 million, primarily from increases for education, special education and
higher education ($563 million). The balance represents funding increases to a
variety of other programs, including community projects and increased assistance
to fiscally distressed cities. Resources used to fund these additional
expenditures include $540 million in increased revenues projected for 1996-97
based on higher-than-projected tax collections during the first half of calendar
1996, $110 million in projected receipts from a new State tax amnesty program,
and other resources including certain non-recurring resources. The total amount
of non-recurring resources included in the 1996-97 State budget is projected by
DOB to be $1.3 billion, or 3.9 percent of total General Fund receipts.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. In addition, 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. The Division of Budget believes that
its projections of receipts and disbursements relating to the current State
Financial Plan, and the assumptions on which they are based, are reasonable.
There can be no assurance that these forecasts will prove to be accurate. For
example, actual results could differ materially and adversely from the projected
results and those projections may be changed materially and adversely from time
to time. There are also risks and uncertainties concerning the future-year
impact of actions taken in the 1996-97 budget.
The following discussion summarizes updates to the 1996-97 State Financial
Plan 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 principal 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 1996-97 fiscal year, the General Fund is expected by the State to
account for approximately 47 percent of total governmental-fund receipts and 71
percent of total State Funds 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
1996-97 fiscal year. Total receipts and transfers from other funds are projected
to be $33.17 billion, an increase of $365 million from the prior fiscal year.
Total General Fund disbursements and transfers to
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other funds are projected to be $33.12 billion, an increase of $444 million from
the total in the prior fiscal year.
As of the Third Quarter Update, the 1996-97 General Fund Financial Plan
continues to be balanced. The Division of the Budget projects that, prior to
taking the actions described below, the General Fund Financial Plan would have
shown an operating surplus of approximately $1.3 billion. These actions include
implementing reduced personal income tax withholding to reflect the impact of
tax reduction actions which took effect on January 1, 1997. This has the effect
of raising taxpayer's current take-home pay rather than requiring taxpayers to
wait until the spring of 1998 for larger refunds. The Financial Plan assumes the
use of $250 million for this purpose. In addition, $943 million is projected to
be used to pay tax refunds during the 1996-97 fiscal year or reserved to pay
refunds during the 1997-98 fiscal year, which produces a benefit for the 1997-98
Financial Plan (see below). Finally, $65 million is projected to be deposited
into the Tax Stabilization Reserve Fund (the 'TSRF') (in addition to the
required deposit of $15 million), increasing the cash balance in that fund to
$317 million by the end of 1996-97.
The projected surplus results primarily from growth in the underlying
forecast for projected receipts. As compared to the enacted budget, revenues are
expected to increase by more than $1 billion, while disbursements are expected
to fall by $228 million. These changes from original Financial Plan projections
reflect actual results through December 1996 as well as modified economic and
social services caseload projections for the balance of the fiscal year.
The General Fund closing balance is expected to be $358 million at the end
of 1996-97. Of this amount, $317 million would be on deposit in the TSRF, while
another $41 million would remain on deposit in the Contingency Reserve Fund (the
'CRF') as a reserve for litigation or other unbudgeted costs to the Financial
Plan. The TSRF had an opening balance of $237 million, to be supplemented by a
required payment of $15 million and an extraordinary deposit of $65 million from
surplus 1996-97 monies. The $9 million on deposit in the Revenue Accumulation
Fund will be drawn down as planned. A planned deposit of $85 million to the CRF,
projected to be received from contractual efforts to maximize federal revenue,
is no longer expected to be deposited this year.
In addition to the General Fund, the State Financial Plan includes Special
Revenue Funds, Capital Projects Funds and Debt Service Funds.
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 43 percent
of total government funds receipts and disbursements in the 1996-97 fiscal year,
about three-quarters of that activity relates to Federally-funded programs.
Projected receipts in this fund type total $28.04 billion, an increase of
$2.43 billion (9.5 percent) over the prior year. Projected disbursements in this
fund type total $28.51 billion, an increase of $2.25 billion (8.6 percent) over
1995-96 levels. Disbursements from federal funds, primarily the federal share of
Medicaid and other social services programs, are projected to total $21.31
billion in the 1996-97 fiscal year. Remaining projected spending of $7.20
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.
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 1996-97 fiscal year, activity in these funds
is expected to comprise 6 percent of total governmental receipts and
disbursements.
Total receipts in this fund type are projected at $3.58 billion.
Disbursements from this fund type are projected to be $3.85 billion, a decrease
of $120 million (3.1 percent) over
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prior-year levels, due in part to a reclassification of economic development
projects to the category of grants to local governments in the General Fund. The
Dedicated Highway and Bridge Trust Fund is the single largest dedicated fund,
comprising an estimated $920 million (24 percent) of the activity in this fund
type. Total spending for capital projects will be financed through a combination
of sources: federal grants (28 percent), public authority bond proceeds (34
percent), general obligation bond proceeds (12 percent), and pay-as-you-go
revenues (26 percent).
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 1996-97 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
other funds established to accumulate moneys for the payment of debt service. In
the 1996-97 fiscal year, total disbursements in this fund type are projected at
$2.58 billion, an increase of $164 million or 6.8 percent. The projected
transfer from the General Fund of $1.59 billion is expected to finance 62
percent of these payments.
The remaining payments are expected to be financed by pledged revenues,
including $1.83 billion in taxes, $234 million in dedicated fees, and $2.35
billion in patient revenues, including transfers of federal and state
reimbursements and state dedicated taxes. After required impoundment for debt
service, $3.7 billion is expected to be transferred to the General Fund and
other funds in support of State operations. The largest transfer -- $1.9
billion -- is made to the Special Revenue Fund type in support of operations of
the mental hygiene agencies. Another $1.4 billion in excess sales taxes is
expected to be transferred to the General Fund, following payment of projected
debt service on LGAC bonds.
A narrative description of cash-basis results in the General Fund for the
prior three fiscal years is presented below, as well as a brief summary of
activity in the Special Revenue Funds, Capital Projects Funds and Debt Service
Funds for the prior three fiscal years.
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. A national recession, followed by the lingering economic slowdown in the
New York and regional economy, resulted in repeated shortfalls in receipts and
three budget deficits during those years. During its last four fiscal years,
however, the State has recorded balanced budgets on a cash basis, with positive
fund balances as described below.
The State ended its 1995-96 fiscal year on March 31, 1996 with a General
Fund cash surplus. The Division of the Budget reported that revenues exceeded
projections by $270 million, while spending for social service programs was
lower than forecast by $120 million and all other spending was lower by $55
million. From the resulting benefit of $445 million, a $65 million voluntary
deposit was made into the TSRF, and $380 million was used to reduce 1996-97
Financial Plan liabilities by accelerating 1996-97 payments, deferring 1995-96
revenues, and making a deposit to the tax refund reserve account.
The General Fund closing fund balance was $287 million, an increase of $129
million from 1994-95 levels. The $129 million change in fund balance is
attributable to the $65 million voluntary deposit to the TSRF, a $15 million
required deposit to the TSRF, a $40 million deposit to the CRF, and a $9 million
deposit to the Revenue Accumulation Fund. The closing fund balance includes $237
million on deposit in the TSRF, to be used in the event of any future General
Fund deficit as provided under the State Constitution and State Finance Law. In
addition, $41 million is on deposit in the CRF. The CRF was established in State
fiscal year 1993-94 to assist the State in financing the costs of extraordinary
litigation. The remaining $9 million reflects amounts on deposit in the Revenue
Accumulation Fund. This fund was created to hold certain tax receipts
temporarily before their deposit to other accounts. In addition, $678 million
was on deposit in the tax refund reserve account, of which
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$521 million was necessary to complete the restructuring of the State's cash
flow under the LGAC program.
General Fund receipts totaled $32.81 billion, a decrease of 1.1 percent
from 1994-95 levels. This decrease reflects the impact of tax reductions enacted
and effective in both 1994 and 1995. General Fund disbursements totaled $32.68
billion for the 1995-96 fiscal year, a decrease of 2.2 percent from 1994-95
levels. Mid-year spending reductions, taken as part of a management review
undertaken in October at the direction of the Governor, yielded savings from
Medicaid utilization controls, office space consolidation, overtime and
contractual expense reductions, and statewide productivity improvements achieved
by State agencies. Together with decreased social services spending, this
management review accounts for the bulk of the decline in spending.
The State ended its 1994-95 fiscal year with the General Fund in balance.
The $241 million decline in the fund balance reflects the planned use of $264
million from the CRF, partially offset by the required deposit of $23 million to
the TSRF. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited to continue the process of
restructuring the State's cash flow as part of the LGAC program. The closing
fund balance of $158 million reflects $157 million in the TSRF and $1 million in
the CRF.
General Fund receipts totaled $33.16 billion, an increase of 2.9 percent
from 1993-94 levels. General Fund disbursements totaled $33.40 billion for the
1994-95 fiscal year, an increase of 4.7 percent from the previous fiscal year.
The increase in disbursements was primarily the result of one-time litigation
costs for the State, funded by the use of the CRF, offset by $188 million in
spending reductions initiated in January 1995 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.
The State ended its 1993-94 fiscal year with a General Fund cash surplus,
primarily the result of an improving national economy, State employment growth,
tax collections that exceeded earlier projections and disbursements that were
below expectations. A deposit of $268 million was made to the CRF, with a
withdrawal during the year of $3 million, and a deposit of $67 million was made
to the TSRF. These three transactions result in the change in fund balance of
$332 million. In addition, a deposit of $1.14 billion was made to the tax refund
reserve account, of which $1.03 billion was available for budgetary purposes in
the 1994-95 fiscal year. (For more information on the personal income tax refund
reserve account, see Table 5.) 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 General Fund closing balance was $399 million, of which $265
million was on deposit in the CRF and $134 million in the TSRF. The CRF was
initially funded with a transfer of $100 million attributable to a positive
margin recorded in the 1992-93 fiscal year.
General Fund receipts totaled $32.23 billion, an increase of 2.6 percent
from 1992-93 levels. General Fund disbursements totaled $31.90 billion for the
1993-94 fiscal year, 3.5 percent higher than the previous fiscal year. Receipts
were higher in part due to improved tax collections from renewed State economic
growth, although the State continued to lag behind the national economic
recovery. Disbursements were higher due in part to increased local assistance
costs for school aid and social services, accelerated payment of certain
Medicaid expenses, and the cost of an additional payroll for State employees.
Activity in the three other governmental funds has remained relatively
stable over the last three fiscal years, with federally-funded programs
comprising approximately two-thirds of these funds. The most significant change
in the structure of these funds has been the redirection, beginning in the
1993-94 fiscal year, of a portion of transportation-related revenues from the
General Fund to two new dedicated funds in the Special Revenue and Capital
Projects Fund types. These revenues are used to support the capital programs of
the Department of Transportation and the MTA.
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In the Special Revenue Funds, disbursements increased from $22.72 billion
to $26.26 billion over the last three years, primarily as a result of increased
costs for the federal share of Medicaid. Other activity reflected dedication of
taxes to a new fund for mass transportation, new lottery games, and new fees for
criminal justice programs.
Disbursements in the Capital Projects Funds grew from $3.10 billion to
$3.97 billion over the last three years, as spending for transportation and
mental hygiene programs increased, partially offset by declines for corrections
and environmental programs. The composition of this fund type's receipts also
changed as the dedicated transportation taxes began to be deposited, general
obligation bond proceeds declined substantially, federal grants remained stable,
and reimbursements from public authority bonds (primarily transportation
related) increased. The increase in the negative fund balance in 1994-95
resulted from delays in reimbursements caused by delays in the timing of public
authority bond sales.
Activity in the Debt Service Funds reflected increased use of bonds during
the three-year period for improvements to the State's capital facilities and the
continued implementation of the LGAC fiscal reform program. The increases were
moderated by the refunding savings achieved by the State over the last several
years using strict present value savings criteria. The growth in LGAC debt
service was offset by reduced short-term borrowing costs reflected in the
General Fund.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. These factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. For example, various proposals relating
to federal tax and spending policies that are currently being publicly discussed
and debated could, if enacted, have a significant impact on the State's
financial condition in the current and future fiscal years. Because of the
uncertainty and unpredictability of the changes, their impact cannot, as a
practical matter, be included in the assumptions underlying the State's
projections at this time.
The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of State
and national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. 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, the extent of
corporate and governmental restructuring, federal fiscal and monetary policies,
the level of interest rates, and the condition 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 current fiscal year that are worse
than predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are based
on the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. In preparing projections of State receipts, economic forecasts
relating to personal income, wages, consumption, profits and employment have
been particularly important. The projection of receipts from most tax or revenue
sources is generally made by estimating the change in yield of such tax or
revenue source caused by economic and other factors, rather than by estimating
the total yield of such tax or revenue source from its estimated tax base. The
forecasting methodology, however, ensures that State fiscal year estimates for
taxes that are based on a computation of annual liability, such as the business
and personal income taxes, are consistent with estimates of total liability
under such taxes.
Projections of total State disbursements are based on assumptions relating
to economic and demographic factors, levels of disbursements for various
services provided by local governments (where the cost is partially reimbursed
by the State), and the results of various administrative and statutory
mechanisms in controlling disbursements for State operations.
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Factors that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the policies
of the federal government, and changes in the demand for and use of State
services.
The Division of the Budget believes that its projections of receipts and
disbursements relating to the current State Financial Plan, and the assumptions
on which they are based, are reasonable. Actual results, however, could differ
materially and adversely from the projections set forth in this Annual
Information Statement. In the past, the State has taken management actions and
made use of internal sources to address potential State Financial Plan
shortfalls, and DOB believes it could take similar actions should variances
occur in its projections for the current fiscal year.
In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy, actions
of the federal government and other factors, have created structural budget gaps
for the State. These gaps resulted from a significant disparity between
recurring revenues and the costs of maintaining or increasing the level of
support for State programs. To address a potential imbalance in any 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.
There can be no assurance, however, that the Legislature will enact the
Governor's proposals or 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.
The Governor presented his 1997-98 Executive Budget to the Legislature on
January 14, 1997. The Executive Budget also contains financial projections for
the State's 1998-99 and 1999-2000 fiscal years, detailed estimates of receipts
and an updated Capital Plan. It is expected that the Governor will prepare
amendments to his Executive Budget as permitted under law and that these
amendments will be reflected in a revised Financial Plan which was scheduled to
be released on or before February 13, 1997. There can be no assurance that the
Legislature will enact the Executive Budget as proposed by the Governor into
law, or that the State's adopted budget projections will not differ materially
and adversely from the projected budget.
The 1997-98 Financial Plan projects balance on a cash basis in the General
Fund. It reflects a continuing strategy of substantially reduced State spending,
including program restructurings, reductions in social welfare spending, and
efficiency and productivity initiatives. Total General Fund receipts and
transfers from other funds are projected to be $32.88 billion, a decrease of $88
million from total receipts projected in the current fiscal year. Total General
Fund disbursements and transfers to other funds are projected to be $32.84
billion, a decrease of $56 million from spending totals projected for the
current fiscal year. As compared to the 1996-97 State Financial Plan, the
Executive Budget proposes a year-to-year decline in General Fund spending of 0.2
percent. State funds spending (i.e., General Fund plus other dedicated funds,
with the exception of federal aid) is projected to grow by 1.2 percent. Spending
from All Governmental Funds (excluding transfers) is proposed to increase by 2.2
percent from the prior fiscal year.
The Executive Budget proposes $2.3 billion in actions to balance the
1997-98 Financial Plan. Before reflecting any actions proposed by the Governor
to restrain spending, General Fund disbursements for 1997-98 were projected to
grow by approximately 4 percent. This increase would have resulted from growth
in Medicaid, higher fixed costs such as pensions and debt service, collective
bargaining agreements, inflation, and the loss of non-recurring resources that
offset spending in 1996-97. General Fund receipts were projected to fall by
roughly 3 percent. This reduction would have been attributable to modest growth
in the State's economy and underlying tax base, the loss of non-recurring
revenues available in 1996-97 and implementation of previously enacted tax
reduction programs.
The Executive Budget proposes to close this gap primarily through a series
of spending reductions and Medicaid cost containment measures, the use of a
portion of the 1996-97 projected budget surplus, and other actions. The 1997-98
Financial Plan projects receipts of $32.88 billion and spending of $32.84
billion, allowing for a deposit of $24 million into the
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CRF and a year-ending CRF reserve of $65 million, and a required repayment of
$15 million to the TSRF.
The Division of the Budget believes that the economic assumptions and
projections of receipts and disbursements accompanying the 1997-98 Executive
Budget are reasonable. However, the economic and financial condition of the
State may be affected by various financial, social, economic and political
factors. Those factors can be very complex, can vary from fiscal year to fiscal
year, and are frequently the result of actions taken not only by the State but
also by entities, such as the federal government, that are outside the State's
control. Because of the uncertainty and unpredictability of changes in these
factors, their impact cannot be fully included in the assumptions underlying the
State's projections. There can be no assurance that the State economy will not
experience results that are worse than predicted, with corresponding material
and adverse effects on the State's financial projections.
To make progress toward addressing recurring budgetary imbalances, the
1997-98 Executive Budget proposes significant actions to align recurring
receipts and disbursements in future fiscal years. However, there can be no
assurance that the Legislature will enact the Governor's proposals or that the
State's actions will be sufficient to preserve budgetary balance or to align
recurring receipts and disbursements in either 1997-98 or in future fiscal
years.
In addition, there has been discussion of additional tax reductions, beyond
those reflected in the State's current projections for 1997-98 and the out years
that, if enacted, could make it more difficult to achieve budget balance over
this period. In particular, modifying the State's sales tax treatment of
clothing has been discussed. The State now receives approximately $700 million
annually under the current tax statutes from taxation on clothing, and
localities receive a roughly equivalent amount.
Uncertainties with regard to both the economy and potential decisions at
the federal level add further pressure on future budget balance in New York
State. Risks to the Financial Plan include either a financial market or broader
economic 'correction' during the period, a risk heightened by the relatively
lengthy expansions currently underway. In addition, a normal 'forecast error' of
one percentage point in the expected growth rate could raise or lower receipts
by $600 million during the last year of the projection period. Potential changes
to federal tax law could alter the federal definitions of income on which many
State taxes rely. Similarly, the Financial Plan assumes no significant federal
disallowances or other actions which could affect State finances.
On August 22, 1996, the President signed into law the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996 (the '1996
Welfare Act'). This federal legislation fundamentally changed the programmatic
and fiscal responsibilities for administration of welfare programs at the
federal, state and local levels. The new law abolishes the federal Aid to
Families with Dependent Children program ('AFDC'), and creates a new Temporary
Assistance to Needy Families program ('TANF') funded with a fixed federal block
grant to states. The new law also imposes (with certain exceptions) a five-year
durational limit on TANF recipients, requires that virtually all recipients be
engaged in work or community service activities within two years of receiving
benefits, and limits assistance provided to certain immigrants and other classes
of individuals. States are required to meet work activity participation targets
for their TANF caseload; these requirements are phased in over time. States that
fail to meet these federally mandated job participation rates, or that fail to
conform with certain other federal standards, face potential sanctions in the
form of a reduced federal block grant.
On October 16, 1996, the Governor submitted the State's TANF implementation
plan to the federal government as required under the new federal welfare law. On
December 13, 1996, the State's plan was approved by the federal government.
Legislation will be required to implement the State's TANF plan, and the
Governor has introduced legislation necessary to conform with federal law.
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States are required to comply with the new federal welfare reform law no
later than July 1, 1997. There can be no assurances that the State Legislature
will enact welfare reform proposals as submitted by the Governor and as required
under federal law.
An additional risk to the 1997-98 State Financial Plan arises from the
potential impact of certain litigation now pending against the State, which
could produce adverse effects on the State's projections of receipts and
disbursements. However, the Division of the Budget believes that certain court
decisions discussed in the section entitled 'Litigation' below will not have a
material impact on the current Financial Plan although there can be no assurance
in this regard. Specifically, in the case of Tug Buster Bouchard et al. v.
Wetzler, the Division of the Budget believes that the court's decision, as
interpreted by the State, will reduce tax revenues by approximately $5 million
in 1997-98 and $2 million thereafter.
On February 14, 1994, Standard & Poor's ('S&P') revised its outlook on the
State's general obligation bonds to positive and, on August 5, 1995, confirmed
its A - rating. 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 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. Prior to this, 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.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 10, 1997, Moody's confirmed its A2 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.
Authorities. The fiscal stability of the State is related, in part, to the
fiscal stability of its Public authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Public 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, 1995 there were 17
Authorities that had outstanding debt of $100 million or more, and the aggregate
outstanding debt, including refunding bonds, of all state Public authorities was
$73.45 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.
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,
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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.
Since 1980, 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 1996-97 fiscal year, total State assistance to the MTA is estimated by the
State to be approximately $1.09 billion.
State legislation accompanying the 1996-97 adopted State budget authorized
the MTA, TBTA and TA to issue an aggregate of $6.5 billion in bonds to finance a
portion of a new $11.98 billion MTA capital plan for the 1995 through 1999
calendar years (the '1995-99 Capital Program'), and authorized the MTA to submit
the 1995-99 Capital Program to the Capital Program Review Board for approval.
Such plan, once approved by the MTA Capital Program Review Board, will supersede
the MTA's 1992-96 Capital Program. The MTA expects such approval before the end
of the 1997 legislative session. In the interim, the MTA will proceed with
financings for projects approved under the MTA's 1992-96 Capital Program, as
well as a subset of the 1997 portion of the 1995-96 Capital Program using
federal, New York City and other non-bonded sources of funds. This is the fourth
capital plan since the Legislature authorized procedures for the adoption,
approval and amendment of MTA capital programs and is designed to upgrade the
performance of the MTA's transportation systems by investing in new rolling
stock, maintaining replacement schedules for existing assets and bringing the
MTA system into a state of good repair. The 1995-99 Capital Program assumes the
issuance of an estimated $5.1 billion in bonds under this $6.5 billion aggregate
bonding authority. The remainder of the plan is projected to be financed through
assistance from the State, the federal government, and the City of New York, and
from various other revenues generated from actions taken by the MTA.
There can be no assurance that all the necessary governmental actions for
the 1995-99 Capital Program will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1995-99 Capital
Program, or parts thereof, will not be delayed or reduced. If the 1995-99
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 assistance.
Localities. Certain localities outside the City have experienced financial
problems and have requested and received additional State assistance during the
last several State fiscal years. The potential impact on the State of any future
requests by localities for additional assistance is not included in the
projections of the State's receipts and disbursements for the State's 1996-97
fiscal year.
Fiscal difficulties experienced by the City of Yonkers resulted in the
re-establishment of the Financial Control Board for the City of Yonkers by the
State in 1984. That Board is charged with oversight of the fiscal affairs of
Yonkers. Future actions taken by the State to assist Yonkers could result in
increased State expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help
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Troy avoid default on certain obligations. The legislation creating Troy MAC
prohibits the City of Troy from seeking federal bankruptcy protection while Troy
MAC bonds are outstanding.
Seventeen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities.
Municipal Indebtedness. Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1994, the total indebtedness
of all localities in the State other than the City was approximately $17.7
billion. A small portion (approximately $82.9 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
State enabling 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 1994.
From time to time, 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 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)
two challenges to regulations promulgated by the Superintendent of Insurance
establishing excess medical malpractice premium rates for 1986-87 through
1995-96 and 1996-97 fiscal years, respectively; (ii) several challenges to
provisions of Chapter 81 of the Laws of 1995 which after the nursing home
Medicaid reimbursement methodology; (iii) 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; (iv) challenges to the practice of
using patients' Social Security benefits for the costs of care of patients of
State Office of Mental Health facilities; (v) 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; (vi) challenges to the practice of reimbursing certain Office of Mental
Health patient care expenses from the client's Social Security benefits; (vii)
alleged responsibility of State officials to assist in remedying racial
segregation in the City of Yonkers; (viii) 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; (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; (x) a challenge to State implementation of a program which
reduces Medicaid benefits to certain home-relief recipients; (xi) a challenge to
the constitutionality of petroleum business tax assessments authorized by Tax
Law SS 301; (xii) an action for reimbursement from the State for certain costs
arising out of the provision of preschool services and programs for children
with handicapping conditions, pursuant to Sections 4410 (10) and (11) of the
Education Law; and (xiii) a challenge to the enactment of the Clean Water/Clean
Air Bond Act of 1996 and its impending legislation.
Adverse developments in the proceedings described above or the initiation
of new proceedings could affect the ability of the State to maintain a balanced
1996-97 State Financial Plan. In its Notes to its General Purpose Financial
Statements for the fiscal year ended March 31, 1996, the State reports its
estimated liability for awards and anticipated unfavorable judgments at $474
million. There can be no assurance that an adverse decision in any of the above
cited proceedings would not exceed the amount of the 1996-97 State
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Financial Plan reserves for the payment of judgments and, therefore, could
affect the ability of the State to maintain a balanced 1996-97 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 continues to require significant
financial assistance from the State. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. The
State could also be affected by the ability of the City to market its securities
successfully in the public credit markets. The City has achieved balanced
operating results for each of its fiscal years since 1981 as reported in
accordance with the then-applicable GAAP standards. The City's financial plans
are usually prepared quarterly, and the annual financial report for its most
recent completed fiscal year is prepared at the end of October of each year.
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 the 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 updates periodically and which includes the City's capital, revenue
and expense projections and outlines proposed gap-closing programs for years
with projected budget gaps. The City's current four-year financial plan projects
substantial budget gaps for each of the 1997 through 1999 fiscal years, before
implementation of the proposed gap-closing program contained in the current
financial plan. The City is required to submit its financial plans to review
bodies, including the New York State Financial Control Board.
There can be no assurance that the City's projections set forth in the
City's current financial plan for the 1997 through 2000 fiscal years (the
'1997-2000 Financial Plan' or 'Financial Plan') will prove to be accurate. Such
projections are based on various assumptions and contingencies, some of which
are uncertain and may not materialize. Unforeseen developments and 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.
Implementation of the Financial Plan is also dependent upon the ability of
the City and certain Covered Organizations to market their securities
successfully. The City issues securities to finance, refinance and rehabilitate
infrastructure and other capital needs, as well as for seasonal financing needs.
The City currently projects that if no action is taken, it will exceed its State
Constitutional general debt limit beginning in City fiscal year 1998. The
current Financial Plan includes certain alternative methods of financing a
portion of the City's capital program which require State or other outside
approval. Future developments concerning the City or its Covered Organizations,
and public discussion of such developments, as well as prevailing market
conditions and securities credit ratings, may affect the ability or cost to sell
securities issued by the City or such Covered Organizations and may also affect
the market for their outstanding securities.
The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's Financial Plans which analyze the City's
forecasts of revenues and expenditures,
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cash flow, and debt service requirements for, and Financial Plan compliance by,
the City and its Covered Organizations. According to recent staff reports, the
City's economy has experienced weak employment and moderate wage and income
growth throughout the mid-1990s. Although this trend is expected to continue for
the rest of the decade, there is the risk of a slowdown in the City's economy in
the next few years, which would depress revenue growth and put further strains
on the City's budget. These reports have also indicated that recent City budgets
have been balanced in part through the use of non-recurring resources; that the
City's Financial Plan tends to rely on actions outside its direct control; that
the City has not yet brought its long-term expenditure growth in line with
recurring revenue growth; and that the City is therefore likely to continue to
face substantial future budget gaps that must be closed with reduced
expenditures and/or increased revenues.
The City's operating results for the 1996 fiscal year were balanced in
accordance with GAAP, after taking into account a discretionary transfer of $224
million, the sixteenth consecutive year of GAAP balanced results. On January 30,
1997, the City submitted to the Control Board the Financial Plan for the 1997
through 2000 fiscal years, which relates to the City, the Board of Education
('BOE') and CUNY. The Financial Plan is a modification to the financial plan
submitted to the Control Board on June 21, 1996 (the 'June Financial Plan').
The June Financial Plan identified actions to close a previously projected
gap of approximately $2.6 billion for the 1997 fiscal year. The proposed actions
in the June Financial Plan for the 1997 fiscal year included (i) agency actions
totaling $1.2 billion; (ii) a revised tax reduction program which would increase
projected tax revenues by $369 million due to the extension of the 12.5%
personal income tax surcharge beyond December 31, 1996, and other actions; (iii)
savings resulting from cost containment in entitlement programs to reduce City
expenditures and additional proposed State aid of $75 million; (iv) the assumed
receipt of revenues relating to rent payments for the City's airports, which are
currently the subject of a dispute with the Port Authority of New York and New
Jersey (the 'Port Authority'); (v) the sale of the City's television station for
$207 million; and (vi) pension cost savings totaling $134 million resulting from
a proposed increase in the earnings assumption for pension assets from 8.5% to
8.75%. In March 1997, the 12.5% personal income tax surcharge was extended to
December 31, 1998.
The 1997-2000 Financial Plan published on January 30, 1997 projects
revenues and expenditures for the 1997 and 1998 fiscal years balanced in
accordance with GAAP, and projects gaps of $1.9 billion and $2.7 billion for the
1999 and 2000 fiscal years, respectively. Changes in forecast revenues and
expenditures since the June Financial Plan include (i) an increase in projected
tax revenues of $571 million, $207 million, $73 million and $56 million in
fiscal years 1997 through 2000, respectively; (ii) a delay in the assumed
receipt of $304 million relating to projected rent payments for the City
airports from the 1997 fiscal year to the 1998 and 1999 fiscal years; (iii) an
approximately $200 million to $300 million increase in projected overtime and
other expenditures in each of the 1997 through 200 fiscal years; (iv) a $250
million increase in expenditures for BOE in the 1997 and 1998 fiscal years for
school text books and other initiatives, to be funded by savings from the
refunding of outstanding indebtedness of the MAC; and (v) debt service savings
of $44 million in the 1998 fiscal year resulting from the refunding of
outstanding City bonds consummated in the 1997 fiscal year, and a reduction in
projected pension costs of $34 million, $50 million, $49 million and $47 million
in fiscal years 1997 through 2000, respectively.
In addition, the Financial Plan sets forth gap-closing actions to eliminate
a previously projected gap of $1.4 billion for the 1998 fiscal year, and to
reduce projected gaps for the 1999 and 2000 fiscal years. The gap-closing
actions for the 1998 through 2000 fiscal years include (i) additional agency
actions totaling $558 million, $488 million and $600 million in fiscal years
1998 through 2000; (ii) the prepayment in the 1997 fiscal year of $391 million
of debt service due in the 1998 fiscal year; (iii) the proposed sale of various
assets including the U.N. Plaza Hotel in the 1998 fiscal year for $125 million;
(iv) additional State aid of $210 million in the 1998 fiscal year and $85
million in each of the 1999 and 2000 fiscal years, including a proposal that the
State accelerate a $142 million revenue sharing payment to the
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City from March 1999; and (v) entitlement savings of $415 million in the 1998
fiscal year and $364 million in each of the 1999 and 2000 fiscal years, which
would result from reductions in Medicaid spending for health care providers,
reimbursement limits and the State making available to the City $77 million of
additional Federal block grant aid, as proposed in the Governor's 1997-1998
Executive Budget on January 14, 1997. The Financial Plan does not reflect the
subsequent amendment of the 1997-1998 Executive Budget by the Governor to
restore part of the proposed reductions in Medicaid spending for health care
providers, which might reduce the projected entitlement savings for the City,
depending upon the method by which such restoration is implemented. The
gap-closing actions are partially offset by a proposed tax reduction program
totaling $250 million, $463 million and $518 million in the 1998 through 2000
fiscal years, respectively, including the proposed elimination of the 4% City
sales tax on clothing items under $500 as of December 1, 1997, which is subject
to State legislative approval.
The Financial Plan assumes (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which is
scheduled to expire on December 31, 1997 and is projected to provide revenue of
$169 million, $504 million and $534 million in the 1998 through 2000 fiscal
years, respectively, and of the extension of the 12.5% personal income tax
surcharge, which is scheduled to expire on December 31, 1998 and is projected to
provide revenue of $190 million and $528 million in the 1999 and 2000 fiscal
years, respectively; (ii) collection of the projected rent payments for the
City's airports, totalling $270 million and $180 million in the 1998 and 1999
fiscal years, respectively, which may depend on the successful completion of
negotiations with the Port Authority or the enforcement of the City's rights
under the existing leases through pending legal actions; (iii) the ability of
the New York City Health and Hospitals Corporation ('HHC') and BOE to identify
actions to offset substantial City and State revenue reductions and the receipt
by BOE of additional State aid; and (iv) State approval of the cost containment
initiatives and State aid proposed by the City as gap-closing actions for the
1998 fiscal year, and $115 million in additional State aid which is assumed in
the Financial Plan but not provided for in the Governor's 1997-1998 Executive
Budget. The Financial Plan does not reflect any increased costs which the City
might incur as a result of welfare legislation recently enacted by Congress or
legislation proposed by the Governor, which would, if enacted, implement such
Federal welfare legislation, but does assume the entitlement savings and
additional Federal aid for localities provided in the Governor's 1997-1998
Executive Budget. Moreover, certain proposed entitlement cost containment and
other initiatives have been previously considered and rejected by the State
Legislature. The nature and extent of the impact on the City of the State
budget, when adopted, is uncertain, and no assurance can be given that the State
actions included in the State adopted budget may not have a significant adverse
impact on the City's budget and its Financial Plan. It can be expected that the
proposals contained in the Financial Plan to close the previously projected
budget gap for the 1998 fiscal year will engender substantial public debate
which will continue through the time the budget is scheduled to be adopted in
June 1997. Accordingly, the Financial Plan may be changed significantly by the
time the budget for the 1998 fiscal year is adopted. In addition, the economic
and financial condition of the City may be affected by various financial,
social, economic and political factors which could have a material effect on the
City.
The City's financial plans have been the subject of extensive public
comment and criticism. On July 16, 1996, the staff of the City Comptroller
issued a report on the Financial Plan. The report concluded that the City's
fiscal situation remains serious, and that the City faces budgetary risks of
approximately $787 million to $941 million for the 1997 fiscal year, which
increase to $4.16 billion to $4.31 billion for fiscal year 2000.
Although the City has maintained balanced budgets in each of its last
fifteen fiscal years, and is projected to achieve balanced operating results for
the 1996 fiscal year, there can be no assurance that the gap-closing actions
proposed in the Financial Plan can be successfully implemented or that the City
will maintain a balanced budget in future years without additional State aid,
revenue increases or expenditure reductions. Additional tax increases and
reductions in essential City services could adversely affect the City's economic
base.
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ASSUMPTIONS
The 1997-2000 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 1997-2000 Financial Plan is subject to various other
uncertainties and contingencies relating to, among other factors, the extent, if
any, to which wage increases for City employees exceed the annual wage costs
assumed for the 1997 through 2000 fiscal years; continuation of projected
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
Financial Plan and to take various other actions to assist the City; 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 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, and the success with which the City controls expenditures; the
impact of 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. Certain of these assumptions have
been questioned by the City Comptroller and other public officials.
The projections and assumptions contained in the 1997-2000 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. The principal projections and assumptions described below are based
on information available in May 1996.
Substantially all of the City's full-time employees are members of labor
unions. The Financial Emergency Act requires that all collective bargaining
agreements entered into by the City and the Covered Organizations be consistent
with the City's current financial plan, except for certain awards arrived at
through impasse procedures. During a Control Period, and subject to the
foregoing exception, the Control Board would be required to disapprove
collective bargaining agreements that are inconsistent with the City's current
financial plan.
Under applicable law, the City may not make unilateral changes in wages,
hours or working conditions under any of the following circumstances: (i) during
the period of negotiations between the City and a union representing municipal
employees concerning a collective bargaining agreement; (ii) if an impasse panel
is appointed, then during the period commencing on the date on which such panel
is appointed and ending sixty days thereafter or thirty days after it submits
its report, whichever is sooner, subject to extension under certain
circumstances to permit completion of panel proceedings; or (iii) during the
pendency of an appeal to the Board of Collective Bargaining. Although State law
prohibits strikes by municipal employees, strikes and work stoppages by
employees of the City and the Covered Organizations have occurred.
The 1997-2000 Financial Plan projects that the authorized number of
City-funded employees whose salaries are paid directly from City funds, as
opposed to Federal or State funds, will decrease from an estimated level of
202,411 on June 30, 1997 to an estimated level of 200,920 by June 30, 2000,
before implementation of the gap-closing program outlined in the Financial Plan.
Contracts with all of the City's municipal unions expired in the 1995 and
1996 fiscal years. The City has reached settlements with unions representing
approximately two-thirds of the City's workforce. The Financial Plan reflects
the costs of the settlements and assumes similar increases for all other
City-funded employees.
The terms of wage settlements could be determined through the impasse
procedure in the New York City Collective Bargaining Law, which can impose a
binding settlement.
The projections for the 1997 through 2000 fiscal years reflect the costs of
the settlements with the United Federation of Teachers ('UFT') and a coalition
of unions headed by
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District Council 37 of the American Federation of State, County and Municipal
Employees ('District Council 37'), which together represent approximately
two-thirds of the City's workforce, and assume that the City will reach
agreement with its remaining municipal unions under terms which are generally
consistent with such settlements. The settlement provides for a wage freeze in
the first two years, followed by a cumulative effective wage increase of 11% by
the end of the five year period covered by the proposed agreements, ending in
fiscal years 2000 and 2001. Additional benefit increases would raise the total
cumulative effective increase to 13% above present costs. Costs associated with
similar settlements for all City-funded employees would total $49 million, $459
million and $1.2 billion in the 1997, 1998 and 1999 fiscal years, respectively,
and exceed $2 billion in each fiscal year after the 1999 fiscal year. There can
be no assurance that the City will reach an agreement with the unions that have
not yet reached a settlement with the City on the terms contained in the
Financial Plan.
In the event of a collective bargaining impasse, the terms of wage
settlements could be determined through statutory impasse procedures, which can
impose a binding settlement except in the case of collective bargaining with the
UFT, which may be subject to non-binding arbitration. On January 23, 1996, the
City requested the Office of Collective Bargaining to declare an impasse against
the Patrolmen's Benevolent Association ('PBA') and the Uniformed Firefighters
Association ('UFA'). On April 7, 1997, the City reached a tentative settlement
with the UFA covering a 65-month period from January 1, 1995 to May 31, 2000. In
January 1997, the PBA rejected the City's proposal for a wage increase.
Accordingly, at the request of both parties, the City's Office of Collective
Bargaining declared an impasse between the City and the PBA on January 30, 1997.
However, while the parties prepare for the impasse proceeding, negotiations are
continuing, which may eliminate the need for such a proceeding.
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.
On February 25, 1997, the City Comptroller issued a report on the Financial
Plan with respect to the 1997 and 1998 fiscal years. The report noted that
generally favorable national and local economic conditions, characterized by low
inflation, relatively stable interest rates and the surging stock market, have
resulted in a recovery in City tax revenues in the 1997 fiscal year generated
primarily by profits in the financial services sector. However, the report
concluded that the positive news concerning the City's short-term budget
prospects represents a temporary departure from longer term trends, that it is
unlikely that tax revenue collections will be sustained in the long run by
continuing expansion on Wall Street and that the City will face large and
continuing budget gaps in the 1998 and subsequent fiscal years. The report noted
that the Financial Plan continues to use non-recurring actions to close budget
gaps in the 1997 and 1998 fiscal years, which results in larger gaps in
succeeding years, requiring continuing reductions in City services and programs.
With respect to the 1997 fiscal year, the report identified up to $296
million in potential risks, which could be more than offset by potential
additional resources, resulting in a potential year-end surplus of between $220
million and $396 million. The principal risks for the 1997 fiscal year
identified in the report include uncertainties totaling $85 million connected
with BOE, resulting primarily from projected State aid which has not been
appropriated by the State Legislature, State approval of the extension of the
12.5% personal income tax surcharge beyond December 31, 1996, which would
generate $171 million and which has been subsequently extended through December
31, 1998, and $25 million relating
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to projected overtime expenditures. The report also noted that the City's
capital budget includes $607 million in capital from the proposed sale of the
City's water and sewer system, which has been declared illegal by the State
Court of Appeals.
With respect to the 1998 fiscal year, the report identified total net
budget risks of between $864 million and $2.0 billion, depending primarily on
whether the proposed tax reduction program is implemented and the 12.5% personal
income tax surcharge was extended beyond December 31, 1996 and the 14% personal
income tax surcharge is extended beyond December 31, 1997. These risks include
(i) $305 million in assumed payments from the Port Authority relating to the
City's claim for back rentals and an increase in future rentals, part of which
are the subject of arbitration; (ii) risks of $228 million related to BOE,
resulting primarily from unidentified expenditure reductions; (iii) State aid
totaling $115 million which is assumed in the Financial Plan but not provided
for in the Governor's Executive Budget; (iv) State approval of the extension of
the 12.5% personal income tax surcharge beyond December 31, 1996 and the 14%
personal income tax surcharge beyond December 31, 1997, which would generate
$469 million and $239 million, respectively, in the 1998 fiscal year; and (v)
gap-closing actions totaling $688 million. Uncertain gap-closing actions
identified in the report include Medicaid entitlement savings, totaling $338
million proposed in the Governor's Executive Budget, City proposals for State
aid totaling $68 million and the acceleration of $142 million of State revenue
sharing payments from the 1999 fiscal year to the 1998 fiscal year, which are
subject to approval by the Governor and/or the State legislature, and assumed
assets sales which are uncertain. With respect to the gap-closing programs
proposed in the Financial Plan, the report noted that many of the proposed
actions have been unsuccessful in the past, including proposed intergovernmental
aid and reductions in entitlement programs. The report also noted that the
ultimate impact of the new Federal welfare program is contingent upon decisions
to be made by the State, including the allocation of Federal block grants to
municipalities; that HHC must generate at least $172 million and $270 million in
fiscal years 1999 and 2000, respectively, to fund collective bargaining
increases; and that debt service costs during the Financial Plan period will
consume an historically high amount of tax revenues. Finally, the report noted
that unspecified State aid and reductions in entitlement programs constitute
greater than 50% of the assumed gap-closing actions in the 1999 and 2000 fiscal
years, and that it is highly unlikely that such aid will be forthcoming, given
the recent trend to reduce or contain spending increases by the Federal and
State governments and the State's current fiscal condition.
In a subsequent report the City Comptroller noted that $874 million in
State education aid receivables are currently outstanding for the 1989 through
1996 fiscal years and that, in recent years, the State has appropriated only $9
million annually for payment of these outstanding claims. The report noted that
the State's continued delay in addressing this issue could potentially, over.
the long-run, result in the City considering reserving the oldest receivable
balances, which would ultimately have a significant negative impact on the
City's Financial Plan.
On February 25, 1997, the staff of the OSDC issued a report on the
Financial Plan. The report projected budget gaps for the 1998 through 2000
fiscal years which slightly exceed the gaps set forth in the Financial Plan for
such fiscal years. The report also identified net additional risks of $246
million, $1.3 billion, $1.0 billion and $739 million for the 1997 through 2000
fiscal years, respectively. The additional risks identified in the report relate
to (i) uncertain State education aid and expenditure reductions relating to BOE,
totalling $75 million in the 1997 fiscal year and $239 million in each of the
1998, 1999 and 2000 fiscal years; (ii) the receipt of Port Authority lease
payments totalling $300 million and $245 million in the 1998 and 1999 fiscal
years, respectively, which are the subject of arbitration and a renegotiated
lease; (iii) State approval of a four-year extension to the City's 12.5%
personal income tax surcharge, which had expired on December 31, 1996 and which
would generate revenues of $171 million in the 1997 fiscal year and $470 million
in each of the 1998, 1999 and 2000 fiscal years; (iv) the receipt of $200
million in the 1998 fiscal year in connection with the proposed sale of the New
York Coliseum; and (v) the receipt of $49 million in the 1998 fiscal year from
the sale of assets. The report noted that the Financial Plan (i) assumes that
the State will extend the 14% personal income tax surcharge which is scheduled
to expire in
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December 1997 and which would generate revenues of $200 million in the 1998
fiscal year and approximately $500 million annually thereafter and (ii) contains
additional high risk initiatives in its gap-closing program totalling $849
million, $643 million and $768 million in the 1998 through 2000 fiscal years,
respectively, resulting primarily from proposed social service entitlement
initiatives and other State aid which is subject to uncertain State Legislative
approval, as well as collective bargaining initiatives, which involve the City
ceasing to fund the cost of labor agreements for Covered Organizations
commencing in the 1999 fiscal year.
Overall, the report noted that expenditure growth continues to exceed
revenue growth during the Financial Plan period, with the future budget gaps
resulting primarily from the cost of labor agreements and medical and debt
service costs, as well as enacted tax cuts. The report stated that the Financial
Plan reflects the City's decision to use the tax windfall from Wall Street
profits for spending increases and tax cuts rather than for addressing long-term
budget problems or mitigating the effects of any future economic downturn, and
that the City proposes to use non-recurring actions exceeding $1.4 billion in
the 1998 Fiscal year to pay for its spending decisions, in the face of minimal
revenue growth in such year. The report further noted that the City's revenue
forecasts are subject to profits in the financial sector, which are volatile,
and that there is the additional potential for a recession. Finally, the report
noted that the City faces a potential $900 million liability from retroactive
claims for State education aid which have been recorded as revenue in past
budgets, although the Governor's Executive Budget includes an appropriation for
only a nominal portion of the aid. The report noted that the State Education
Department has acknowledged that the City's claims are valid based on the
documentation it has received for approximately two-thirds of the claims.
On March 11, 1997, the staff of the Control Board issued a report
commenting on the Financial Plan. The report stated that, although a windfall in
tax collections, primarily generated by large Wall Street profits, has enabled
the City to project a surplus for the 1997 fiscal year, the staff of the Control
Board projects substantial deficits for the 1998 and subsequent fiscal years,
reflecting projected revenue growth substantially below the rate of inflation
and spending, driven by increasing salaries, debt service and employee fringe
benefits, at more than twice the rate of revenues. The report identified risks
totaling $68 million, $778 million, $879 million and $1.2 billion for the 1997
through 2000 fiscal years, respectively, in addition to the gaps projected in
the Financial Plan for fiscal years 1999 and 2000. The principal risks
identified in the report included (i) implementation by BOE of various actions
totaling $111 million, $136 million, $216 million and $225 million in the 1997
through 2000 fiscal years, respectively, which include unspecified expenditure
reductions and uncertain State funding: (ii) the proposed sale of certain assets
in the 1998 fiscal year totaling $174 million, which the City has failed to
implement in the past or which lack supporting detail; (iii) the City's
assumption in the Financial Plan that certain Covered Organizations, rather than
the City, will fund collective bargaining increases for the Covered
Organizations starting in fiscal year 1999, thereby generating savings for the
City of $104 million in the 1999 fiscal year and $225 million in fiscal year
2000; (iv) assumed additional State aid totaling $210 million in the 1998 fiscal
year and $85 million in each of the 1999 and 2000 fiscal years, which is
uncertain due to budget difficulties experienced by the State; (v) revenues from
the extension of the 12.5% personal income tax surcharge beyond December 31,
1998, totaling $204 million and $528 million in the 1999 and 2000 fiscal years,
respectively, which requires State legislation; and (vi) the receipt of $300
million, $245 million and $30 million from the Port Authority in the 1998
through 2000 fiscal years, respectively, which is the subject of arbitration.
Taking into account the risks identified in the report and the gaps projected in
the Financial Plan, the Control Board projected gaps of $778 million, $2.8
billion and $3.9 billion for the 1998 through 2000 fiscal years, respectively.
The report noted that the volatility inherent in the securities market,
together with a possibility of a national recession in the later years of the
Financial Plan, leaves the City vulnerable to significant shortfalls in
projected non-property tax revenues. In addition, the report noted that the
City's gap-closing program for the 1999 and 2000 fiscal years assumes
substantial State assistance, which is uncertain, given the financial
difficulties at all levels of government and the fact that the City has not
identified specific programs to achieve this
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assistance. The report further noted that debt service will place an increasing
burden on the operating budget during the Financial Plan period, requiring the
use of approximately 18.8% of tax revenues in each of the 1999 through 2001
fiscal years and approximately 19.4% in each of the 2002 through 2005 fiscal
years. With respect to HHC, the report noted that HHC remains under competitive
pressure from the rapidly changing health care market, which is the subject of
reform at both the State and federal levels. Finally, the report identified a
number of issues which the City faces, including providing sufficient funding
for maintenance of capital assets; developing specific strategies to achieve the
high level of entitlement reductions assumed in the gap-closing program;
developing specific programs to reduce agency spending, while maintaining BOE
funding for growing enrollment; and controlling the cost of tort claims made
against the City. The report concluded that the Financial Plan continues the
chronic pattern of budget balance in the current year and structural imbalance
in subsequent fiscal years, reflecting expenditures which grow faster than
revenues, slow growth in the property tax and reliance on non-recurring
resources.
On March 21, 1997, the independent budget office (the 'IBO') established
pursuant to the City Charter to provide analysis to elected officials and the
public on relevant fiscal and budgetary issues affecting the City released a
report analyzing the Financial Plan. In its report, the IBO estimated gaps of
$87 million, $701 million, $2.7 billion and $3.6 billion for the 1997 through
2000 fiscal years, respectively, before the implementation of gap-closing
initiatives for fiscal years 1999 and 2000. The gaps estimated in the IBO
report, which exceed those in the Financial Plan, reflect (i) uncertainty
concerning the size and timing of projected airport rents of $270 million and
$215 million in the 1998 and 1999 fiscal years, respectively, which are the
subject of an ongoing dispute between the Port Authority and the City; (ii) the
potential impact on the Financial Plan of the new Federal welfare law and the
potential for less than forecast case load reductions, which the IBO projects
will result in additional City spending for public assistance of $103 million,
$121 million and $147 million in the 1998 through 2000 fiscal years,
respectively; (iii) significantly higher projected spending on medical
assistance, totaling $281 million, $251 million and $266 million in the 1998
through 2000 fiscal years, respectively, reflecting uncertainty as to whether
the measures in the Governor's Executive Budget to curtail Medicaid costs will
be adopted and the limited growth in overall Medicaid costs assumed in the
Financial Plan will be realized; (iv) increased projected education spending,
totaling $111 million in each of the 1999 and 2000 fiscal years, as a result of
growing enrollment and other factors; and (v) additional funding needs for the
City's labor reserve totaling $104 million and $224 million in the 1999 and 2000
fiscal years, respectively, to pay for collective bargaining increases for the
Covered Organizations, which the Financial Plan assumes will be paid for by the
Covered Organizations, rather than the City. With respect to public assistance
costs, the report stated that the provisions of the new Federal welfare law
increasing work quotas for adult welfare recipients will require substantial
expenditures for workfare administration and associated child care, and that the
restrictions on Federal assistance to legal aliens will significantly increase
State and City Home Relief case loads as elderly and disabled individuals are
removed from Federal welfare rolls. With respect to decreased Medicaid costs
projected in the Financial Plan, the report noted that in recent years actual
reductions adopted by the State legislature have been less than those proposed
by the Governor and that the growth rates of Medicaid expenditures assumed in
the Financial Plan are low compared to historical trends. The report noted that
the Financial Plan assumes continued growth in the local economy and that, in
the event of an economic downturn, spending needs would likely increase,
particularly for social programs, at a time when revenues would likely be
decreasing, which would make future budget gaps substantially larger than those
projected in the report.
On October 31, 1996, the IBO released a report assessing the costs that
could be incurred by the City in response to the 1996 Welfare Act, which, among
other things, replaces the AFDC entitlement program with TANF, imposes a
five-year time limit on TANF assistance, requires 50% of states' TANF caseload
to be employed by 2002, and restricts assistance to legal aliens. Assuming
continued moderate economic performance, the IBO report projects that the City's
cost of providing welfare could increase by $33 million in 1999, growing to $269
million by 2002. Moreover, if the requirement that all recipients work after two
years of receiving benefits is enforced, these additional costs could total $723
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million in 1999 and approximately $1 billion annually through 2002, reflecting
substantial costs for worker training and supervision of new workers and
increased child care costs. The report further noted that, if economic
performance weakened, resulting in an increased number of public assistance
cases, potential costs to the City could substantially increase.
States are required to develop plans during 1997 to implement the new law.
The report noted that decisions to be made by the State which will have a
significant impact on the City budget include the allocation of block grant
funds between the State and New York local governments such as the City and the
division between the State and its local governments of welfare costs not funded
by the Federal government. For purposes of its report, the IBO assumed that (i)
60% of block grant funds would be allocated to the City, based on informal
indications from State officials, (ii) the City and the State will continue to
equally share the costs of the Home Relief program and eligibility and benefit
levels will remain unchanged, and (iii) the State and City will equally share
the non-federally funded costs of providing assistance through TANF. Moreover,
given the State's history and constitutional requirement to provide for the aid,
care and support of the needy, IBO's analysis assumes that individuals reaching
the five-year time limit on TANF assistance and removed from the TANF program
will be covered by the Home Relief program, and that legal aliens deemed
ineligible for TANF will be covered by the Home Relief program.
Finally, the report noted that the new welfare law's most significant
fiscal impact is likely to occur in the years 2002 and beyond, reflecting the
full impact of the lifetime limit on welfare participation which only begins to
be felt in 2002 when the first recipients reach the five-year limit and are
assumed to be covered by Home Relief. In addition, the report noted that, given
the constitutional requirement to care for the needy, the 1996 Welfare Act might
well prompt a migration of benefit-seekers into the City, thereby increasing
City welfare expenditures in the long run. The report concluded that the impact
of the 1996 Welfare Act on the City will ultimately depend on the decisions of
State and City officials, the performance of the local economy and the behavior
of thousands of individuals in response to the new system.
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 has issued $2.4 billion of short-term obligations in
fiscal year 1997 to finance the City's current estimate of its seasonal cash
flow needs for the 1997 fiscal year. Seasonal financing requirements for the
1996 fiscal year increased to $2.4 billion from $2.2 billion and $1.75 billion
in the 1995 and 1994 fiscal years, respectively. Seasonal financing requirements
were $1.4 billion and $2.25 billion in the 1993 and 1992 fiscal years,
respectively. The delay in the adoption of the State's budget in certain past
fiscal years has required the City to issue short-term notes in amounts
exceeding those expected early in such fiscal years.
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 1997-2000 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, 1996 amounted to approximately $2.8 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, S&P revised downward its rating on City general
obligation bonds from A - to BBB+ and removed City bonds from CreditWatch. S&P
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 S&P's in lowering its rating on City bonds included a
trend of using one-time measures, including debt refinancings, to close
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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. In 1975, S&P 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 S&P. On July 2, 1985,
S&P revised its rating of City bonds upward to BBB+ and on November 19, 1987, to
A - . On July 10, 1995, S&P revised its rating of City general obligation bonds
downward to BBB+, as discussed above. On November 25, 1996, S&P's issued a
report which stated that, if the City reached its debt limit without the ability
to issue bonds through other means, it would cause a deterioration in the City's
infrastructure and significant cutbacks in the capital plan which would
eventually impact the City's economy and revenues, and could have eventual
negative credit implications.
Moody's rating for City general obligation bonds is Baa1. On March 1, 1996,
Moody's stated that the rating for the City's Baa1 general obligation bonds
remains under review for a possible downgrade pending the outcome of the
adoption of the City's budget for the 1997 fiscal year and in light of the
status of the debate on public assistance and Medicaid reform; the enactment of
a State budget, upon which major assumptions regarding State aid are dependent,
which may be extensively delayed; and the seasoning of the City's economy with
regard to its strength and direction in the face of a potential national
economic slowdown. 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.
Fitch Investors Service, Inc. ('Fitch') rates City general obligation bonds
A - since July 15, 1993. On February 28, 1996, Fitch placed the City's general
obligation bonds on FitchAlert with negative implications. On November 5, 1996,
Fitch removed the City's general obligation bonds from FitchAlert, although
Fitch stated that the outlook remains negative. 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.
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INVESTMENT LIMITATIONS
Unless otherwise indicated, the investment restrictions described below as
well as those described under 'Investment Limitations' in the applicable
Prospectus are fundamental investment 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
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: (i) the investment restrictions set
forth below which are indicated as fundamental policies; (ii) the investment
restrictions set forth in the applicable Prospectus; and (iii) each Fund's
investment objective(s) as described in the applicable Prospectus, the other
policies and percentage limitations referred to in this Statement of Additional
Information and in each Prospectus are not fundamental policies of the Funds and
may be changed by vote of each Company's Board of Directors without shareholder
approval.
If a percentage restriction on investment or utilization of assets in a
fundamental policy or restriction set forth below is adhered to at the time a
transaction is effected, a later change in percentage ownership of a security or
kind of security resulting from changing market values or a similar type of
event will not be considered a violation of such policy or restriction.
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 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;
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(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.
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, the special purpose
entity issuing the receivables-backed obligations and/or one or more of the
issuers of the underlying receivables will be considered an issuer in accordance
with applicable regulations.
New York Municipal Money Market Fund. The New York Municipal Money Market
Fund may not:
(1) own more than 10% of the outstanding voting stock or other
securities, or both, of any one issuer (other than securities of the United
States government or any agency or instrumentality thereof);
(2) 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;
(3) 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);
(4) sell securities short;
(5) purchase or sell commodities or commodity contracts, including
futures contracts;
(6) invest for the purpose of exercising control over management of
any company;
(7) 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;
(8) 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;
(9) 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);
(10) invest directly in interests in oil, gas or other mineral
exploration development programs or mineral leases; or
(11) purchase warrants.
National Intermediate Municipal Fund, U.S. Government Income Fund,
High Yield Bond Fund, Strategic Bond Fund, Total Return Fund, International
Growth Fund, Small Cap Growth Fund and Asia Growth Fund. Each of the
National Intermediate Municipal Fund, U.S. Government Income Fund, High
Yield Bond Fund, Strategic Bond Fund,
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Total Return Fund, International Growth Fund, Small Cap Growth Fund and
Asia Growth 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 applicable 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 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 and, except with respect to the International
Growth Fund and the Small Cap Growth Fund, where the Fund contemporaneously
owns or has the right to obtain at no additional cost securities identical
to those being sold short);
In addition, each of the National Intermediate Municipal Fund, U.S.
Government Income Fund, High Yield Bond Fund, Strategic Bond Fund, Total
Return Fund and Asia Growth Fund may not:
(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) except with respect to the Asia Growth Fund, 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 the
issuer's total assets;
(11) except with respect to the Asia Growth Fund 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
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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;
(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 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; or
(15) invest for the purpose of exercising control over the management
of any company.
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, Total Return Fund,
International Growth Fund, Small Cap Growth Fund and Asia Growth Fund.
Restrictions (6) through (15) are non-fundamental policies.
For the purposes of the investment limitations applicable to 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 may be considered a separate security
and treated as an issue of such government or entity in accordance with
applicable regulations.
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
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
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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.
Capital Fund. The Capital Fund may not:
(1) invest in companies for the purpose of exercising control or
management. (The Fund may on occasion be considered part of a control group
of a portfolio company by reason of the size or manner of its investment,
in which event the securities of such portfolio company held by the Fund
may not be publicly saleable unless registered under the Securities Act of
1933 or pursuant to an available exemption thereunder.);
(2) purchase securities on margin (except for such short-term credits
as are necessary for the clearance of transactions and except that the Fund
may make deposits in connection with transactions in options on securities)
or make short sales of securities (except for sales 'against the box',
i.e., when a security identical to one owned by the Fund, or which the Fund
has the right to acquire without payment of additional consideration, is
borrowed and sold short);
(3) purchase or sell real estate, interests in real estate, interests
in real estate investment trusts, or commodities or commodity contracts;
however, the Fund (a) may purchase interests in real estate investment
trusts or companies which invest in or own real estate if the securities of
such trusts or companies are registered under the Securities Act of 1933
and are readily marketable and (b) may enter into futures contracts,
including futures contracts on interest rates, stock indices and
currencies, and options thereon, and may engage in forward currency
contracts and buy, sell and write options on currencies;
(4) 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. Any such purchase will be made only in the open market where no
profit to a sponsor or dealer results from the purchase, except for the
customary broker's commission. This restriction shall not apply to
investment company securities received or acquired by the Fund pursuant to
a merger or plan of 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; that is, there will be a
layering of certain fees and expenses.);
(5) purchase or hold securities of an issuer if one or more persons
affiliated with the Fund or with SBAM owns beneficially more than 1/2 of 1%
of the securities of that issuer and such persons owning more than 1/2 of
1% of such securities together own beneficially more than 5% of the
securities of such issuer;
(6) buy portfolio securities from, or sell portfolio securities to,
any of the Fund's officers, directors or employees of its investment
manager or distributor, or any of their officers or directors, as
principals;
(7) purchase or sell warrants; however, the Fund may invest in debt or
other securities which have warrants attached (not to exceed 10% of the
value of the Fund's total assets). Covered options with respect to no more
than 10% in value of the Fund's total assets will be outstanding at any one
time; or
(8) invest in interest in oil, gas or other mineral exploration or
development programs.
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MANAGEMENT
DIRECTORS AND OFFICERS
The directors and executive officers of each Company 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. 'Interested directors' of the Fund (as defined in the 1940 Act) are
indicated by an asterisk.
SERIES FUND
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S) PAST 5 YEARS
- ------------------------------------ ------------------- -----------------------------------------
<S> <C> <C>
Charles F. Barber .................. Director and Consultant. Formerly, Chairman of the
66 Glenwood Drive Chairman, Audit Board of ASARCO Incorporated.
Greenwich, CT 06830 Committee
Age: 80
Carol L. Colman .................... Director and Audit President of Colman Consulting Co., Inc.
Consulting Co., Inc. Committee Member
278 Hawley Road
North Salem, NY 10560
Age: 51
Daniel P. Cronin ................... Director and Audit Vice President and General Counsel of
Pfizer, Inc Committee Member Pfizer International Inc. Senior
235 East 42nd Street Assisting General Counsel of Pfizer,
New York, NY 10017 Inc.
Age: 51
Michael S. Hyland* ................. Director and President and Managing Director of SBAM
Age: 51 President and Managing Director and Member of the
Management Board of Salomon Brothers
Inc ('SBI').
Giampaolo G. Guarnieri ............. Executive Vice Member of Board of Directors and Head of
Salomon Brothers Asset Management President SBAM AP from January 1997 to present.
Asia Pacific Limited Director of SBAM AP since July 1996.
Three Exchange Square, Vice President and Senior Portfolio
Hong Kong Manager of SBAM AP from April 1995 to
Age: 33 June 1996. From April 1995 to January
1996, Vice President and Senior Vice
President of Salomon Brothers Hong Kong
Limited. From January 1992 to March
1995, Senior Portfolio Investment
Manager of Credit Agricole Asset
Management (South East Asia) Limited.
Steven Guterman .................... Executive Vice Managing Director of SBAM and SBI since
Age: 43 President January 1996. Prior to January 1996,
Director of SBAM and SBI.
Peter J. Wilby ..................... Executive Vice Managing Director of SBAM and SBI since
Age: 38 President January 1996. Prior to January 1996,
Director of SBAM and SBI.
Marybeth Whyte ..................... Executive Vice Director of SBAM and SBI since January
Age: 41 President 1995. From July 1994 to December 1994,
Vice President of SBAM and SBI. Prior
to July 1994, Senior Vice President and
head of the Municipal Bond area at
Fiduciary Trust Company International.
</TABLE>
50
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S) PAST 5 YEARS
- ------------------------------------ ------------------- -----------------------------------------
<S> <C> <C>
Richard E. Dahlberg ................ Executive Vice Managing Director of SBAM and SBI since
Age: 57 President January 1996. From July 1995 to January
1996, Director of SBAM and SBI. Prior
to July 1995, Senior Vice President and
Senior Portfolio Manager of
Massachusetts Financial Services
Company.
Beth A. Semmel ..................... Executive Vice Director of SBAM and SBI since January
Age: 36 President 1996. From May 1993 to December 1995,
Vice President of SBAM and SBI. From
January 1989 to May 1993, Vice
President of Morgan Stanley Asset
Management.
Maureen O'Callaghen ................ Executive Vice Vice President of SBAM and SBI since
Age: 33 President October 1988.
James E. Craige .................... Executive Vice Vice President, SBAM and Salomon Brothers
Age: 29 President Inc since 1992.
Thomas K. Flanagan ................. Executive Vice Director, SBAM and Salomon Brothers Inc
Age: 44 President since 1991.
Nancy Noyes ........................ Vice President Director of SBAM and SBI since January
Age: 38 1996. From August 1992 to January 1996,
Vice President of SBAM and SBI. Prior
to August 1992, Vice President of Swiss
Bank Corp.
Eliza Lau .......................... Vice President Vice President and Portfolio Manager of
Salomon Brothers Asset SBAM AP since March 1996. From July
Management Asia 1994 to March 1996, Vice President and
Pacific Limited Portfolio Manager of Salomon Brothers
Three Exchange Square Hong Kong Limited; from October 1991 to
Hong Kong July 1994, research analyst with SBI.
Age: 34
Noel B. Daugherty .................. Secretary Employee of SBAM since November 1996.
Age: 31 From August 1993 to October 1996, an
employee of Chancellor LGT Asset
Management. From October 1989 to August
1993, an employee of The Dreyfus
Corporation.
Jennifer G. Muzzey ................. Assistant Secretary Employee of SBAM since June 1994. Prior
Age: 37 to June 1994, Vice President of
SunAmerica Asset Management
Corporation.
Alan M. Mandel ..................... Treasurer Vice President of SBAM and SBI since
Age: 39 January 1995. Prior to January 1995,
Chief Financial Officer and Vice
President of Hyperion Capital
Management Inc.
Reji Paul .......................... Assistant Treasurer Investment Accounting Manager of SBAM
Age: 34 since February 1995. Prior to February
1995, Assistant Vice President of
Mitchell Hutchins Asset Management,
Inc.
Janet S. Tolchin ................... Assistant Treasurer Investment Accounting Manager of SBAM.
Age: 37
</TABLE>
51
<PAGE>
<PAGE>
INVESTORS FUND AND CAPITAL FUND
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION(S) HELD PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ------------------------------------ ------------------- -----------------------------------------
<S> <C> <C>
Charles F. Barber .................. Director and Consultant. Formerly, Chairman of the
66 Glenwood Drive Chairman, Audit Board of ASARCO Incorporated.
Greenwich, CT 06830 Committee
Age: 80
Andrew L. Breech ................... Director and President of Dealer Operating Control
2120 Wilshire Boulevard Chairman, Proxy Service, Inc.
Suite 400 Committee
Santa Monica, CA 90403
Age: 44
Thomas W. Brock* ................... Director Chairman, Managing Director and Chief
Age: 49 Executive Officer of SBAM and Managing
Director and member of the Management
Board of SBI.
Carol L. Colman .................... Director and Audit President of Colman Consulting Co., Inc.
Consulting Co., Inc. Committee Member
378 Hawley Lane
North Salem, NY 10560
Age: 51
William R. Dill .................... Director and Member President, Boston Architectural Center;
25 Birch Lane of Nominating formerly, President, Anna Maria
Cumberland Foreside, ME 07110 Committee College; Consultant.
Age: 66
Michael S. Hyland* ................. Director and President and Managing Director of SBAM
Age: 51 President and Managing Director of SBI.
Clifford M. Kirtland, Jr. .......... Director and Member Member of Advisory Committee,
9 North Parkway Square of the Nominating Noro-Moseley Partners. Formerly,
4200 Northside Pkwy, N.W. Committee Director of Oxford Industries, Shaw
Atlanta, GA 30327 (Investors Fund) Industries, Inc. and Graphic
Age: 73 and Proxy Committee Industries, Inc. Formerly, Chairman and
(Investors Fund) President of Cox Communications Inc.
Robert W. Lawless .................. Director and Member President and Chief Executive Officer,
2877 East 35th Street of Proxy Committee University of Tulsa. Formerly,
Tulsa, OK 74105 (Capital Fund) President and Chief Executive Officer
Age: 60 of Texas Tech University and Texas Tech
University Health Sciences Center.
Louis P. Mattis .................... Director and Member Consultant. Formerly, Chairman and
P.O. Box #6535 of Nominating President of Sterling Winthrop Inc., a
SnowMass Village, CO 81615 Committee (Capital pharmaceutical company. Formerly,
Age: 55 Fund) Executive Vice President of
Richardson-Vicks, Inc.
Thomas F. Schlafly ................. Director, Audit Of counsel to Peper, Martin, Jensen,
8 Portland Place Committee Member Maichel & Hetlage (law firm) and
St. Louis, Missouri 63108 and Nominating President of The Saint Louis Brewery,
Age: 47 Committee Member Inc.
Richard E. Dahlberg ................ Executive Vice Managing Director of SBAM and SBI since
Age: 57 President January 1996. From July 1995 to January
1996, Director of SBAM and SBI. Prior
to July 1995, Senior Vice President and
Senior Portfolio Manager of
Massachusetts Financial Services
Company.
</TABLE>
52
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION(S) HELD PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ------------------------------------ ------------------- -----------------------------------------
<S> <C> <C>
Allan R. White, III ................ Executive Vice Managing Director of SBAM and SBI since
Age: 37 President January 1996. Prior to January 1996,
Director of SBAM and SBI.
Ross S. Margolies .................. Executive Vice Director of SBAM and SBI since June 1992.
Age: 38 President Prior to June 1992, Senior Vice
(Capital Fund Only) President of Lehman Brothers Inc.
Pamela P. Milunovich ............... Vice President Director of SBAM and SBI since January
Age: 34 (Investors Fund 1997. Vice President of SBAM and SBI
Only) from June 1992 to December 1996. Prior
to June 1992, an associate with James
Capel.
Noel B. Daugherty .................. Secretary Employee of SBAM since November 1996.
Age: 31 From August 1993 to October 1996, an
employee of Chancellor LGT Asset
Management. From October 1989 to August
1993, an employee of The Dreyfus
Corporation.
Jennifer G. Muzzey ................. Assistant Secretary Employee of SBAM since June 1994. Prior
Age: 37 to June 1994, Vice President of
SunAmerica Asset Management
Corporation.
Alan M. Mandel ..................... Treasurer Vice President of SBAM and SBI since
Age: 39 January 1995. Prior to January 1995,
Chief Financial Officer and Vice
President of Hyperion Capital
Management Inc.
Reji Paul .......................... Assistant Treasurer Investment Accounting Manager of SBAM
Age: 34 since February 1995. Prior to February
1995, formerly Assistant Vice President
of MHAM.
Janet Tolchin ...................... Assistant Treasurer Investment Accounting Manager of SBAM.
Age: 37
</TABLE>
53
<PAGE>
<PAGE>
COMPENSATION TABLE
The following table provides information concerning the compensation paid
during the fiscal year ended December 31, 1996 to each director of the
Companies. The Companies do not provide any pension or retirement benefits to
directors. In addition, no remuneration was paid during the fiscal year ended
December 31, 1996 by the Companies to officers of any Company or to Mr. Hyland
or to Mr. Brock, who as employees of SBAM are 'interested persons,' as defined
in the 1940 Act.
SERIES FUNDS
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM OTHER FUNDS
COMPENSATION ADVISED BY TOTAL
NAME OF PERSON, POSITION FROM THE FUND SBAM(A) COMPENSATION(A)
- --------------------------------------------- ------------- ------------------ ---------------
<S> <C> <C> <C>
Charles F. Barber
Director................................... $ 6,250 $105,150(13) $ 111,400(14)
Carol L. Colman
Director................................... $ 6,250 $ 29,750(4) $ 36,000(5)
Daniel P. Cronin
Director................................... $ 6,000 $ 23,150(4) $ 29,150(5)
</TABLE>
- ------------
(A) The numbers in parenthesis indicate the applicable number of investment
company directorships held by that director.
INVESTORS FUND
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM OTHER FUNDS
COMPENSATION ADVISED BY TOTAL
NAME OF PERSON, POSITION FROM THE FUND SBAM(A) COMPENSATION(A)
- --------------------------------------------- ------------- ------------------ ---------------
<S> <C> <C> <C>
Charles F. Barber,
Director................................... $ 8,250 $103,150(13) $ 111,400(14)
Andrew L. Breech,
Director................................... 8,250 18,500(2) 26,750(3)
Carol L. Colman,
Director................................... 8,250 27,750(4) 36,000(5)
William R. Dill,
Director................................... 8,250 18,500(2) 26,750(3)
Clifford M. Kirtland, Jr.,
Director................................... 6,750 15,500(2) 22,250(3)
Robert W. Lawless,
Director................................... 7,500 17,000(2) 24,500(3)
Louis P. Mattis,
Director................................... 8,250 18,500(2) 26,750(3)
Thomas F. Schlafly
Director................................... 8,250 18,500(2) 26,750(3)
</TABLE>
- ------------
(A) The numbers in parenthesis indicate the applicable number of investment
company directorships held by that director.
54
<PAGE>
<PAGE>
CAPITAL FUND
<TABLE>
<CAPTION>
TOTAL COMPENSATION
PAID TO DIRECTORS
AGGREGATE FROM OTHER FUNDS
COMPENSATION ADVISED BY TOTAL
NAME OF PERSON, POSITION FROM THE FUND SBAM(A) COMPENSATION(A)
- --------------------------------------------- ------------- ------------------ ---------------
<S> <C> <C> <C>
Charles F. Barber
Director................................... $ 7,250 $104,150(13) $ 111,400(14)
Andrew L. Breech
Director................................... 7,250 19,500(2) 26,750(3)
Carol L. Colman
Director................................... 7,250 28,750(4) 36,000(5)
William R. Dill
Director................................... 7,250 19,500(2) 26,750(3)
Clifford M. Kirtland, Jr.
Director................................... 5,750 16,500(2) 22,250(3)
Robert W. Lawless
Director................................... 6,500 18,000(2) 24,500(3)
Louis P. Mattis
Director................................... 7,250 19,500(2) 26,750(3)
Thomas F. Schlafly
Director................................... 7,250 19,500(2) 26,750(3)
</TABLE>
- ------------
(A) The number in parentheses indicates the applicable number of investment
company directorships held by that director.
The members of each Company's Board of Directors who are not 'interested
persons,' as defined in the 1940 Act, receive a fee for each meeting of Board of
Directors and committee meeting attended and are reimbursed for all
out-of-pocket expenses relating to attendance at such meetings. The Directors
who are 'interested persons,' as defined in the 1940 Act, do not receive
compensation from their respective Funds but are reimbursed for all
out-of-pocket expenses relating to attendance at such meetings.
As of December 31, 1996 directors and officers of the Series Funds, the
Investors Fund and the Capital Fund, individually and as a group, beneficially
owned less than 1% of the outstanding shares of their respective Funds.
PRINCIPAL HOLDERS OF SECURITIES
The following lists shareholders of record who held 5% or more of the
outstanding securities of the Funds as of , 1997. Shareholders who own
greater than 25% of the outstanding shares of a class of shares are deemed to be
'control persons,' as defined in the 1940 Act of such class.
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
Cash Management Fund........... O Salomon Brothers A/C XQSSHMF 35.5%
7 World Trade Center 40th Floor
Attn: Peter Krzystek
New York, NY 10048
State Street Bank & Trust Co. FBO 22.8
Salomon Brothers NY Municipal Dept
7 World Trade Center, 38th Floor
New York, NY 10048
Salomon Brothers Inc A/C V0300 8.1
7 World Trade Center, 40th Floor
New York, NY 10048
Salomon Brothers Inc 6.2
7 World Trade Center 40th Floor
New York, NY 10048
Attn: Peter Hegel
</TABLE>
55
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
A Northstar Advantage Funds 73.5%
FBO Class A Shareholders
2 Pickwick Plaza
Greenwich, CT 06830
Charles Floyd Rechlin 8.9
c/o Sullivan & Cromwell
444 South Flower St
Los Angeles, CA 90071
B Northstar Advantage Funds 51.5
FBO Class T Shareholders
2 Pickwick Plaza
Greenwich, CT 06830
Northstar Advantage Funds 39.9
FBO Class B Shareholders
2 Pickwick Plaza
Greenwich, CT 06830
C Northstar Advantage Funds 87.5
FBO Class C Shareholders
2 Pickwick Plaza
Greenwich, CT 06830
BSDT Cust IRA R/O 11.9
FBO Donald Burke
Rt One Box 1365
Elkhart, TX 75839
Jennifer L. Wedge 9.3
8044 63rd Avenue
Kenosha, WI 53142
Sterling Trust Co. Cust 8.4
FBO Lilie Garcia A02045
PO Box 2526
Waco, TX 76702-2526
Kathleen M. Rinehart 6.2
1633 Prairie Drive
Plainfield, IL 60544
New York Municipal Money Market
Fund......................... O Salomon Brothers A/C V0270 7.1
7 World Trade Center 40th Floor
Attn: Peter Krzystek
New York, NY 10048
Salomon Brothers Inc A/C V0349 5.1
Attn: Peter Krzystek 40th Fl
7 World Trade Center
New York, NY 10048
Les J. Lieberman 5.1
360 East 88th Street, Apt 39A
New York, NY 10128
A Robert J. King 40.3
40 Misty Pine Road
Fairport, NY 14450
Mark Finestone 22.3
PO Box 18034
Rochester, NY 14618
Marvin Finestone 12.7
194 Roby Lane
Rochester, NY 14618
Lisa Burns 12.7
c/o Burns McClellan Inc
304 Park Avenue South, 11th Floor
New York, NY 10010-0000
B Salomon Brothers Holding Co Inc 100.0
Attn: Marc Peckman 38th Floor
7 World Trade Center
New York, NY 10048
</TABLE>
56
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
C Salomon Brothers Holding Co Inc 100%
Attn: Marc Peckman 38th Floor
7 World Trade Center
New York, NY 10048
U.S. Government Income Fund.... O Salomon Brothers Holding Co Inc 98.8
7 World Trade Center
New York, NY 10048
A Jane S Falk TTEE 21.5
Falk Family Trust
UDT DTD 06/12/69
5591-B Avenida Soseiga West
Laguna Hills CA 92653
Everen Clearing Corp. 18.5
A/C 3335-1996
4 Quarters Inc
111 East Kilbourn Avenue
Milwaukee, WI 53202
Carole Fischer 11.6
1641 Third Ave., Apt. 22H
New York, NY 10128
B Salomon Brothers Holding Co Inc 18.5
7 World Trade Center
New York, NY 10048
Smith Barney Inc 6.0
00164765037
388 Greenwich Street
New York, New York 10013
Ethel H. Holt 5.7
3521 Starline Dr
Austin, TX 78759-8941
Smith Barney Inc. 5.5
00118337851
388 Greenwich Street
New York, New York 10013
Smith Barney Inc. 5.2
00152915017
388 Greenwich Street
New York, New York 10013
C Salomon Brothers Holding Co Inc 58.5
Attn: Marc Peckman 38th Floor
7 World Trade Center
New York, NY 10048
Smith Barney Inc. 28.0
00106221327
388 Greenwich Street
New York, NY 10013
Smith Barney Inc. 8.8
00148100605
388 Greenwich Street
New York, NY 10013
High Yield Bond Fund........... O Salomon Brothers Inc A/C V0410 29.7
7 World Trade Center 40th Floor
New York, NY 10048
Attn: Peter Hegel
Salomon Brothers Inc V0407 17.6
Attn: Peter Hegel
7 World Trade Center 40th Floor
New York, NY 10048
Salomon Brothers Inc A/C V0288 17.4
7 World Trade Center 40th Floor
New York, NY 10048
Attn: Peter Krzyster
</TABLE>
57
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
Salomon Brothers A/C V0276 15.0%
7 World Trade Center 40th Floor
Attn: Peter Krzyster
New York, NY 10048
A CITIBANK N A TTEE 8.6
FBO Salomon Brothers Inc Ret Plan
U/A DTD 9/1/90
111 Wall Street, 20th Floor, Zone 1
New York, NY 10043
B N/A N/A
C N/A N/A
Strategic Bond Fund............ O Salomon Brothers Holding Co Inc 87.0
Attn: Marc Peckman 38th Floor
7 World Trade Center
New York, NY 10048
A Austin English Aire Ltd A Ptnr 10.0
1919 Burton Drive
Austin, TX 78741-0000
NFSC Febo #CL5-538809 6.7
Larry Pomerantz
180 Harbor Road
Sands Point, NY 11050
B N/A N/A
C Alex Brown & Sons Incorporated 5.8
PO Box 1346
Baltimore, MD 21203
Smith Barney Inc. 5.1
00148125547
388 Greenwich Street
New York, NY 10013
National Intermediate Municipal
Fund......................... O Salomon Brothers Holding Co Inc 97.4
7 World Trade Center
New York, NY 10048
A Salomon Brothers Holding Co Inc 35.7
Attn: Marc Peckman 38th Floor
7 World Trade Center
New York, NY 10048
Maureen Torsney-Weir 13.7
686 Conestoga Road
Berwyn, PA 19312-1315
Raymond James & Assoc Inc 12.5
For Elite Acct# 50105047
FAO Alice C Aldrich
c/o Alan Aldrich
1080 Darby Rd
San Marino, Ca 91108-2425800
Wexford Clearing Services Corp FBO 9.2
Harry Weiss TTEE
The Weiss FAM Marital Trust
UA DTD 03/29/88
c/o Barbara Luboff
Northridge, CA 91325-1839
Wexford Clearing Services Corp FBO 6.4
Barry J Pearson
125 Falcon Road
Guilford, CT 06437-3142
Ricardo Gomez Derosas & 5.4
Carmen Gomez Derosas
Tenants in Common
3609 Lake Winnipeg Dr
Harvey, LA 70058-5170
</TABLE>
58
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
Dorothy M Unger TTEE 5.3%
Louis A Unger Trust
U/A DTD April 25 1991
205 Magnolia Street
Satellite Bch, FL 32937-3010
B Salomon Brothers Holding Co Inc 31.2
Attn: Marc Peckman 38th Floor
7 World Trade Center
New York, NY 10048
Diane J Connors 21.0
c/o Waystack & King
N Main St PO Box 137
Colebrook, NH 03576-0137
Jeanette S Toll 14.6
c/o Mary Toll
1530 East Lasalle
South Bend, IN 46617
Wexford Clearing Services Corp FBO Ronald 12.1
Segal
4760 Walnut St #100
Boulder, CO 80301-2561
Ross M Maki TTEE 6.7
Rose M Maki Trust REV
3-27-96
7207 210th St SW #203
Edmonds, WA 98026-7273
Fred Da Nicol & 6.0
Margaret A. Nicol
JT Ten
P.O. Box 14
Eastsound, WA 98245-0014
C Salomon Brothers Holding Co Inc 49.5
7 World Trade Center
New York, NY 10048
H R Lewis TTEE 19.3
H R Lewis MD PA Corporation
Professional Plaza One
One Medical Parkway Ste 139
Dallas, TX 75234
Alan Neil Dumesco 10.2
8513 Churchill Downs Rd.
Gaithersburg, MD 20882-1443134
James Omer Olson & 10.1
Connie K. Olson JTWROS
502 Sixth Avenue
Hazen, ND 58545-4627
Total Return Fund.............. O BSDT Custodian for the IRA Account of John 10.2
C. Tate
308 College Street
Marion, VA 24354
Heather H. Dahlberg 10.0
60 Boulder Road
Wellesley Hills, MA 02181-1520
BSD&T Cust 9.7
Alan L. Dahlberg IRA-RO
WAFI #907 P.O. Box 2750
Dubai United Arab Emirates
BSDT Custodian for the IRA Account of Betty 9.5
Bane Tate
308 College Street
Marion, VA 24354
Tana E. Tselepis 8.1
111 Judson Street
Malden, MA 02148
</TABLE>
59
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
Michael S. Hyland & 6.2%
Mary Hyland Ttees
FBO Christopher J. Hyland Trust
U/A DTD 12/25/89
2 South Drive
Larchmont, NY 10538
Michael Hyland Jr. and 6.1
Mary Hyland Ttees
for Michael T. Hyland Trust
U/A DTD 12/25/89
2 South Drive
Larchmont, NY 10538
Michael S. Hyland & 6.1
Mary Hyland Ttees
FBO Catherine E. Hyland Trust
2 South Drive
Larchmont, NY 10538
Michael S. Hyland Jr. & 6.1
Mary Hyland Ttees
for Courtney J. Hyland Trust
2 South Drive
Larchmont, NY 10538
Michael S. Hyland Jr. & 6.1
Mary Hyland Ttees
for Thomas P. Hyland Trust
2 South Drive
Larchmont, NY 10538
Peter S. Blumberg 5.9
Marilyn Rose Cane Co-Execs
Est of Howard G. Blumberg
106 Ciena Oaks Circle W
Palm Beach Gardens, FL 33410
A N/A N/A
B N/A N/A
C A.G. Edwards & Sons Inc C/F 5.2
Marjorie H. Mahler
Rollover IRA Account
P.O. Box 560067
Dallas, TX 75356-0067
Asia Growth Fund............... O Salomon Brothers Holding Co Inc 60.9
Attn: Marc Peckman 38th Floor
7 World Trade Center
New York, NY 10048
California Central Trust Bank Corp. 13.5
FBO Omnibus Participants -- Reinvest
Box 5024
Costa Mesa, CA 92628-5024
Robert W. Collier MD 9.7
119 North 12th Street
Oakdale, LA 71463
BSDT Cust IRA Rollover 8.4
FBO Carol L. Colman
278 Hawley Road
North Salem, NY 10560
A Salomon Brothers Holding Co Inc 57.1
7 World Trade Center
New York, NY 10048
John F. Purcell & 6.4
Jan Purcell JTWROS
470 West End Avenue Apt 12E
New York, NY 10024
B Salomon Brothers Holding Co Inc 67.3
7 World Trade Center
New York, NY 10048
</TABLE>
60
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
C Salomon Brothers Holding Co Inc 22.1%
7 World Trade Center
New York, NY 10048
A.G. Edwards & Sons Inc. C/F 7.2
John L.D. Kronfeld
6820 E. Mississippi Unit D
Denver, CO 80224-1881
Edward J. Kaufman & 5.3
Bonnie B. Kaufman JTWROS
186 N Fifth Ave.
Monrovia, CA 91016
Carolyn S. Edwards 5.0
507 Inwood Dr.
Baytown, TX 77521-4011
Investors Fund................. O N/A N/A
A Smith Barney Inc. 5.2
388 Greenwich Street
New York, NY 10013
Salomon Brothers Inc A/C PWM1389 5.1
Attn: Peter Hegel
7 World Trade Center
40th Floor
New York, NY 10048
B N/A N/A
C Raymond James & Assoc. Inc. 7.2
For Elite Acct #50125031
FAO AME Zion Church Brthrhood
Pensions Department
PO Box 34454
Charlotte, NC 28234-4454545
Smith Barney Inc. 5.1
388 Greenwich Street
New York, NY 10013
Capital Fund................... O Salomon Inc 54.0
Profit Sharing Plan
7 World Trade Center 34th Floor
New York, NY 10048
A Ramon J. Falero Ttee 6.4
Ramon J. Falero Rev. Trust
10125 NW 116th Way Ste 5
Miami, FL 33178-1164259
Lawrence D. Hutchins 5.0
83 Delafield Island Rd.
Darien, CT 06820-6016
B Audrie T. Allen Tr 41.2
The Audrie T. Allen Trust
U/A Dated 6/23/93
1011 Bonnie Brae Place
Vista, CA 92084-5529
Raymond James & Assoc. Inc. CSDN 20.8
Michael G. Kushnick IRA
107 Pommander Walk
Alexandria, VA 22314
Everen Clearing Corp. Cust. 8.7
FBO Tiran Porter IRA Rollover
15250 Ventura Blvd. #900
Sherman Oaks, CA 91403-3221
C H. R Lewis Ttee 11.0
H. R Lewis MD PA Corporation
Professional Plaza One
One Medical Parkway Ste 139
Dallas, TX 75234
</TABLE>
61
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FUND CLASS SHAREHOLDER PERCENTAGE HELD
- ------------------------------- ----- -------------------------------------------- ---------------
<S> <C> <C> <C>
William Lintner Jr. 9.1%
24 Partridge Run
Montvale, NJ 07645-0000
Everen Clearing Corp. Cust 6.0
FBO Jack N. Chidester
IRA Rollover
A/C 2231-5778
1713 E Colter
Phoenix, AZ 85016-3305
Stephen J. Walker & 5.9
Barbara J. Walker Jtwros
1276 32nd Court NW
Salem, OR 97304
Muriel Landi-Fontana 5.9
5 Freshmeadow Road
Easton, CT 06612
A.G. Edwards & Sons Inc. C/F 5.6
Sally A. Maag
Rollover IRA Account
2933 Belmont Woods Way
Belmont, CA 94002-2973
Interstate/Johnson Lane 5.1
FBO 201-85984-13
Interstate Tower
P.O. Box 1220
Charlotte, NC 28201-1220
</TABLE>
62
<PAGE>
<PAGE>
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 Lehman Management Co., Inc.,
the previous investment adviser to the Investors Fund and the Capital Fund, and
the name of each Fund was changed from Lehman Investors Fund, Inc. and Lehman
Capital Fund, Inc. to Salomon Brothers Investors Fund Inc and Salomon Brothers
Capital Fund Inc, respectively.
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
statements 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.
Under the management contract between the Series Funds and SBAM with
respect to the International Growth Fund (the 'IGF Management Contract'), SBAM
may delegate a portion of its responsibilities to a sub-adviser. In addition,
the IGF Management Contract provides that SBAM may render services through its
own employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser of the International Growth Fund and
are under the common control of SBAM as long as all such persons are functioning
as a part of an organized group of persons, managed by authorized officers of
SBAM.
Pursuant to a subadvisory agreement, SBAM has retained Mastholm Asset
Management, L.L.C. (the 'Sub-Adviser') as sub-adviser to the International
Growth Fund (the 'International Subadvisory Agreement'). Subject to the
supervision of SBAM, the Sub-Adviser will have responsibility for the day-to-day
management of the International Growth Fund's portfolio. The Sub-Adviser is
compensated at no additional cost to the International Growth Fund. The
Sub-Adviser is owned 80% by individuals who serve the Sub-Adviser in key
professional capacities and 20% by Salomon Brothers Asset Management G.P., Inc,
an indirect wholly-owned subsidiary of SBAM. The Sub-Adviser is registered as an
investment adviser in the United States pursuant to the Investment Advisers Act
of 1940, as amended (the 'Advisers Act').
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 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 an
indirect, wholly-owned subsidiary of Salomon Inc. SBAM Limited is a member of
the Investment Management Regulatory Organization
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<PAGE>
Limited in the United Kingdom and is registered as an investment adviser in the
United States pursuant to the Advisers Act.
Pursuant to a sub-advisory agreement, SBAM has retained SBAM AP as
sub-adviser to the Asia Growth Fund (the 'Asia Subadvisory Agreement'). Subject
to the supervision of SBAM, SBAM AP will have responsibility for the day-to-day
management of the Fund's portfolio. SBAM AP is compensated at no additional cost
to the Asia Growth Fund. Like SBAM, SBAM AP is an indirect, wholly-owned
subsidiary of Salomon Inc. SBAM AP is a member of the Hong Kong Securities and
Futures Commission and is registered as an investment adviser in the United
States pursuant to the Advisers Act. Pursuant to a sub-administration agreement,
SBAM has retained SBAM Limited to provide certain administrative services to
SBAM relating to the Asia Growth Fund (the 'Subadministration Agreement').
Investment decisions for a particular Fund are made independently from
those of other funds or accounts managed by SBAM, the Sub-Adviser, SBAM AP or
SBAM Limited. 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.
As compensation for its services, SBAM receives, on behalf of each Fund
other than the Investors Fund, as described below, a monthly management fee, at
annual rate based upon the average daily net assets of the Fund as follows: .20%
for the Cash Management Fund and the New York Municipal Money Market Fund; .50%
for the National Intermediate Municipal Fund; .60% for the U.S. Government
Income Fund; .75% for the High Yield Bond Fund and the Strategic Bond Fund; .55%
for the Total Return Fund, % for the International Growth Fund, % for the
Small Cap Growth Fund, and .80% for the Asia Growth Fund. SBAM receives from the
Capital Fund a management fee payable monthly, at an annual rate of 1.00% of
average daily net assets up to $100 million, .75% on the next $100 million,
.625% on the next $200 million and .50% on average daily net assets in excess of
$400 million. For the last three fiscal years ended December 31, 1996, the SBAM
has received the following amounts as management fees and has reimbursed the
Funds for expenses in the following amounts:
<TABLE>
<CAPTION>
EXPENSES
GROSS FEES WAIVER REIMBURSED
---------- -------- ----------
<S> <C> <C> <C>
CASH MANAGEMENT FUND
Year Ended December 31, 1994........................ $ 29,088 $ 29,088 $ 0
Year Ended December 31, 1995........................ $ 25,505 $ 25,505 $ 75,716
Year Ended December 31, 1996........................ $ 36,898 $ 36,898 $ 13,646
NEW YORK MUNICIPAL MONEY MARKET FUND
Year Ended December 31, 1994........................ $ 468,902 $ 0 $ 0
Year Ended December 31, 1995........................ $ 449,809 $ 31,455 $ 0
Year Ended December 31, 1996........................ $ 393,078 $ 0 $ 0
NATIONAL INTERMEDIATE MUNICIPAL FUND
February 22, 1995 (commencement of operations)
December 31, 1995................................. $ 44,953 $ 44,953 $ 35,803
Year Ended December 31, 1996........................ $ 56,186 $ 56,186 $ 83,959
U.S. GOVERNMENT INCOME FUND
February 22, 1995 (commencement of operations)
December 31, 1995................................. $ 53,073 $ 53,073 $ 39,324
Year Ended December 31, 1996........................ $ 66,682 $ 66,682 $ 85,462
HIGH YIELD BOND FUND
February 22, 1995 (commencement of operations)
December 31, 1995................................. $ 108,535 $ 79,385 $ 0
Year Ended December 31, 1996........................ $ 565,248 $191,119 $ 0
</TABLE>
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<TABLE>
<CAPTION>
EXPENSES
GROSS FEES WAIVER REIMBURSED
---------- -------- ----------
<S> <C> <C> <C>
STRATEGIC BOND FUND
February 22, 1995 (commencement of operations)
December 31, 1995................................. $ 71,026 $ 71,026 $ 11,822
Year Ended December 31, 1996........................ $ 146,387 $144,551 $ 0
TOTAL RETURN FUND
September 11, 1995 (commencement of operations)
December 31, 1995................................. $ 15,069 $ 15,069 $ 4,346
Year Ended December 31, 1996........................ $ 184,118 $184,118 $102,651
ASIA GROWTH FUND
May 6, 1996 (commencement of operations) December
31, 1996.......................................... $ 30,723 $ 30,723 $132,687
CAPITAL FUND
Year Ended December 31, 1994........................ $1,035,255 $ 0 $ 0
Year Ended December 31, 1995........................ $ 957,755 $ 0 $ 0
Year Ended December 31, 1996........................ $1,143,084 $ 0 $ 0
</TABLE>
With respect to certain Funds for the 1997 fiscal year, SBAM has
voluntarily agreed to impose a cap on the total Fund operating expenses
(exclusive of taxes, interest and extraordinary expenses such as litigation and
indemnification expenses) through reimbursement of certain expenses and, to the
extent necessary, waiver of management fees. See 'Expense Information -- Annual
Fund Operating Expenses' in each Prospectus. For its services under the Asia
Subadvisory Agreement, SBAM AP is compensated by SBAM at a rate agreed to
between SBAM and SBAM AP from time to time. For its services under the
International Subadvisory Agreement, the Sub-Adviser is compensated by SBAM, at
no additional cost to the International Growth Fund, at an annual rate of %
of the Fund's average daily net assets.
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.................................... .650%
Next $150 million..................................... .550%
Next $250 million..................................... .525%
Next $250 million..................................... .500%
Over $1 billion....................................... .450%
</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 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
65
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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 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 April 30, 1997, the Investors Fund paid SBAM the following Base
Fee: based on the following annual percentages of the Fund's average daily net
assets .500% on the first $350 million, .400% on the next $150 million, .375% on
the next $250 million, .350% on the next $250 million and .300% on the amount in
excess of $1 billion. Prior to August 1, 1994, the Investors Fund paid the
following Base Fee based on the following annual percentages of the Fund's
average daily net assets: none on the first $25 million, .50% on the next $325
million, .30% on the next $150 million, .25% on the next $250 million and .20%
on the amount in excess of $750 million. SBAM was paid $2,455,501, $1,614,897
and $1,747,839 in management fees for the years ended December 31, 1996, 1995
and 1994, respectively.
For its services under the Subadministration Agreement, SBAM Limited is
compensated by SBAM at no additional cost to the Asia Growth Fund at an annual
rate of .10% of the Asia Growth Fund's daily net assets.
The management contract for each of the Series Funds provides that it will
continue for an initial two year period and thereafter for successive annual
periods, and the management contract for each of the Investors Fund and the
Capital Fund provides that it will continue for successive annual periods;
provided that, with respect to each such contract, 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, as defined in the 1940 Act, cast in person at a meeting called for the
specific 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.
Under the terms of the management contract between each Fund and SBAM,
neither SBAM nor its affiliates shall be liable for losses or damages incurred
by the Fund (including, with respect to the Asia Growth Fund, the imposition of
certain Hong Kong tax liabilities on the Fund), unless such losses or damages
are attributable to the wilful misfeasance, bad faith or gross negligence on
either the part of SBAM or its affiliate or from reckless disregard by it of its
obligations and duties under the Management Contract ('disabling conduct'). In
addition, the Asia Growth Fund will indemnify SBAM and its affiliates and hold
each of them harmless against any losses or damages, including the imposition of
certain Hong Kong tax liabilities on the Fund, not resulting from disabling
conduct.
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, the
Investors Fund and the Capital 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
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sale of securities by the Fund. In addition, the Fund Code attaches and
incorporates personal trading policies and procedures applicable to access
persons of the investment manager and if applicable, any sub-adviser to each
Fund, which policies serve as such adviser'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
Investors Bank & Trust Company ('IBT'), located at 89 South Street, Boston,
Massachusetts 02111, provides certain administrative services to each 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 SEC.
For its services as administrator, each Fund (except the Investors Fund and
the Capital Fund) pays IBT 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 each of the Investors Fund and the Capital Fund and
at no additional cost to the Investors Fund or the Capital 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 and .06% of the average daily net assets of the
Capital Fund, respectively. Prior to December 1994 for the Investors Fund and
May 1995 for the Capital Fund, SBAM paid The Boston Company Advisors, ('Boston
Company'), the Funds' previous administrator, a fee each month at an annual rate
of .08% of the average daily net assets. For its services as administrator to
the Cash Management Fund, the Series Funds paid The 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 last three fiscal years ended December 31, 1996, the Funds have paid the
amounts as administration fees pursuant to each administration and
sub-administration agreement as set forth below.
<TABLE>
<CAPTION>
BOSTON COMPANY IBT
-------------- --------
<S> <C> <C>
CASH MANAGEMENT FUND
Year Ended December 31, 1994.................................. $ 10,499 $ 1,136
Year Ended December 31, 1995.................................. N/A $ 10,216
Year Ended December 31, 1996.................................. N/A $ 14,400
NEW YORK MUNICIPAL MONEY MARKET FUND
Year Ended December 31, 1994.................................. $174,144 $ 15,878
Year Ended December 31, 1995.................................. N/A $180,146
Year Ended December 31, 1996.................................. N/A $162,833
NATIONAL INTERMEDIATE MUNICIPAL FUND
February 22, 1995 (commencement of operations) December 31,
1995........................................................ N/A $ 5,570
Year Ended December 31, 1996.................................. N/A $ 8,145
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
BOSTON COMPANY IBT
-------------- --------
<S> <C> <C>
U.S. GOVERNMENT INCOME FUND
February 22, 1995 (commencement of operations) December 31,
1995........................................................ N/A $ 5,491
Year Ended December 31, 1996.................................. N/A $ 7,918
HIGH YIELD BOND FUND
February 22, 1995 (commencement of operations) December 31,
1995........................................................ N/A $ 7,904
Year Ended December 31, 1996.................................. N/A $ 34,645
STRATEGIC BOND FUND
February 22, 1995 (commencement of operations) December 31,
1995........................................................ N/A $ 5,778
Year Ended December 31, 1996.................................. N/A $ 12,012
TOTAL RETURN FUND
September 11, 1995 (commencement of operations) December 31,
1995........................................................ N/A $ 1,841
Year Ended December 31, 1996.................................. N/A $ 18,789
ASIA GROWTH FUND
May 6, 1996 (commencement of operations) December 31, 1996.... N/A $ 24,167
</TABLE>
DISTRIBUTOR
SBI, located at 7 World Trade Center, New York, New York 10048, serves as
each Fund's distributor pursuant to a distribution contract. SBI is a wholly
owned subsidiary of Salomon Brothers Holding Company Inc, which is in turn
wholly owned by Salomon Inc.
Rule 12b-1 promulgated under the 1940 Act (the 'Rule') 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 and the New York
Municipal Money Market 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 and the New
York Municipal Money Market Fund) pays SBI 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 and New York
Municipal Money Market Fund) pays SBI a distribution fee with respect to Class B
and Class C shares primarily intended to compensate SBI 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, and New York
Municipal Money Market Fund 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 and the New York Municipal Money Market Fund pay no
distribution or shareholder service fee. SBI 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 SBI
may make payments to assist in the distribution of each class of a 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,
is presented 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
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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. For the year
ended December 31, 1996, the aggregate amount spent by the various classes of
each Fund under the applicable Plan was as follows:
<TABLE>
<CAPTION>
AMOUNT AMOUNT
SPENT ON SPENT ON AMOUNT
AMOUNT PRINTING AND INTEREST, CARRYING SPENT ON TOTAL
SPENT ON MAILING OF OR OTHER MISCELLANEOUS AMOUNT
ADVERTISING PROSPECTUS FINANCIAL CHARGES EXPENSES SPENT
----------- ------------ ------------------ ------------- --------
<S> <C> <C> <C> <C> <C>
NATIONAL INTERMEDIATE FUND
Class A............................. $33,334 $ 812 $ 12,673 $ 1,914 $ 48,733
Class B............................. $33,333 $ 681 $ 13,057 $ 729 $ 47,800
Class C............................. $33,333 $ 437 $ 13,057 $ 550 $ 47,377
U.S. GOVERNMENT INCOME FUND
Class A............................. $33,334 $ 713 $ 7,757 $ 1,880 $ 43,684
Class B............................. $33,333 $ 1,028 $ 13,292 $ 578 $ 48,231
Class C............................. $33,333 $ 423 $ 12,792 $ 536 $ 47,084
HIGH YIELD BOND FUND
Class A............................. $41,667 $ 35,070 $ 0 $77,782 $154,519
Class B............................. $41,667 $ 49,652 $ 0 $ 4,949 $ 96,268
Class C............................. $41,666 $ 6,375 $ 0 $ 579 $ 48,620
STRATEGIC BOND FUND
Class A............................. $33,334 $ 3,611 $ 6,993 $ 7,532 $ 51,470
Class B............................. $33,333 $ 7,155 $ 6,993 $ 1,386 $ 48,867
Class C............................. $33,333 $ 2,106 $ 6,993 $ 350 $ 42,782
TOTAL RETURN FUND
Class A............................. $50,000 $ 11,426 $ 9,766 $30,742 $101,934
Class B............................. $50,000 $ 15,682 $ 9,762 $ 1,718 $ 77,162
Class C............................. $50,000 $ 1,717 $ 9,768 $ 67 $ 61,552
ASIA GROWTH FUND
Class A............................. $16,667 $ 1,378 $ 89,408 $ 4,874 $112,327
Class B............................. $16,667 $ 1,180 $ 89,317 $ 0 $107,164
Class C............................. $16,666 $ 92 $ 3,314 $ 0 $ 20,072
INVESTORS FUND
Class A............................. $33,333 $ 4,496 $ 11,868 $ 8,870 $ 58,567
Class B............................. $33,333 $ 4,214 $ 11,844 $ 747 $ 50,138
Class C............................. $33,333 $ 1,028 $ 11,844 $ 506 $ 46,711
CAPITAL FUND
Class A............................. $ 0 $ 128 $ 0 $ 43 $ 171
Class B............................. $ 0 $ 82 $ 0 $ 0 $ 82
Class C............................. $ 0 $ 48 $ 0 $ 0 $ 48
</TABLE>
69
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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.
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PORTFOLIO TRANSACTIONS
Subject to policy established by the Board of Directors, the investment
manager 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 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 the
investment manager'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 the investment
manager 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, the investment manager may select brokers who
charge a commission in excess of that charged by other brokers, if the
investment manager determines in good faith that the commission to be charged is
reasonable in relation to the brokerage and research services provided to the
investment manager 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. The
investment manager may also have arrangements with brokers pursuant to which
such brokers provide research services to the investment manager 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, the investment
manager does not believe that the receipt of such brokerage and research
services significantly reduces its expenses as a Fund's investment manager.
Arrangements for the receipt of research services from brokers may create
conflicts of interest.
Research services furnished to the investment manager by brokers who effect
securities transactions for a Fund may be used by the investment manager in
servicing other investment companies and accounts which it manages. Similarly,
research services furnished to the investment manager by brokers who effect
securities transactions for other investment companies and accounts which the
investment manager manages may be used by the investment manager in servicing a
Fund. Not all of these research services are used by the investment manager in
managing any particular account, including the Funds.
Under the 1940 Act, 'affiliated persons' of 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 SEC. However,
each Fund may purchase securities from underwriting syndicates of which the
investment manager or any of its affiliates as defined in the 1940 Act, is a
member under certain conditions, in accordance with Rule 10f-3 promulgated under
the 1940 Act.
Each Fund contemplates that, consistent with the policy of obtaining the
best net results, brokerage transactions may be conducted through 'affiliated
broker/dealers,' as defined in the 1940 Act. Each Company's Board of Directors
has adopted procedures in accordance with Rule 17e-1 promulgated under the 1940
Act to ensure that all brokerage commissions paid to such affiliates are
reasonable and fair in the context of the market in which such affiliates
operate. Any such compensation will be paid in accordance with applicable SEC
regulations. For the fiscal years ended December 31, 1994 (where applicable),
1995 and 1996,
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the Funds paid aggregate brokerage commissions, including affiliated brokerage
commissions, as follows:
<TABLE>
<CAPTION>
AGGREGATE BROKERAGE BROKERAGE COMMISSIONS
COMMISSIONS PAID PAID BY THE FUNDS TO SBI
------------------- ------------------------
<S> <C> <C>
TOTAL RETURN FUND
September 11, 1995 (commencement of
operations) December 31, 1995............. $ 9,432 $ 210**
Year Ended December 31, 1996................ $ 42,520 $ 1,758**
CAPITAL FUND
Year Ended December 31, 1994................ $ 482,953 $ 45,612
Year Ended December 31, 1995................ $ 629,443 $ 57,993***
Year Ended December 31, 1996................ $ 621,777 $ 29,772***
INVESTORS FUND
Year Ended December 31, 1994................ $ 676,229 $ 61,788
Year Ended December 31, 1995................ $ 998,071 $ 95,179+
Year Ended December 31, 1996................ $ 619,781 $ 59,316+
</TABLE>
- ------------
** Represents 2.2% and 4.1% of total brokerage commissions paid by the Total
Return Fund, and SBI executed 1.60% and 4.2% of the aggregate dollar amount
of transactions involving commissions during the fiscal years ended 1995 and
1996, respectively.
*** Represents 9.0% and 4.8% of total brokerage commissions paid by the Capital
Fund, and SBI executed 7.0% and 6.3% of the aggregate dollar amount of
transactions involving commissions during the fiscal years ended 1995 and
1996, respectively.
+ Represents 9.5% and 9.6% of total brokerage commissions paid by the
Investors Fund, and SBI executed 9.9% and 9.8% of the aggregate dollar
amount of transactions involving commissions during the fiscal years ended
1995 and 1996, respectively.
NET ASSET VALUE
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 closing price of such securities on their respective exchanges,
except that if the investment manager is of the opinion that such price would
result in an inappropriate value for a security, including as a result of an
occurrence subsequent to the time a value was so established 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.
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As stated in the applicable Prospectus, each of the Cash Management Fund
and the New York Municipal Money Market 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 promulgated 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 has established procedures reasonably designed,
taking into account current market conditions and the investment objective of
the Cash Management Fund and the New York Municipal Money Market Fund, 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 net asset value of the
Cash Management Fund or the New York Municipal Money Market Fund, as applicable,
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
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 based on the aggregate
amount of the investment, except for Class A purchases, including rights of
accumulation, equalling or exceeding $1 million. The public offering price per
Class B share, Class C share and Class O share 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 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 each 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 Internal Revenue Code of 1986, as amended (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
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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 Advisers Act) 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 800 446-1013.
Right of Accumulation. Reduced sales charges, in accordance with the
schedule in each 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/or the New
York Municipal Money Market 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) 446-1013.
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 where
such securities are sold prior to maturity.
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 NYSE 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
SEC 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 SEC 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 has qualified for the fiscal year ended December 31, 1996 and
intends to continue to qualify and elect to be treated as a regulated investment
company (a 'RIC') under Subchapter M of the Internal Revenue Code of 1986, as
amended (the 'Code'). 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) for taxable years beginning on or before August 5, 1997, 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
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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 (the '30%
limitation); 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
RICs 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 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 RICs). The 30%
limitation has been repealed for taxable years beginning after August 5, 1997.
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 capital gain' (the excess of the Fund's net long-term capital
gains over net short-term capital losses), if any, that it distributes in each
taxable year to its shareholders, provided that it distributes 90% of its net
investment income for such taxable year, and with respect to the New York
Municipal Money Market Fund and the National Intermediate Municipal Fund, at
least 90% of its net tax-exempt income for such taxable year. However, a Fund
would be subject to corporate income tax (currently at a maximum rate of 35%) on
any undistributed net investment income and net capital gain. Each Fund expects
to designate amounts retained as undistributed net capital gain in a notice to
its shareholders who (i) will be required to include in income for United States
federal income tax purposes, as long-term capital gains, their proportionate
shares of the undistributed amount, (ii) will be entitled to credit their
proportionate shares of the 35% tax paid by a Fund on the undistributed amount
against their federal income tax liabilities and to claim refunds to the extent
such credits exceed their liabilities and (iii) will be entitled to increase
their tax basis, for federal income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed net capital gain included in the
shareholder's income.
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) 100% of the undistributed
income and gains from the preceding calendar year (if any) pursuant to the
calculations in (a) and (b). For this purpose, any income or gain retained by a
Fund that is subject to corporate tax will be considered to have been
distributed by year-end.
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
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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 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.
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 pay-in-kind
bonds or in obligations such as certain Brady Bonds or zero-coupon securities
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 'short-short test' 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.
Under recently enacted legislation, the Fund must generally recognize gain
(but not loss) upon entering into a 'constructive sale' of an appreciated
financial position. A constructive sale of an appreciated financial position is:
(1) a short sale of, (2) an offsetting notional principal contract with respect
to, or (3) a forward or futures contract to deliver, the same or substantially
identical property. In the case of such a transaction, the Fund will be treated
as having entered into the constructive sale when it acquires the related long
position. To the extent provided in regulations, a constructive sale will occur
if the Fund enters into one or more transactions that have substantially the
same effect as the above-described transactions. When a constructive sale
occurs, the Fund will recognize gain as if the position were sold at its fair
market value on the date of the constructive sale and immediately repurchased.
The basis of the property is adjusted and a new holding period begins on the
date of the constructive sale. Constructive sale treatment does not apply to a
transaction that is closed within 30 days after the end of the taxable year
during which the transaction is entered into. However, if the transaction is
closed during the last 90 days of this period, then the exception will only
apply if the Fund holds the appreciated financial position (without reducing the
risk of loss with respect thereto) throughout the 60-day period following the
closing of the transaction.
If the Fund purchases shares in a 'passive foreign investment company' (a
'PFIC'), the Fund may be subject to U.S. federal income tax on a portion of any
'excess distribution' or
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gain from the disposition of such shares even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such distributions or gains. If the Fund were to invest in a PFIC
and elected to treat the PFIC as a 'qualified electing fund' under the Code (a
'QEF'), in lieu of the foregoing requirements, the Fund would be required to
include in income each year a portion of the ordinary earnings and net capital
gain of the qualified electing fund, even if not distributed to the Fund.
Alternatively, under recently enacted legislation, the Fund can elect to
mark-to-market at the end of each taxable year its shares in a PFIC; in this
case, the Fund would recognize as ordinary income any increase in the value of
such shares, and as ordinary loss any decrease in such value to the extent it
did not exceed prior increases included in income. Under either election, the
Fund might be required to recognize in a year income in excess of its
distributions from PFICs and its proceeds from dispositions of PFIC stock
during that year, and such income would nevertheless be subject to the 90%
distribution requirement and would be taken into account for purposes of the 4%
excise tax.
TAXATION OF U.S. SHAREHOLDERS
The Prospectus describes each Fund's policy with respect to distribution of
net investment income and any net capital gain. 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 additional 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. Under recently enacted legislation, the
maximum rate of tax on long-term capital gains of individuals will generally be
reduced from 28% to 20% (10% for gains otherwise taxed at 15%) for long-term
capital gains realized after July 28, 1997 with respect to capital assets held
for more than 18 months. Additionally, beginning after December 31, 2000, the
maximum tax rate for capital assets with a holding period beginning after that
date and held for more than five years will be 18%. Under a literal reading of
the legislation, capital gain dividends paid by a RIC would not appear eligible
for the reduced capital gain rates. However, the legislation authorizes the
Treasury Department to promulgate regulations that would apply the new rates to
capital gain dividends paid by a RIC. With respect to corporate taxpayers,
long-term capital gains are taxed at the same federal income tax rates as
short-term capital gains, the maximum rate being 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 capital gain dividends
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 and the New York Municipal Money Market Fund) will qualify for the federal
dividends received deduction generally available to corporations. The dividends
received deduction for corporate shareholders may be disallowed or 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) during the 90 day period beginning on the date which is 45 days before
the date on which such share becomes ex-dividend with respect to such dividend
(during the 180 day period beginning 90 days before such date in the case of
certain preferred stock) or (3) subject to certain forms of hedges or short
sales. The amount of any
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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. Moreover, the dividends received deduction may be disallowed
or reduced if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of a Fund.
A Fund may be subject to certain taxes, including without limitation, taxes
imposed by foreign countries with respect to its income and capital gains. If a
Fund qualifies as a RIC, certain distribution requirements are satisfied and
more than 50% of the value of the Fund's total assets at the close of any
taxable year consists of stock or securities of foreign corporations, which for
this purpose may include obligations of foreign governmental issuers, the Fund
may elect, for United States federal income tax purposes, to treat any foreign
country's income or withholding taxes paid by the Fund that can be treated as
income taxes under the United States income tax principles, as paid by its
shareholders.
The International Growth Fund and the Asia Growth Fund expect to qualify
for and make this election. For any year that the International Growth Fund and
the Asia Growth Fund make such an election, each shareholder of such Fund will
be required to include in its income an amount equal to his or her allocable
share of such income taxes paid by the International Growth Fund and the Asia
Growth Fund to a foreign country's government and shareholders will be entitled,
subject to certain limitations, to credit their portions of these amounts
against their United States federal income tax due, if any, or to deduct their
portions from their United States taxable income, if any. In certain
circumstances, a shareholder that (i) has held shares of the International
Growth Fund or the Asia Growth Fund for less than a specified minimum period
during which it is not protected from risk of loss or (ii) is obligated to make
payments related to the dividends, will not be allowed a foreign tax credit for
foreign taxes deemed imposed on dividends paid on such shares. Additionally, the
International Growth Fund and the Asia Growth Fund must also meet this holding
period requirement with respect to their foreign securities in order for
'creditable' taxes to flow-through. No deductions for foreign taxes paid by the
International Growth Fund and the Asia Growth Fund may be claimed, however, by
non-corporate shareholders (including certain foreign shareholders described
below) who do not itemize deductions. Shareholders that are exempt from tax
under Section 501(a) of the Code, such as pension plans, generally will derive
no benefit from this election.
THE NEW YORK MUNICIPAL MONEY MARKET FUND AND THE NATIONAL INTERMEDIATE MUNICIPAL
FUND
The New York Municipal Money Market 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 Money Market 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 Money Market Fund, however, are not excluded in determining New York
State or New York City franchise taxes on corporations and financial
institutions. Further, gain from a sale or redemption of shares of the New York
Municipal Money Market Fund and the National Intermediate Municipal Fund will be
taxable to the shareholders as capital gain even though the increase in value of
such shares is attributable to tax-exempt income.
Because the New York Municipal Money Market 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. A portion may be subject to the alternative
minimum tax, however. Federal tax law imposes an alternative minimum tax with
respect to both corporations and individuals based on certain
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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 Money Market 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 Money Market Fund and the National
Intermediate Municipal Fund will annually supply shareholders with a report
indicating the percentage of Fund income attributable to municipal obligations
which may be 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.
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 Money Market Fund or the National Intermediate Municipal
Fund, is included in calculating ACE.
Taxpayers that may be subject to the alternative minimum tax should consult
their tax advisers before investing in the New York Municipal Money Market Fund
or the National Intermediate Municipal Fund.
Shares of the New York Municipal Money Market 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
('IRAs'), 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 Money Market 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 Money Market 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
companies. Such corporations and insurance companies should consult their tax
advisers before investing in the New York Municipal Money Market 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.
79
<PAGE>
<PAGE>
STATE AND LOCAL TAX MATTERS
Most 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 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.
PERFORMANCE DATA
As indicated in each 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
each Prospectus, are computed according to a formula prescribed by the
Commission. The formula can be expressed as follows:
P(1+T)`pp`n = 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 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 each Prospectus.
The Cash Management Fund, the New York Municipal Money Market Fund, the
Investors Fund and the Capital Fund implemented the Multiple Pricing System by
reclassifying the then existing shares of each such Fund as Class O shares of
each such Fund. This reclassification was effected in such a manner so that the
shares of each of the Cash Management Fund and the Investors Fund outstanding at
December 31, 1994, and shares of the New York Municipal Money Market Fund and
the Capital Fund outstanding at October 31, 1996, would be subject to identical
distribution and service fees both before and after the reclassification.
80
<PAGE>
<PAGE>
The percentages shown in the tables below reflect front end sales charges
and CDSCs, if any, currently payable by each class of shares under the Multiple
Pricing System, and are based on the fees and expenses actually paid by each
such Fund for the periods presented. The distribution and service fees currently
payable by each class of shares under the Multiple Pricing System are described
in 'Purchase of Shares -- Distribution Fees' in each Prospectus.
The following tables set forth the average annual total returns for each
class of shares of each of the National Intermediate Fund, U.S. Government
Income Fund, High Yield Bond Fund, Strategic Bond Fund, Total Return Fund (in
each case, after management fee waiver and reimbursement of certain expenses),
Investors Fund and Class O shares of the Capital Fund for certain periods of
time ending December 31, 1996 and reflect the effects of the maximum applicable
front end sales charges and any applicable CDSCs payable by an investor under
the Multiple Pricing System.
NATIONAL INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
FROM FEBRUARY 22, 1995
(COMMENCEMENT OF
INVESTMENT OPERATIONS)
YEAR ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- ----------------------
<S> <C> <C>
Class A.................................................. -0.77% 4.16%
Class B.................................................. -1.60% 3.49%
Class C.................................................. 2.37% 6.08%
Class O.................................................. 4.32% 7.13%
</TABLE>
U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
FROM FEBRUARY 22, 1995
(COMMENCEMENT OF
INVESTMENT OPERATIONS)
YEAR ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- ----------------------
<S> <C> <C>
Class A.................................................. -1.29% 4.23%
Class B.................................................. -2.18% 3.56%
Class C.................................................. 1.71% 6.14%
Class O.................................................. 3.73% 7.20%
</TABLE>
HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
FROM FEBRUARY 22, 1995
(COMMENCEMENT OF
INVESTMENT OPERATIONS)
YEAR ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- ----------------------
<S> <C> <C>
Class A.................................................. 16.08% 17.67%
Class B.................................................. 16.16% 17.61%
Class C.................................................. 20.06% 19.89%
Class O.................................................. 22.03% 20.97%
</TABLE>
STRATEGIC BOND FUND
<TABLE>
<CAPTION>
FROM FEBRUARY 22, 1995
(COMMENCEMENT OF
INVESTMENT OPERATIONS)
YEAR ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- -----------------------
<S> <C> <C>
Class A................................................. 8.59% 13.66%
Class B................................................. 7.96% 13.32%
Class C................................................. 12.07% 15.74%
Class O................................................. 14.21% 16.88%
</TABLE>
81
<PAGE>
<PAGE>
TOTAL RETURN FUND
<TABLE>
<CAPTION>
FROM SEPTEMBER 11, 1995
(COMMENCEMENT OF
INVESTMENT OPERATIONS)
YEAR ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- -----------------------
<S> <C> <C>
Class A................................................. 12.66% 15.07%
Class B................................................. 12.41% 15.41%
Class C................................................. 16.46% 18.67%
Class O................................................. 19.03% 20.19%
</TABLE>
INVESTORS FUND
<TABLE>
<CAPTION>
FROM COMMENCEMENT OF
INVESTMENT OPERATIONS OF
CLASS A, B AND C
(JANUARY 3, 1995)
THROUGH
DECEMBER 31, 1996 1 YEAR 5 YEARS 10 YEARS
------------------------ ------ ------- --------
<S> <C> <C> <C> <C>
Class A........................................ 29.59% 24.09 % N/A N/A
Class B........................................ 29.93% 24.22 % N/A N/A
Class C........................................ 31.85% 28.25 % N/A N/A
Class O........................................ N/A 30.56 % 16.65% 14.12%
</TABLE>
CAPITAL FUND
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Class O.................................................................. 33.34 % 13.63% 12.00%
</TABLE>
As described in each Prospectus under the caption 'Expense Information,'
each of the Funds, except the Investors Fund and the Capital Fund, has been and
still is subject to certain fee waivers and expense reimbursements. Absent such
waiver and reimbursement, the returns shown above for such Funds would be lower.
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.
The following tables set forth the aggregate total return of each class of
shares of the Asia Growth Fund (after management fee waiver and reimbursement of
certain expenses) and Class A, B and C shares of the Capital Fund for certain
periods of time ending December 31, 1996 and reflect the effects of the maximum
applicable front end sales charges and any applicable CDSCs payable by an
investor under the Multiple Pricing System.
82
<PAGE>
<PAGE>
ASIA GROWTH FUND
<TABLE>
<CAPTION>
FROM MAY 6, 1996
(COMMENCEMENT OF
INVESTMENT OPERATIONS)
THROUGH
DECEMBER 31, 1996
-----------------------
<S> <C>
Class A..................................................................... 0.17%
Class B..................................................................... -0.35%
Class C..................................................................... 3.64%
Class O..................................................................... 5.31%
</TABLE>
CAPITAL FUND
<TABLE>
<CAPTION>
FROM COMMENCEMENT OF
INVESTMENT OPERATIONS OF
CLASS A, B AND C
(NOVEMBER 1, 1996)
THROUGH
DECEMBER 31, 1996
------------------------
<S> <C>
Class A..................................................................... 2.60%
Class B..................................................................... 3.11%
Class C..................................................................... 6.78%
</TABLE>
YIELD
With respect to the Cash Management Fund and the New York Municipal Money
Market Fund, yield quotations are expressed in annualized terms and may be
quoted on a compounded basis.
The current yield for each of the Cash Management Fund and the New York
Municipal Money Market 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 December 31, 1996 the annualized yield and
effective yield for each class of shares of the Cash Management Fund were 5.05%
and 5.18%, respectively. For the seven day period ended December 31, 1996 the
annualized yield and effective yield for the New York Municipal Money Market
Fund were 3.81% and 3.88%, respectively. Because Class A, B and C shares of the
Cash Management Fund and the New York Municipal Money Market 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 and the New York Municipal Money Market Fund would be the same
as those for Class O shares.
In periods of declining interest rates the yield of the Cash Management
Fund and the New York Municipal Money Market Fund will tend to be somewhat
higher than prevailing market rates on short-term obligations, and in periods of
rising interest rates the yield will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to the Cash Management
Fund and the New York Municipal Money Market Fund from the continuous sale of
shares will likely be invested in portfolio instruments producing lower yields
than the balance of these Funds' portfolios, thereby reducing these Funds'
current yields. 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:
2 [( a-b + 1) `pp`6 - 1]
Yield = ----
cd
83
<PAGE>
<PAGE>
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 a 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 Commission guidelines, may be
subtracted from the maximum offering price calculation required pursuant to 'd'
above.
The thirty day yield of the National Intermediate Municipal Fund at
December 31, 1996 was 4.14% for Class A, 3.58% for Class B, 3.61% for Class C
and 4.61% for Class O.
The tax equivalent yield of each of the New York Municipal Money Market
Fund and the National Intermediate Municipal Fund is computed by dividing that
portion of the respective Fund's yield (computed as described above for each
Fund) that is tax-exempt by one minus the stated combined regular federal income
and, in the case of the New York Municipal Money Market Fund and 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 for the New York Municipal Money Market Fund for
the seven-day period ended December 31, 1996 was 7.13%. Because Class A, B and C
shares of the New York Municipal Money Market Fund, like Class O Shares, are not
subject to any sales charges or service or distribution fees, the tax equivalent
yield figures for Class A, B and C shares of the Fund would be the same as those
for Class O shares. The tax equivalent yield of the National Intermediate
Municipal Fund at December 31, 1996 was 6.85% for Class A, 5.93% for Class B,
5.98% for Class C and 7.63% for Class O.
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 National Intermediate Municipal Fund, comparisons to indices including,
but not limited to, the Bond Buyer 40-Bond Index.
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
84
<PAGE>
<PAGE>
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 indicated in each 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 purchase 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 First Data Investor Services Group, Inc. ('FDISG'), formerly The
Shareholders Services Group, Inc., 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 FDISG upon written
notice.
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) 446-1013 for more information.
Self Employed Retirement Plans. The Funds offer a prototype retirement plan
for self-employed individuals. Under such plan, self-employed individuals may
contribute out of earned income to purchase Fund shares.
Boston Safe Deposit and Trust Company ('Boston Safe') has agreed to serve
as custodian and furnish the services provided for in the plan and the related
custody agreement. Boston Safe 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.
85
<PAGE>
<PAGE>
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.
Individual Retirement Accounts. A prototype individual retirement account
('IRA') is available, which has been approved as to form by the 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.
Boston Safe has agreed to serve as custodian of the IRA and furnish the
services provided for in the custody agreement. Boston Safe 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,
investors may obtain the form of custody agreement and related materials,
including disclosure materials, by calling (800) 446-1013. Consultation with a
financial adviser regarding an IRA is recommended.
CAPITAL STOCK
As used in this Statement of Additional Information and each 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 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 and Capital 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.
86
<PAGE>
<PAGE>
CUSTODIAN AND TRANSFER AGENT
IBT, located at 89 South Street, Boston, Massachusetts 02111, serves as
each Fund's custodian. As custodian, IBT, among other things: maintains a
custody account or accounts in the name of each Fund; receives and delivers all
assets for each Fund upon purchase and upon sale or maturity; collects and
receives all income and other payments and distributions on account of the
assets of each Fund; and makes disbursements on behalf of each Fund. The
custodian neither determines the Funds' investment policies, nor decides which
securities each 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. 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 derivatives transactions.
FDISG, a subsidiary of First Data Corporation, located at P.O. Box 5127,
Westborough, Massachusetts 01581-5127, serves as each Fund's transfer agent. As
a Fund's transfer agent, FDISG: 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, FDISG 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.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP ('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 (a partnership which includes professional
corporations) serves as counsel to each Fund, and is located at 425 Lexington
Avenue, New York, New York 10017-3954.
Piper Marbury L.L.P. of Baltimore, Maryland has issued an opinion regarding
the valid issuance of shares being offered for sale pursuant to the Funds'
Prospectuses.
87
<PAGE>
<PAGE>
FINANCIAL STATEMENTS
The unaudited financial statements of each of Cash Management Fund, New
York Municipal Money Market Fund, National Intermediate Municipal Fund, U.S.
Government Income Fund, High Yield Bond Fund, Strategic Bond Fund, Total Return
Fund, Asia Growth Fund, Investors Fund and Capital Fund for the six month period
ended June 30, 1997 are included on the following pages.
The audited financial statements of each of Cash Management Fund, New York
Municipal Money Market Fund, National Intermediate Municipal Fund, U.S.
Government Income Fund, High Yield Bond Fund, Strategic Bond Fund, Total Return
Fund, Investors Fund and Capital Fund for the fiscal year ended December 31,
1996 and the audited financial statements for the Asia Growth Fund for the
period May 6, 1996 (commencement of operations) to December 31, 1996 are
included on the following pages.
88
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (June 30, 1997) (unaudited)
SALOMON BROTHERS ASIA GROWTH FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks -- 90.9%
China -- 2.0%
150,000 Shanghai Worldbest, Class B....................................................$ 95,400
1 36,000 Shenzhen Fangda, Class B....................................................... 197,491
----------
292,891
----------
Hong Kong -- 32.2%
53,600 Asia Satellite Telecommunications Holdings..................................... 164,317
264,000 Beijing Datang Power*.......................................................... 121,825
19,000 Beijing Enterprises*........................................................... 119,682
35,500 Cheung Kong.................................................................... 350,546
43,000 China Everbright*.............................................................. 128,492
52,000 China Light & Power............................................................ 294,661
90,000 China Resources Enterprises.................................................... 441,450
51,000 Cosco Pacific.................................................................. 118,165
29,200 Dah Sing Financial............................................................. 161,695
111,000 First Pacific.................................................................. 141,845
25,000 Hang Seng Bank................................................................. 356,580
87,000 Hong Kong Land Holdings........................................................ 231,420
68,000 Hong Kong & China Gas.......................................................... 136,049
69,500 Hutchison Whampoa.............................................................. 601,056
320,000 Jiangsu Express*............................................................... 113,589
90,000 Lai Sun Development............................................................ 101,069
60,000 New World Development.......................................................... 357,807
45,000 New World Infrastructure*...................................................... 127,207
60,000 Swire Pacific, Class A......................................................... 540,195
----------
4,607,650
----------
India -- 9.1%
10,300 East India Hotel -- GDR........................................................ 169,950
19,000 Industrial Credit & Investment -- GDR.......................................... 273,125
18,000 Mahindra & Mahindra -- GDR..................................................... 265,500
9,000 Reliance Industries -- GDR..................................................... 207,000
14,500 State Bank of India -- GDR.................................................... 384,250
----------
1,299,825
----------
Indonesia -- 7.9%
108,000 PT Darya Varia Laboratoria (a)................................................. 129,893
75,500 PT Indostat (a)................................................................ 225,848
142,000 PT Lippo Life Insurance (a).................................................... 167,866
377,000 PT Putra Surya Multidana (a)*.................................................. 600,689
----------
1,124,296
----------
Korea -- 6.6%
3,600 Deasung Industrial............................................................. 188,514
6,600 Hyundai Engineering & Construction*............................................ 169,459
1,550 LG Information & Communication................................................. 192,005
1,000 Mirae*......................................................................... 228,604
1,596 Samsung Electronics............................................................ 126,709
4,532 SK Telecom -- ADR.............................................................. 45,603
----------
950,894
----------
</TABLE>
See accompanying notes to financial statements
89
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS ASIA GROWTH FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Malaysia -- 8.9%
64,000 Kian Joo Can Factory.......................................................... $ 276,387
111,000 Leader Universal Holdings..................................................... 199,659
52,000 Malakoff...................................................................... 226,624
108,000 Sime Darby.................................................................... 359,429
29,500 United Engineers.............................................................. 212,718
----------
1,274,817
----------
Philippines -- 4.2%
214,000 Ayala Land, Series B.......................................................... 196,749
570,500 Belle*........................................................................ 166,547
49,600 Manila Electric, Class B...................................................... 244,465
----------
607,761
----------
Singapore -- 9.5%
18,000 Cycle & Carriage.............................................................. 186,333
94,000 DBS Land...................................................................... 297,181
29,500 Development Bank of Singapore (a)............................................. 371,407
25,000 Elec & Eltek International.................................................... 140,000
182,000 Noble Group*.................................................................. 141,960
76,500 Wing Tai Holdings............................................................. 220,452
----------
1,357,333
----------
Sri Lanka -- 0.2%
162,800 Asia Capital*................................................................. 24,355
----------
Taiwan -- 5.7%
65,500 Compal Electronics............................................................ 259,173
19,200 Compeq Manufacturing.......................................................... 136,748
73,000 Kindom Construction*.......................................................... 181,187
73,000 Sheng Yu Steel................................................................ 115,014
107,690 Yang Ming Marine Transport.................................................... 126,284
----------
818,406
----------
Thailand -- 4.6%
33,500 Bangkok Bank.................................................................. 173,903
22,800 Delta Electronics............................................................. 144,966
58,000 Industrial Finance............................................................ 68,270
9,300 Shinawatra Computer (a)....................................................... 66,990
4,000 Siam Cement................................................................... 62,133
27,500 Singer Thailand............................................................... 110,664
61,500 Thai Telephone & Telecommunications (a)*...................................... 26,605
----------
653,531
----------
Total Common Stocks
(cost $11,955,892)........................................................ 13,011,759
----------
Principal
Amount
- ---------
Convertible Corporate Bonds -- 2.9%
Cayman Islands -- 1.1%
$155,000 Guangnan Finance, 1.75%, due 06/30/00......................................... 154,031
---------
Taiwan -- 1.8%
250,000 Taiwan Semiconductor, 0.00%, due 07/03/02..................................... 258,125
---------
Total Convertible Corporate Bonds
(cost $405,000)........................................................... 412,156
---------
</TABLE>
See accompanying notes to financial statements
90
<PAGE>
<PAGE>
SALOMON BROTHERS ASIA GROWTH FUND (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Warrants* -- 2.7%
172,500 China Resources, expires 12/10/97 ........................................... $ 53,439
1,770,000 Credit Lyonnais Finance, expires 04/02/98.................................... 24,446
700,000 Hong Kong Telecom, expires 03/18/98.......................................... 53,310
900,000 Hutchison Call, expires 12/30/97............................................. 76,673
15,053 Lai Sun Hotels International Call, expires 03/20/99.......................... 1,321
390,000 Shanghai Industrial, expires 11/18/97........................................ 133,403
280,000 Swire Pacific, expires 02/14/98.............................................. 50,238
-----------
Total Warrants
(cost $316,954).......................................................... 392,830
-----------
Purchased Options* -- 0.2%
Singapore -- 0.2%
92,000 OUB Call (expiring 10/11/97, exercise price 6.5868)(cost $39,091)............ 32,172
-----------
Total Investments -- 96.7%
(cost $12,716,937)...................................................... 13,848,917
Other assets in excess of liabilities -- 3.3%............................... 466,940
-----------
Net Assets-- 100.0% $14,315,857
===========
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Maturity Contracts to In Exchange Contracts at Unrealized
Dates Receive/Deliver for Value Depreciation
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases
07/02/97 MYR 293,786 $116,540 $116,390 $(150)
Sales
07/01/97 PHP 1,197,398 45,176 45,399 (223)
-----
$(373)
=====
</TABLE>
* Non-income producing security.
(a) Foreign Shares
Abbreviations used in this statement:
ADR American Depository Receipt
GDR Global Depository Receipt
MYR Malaysian Ringgit
PHP Philippine Peso
See accompanying notes to financial statements
91
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS CAPITAL FUND INC
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks -- 89.2%
Basic Industries -- 8.7%
50,000 Cytec Industries *...........................................................$ 1,868,750
25,000 Guilford Mills .............................................................. 520,313
50,000 Inco ........................................................................ 1,503,125
22,500 Martin Marietta Materials.................................................... 728,438
125,000 OM Group..................................................................... 4,140,625
75,000 Steel Dynamics *............................................................. 1,875,000
50,000 Union Camp................................................................... 2,500,000
18,400 Vulcan Materials............................................................. 1,444,400
------------
14,580,651
------------
Capital Goods -- 3.3%
28,000 Stone & Webster.............................................................. 1,195,250
62,000 Tyco International........................................................... 4,312,875
------------
5,508,125
------------
Consumer Cyclicals -- 17.8%
104,200 Costco Companies *........................................................... 3,425,575
20,000 Eastman Kodak................................................................ 1,535,000
75,000 Federated Department Stores *................................................ 2,606,250
135,000 Fine Host *.................................................................. 4,252,500
100,000 Guess *...................................................................... 1,012,500
100,000 Hollinger.................................................................... 854,680
42,500 Hollinger International...................................................... 475,469
75,000 Lear *....................................................................... 3,328,125
30,000 Magna International, Class A................................................. 1,805,625
112,500 Samsonite *.................................................................. 4,964,063
100,000 Sears, Roebuck............................................................... 5,375,000
------------
29,634,787
------------
Consumer Non-Cyclicals -- 15.7%
25,000 Cablevision Systems *........................................................ 1,337,500
150,000 Chiquita Brands International................................................ 2,062,500
266,700 Food Lion, Class A........................................................... 1,908,559
411,100 Food Lion, Class B........................................................... 2,954,781
140,000 Hormel Foods................................................................. 3,762,500
150,000 John B. Sanfilippo & Sons *.................................................. 1,031,250
130,000 Kroger *..................................................................... 3,770,000
15,000 Loews........................................................................ 1,501,875
125,000 Michael Foods................................................................ 2,312,500
40,000 Philip Morris Companies...................................................... 1,775,000
150,000 U.S. Satellite Broadcasting *................................................ 1,237,500
80,000 Viacom, Class B *............................................................ 2,400,000
------------
26,053,965
------------
</TABLE>
See accompanying notes to financial statements
92
<PAGE>
<PAGE>
SALOMON BROTHERS CAPITAL FUND INC (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Energy -- 11.4%
25,000 Baker Hughes................................................................. $ 967,188
1,000 Hanover Compressor*.......................................................... 22,250
100,000 Holly........................................................................ 2,481,250
100,000 Hvide Marine*................................................................ 2,212,500
75,000 Oryx Energy*................................................................. 1,584,375
100,000 Tosco........................................................................ 2,993,750
50,000 TransMontaigne Oil*.......................................................... 993,750
45,000 Ultramar Diamond Shamrock.................................................... 1,468,125
75,000 Union Pacific Resources Group................................................ 1,865,625
100,000 Williams Companies........................................................... 4,375,000
-----------
18,963,813
-----------
Financial Services -- 10.9%
75,000 AmerUs Life Holdings......................................................... 2,090,625
100,000 Bank of New York............................................................. 4,350,000
10,000 BankAmerica.................................................................. 645,625
30,000 BankBoston................................................................... 2,161,875
50,000 Glendale Federal Bank*....................................................... 1,306,250
25,000 Long Island Bancorp.......................................................... 907,813
30,000 Mercantile Bankshares........................................................ 1,200,000
30,000 Provident Companies.......................................................... 1,605,000
35,000 Travelers Group.............................................................. 2,207,188
30,000 Washington Mutual............................................................ 1,792,500
-----------
18,266,876
-----------
Health Care -- 8.0%
30,000 Aetna........................................................................ 3,071,250
35,000 Amgen........................................................................ 2,034,375
100,000 HEALTHSOUTH*................................................................. 2,493,750
35,000 Pacificare Health Systems, Class A*.......................................... 2,119,688
40,000 SmithKline Beecham--ADR....................................................... 3,665,000
-----------
13,384,063
-----------
Technology -- 9.4%
40,000 Cabletron Systems*........................................................... 1,132,500
100,000 Data General*................................................................ 2,600,000
100,000 Electric Fuel*............................................................... 662,500
60,000 First Data................................................................... 2,636,250
100,000 FORE Systems*................................................................ 1,362,500
25,000 International Business Machines.............................................. 2,254,688
100,000 Plantronics*................................................................. 5,012,500
-----------
15,660,938
-----------
Telecommunications & Utilities -- 0.1%
10,000 NTL * ....................................................................... 248,750
-----------
Transportation -- 3.9%
40,000 Canadian National Railway.................................................... 1,750,000
125,000 Canadian Pacific............................................................. 3,554,683
75,000 Carey International*......................................................... 1,143,750
-----------
6,448,433
-----------
Total Common Stocks
(cost $122,573,969)...................................................... 148,750,401
-----------
</TABLE>
See accompanying notes to financial statements
93
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS CAPITAL FUND INC (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Preferred Stocks -- 3.7%
Basic Industries -- 0.8%
34,500 AK Steel Holdings 7.00%...................................................... $1,328,250
Consumer Cyclicals -- 1.3%
25,000 Designer Finance Trust 6.00%................................................. 909,375
102,500 Hollinger International 9.75%................................................ 1,178,750
-----------
2,088,125
-----------
Energy -- 0.8%
209,200 Mesa 8.00%* ................................................................. 1,399,025
-----------
Health Care -- 0.8%
50,000 Pacificare Holdings $1.00.................................................... 1,343,750
-----------
Total Convertible Preferred Stocks
(cost $5,730,134)........................................................ 6,159,150
-----------
Contracts
- ---------
Purchased Options -- 0.4%
150 Compaq Put
(expiring July 1997, exercise price $65)................................. 1,875
300 Dupont Put
(expiring July 1997, exercise price $50)................................. 3,750
50 Gucci Put
(expiring July 1997, exercise price $60)................................. 1,875
150 Gucci Put
(expiring October 1997, exercise price $60).............................. 50,625
300 Intel Put
(expiring July 1997, exercise price $105)................................ 3,750
250 Intel Put
(expiring July 1997, exercise price $115)................................ 6,250
150 Motorola Put
(expiring July 1997, exercise price $55)................................ 938
600 NTL Call
(expiring December 1997, exercise price $17.50).......................... 622,500
100 Proctor & Gamble Put
(expiring July 1997, exercise price $110)................................ 625
250 Times Mirror Put
(expiring September 1997, exercise price $45)............................ 28,125
100 Times Mirror Put
(expiring September 1997, exercise price $55)............................ 38,750
-----------
Total Purchased Options
(cost $758,330).......................................................... 759,063
-----------
Total Investments -- 93.3%
(cost $129,062,433)...................................................... 155,668,614
-----------
</TABLE>
See accompanying notes to financial statements
94
<PAGE>
<PAGE>
SALOMON BROTHERS CAPITAL FUND INC (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Value
Amount Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements -- 6.7%
$5,605,000 Repurchase Agreement, 5.95%, due 07/01/97, dated
06/30/97, with J.P. Morgan Securities, collateralized by
$5,328,000 U.S Treasury Bonds, 8.875%, due
02/15/99 valued at $5,734,260; proceeds: $5,605,926.................... $ 5,605,000
5,604,000 Repurchase Agreement, 5.875%, due 07/01/97, dated
06/30/97, with UBS Securities, collateralized by
$3,808,000 U.S Treasury Bonds, 11.25%, due
02/15/15 valued at $5,716,760; proceeds: $5,604,915.................... 5,604,000
-----------
Total Repurchase Agreements
(cost $11,209,000)...................................................... 11,209,000
------------
Liabilities in excess of other assets -- (0.0%)........................... (101,018)
------------
Net Assets -- 100.0%........................................................ $166,776,596
============
</TABLE>
* Non-income producing security.
Abbreviation used in this statement:
ADR American Depository Receipt
See accompanying notes to financial statements
95
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS INVESTORS FUND INC
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks -- 83.5%
Basic Industries -- 9.3%
80,000 Aluminum Company of America.................................................. $ 6,030,000
315,500 Cytec Industries *........................................................... 11,791,813
174,000 Du Pont (E.I.) de Nemours.................................................... 10,940,250
85,300 Martin Marietta Materials.................................................... 2,761,588
425,500 OM Group..................................................................... 14,094,688
190,000 Praxair...................................................................... 10,640,000
120,000 Union Camp................................................................... 6,000,000
-----------
62,258,339
-----------
Capital Goods -- 7.7%
80,000 AlliedSignal................................................................. 6,720,000
195,800 Chicago Bridge & Iron........................................................ 4,332,075
127,000 General Electric............................................................. 8,302,625
385,000 Gulfstream Aerospace *....................................................... 11,357,500
64,400 Silgan Holdings *............................................................ 2,495,500
259,200 Tyco International........................................................... 18,030,600
-----------
51,238,300
-----------
Consumer Cyclicals -- 7.6%
258,100 Costco Companies *........................................................... 8,485,038
140,000 Federated Department Stores *................................................ 4,865,000
366,500 Host Marriott *.............................................................. 6,528,281
195,000 Lear *....................................................................... 8,653,125
168,200 Sears, Roebuck............................................................... 9,040,750
210,000 Sherwin-Williams............................................................. 6,483,750
53,300 UNIFI........................................................................ 1,992,088
132,200 U.S. Industries *............................................................ 4,709,625
-----------
50,757,657
-----------
Consumer Non-Cyclicals -- 8.4%
26,200 Avon Products................................................................ 1,848,738
50,000 Cablevision Systems *........................................................ 2,675,000
600,000 Chiquita Brands International................................................ 8,250,000
339,600 Food Lion, Class A........................................................... 2,430,246
175,400 Hormel Foods................................................................. 4,713,875
348,400 Kroger *..................................................................... 10,103,600
75,000 Loews........................................................................ 7,509,375
271,500 Philip Morris Companies...................................................... 12,047,813
200,000 Viacom, Class B *............................................................ 6,000,000
-----------
55,578,647
-----------
</TABLE>
See accompanying notes to financial statements
96
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTORS FUND INC (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Energy -- 10.7%
113,500 Amoco........................................................................ $ 9,867,406
175,000 Dresser Industries........................................................... 6,518,750
3,900 Hanover Compressor *......................................................... 86,775
185,400 Mobil........................................................................ 12,954,825
276,000 Royal Dutch Petroleum, 5 Guilder............................................. 15,007,500
400,000 Suncor....................................................................... 10,725,000
133,557 TOTAL -- ADR................................................................. 6,761,323
215,700 Williams Companies........................................................... 9,436,875
-----------
71,358,454
-----------
Financial Services -- 14.6%
85,600 American Express............................................................. 6,377,200
70,300 Associates First Capital..................................................... 3,901,650
52,000 BankAmerica.................................................................. 3,357,250
157,500 BankBoston................................................................... 11,349,844
414,400 Bank of New York............................................................. 18,026,400
127,800 Dime Bancorp................................................................. 2,236,500
294,000 Federal Home Loan Mortgage................................................... 10,106,250
56,600 Long Island Bancorp.......................................................... 2,055,288
113,300 Nationwide Financial Services, Class A....................................... 3,009,531
114,700 Provident Companies.......................................................... 6,136,450
176,700 SunAmerica................................................................... 8,614,125
222,685 Travelers Group.............................................................. 14,043,065
127,200 Washington Mutual............................................................ 7,600,200
-----------
96,813,753
-----------
Health Care -- 10.6%
106,500 Aetna........................................................................ 10,902,938
120,000 American Home Products....................................................... 9,180,000
200,000 Amgen........................................................................ 11,625,000
168,000 Columbia/HCA Healthcare...................................................... 6,604,500
411,000 HEALTHSOUTH *................................................................ 10,249,313
2,700 Pacificare Health Systems, Class A *......................................... 163,519
106,800 Pacificare Health Systems, Class B *......................................... 6,821,850
162,000 SmithKline Beecham-- ADR..................................................... 14,843,250
-----------
70,390,370
-----------
Real Estate Investment Trusts -- 4.9%
235,000 Arden Realty................................................................. 6,110,000
37,700 Beacon Properties............................................................ 1,258,238
150,000 Highwoods Properties......................................................... 4,800,000
112,000 Kilroy Realty................................................................ 2,828,000
146,200 Mills........................................................................ 4,047,913
174,000 Patriot American Hospitality................................................. 4,437,000
126,000 Reckson Associates Realty.................................................... 2,898,000
178,100 Sun Communities.............................................................. 5,977,481
-----------
32,356,632
-----------
</TABLE>
See accompanying notes to financial statements
97
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS INVESTORS FUND INC (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology -- 5.7%
90,700 Ceridian *............................................................... $ 3,832,075
35,500 DST Systems *............................................................ 1,182,594
374,600 First Data............................................................... 16,458,988
120,000 International Business Machines.......................................... 10,822,500
30,000 National Data............................................................ 1,299,375
56,600 Plantronics *............................................................ 2,837,075
49,000 Seagate Technology *..................................................... 1,724,188
------------
38,156,795
------------
Transportation -- 4.0%
225,000 Canadian National Railway................................................ 9,843,750
580,000 Canadian Pacific......................................................... 16,493,750
------------
26,337,500
------------
Total Common Stocks
(cost $351,554,985).................................................... 555,246,447
------------
Convertible Preferred Stocks -- 0.4%
Finanical Services -- 0.4%
63,400 SunAmerica $3.188 (cost $2,377,500)...................................... 2,765,825
------------
Principal
Amount
- --------
Convertible Corporate Bonds -- 1.9%
Consumer Cyclicals -- 1.5%
$ 2,000,000 Federated Department Stores, 5.00%, due 10/01/03 2,387,500
16,500,000 Time Warner, Zero Coupon, due 06/22/13 7,610,625
------------
9,998,125
------------
Technology -- 0.4%
2,500,000 National Data, 5.00%, due 11/01/03....................................... 2,650,000
-------------
Total Convertible Corporate Bonds
(cost $12,050,765).................................................... 12,648,125
-------------
Contracts
- ---------
Purchased Options -- 0.5%
21,500 S&P 500 Index Call
(expiring September 1997, exercise price $750) (cost $3,095,097)....... 3,034,188
------------
Total Investments -- 86.3%
(cost $369,078,347).................................................... 573,694,585
------------
</TABLE>
See accompanying notes to financial statements
98
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTORS FUND INC (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Value
Amount Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements -- 10.7%
$35,741,000 Repurchase Agreement, 5.95%, due 07/01/97, dated
06/30/97 with J.P. Morgan Securities, collateralized
by $33,973,000 U.S. Treasury Bonds, 8.875%, due
02/15/99, valued at $36,563,441; proceeds: $35,746,907................... $ 35,741,000
35,741,000 Repurchase Agreement, 5.875%, due 07/01/97, dated
06/30/97 with UBS Securities, collateralized by
$25,035,000 U.S. Treasury Bonds, 12.00%, due
08/15/13, valued at $36,457,219; proceeds: $35,746,833................... 35,741,000
------------
Total Repurchase Agreements
(cost $71,482,000)....................................................... 71,482,000
------------
Other assets in excess of liabilities -- 3.0%............................. 19,715,188
------------
Net Assets -- 100.0%...................................................... $664,891,773
============
</TABLE>
* Non-income producing security.
Abbreviation used in this statement:
ADR American Depository Receipt
See accompanying notes to financial statements
99
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS TOTAL RETURN FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--43.9%
Basic Industries--7.0%
20,000 Aluminum Company of America..................................................$ 1,507,500
12,000 Du Pont (E.I.) de Nemours.................................................... 754,500
60,000 Lyondell Petrochemical....................................................... 1,308,750
10,000 Monsanto..................................................................... 430,625
16,000 Nalco Chemical............................................................... 618,000
20,000 Union Camp................................................................... 1,000,000
11,000 Vulcan Materials............................................................. 863,725
20,000 Weyerhauser.................................................................. 1,040,000
-----------
7,523,100
-----------
Capital Goods--3.3%
12,000 Boeing....................................................................... 636,750
8,000 Deere........................................................................ 439,000
15,000 Fluor........................................................................ 827,813
39,000 Stone & Webster.............................................................. 1,664,813
-----------
3,568,376
-----------
Consumer Cyclicals--3.3%
726 Cooper Industries............................................................ 36,119
16,000 Eastman Kodak................................................................ 1,228,000
14,000 Ford Motor................................................................... 528,500
5,000 General Motors............................................................... 278,438
12,100 May Department Stores........................................................ 571,725
18,000 Sears, Roebuck............................................................... 967,500
-----------
3,610,282
-----------
Consumer Non-Cyclicals--2.3%
61,200 Food Lion, Class B........................................................... 439,875
36,000 Food Lion, Class A........................................................... 257,623
30,000 Hormel Foods................................................................. 806,250
22,000 Philip Morris Companies...................................................... 976,250
-----------
2,479,998
-----------
Energy--7.6%
6,500 Amoco........................................................................ 565,094
3,000 Ashland...................................................................... 139,125
44,000 Dresser Industries........................................................... 1,639,000
12,000 Exxon........................................................................ 738,000
4,000 Mobil........................................................................ 279,500
8,000 Royal Dutch Petroleum, 5 Guilder............................................. 435,000
16,000 Sun.......................................................................... 496,000
66,000 Suncor....................................................................... 1,769,625
3,000 Texaco....................................................................... 326,250
17,000 USX--Marathon Group......................................................... 490,875
29,000 Williams Companies........................................................... 1,268,750
-----------
8,147,219
-----------
Financial Services--5.4%
15,000 Allstate..................................................................... 1,095,000
24,900 AmerUs Life Holdings......................................................... 694,088
20,000 Bay View Capital............................................................. 525,000
18,000 Chubb........................................................................ 1,203,750
3,500 Cigna........................................................................ 621,250
5,300 Citicorp..................................................................... 638,981
12,000 Marsh & McLennan............................................................. 856,500
5,700 Nationwide Financial Services, Class A....................................... 151,406
-----------
5,785,975
-----------
</TABLE>
See accompanying notes to financial statements
100
<PAGE>
<PAGE>
SALOMON BROTHERS TOTAL RETURN FUND (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
VALUE
SHARES DESCRIPTION (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health Care--2.5%
6,000 Aetna........................................................................ $614,250
12,000 American Home Products....................................................... 918,000
13,200 SmithKline Beecham--ADR..................................................... 1,209,450
-----------
2,741,700
-----------
Real Estate Investment Trusts--5.9%
30,000 Arden Realty Group........................................................... 780,000
26,000 Beacon Properties............................................................ 867,750
35,000 Bedford Property Investors................................................... 704,375
50,000 Excel Realty Trust........................................................... 1,318,750
22,000 Highwoods Properties......................................................... 704,000
30,000 Patriot American Hospitality................................................. 765,000
18,000 Prentiss Properties Trust.................................................... 461,250
35,000 Reckson Associates Realty.................................................... 805,000
-----------
6,406,125
-----------
Technology -- 1.2%
18,000 Pitney Bowes................................................................. 1,251,000
-----------
Telecommunications & Utilities--3.5%
10,000 AT&T......................................................................... 350,625
40,000 Edison International......................................................... 995,000
20,000 GTE.......................................................................... 877,500
30,000 Houston Industries........................................................... 643,125
15,000 SBC Communications........................................................... 928,125
-----------
3,794,375
-----------
Transportation--1.9%
46,000 Canadian National Railway.................................................... 2,012,500
-----------
Total Common Stocks
(cost $39,557,324)......................................................... 47,320,650
-----------
Convertible Preferred Stocks--4.3%
Basic Industries--0.5%
7,500 AK Steel Holdings 7.00%...................................................... 288,750
7,500 Boise Cascade $1.58.......................................................... 213,750
-----------
502,500
-----------
Consumer Cyclicals--0.8%
7,500 Designer Finance 6.00%....................................................... 272,813
15,000 Hollinger International 9.75%................................................ 172,500
5,000 Host Marriott 6.75%.......................................................... 292,500
1,500 Hvide Capital Trust 6.50%.................................................... 78,938
-----------
816,751
-----------
Consumer Non-Cyclicals--0.4%
6,000 Chiquita Brands $2.875....................................................... 282,750
3,000 James River $3.50............................................................ 162,000
-----------
444,750
-----------
Energy--1.0%
8,800 Enron 6.25%.................................................................. 168,463
48,700 Mesa 8.00%(a)................................................................ 325,681
5,000 Tosco 5.75%.................................................................. 285,000
5,000 Ultramar Diamond Shamrock 5.00%.............................................. 316,250
-----------
1,095,394
-----------
</TABLE>
See accompanying notes to financial statements
101
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS TOTAL RETURN FUND (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
INTEREST MATURITY VALUE
SHARES DESCRIPTION RATE DATE (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Services--0.7%
5,000 Finova Finance Trust 5.50%................................................... $ 287,500
4,000 Glendale Federal Bank 8.75%.................................................. 260,000
3,000 St. Paul Capital 6.00%....................................................... 207,750
-----------
755,250
-----------
Health Care--0.7%
5,000 Laboratory Corporation of America Holdings 8.50%............................. 285,000
3,000 McKesson $2.50............................................................... 186,375
10,000 Pacificare Holdings $1.00.................................................... 268,750
-----------
740,125
-----------
Media -- 0.2%
7,800 Cablevision Systems 8.50%.................................................... 211,575
-----------
Telecommunications & Utilities -- 0.0%
1,000 Mobile Telecommunication Technologies $2.25.................................. 24,750
-----------
Total Convertible Preferred Stocks
(cost $4,294,816).......................................................... 4,591,095
-----------
PRINCIPAL
AMOUNT
- --------
Corporate Bonds--21.7%
Basic Industries--2.9%
$ 100,000 Algoma Steel............................. 12.375% 07/15/05 110,500
250,000 Allied Waste
(Zero Coupon until 06/01/02, 11.30%
thereafter)(b).......................... 10.742 06/01/07 153,750
100,000 Alvey Systems............................ 11.375 01/31/03 103,500
200,000 Clark-Schwebel........................... 10.500 04/15/06 214,000
125,000 Commonwealth Aluminum.................... 10.750 10/01/06 130,000
100,000 Crown Paper.............................. 11.000 09/01/05 99,500
200,000 Doman Industries Limited................. 8.750 03/15/04 193,000
125,000 Foamex................................... 9.875 06/15/07 129,375
250,000 Freedom Chemical......................... 10.625 10/15/06 262,188
200,000 Norcal Waste Systems *................... 13.250 11/15/05 224,000
675,000 Pohang Iron & Steel...................... 7.500 08/01/02 682,574
100,000 Renco Metals............................. 11.500 07/01/03 106,500
200,000 Southdown................................ 10.000 03/01/06 217,500
200,000 Specialty Equipment...................... 11.375 12/01/03 218,000
250,000 Stone Container.......................... 12.250 04/01/02 255,000
-----------
3,099,387
-----------
Consumer Cyclicals--3.6%
250,000 American Builders & Contractors Supply... 10.625 05/15/07 258,750
100,000 Collins & Aikman......................... 10.000 01/15/07 98,875
250,000 Duane Reade
(Zero Coupon until 09/15/99, 15.00%
thereafter)(b)....................... 13.549 09/15/04 196,875
150,000 Finlay Fine Jewelry...................... 10.625 05/01/03 157,500
950,000 General Motors Acceptance................ 5.977 04/29/02 950,770
100,000 Herff Jones.............................. 11.000 08/15/05 108,500
200,000 Hines Horticulture....................... 11.750 10/15/05 213,000
100,000 Jitney-Jungle Stores..................... 12.000 03/01/06 111,000
400,000 Revlon Worldwide(b)...................... 10.906-11.591 03/15/01 271,000
250,000 Riddell Sports........................... 10.500 07/15/07 256,875
100,000 Speedy Muffler King...................... 10.875 10/01/06 100,000
940,000 Stand Credit Card Master Trust........... 7.850 02/07/02 970,249
200,000 Wyndham Hotel............................ 10.500 05/15/06 224,000
-----------
3,917,394
-----------
</TABLE>
See accompanying notes to financial statements
102
<PAGE>
<PAGE>
SALOMON BROTHERS TOTAL RETURN FUND (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Non-Cyclicals--4.2%
$ 100,000 American Safety Razor.................... 9.875% 08/01/05 $ 106,750
200,000 Berry Plastics........................... 12.250 04/15/04 221,500
100,000 Borg-Warner.............................. 9.125 05/01/03 100,000
100,000 Carr-Gottstein Foods..................... 12.000 11/15/05 111,000
200,000 CFP Holdings............................. 11.625 01/15/04 208,000
100,000 Cobb Theatres............................ 10.625 03/01/03 110,500
150,000 Doane Products........................... 10.625 03/01/06 159,750
250,000 Drypers.................................. 10.250 06/15/07 250,000
200,000 Eyecare Centers of America............... 12.000 10/01/03 221,000
250,000 French Fragrances........................ 10.375 05/15/07 260,000
100,000 Iron Mountain............................ 10.125 10/01/06 107,000
200,000 Jordan Industries........................ 10.375 08/01/03 212,000
800,000 Mid States Trust......................... 7.340 07/01/35 806,125
250,000 North Atlantic Trading................... 11.000 06/15/04 254,375
150,000 Pueblo Xtra International................ 9.500 08/01/03 145,500
200,000 Radnor Holdings.......................... 10.000 12/01/03 206,000
200,000 Rayovac.................................. 10.250 11/01/06 210,000
67,000 Samsonite................................ 11.125 07/15/05 74,705
100,000 Selmer................................... 11.000 05/15/05 109,000
200,000 Stroh Brewery............................ 11.100 07/01/06 210,000
200,000 Trump Atlantic City...................... 11.250 05/01/06 195,500
250,000 Williams Scottsman....................... 9.875 06/01/07 252,500
-----------
4,531,205
-----------
Energy--1.9%
250,000 Bellwether Exploration................... 10.875 04/01/07 265,000
200,000 Benton Oil & Gas......................... 11.625 05/01/03 220,250
200,000 Cliffs Drilling.......................... 10.250 05/15/03 213,000
200,000 National Energy Group.................... 10.750 11/01/06 208,500
250,000 Snyder Oil............................... 8.750 06/15/07 250,625
650,000 Sun...................................... 7.950 12/15/01 673,719
300,000 Transamerican Energy
(Zero coupon until 6/1/99, 13.00%
thereafter)(b)...................... 13.000 06/15/02 216,000
-----------
2,047,094
-----------
Financial Services--4.2%
1,500,000 Banc One................................. 7.600 05/01/07 1,541,895
625,000 Chase Manhattan Auto Owner Trust......... 6.250 11/15/00 624,414
400,000 Coleman Escrow(b)........................ 11.125 05/15/01 255,000
200,000 Dollar Financial......................... 10.875 11/15/06 215,000
750,000 Midland Bank............................. 7.650 05/01/25 784,733
1,100,000 Nationsbank Credit Card Master Trust..... 6.450 04/15/03 1,098,625
-----------
4,519,667
-----------
Health Care--1.0%
800,000 Aetna.................................... 7.625 08/15/26 796,640
100,000 Fresenius Medical Care................... 9.000 12/01/06 101,500
150,000 Integrated Health........................ 9.500 09/15/07 153,375
-----------
1,051,515
-----------
Media--1.2%
200,000 American Media Operation................. 11.625 11/15/04 218,000
200,000 Cablevision Systems...................... 10.500 05/15/16 218,000
200,000 Diamond Cable
(Zero Coupon until 12/15/00, 11.75%
thereafter)(b)...................... 11.750 12/15/05 138,500
300,000 Marcus Cable
(Zero Coupon until 06/15/00, 14.125%
thereafter)(b)...................... 12.642-12.921 12/15/05 237,000
200,000 SFX Broadcasting......................... 10.750 05/15/06 216,000
500,000 Time Warner.............................. 4.959 06/22/13 230,625
150,000 United International Holdings(b)......... 13.187 11/15/99 115,500
-----------
1,373,625
-----------
</TABLE>
See accompanying notes to financial statements
103
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS TOTAL RETURN FUND (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Technology--2.0%
$ 850,000 Empresa Electric......................... 7.300% 05/01/03 $ 852,975
200,000 Exide Electronics Group.................. 11.500 03/15/06 215,000
200,000 Packard Bioscience....................... 9.375 03/01/07 200,000
100,000 Talley Manufacturing & Technology........ 10.750 10/15/03 105,000
750,000 Xerox.................................... 8.125 04/15/02 789,120
-----------
2,162,095
-----------
Telecommunications & Utilities--0.2%
125,000 ICG Holdings
(Zero Coupon until 09/15/00, 13.50%
thereafter)(b)...................... 12.725 09/15/05 91,250
150,000 International CableTel
(Zero Coupon until 02/01/01, 11.500%
thereafter)(b)...................... 11.804 02/01/06 104,250
-----------
195,500
-----------
Transportation -- 0.5%
200,000 Central Transport Rental Group........... 9.500 04/30/03 193,000
100,000 Ryder TRS................................ 10.000 12/01/06 103,500
400,000 TFM
(Zero Coupon until 06/01/02, 11.75%
thereafter)(b)...................... 11.398 06/15/09 233,000
-----------
529,500
-----------
Total Corporate Bonds
(cost $23,038,208)................... 23,426,982
-----------
Convertible Corporate Bonds--6.1%
Basic Industries--0.5%
250,000 Coeur D'Alene Mines...................... 6.375 01/31/04 230,000
150,000 Inco..................................... 5.750 07/01/04 179,250
150,000 Inco..................................... 7.750 03/15/16 159,000
-----------
568,250
-----------
Consumer Cyclicals--1.3%
250,000 Federated Department Stores.............. 5.000 10/01/03 298,438
200,000 Guilford Mills........................... 6.000 09/15/12 204,000
600,000 Hollinger(b)............................. 6.209-6.637 10/05/13 225,000
200,000 Home Depot............................... 3.250 10/01/01 229,000
350,000 Magna International...................... 5.000 10/15/02 418,250
-----------
1,374,688
-----------
Consumer Non-Cyclicals--1.0%
150,000 Alberto-Culver........................... 5.500 06/30/05 228,938
500,000 Costco Wholesale......................... 5.750 05/15/02 517,500
250,000 Hormel Foods............................. 1.600 04/23/02 255,075
-----------
1,001,513
-----------
Energy--0.8%
300,000 Baker Hughes(b).......................... 2.584-2.875 05/05/08 231,000
300,000 Oryx Energy.............................. 7.500 05/15/14 295,500
225,000 Pogo Producing........................... 5.500 06/15/06 257,625
25,000 Pogo Producing........................... 5.500 06/15/06 28,625
-----------
812,750
-----------
Technology--1.9%
250,000 Adaptec.................................. 4.750 02/01/04 248,438
300,000 Data General............................. 6.000 05/15/04 369,000
200,000 National Data............................ 5.000 11/01/03 212,000
500,000 Silicon Graphics(b)...................... 3.931-4.265 11/02/13 238,750
850,000 Texas Instruments........................ 6.125 02/01/06 799,119
250,000 VLSI Technology.......................... 8.250 10/01/05 249,688
-----------
2,116,995
-----------
</TABLE>
See accompanying notes to financial statements
104
<PAGE>
<PAGE>
SALOMON BROTHERS TOTAL RETURN FUND (concluded)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telecommunications & Utilities--0.6%
$ 350,000 International CableTel................... 7.000% 06/15/08 $ 332,063
1,000,000 U.S. Cellular(b)......................... 5.212-6.053 06/15/15 347,500
-----------
679,563
-----------
Total Convertible Corporate Bonds
(cost $6,359,206)...................... 6,553,759
-----------
U.S. Government & Agency--12.4%
385,372 Federal Home Loan Mortgage Corporation... 7.000 03/01/11 386,174
500,000 Federal Home Loan Mortgage Corporation... 6.500 ** 479,063
291,806 Federal Home Loan Mortgage Corporation... 6.500 03/01/26 279,985
293,840 Federal Home Loan Mortgage Corporation... 6.500 03/01/26 281,995
402,620 Federal Home Loan Mortgage Corporation... 6.500 05/01/26 386,310
500,000 Federal National Mortgage Association(c). 7.000 ** 490,000
42,541 Federal National Mortgage Association.... 6.500 10/01/10 41,927
291,646 Federal National Mortgage Association.... 6.500 10/01/11 285,995
102,245 Federal National Mortgage Association.... 7.500 08/01/23 102,971
968,755 Federal National Mortgage Association.... 7.492 11/01/24 996,306
725,000 Federal National Mortgage Association(c). 8.000 ** 741,313
90,239 Federal National Mortgage Association.... 7.000 09/01/25 88,586
89,091 Federal National Mortgage Association.... 6.500 12/01/25 85,316
291,916 Federal National Mortgage Association.... 7.000 03/01/26 286,443
500,268 Federal National Mortgage Association.... 6.500 06/01/26 479,060
1,100,000 Federal National Mortgage Association(c). 7.500 ** 1,102,750
503,495 Federal National Mortgage Association.... 7.000 03/01/27 494,055
88,629 Government National Mortgage Association. 7.500 01/15/23 89,386
196,297 Government National Mortgage Association. 7.500 03/15/26 197,033
453,360 Government National Mortgage Association. 7.500 03/15/27 455,110
200,000 U.S. Treasury Bond....................... 6.500 11/15/26 191,812
480,000 U.S. Treasury Note(d).................... 5.875 11/15/99 476,923
1,400,000 U.S. Treasury Note(d).................... 6.375 04/30/99 1,407,434
1,000,000 U.S. Treasury Note....................... 6.375 05/15/00 1,004,022
1,150,000 U.S. Treasury Note(d).................... 5.750 08/15/03 1,110,463
1,500,000 U.S. Treasury Note....................... 6.500 10/15/06 1,493,670
-----------
Total U.S. Government & Agency
(cost $13,454,804)..................... 13,434,102
-----------
Total Investments--88.4%
(cost $86,704,358)...................... 95,326,588
-----------
Repurchase Agreements--14.3%
7,703,000 Repurchase Agreement dated 06/30/97, with
J.P. Morgan Securities, collateralized by
$6,248,000 U.S. Treasury Bonds, 9.125%,
due 05/15/18 valued at $7,880,290
proceeds: $7,704,273.................... 5.950 07/01/97 7,703,000
7,702,000 Repurchase Agreement dated 06/30/97, with
UBS Securities, collateralized by
$5,233,000 U.S. Treasury Bonds, 11.25%,
due 02/15/15 valued at $7,856,041;
proceeds: $7,703,257.................... 5.875 07/01/97 7,702,000
-----------
Total Repurchase Agreements
(cost $15,405,000)...................... 15,405,000
-----------
Liabilities in excess of other assets -- (2.7%) (2,860,827)
-----------
Net Assets--100.0%........................ $107,870,761
============
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
** To be announced.
(a) Security pays payment-in-kind dividends through 09/30/00.
(b) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(c) Mortgage Dollar Roll. See Note 1.
(d) All or part of the security is segregated as collateral for mortgage dollar
rolls and to be announced securities.
Abbreviation used in this statement:
ADR American Depository Receipt
See accompanying notes to financial statements
105
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bonds -- 73.7%
Basic Industries -- 15.9%
$1,000,000 Algoma Steel............................ 12.375% 07/15/05 $1,105,000
2,500,000 Allied Waste
(Zero Coupon until 06/01/02, 11.30%
thereafter)(a)........................ 10.708 06/01/07 1,537,500
1,250,000 Alvey Systems........................... 11.375 01/31/03 1,293,750
500,000 Asia Pulp & Paper International Finance. 11.750 10/01/05 551,250
3,000,000 Asia Pulp & Paper(a).................... 12.000 12/29/49 3,097,500
1,000,000 Clark-Schwebel. ....................... 10.500 04/15/06 1,070,000
2,500,000 Commonwealth Aluminum................... 10.750 10/01/06 2,600,000
500,000 Crown Paper............................. 11.000 09/01/05 497,500
1,000,000 DI Industries .......................... 8.875 07/01/07 985,000
1,500,000 Doman Industries Limited................ 8.750 03/15/04 1,447,500
3,000,000 Envirosource............................ 9.750 06/15/03 2,910,000
4,000,000 Foamex.................................. 9.875 06/15/07 4,140,000
1,500,000 Fonda Group............................. 9.500 03/01/07 1,440,000
500,000 Forest Oil.............................. 11.250 09/01/03 528,750
2,000,000 Freedom Chemical........................ 10.625 10/15/06 2,097,500
4,000,000 Glasstech............................... 12.750 07/01/04 4,040,000
5,000,000 International Semi-Technology
(Zero Coupon until 08/15/00, 11.50%
thereafter)(a)........................ 14.977 08/15/03 2,975,000
2,000,000 ISP Holdings............................ 9.000 10/15/03 2,060,000
1,000,000 Mesa Operating.......................... 10.625 07/01/06 1,135,000
3,350,000 NL Industries
(Zero Coupon until 10/15/98, 13.00%
thereafter)(a)........................ 11.641-12.072 10/15/05 3,132,250
2,000,000 Norcal Waste Systems *.................. 13.250 11/15/05 2,240,000
1,000,000 Pierce Leahy............................ 11.125 07/15/06 1,090,000
1,000,000 Plastic Containers...................... 10.000 12/15/06 1,050,000
4,000,000 Polymer Group........................... 9.000 07/01/07 3,955,000
1,000,000 Renco Metals............................ 11.500 07/01/03 1,065,000
2,000,000 Royal Oak Mines......................... 11.000 08/15/06 1,980,000
2,000,000 Sequa................................... 9.375 12/15/03 2,040,000
500,000 Southdown.............................. 10.000 03/01/06 543,750
1,500,000 Specialty Equipment..................... 11.375 12/01/03 1,635,000
1,000,000 Spinnaker Industries.................... 10.750 10/15/06 1,012,500
2,000,000 Stone Container......................... 12.250 04/01/02 2,040,000
500,000 Terex................................... 13.250 05/15/02 565,000
1,500,000 Texas Petrochemical..................... 11.125 07/01/06 1,620,000
-----------
59,479,750
-----------
</TABLE>
See accompanying notes to financial statements
106
<PAGE>
<PAGE>
SALOMON BROTHERS HIGH YIELD BOND FUND (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Cyclicals -- 13.9%
$1,750,000 American Builders & Contractors Supply.. 10.625% 05/15/07 $1,811,250
2,000,000 Anchor Advanced Products................ 11.750 04/01/04 2,120,000
1,300,000 Cole National Group..................... 9.875 12/31/06 1,361,750
5,000,000 Collins & Aikman........................ 10.000 01/15/07 4,943,750
2,500,000 CSK Auto................................ 11.000 11/01/06 2,600,000
2,000,000 Delta Beverage.......................... 9.750 12/15/03 2,090,000
3,750,000 Duane Reade
(Zero Coupon until 09/15/99, 15.00%
thereafter)(a)........................ 13.545-13.549 09/15/04 2,953,125
1,500,000 E & S Holdings.......................... 10.375 10/01/06 1,560,000
3,000,000 Finlay Enterprises
(Zero Coupon until 05/01/98, 12.00%
thereafter)(a)........................ 10.861 05/01/05 2,850,000
1,000,000 Herff Jones............................. 11.000 08/15/05 1,085,000
2,000,000 Hines Horticulture...................... 11.750 10/15/05 2,130,000
1,000,000 Hollinger............................... 9.250 02/01/06 1,020,000
1,000,000 Hollinger............................... 9.250 03/15/07 1,020,000
2,000,000 Jitney-Jungle Stores.................... 12.000 03/01/06 2,220,000
1,800,000 Lamar Advertising....................... 9.625 12/01/06 1,854,000
1,000,000 Neenah.................................. 11.125 05/01/07 1,065,000
1,000,000 Newport News Shipbuilding............... 9.250 12/01/06 1,045,000
2,250,000 Polytama................................ 11.250 06/15/07 2,331,563
3,000,000 Prime Hospitality....................... 9.750 04/01/07 3,135,000
6,000,000 Revlon Worldwide (a).................... 10.750-11.566 03/15/01 4,065,000
500,000 Simmons................................. 10.750 04/15/06 528,750
2,000,000 Speedy Muffler King..................... 10.875 10/01/06 2,000,000
2,750,000 Sun International Hotels................ 9.000 03/15/07 2,801,563
1,500,000 Universal Outdoor....................... 9.750 10/15/06 1,552,500
1,000,000 Waxman Industries
(Zero coupon until 6/01/99, 12.75%
thereafter)(a)......................... 11.436 06/01/04 847,500
1,000,000 Wyndham Hotel........................... 10.500 05/15/06 1,120,000
-----------
52,110,751
-----------
</TABLE>
See accompanying notes to financial statements
107
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS HIGH YIELD BOND FUND (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Non-Cyclicals -- 14.3%
$1,500,000 Berry Plastics........................ 12.250% 04/15/04 $1,661,250
500,000 Borg-Warner........................... 9.125 05/01/03 500,000
1,000,000 Carr-Gottstein Foods.................. 12.000 11/15/05 1,110,000
2,000,000 CFP Holdings.......................... 11.625 01/15/04 2,080,000
500,000 Cobb Theatres......................... 10.625 03/01/03 552,500
1,000,000 Dade International.................... 11.125 05/01/06 1,115,000
1,500,000 Doane Products........................ 10.625 03/01/06 1,597,500
2,000,000 Drypers............................... 10.250 06/15/07 2,000,000
1,000,000 Ekco Group............................ 9.250 04/01/06 1,022,500
750,000 Harvey Casinos........................ 10.625 06/01/06 798,750
2,000,000 Hills Stores.......................... 12.500 07/01/03 1,555,000
1,300,000 IMED.................................. 9.750 12/01/06 1,339,000
1,000,000 Iron Mountain......................... 10.125 10/01/06 1,070,000
1,900,000 Jordan Industries..................... 10.375 08/01/03 2,014,000
2,010,483 Jordan Industries
(Zero Coupon until 04/02/09, 11.75%
thereafter)(a)....................... 11.750 04/01/09 1,105,766
3,000,000 North Atlantic Trading................ 11.000 06/15/04 3,052,500
2,400,000 Pen-Tab Industries.................... 10.875 02/01/07 2,454,000
1,000,000 Plastic Specialties................... 11.250 12/01/03 1,070,000
2,500,000 Pueblo Xtra International............. 9.500 08/01/03 2,412,500
1,000,000 Pueblo Xtra International............. 9.500 08/01/03 970,000
2,000,000 Radnor Holdings....................... 10.000 12/01/03 2,060,000
2,000,000 Rayovac............................... 10.250 11/01/06 2,100,000
500,000 Selmer................................ 11.000 05/15/05 545,000
1,000,000 Specialty Foods....................... 11.125 10/01/02 990,000
2,000,000 Stroh Brewery......................... 11.100 07/01/06 2,100,000
2,500,000 Tekni-Plex............................ 11.250 04/01/07 2,712,500
5,000,000 Trump Atlantic City................... 11.250 05/01/06 4,887,500
500,000 Twin Laboratories..................... 10.250 05/15/06 527,500
4,500,000 Urohealth Systems..................... 12.500 04/01/04 4,387,500
4,000,000 Williams Scottsman.................... 9.875 06/01/07 4,040,000
-----------
53,830,266
-----------
Energy -- 7.3%
3,000,000 Bellwether Exploration................ 10.875 04/01/07 3,180,000
3,000,000 Benton Oil & Gas...................... 11.625 05/01/03 3,303,750
1,500,000 Cliffs Drilling....................... 10.250 05/15/03 1,597,500
3,000,000 Companhia Energetica Sao Paul*........ 9.125 06/26/07 2,913,750
2,000,000 Costilla Energy....................... 10.250 10/01/06 2,070,000
2,000,000 Cross Timbers Oil..................... 9.250 04/01/07 2,065,000
750,000 Flores & Rucks........................ 9.750 10/01/06 783,750
1,000,000 Magnum Hunter Resources............... 10.000 06/01/07 992,500
2,000,000 National Energy Group................. 10.750 11/01/06 2,085,000
1,250,000 Parker Drilling....................... 9.750 11/15/06 1,314,063
1,000,000 Transamerican Energy.................. 11.500 06/15/02 970,000
3,500,000 Transamerican Energy
(Zero coupon until 06/01/99, 13.00%
thereafter)(a)...................... 13.000 06/15/02 2,520,000
3,500,000 United Refining....................... 10.750 06/15/07 3,535,000
-----------
27,330,313
-----------
</TABLE>
See accompanying notes to financial statements
108
<PAGE>
<PAGE>
SALOMON BROTHERS HIGH YIELD BOND FUND (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Services -- 3.3%
$5,000,000 Coleman Escrow(a)....................... 11.125% 05/15/01 $3,187,500
1,000,000 Dollar Financial........................ 10.875 11/15/06 1,075,000
1,500,000 DVI..................................... 9.875 02/01/04 1,503,750
1,000,000 Imperial Credit Industries.............. 9.875 01/15/07 970,000
2,000,000 Intertek Finance PLC.................... 10.250 11/01/06 2,095,000
1,500,000 K Mart Funding.......................... 9.440 07/01/18 1,413,750
2,000,000 Tembec Finance.......................... 9.875 09/30/05 2,060,000
-----------
12,305,000
-----------
Health Care -- 1.5%
1,000,000 Fresenius Medical Care.................. 9.000 12/01/06 1,015,000
3,500,000 Integrated Health....................... 9.500 09/15/07 3,578,750
1,000,000 Maxxim Medical.......................... 10.500 08/01/06 1,080,000
-----------
5,673,750
-----------
Media -- 7.1%
2,000,000 Adelphia Communications................. 12.500 05/15/02 2,120,000
500,000 American Media Operation................ 11.625 11/15/04 545,000
3,000,000 Cablevision Systems..................... 10.500 05/15/16 3,270,000
1,500,000 Chancellor Broadcasting................. 9.375 10/01/04 1,537,500
2,000,000 Citadel Broadcasting.................... 10.250 07/01/07 2,000,000
4,500,000 Diamond Cable
(Zero Coupon until 12/15/00, 11.75%
thereafter)(a) ......................... 11.15-11.75 12/15/05 3,116,250
3,000,000 Intermedia Commission of Florida
(Zero Coupon until 05/15/01, 12.50%
thereafter)(a) ......................... 11.732-12.271 05/15/06 2,160,000
4,000,000 Marcus Cable
(Zero Coupon until 06/15/00, 14.125%
thereafter)(a) ......................... 12.813-13.014 12/15/05 3,160,000
1,000,000 Rogers Cable Systems.................... 10.000 03/15/05 1,080,000
3,000,000 SFX Broadcasting........................ 10.750 05/15/06 3,240,000
3,000,000 Sun Media............................... 9.500 02/15/07 3,030,000
1,750,000 United International Holdings(a)........ 11.657-13.893 11/15/99 1,347,500
250,000 Wireless One............................ 13.000 10/15/03 159,375
-----------
26,765,625
-----------
Technology -- 3.6%
1,000,000 Derlan Manufacturing.................... 10.000 01/15/07 1,025,000
2,000,000 Dyncorp................................. 9.500 03/01/07 2,030,000
2,000,000 Exide Electronics Group................. 11.500 03/15/06 2,150,000
1,000,000 HCC Industries.......................... 10.750 05/15/07 1,062,500
2,000,000 L-3 Communications...................... 10.375 05/01/07 2,130,000
1,000,000 Mettler Toledo.......................... 9.750 10/01/06 1,050,000
2,000,000 Packard Bioscience...................... 9.375 03/01/07 2,000,000
2,000,000 Talley Manufacturing & Technology....... 10.750 10/15/03 2,100,000
-----------
13,547,500
-----------
Telecommunications & Utilities -- 3.0%
1,000,000 AES..................................... 10.250 07/15/06 1,097,500
1,500,000 AES China Generating.................... 10.125 12/15/06 1,605,000
500,000 El Paso Electric........................ 9.400 05/01/11 544,355
2,500,000 ICG Holdings
(Zero Coupon until 09/15/00, 13.50%
thereafter)(a) ......................... 11.459-12.725 09/15/05 1,825,000
2,250,000 International CableTel
(Zero Coupon until 02/01/01, 11.500%
thereafter)(a) ......................... 11.201-12.111 02/01/06 1,563,750
1,810,000 Jacor Communications.................... 9.750 12/15/06 1,882,400
1,000,000 Nextlink................................ 12.500 04/15/06 1,065,000
1,000,000 Paging Network.......................... 10.000 10/15/08 971,250
750,000 Western Wireless........................ 10.500 06/01/06 774,375
-----------
11,328,630
-----------
</TABLE>
See accompanying notes to financial statements
109
<PAGE>
<PAGE>
PORTFOLIO OF INVEStMENTS (continued) (unaudited)
SALOMON BROTHERS HIGH YIELD BOND FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transportation -- 3.8%
$ 500,000 Airplanes Pass Through Trust............ 10.875% 03/15/19 $ 577,500
1,000,000 Atlantic Express........................ 10.750 02/01/04 1,045,000
5,000,000 Central Transport Rental Group.......... 9.500 04/30/03 4,825,000
3,000,000 Ryder TRS............................... 10.000 12/01/06 3,105,000
6,500,000 TFM
(Zero Coupon until 06/01/02, 11.75%
thereafter)(a) ......................... 11.499-11.767 06/15/09 3,786,250
890,000 Venture Holdings Trust.................. 9.750 04/01/04 872,200
-----------
14,210,950
-----------
Total Corporate Bonds
(cost $270,448,666)................... 276,582,535
-----------
Sovereign Bonds -- 15.2%
Argentina -- 1.0%
3,880,000 Republic of Argentina, FRB*............. 6.750 03/31/05 3,649,625
250,000 Republic of Argentina, Par Bond,
Series L* .............................. 5.500 03/31/23 173,281
-----------
3,822,906
-----------
Brazil -- 4.0%
5,000,000 Federal Republic of Brazil, DCB,
Series L* .............................. 6.938 04/15/12 4,131,250
11,766,810 Federal Republic of Brazil,
Capitalization Bond(b) ................. 8.000 04/15/14 9,457,573
375,000 Federal Republic of Brazil, Global Bond 10.125 05/15/27 361,500
1,500,000 Federal Republic of Brazil, Investment
(Exit) Bond ............................ 6.000 09/15/13 1,149,450
-----------
15,099,773
-----------
Bulgaria -- 0.2%
500,000 Republic of Bulgaria, FLIRB, Series A*.. 2.250 07/28/12 285,625
750,000 Republic of Bulgaria, Discount Bond,
Tranche A* ............................. 6.563 07/28/24 553,125
-----------
838,750
-----------
Ecuador -- 1.6%
8,448,981 Republic of Ecuador, PDI Bond*.......... 6.438 02/27/15 5,449,592
1,076,320 Republic of Ecuador, Registered PDI
Bond*(b) ............................... 6.438 02/27/15 694,226
-----------
6,143,818
-----------
Mexico -- 2.1%
4,000,000 United Mexico States, Global Bond....... 11.500 05/15/26 4,571,000
4,000,000 United Mexico States, Par Bonds,
Series A, including 4,000,000
attached warrants ...................... 6.250 12/31/19 3,092,500
-----------
7,663,500
-----------
Panama -- 1.7%
7,250,000 Government of Panama, IRB*.............. 3.500 07/17/14 5,600,625
1,014,051 Government of Panama, PDI Bond*......... 6.563 07/17/16 891,097
-----------
6,491,722
-----------
Peru -- 1.4%
8,000,000 Government of Peru, PDI Bond*........... 4.000 03/07/17 5,195,000
-----------
Poland -- 0.1%
350,000 Republic of Poland, RSTA Bond*.......... 3.250 10/27/24 223,125
-----------
Venezuela -- 3.1%
4,523,805 Republic of Venezuela, FLIRB, Series A*. 6.750 03/31/07 4,218,448
4,523,805 Republic of Venezuela, FLIRB, Series B*. 6.750 03/31/07 4,218,448
4,000,000 Republic of Venezuela, Par Bond,
including 20,000 attached warrants...... 6.750 03/31/20 3,150,000
-----------
11,586,896
-----------
Total Sovereign Bonds
(cost $52,103,618)...................... 57,065,490
-----------
</TABLE>
See accompanying notes to financial statements
110
<PAGE>
<PAGE>
SALOMON BROTHERS HIGH YIELD BOND FUND (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MATURITY VALUE
AMOUNT DESCRIPTION RATE DATE (NOTE 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loan Participations -- 4.3%
Algeria -- 1.3%
$5,775,000 The People's Democratic Republic
of Algeria, Tranche A*(c) (Chase
Manhattan Bank)........................ 6.910% 09/04/06 $5,053,125
-----------
Jamaica -- 0.3%
1,500,000 Republic of Jamaica(c).................. 6.313 11/15/04 1,271,719
-----------
Morocco -- 1.6%
6,500,000 Kingdom of Morocco, Tranche A*(c)
(Chase Manhattan Bank, N.A. and
Morgan Guaranty Trust Company)......... 6.813 01/01/09 5,931,250
-----------
Russia -- 1.1%
4,500,000 Russian Bank of Foreign Economic
Affairs(c)(d) (Merrill Lynch
International)......................... -- 12/29/49 4,117,500
-----------
Total Loan Participations
(cost $14,466,416)..................... 16,373,594
-----------
Convertible Preferred Stocks -- 0.6%
SHARES
--------
Financial Services -- 0.6%
80,000 California Federal Capital, 9.125%
(cost $2,000,000)...................... 2,065,000
-----------
Warrants -- 0.0%
500 Exide Electronics Group, expires
03/15/06............................... 12,500
900 In-Flight Phone, expires 08/31/02....... 0
2,000 Terex, expires 05/15/02................. 0
750 Wireless One, expires 10/19/00.......... 0
-----------
Total Warrants
(cost $50,391)......................... 12,500
-----------
Total Investments -- 93.8%
(cost $339,069,091).................... 352,099,119
PRINCIPAL
AMOUNT
- --------
Repurchase Agreement -- 6.0%
$22,536,000 Repurchase Agreement dated 06/30/97,
with UBS Securities, collateralized
by $18,280,000 U.S. Treasury Bonds,
8.875%, due 08/15/17, valued at
$22,987,100; proceeds: $22,539,678
(cost $22,536,000)(e).................. 5.875 07/01/97 22,536,000
Other assets in excess of
liabilities - 0.2% .................... 658,322
------------
Net Assets -- 100.0%.................... $375,293,441
============
</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 all or part of the interest earned is
paid by the issuance of additional bonds.
(c) Participation interest was acquired through the financial institutions
indicated parenthetically.
(d) Security is in default.
(e) All or part of the security is segregated as collateral for loan
participations.
Abbreviations used in this statement:
DCB Debt Conversion Bonds
FLIRB Front-Loaded Interest Reduction Bonds
FRB Floating Rate Bonds
IRB Interest Reduction Bonds
PDI Past Due Interest
RSTA Revolving Short-Term Agreement
See accompanying notes to financial statements
111
<PAGE>
<PAGE>
Portfolio of Investments (continued) (unaudited)
SALOMON BROTHERS STRATEGIC BOND FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Corporate Bonds -- 46.5%
Basic Industries -- 9.3%
$ 250,000 Algoma Steel............................... 12.375% 07/15/05 $ 276,250
400,000 Allied Waste
(Zero Coupon until 06/01/02, 11.30%
thereafter)(b) ........................... 10.837 06/01/07 246,000
125,000 Alvey Systems.............................. 11.375 01/31/03 129,371
250,000 Clark-Schwebel............................. 10.500 04/15/06 267,500
250,000 Crown Paper................................ 11.000 09/01/05 248,750
250,000 Doman Industries Limited................... 8.750 03/15/04 241,250
250,000 Envirosource............................... 9.750 06/15/03 242,500
250,000 Foamex..................................... 9.875 06/15/07 258,750
150,000 Fonda Group................................ 9.500 03/01/07 144,000
200,000 Forest Oil................................. 11.250 09/01/03 211,500
250,000 Freedom Chemical........................... 10.625 10/15/06 262,188
400,000 Harnischfeger Industries................... 6.875 02/15/27 395,950
400,000 International Semi-Technology
(Zero Coupon until 08/15/00, 11.50%
thereafter)(b)........................... 11.737 08/15/03 238,000
250,000 NL Industries
(Zero Coupon until 10/15/98, 13.00%
thereafter)(b) .......................... 12.619 10/15/05 233,750
250,000 Norcal Waste Systems *..................... 13.250 11/15/05 280,000
250,000 Renco Metals............................... 11.500 07/01/03 266,250
100,000 Shop Vac................................... 10.625 09/01/03 106,750
250,000 Stone Container............................ 12.250 04/01/02 255,000
250,000 Terex...................................... 13.250 05/15/02 282,500
250,000 Texas Petrochemical........................ 11.125 07/01/06 270,000
----------
4,856,259
----------
Consumer Cyclicals -- 9.7%
250,000 American Builders & Contractors Supply..... 10.625 05/15/07 258,750
250,000 Collins & Aikman........................... 10.000 01/15/07 247,188
250,000 CSK Auto................................... 11.000 11/01/06 260,000
250,000 Hines Horticulture......................... 11.750 10/15/05 266,250
250,000 Hollinger.................................. 9.250 03/15/07 255,000
2,000,000 Mid States Trust........................... 7.340 07/01/35 2,015,313
350,000 Revlon Worldwide(b)........................ 10.750 03/15/01 237,125
250,000 Riddell Sports............................. 10.500 07/15/07 256,875
250,000 Speedy Muffler King........................ 10.875 10/01/06 250,000
200,000 Sun International Hotels................... 9.000 03/15/07 203,750
250,000 Synthetic Industries....................... 9.250 02/15/07 253,750
150,000 Universal Outdoor.......................... 9.750 10/15/06 155,250
200,000 U.S. Leasing International................. 8.450 01/25/05 213,900
200,000 Wyndham Hotel.............................. 10.500 05/15/06 224,000
----------
5,097,151
----------
</TABLE>
See accompanying notes to financial statements
112
<PAGE>
<PAGE>
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer Cyclicals -- 10.7%
$250,000 Berry Plastics............................. 12.250% 04/15/04 $ 276,875
250,000 CFP Holdings............................... 11.625 01/15/04 260,000
250,000 Cobb Theatres.............................. 10.625 03/01/03 276,250
250,000 Dade International......................... 11.125 05/01/06 278,750
250,000 Doane Products............................. 10.625 03/01/06 266,250
200,000 Dole Foods................................. 6.750 07/15/00 200,118
250,000 Eyecare Centers of America................. 12.000 10/01/03 276,250
250,000 French Fragrances.......................... 10.375 05/15/07 260,000
250,000 Iron Mountain.............................. 10.125 10/01/06 267,500
402,096 Jordan Industries
(Zero Coupon until 04/02/09, 11.75%
thereafter)(b)........................... 11.750 04/01/09 221,153
250,000 Loomis Fargo............................... 10.000 01/15/04 250,625
250,000 Pen-Tab Industries......................... 10.875 02/01/07 255,625
250,000 Pueblo Xtra International.................. 9.500 08/01/03 242,500
250,000 Radnor Holdings............................ 10.000 12/01/03 257,500
250,000 Rayovac.................................... 10.250 11/01/06 262,500
250,000 Selmer..................................... 11.000 05/15/05 272,500
250,000 Stroh Brewery ............................. 11.100 07/01/06 262,500
250,000 Tekni-Plex................................. 11.250 04/01/07 271,250
250,000 Trump Atlantic City........................ 11.250 05/01/06 244,375
200,000 Twin Laboratories ......................... 10.250 05/15/06 211,000
250,000 Urohealth Systems.......................... 12.500 04/01/04 243,750
250,000 Williams Scottsman......................... 9.875 06/01/07 252,500
----------
5,609,771
----------
Energy -- 4.8%
250,000 Bellwether Exploration..................... 10.875 04/01/07 265,000
250,000 Benton Oil & Gas........................... 11.625 05/01/03 275,313
250,000 Cliffs Drilling ........................... 10.250 05/15/03 266,250
250,000 Costilla Energy............................ 10.250 10/01/06 258,750
200,000 Cross Timbers Oil.......................... 9.250 04/01/07 206,500
250,000 National Energy Group...................... 10.750 11/01/06 260,625
400,000 Occidental Petroleum....................... 9.250 08/01/19 473,384
250,000 Snyder Oil................................. 8.750 06/15/07 250,625
350,000 Transamerican Energy
(Zero coupon until 06/01/99, 13.00%
thereafter)(b)........................... 13.000 06/15/02 252,000
----------
2,508,447
----------
Financial Services -- 2.0%
400,000 Coleman Escrow(b).......................... 11.125 05/15/01 255,000
300,000 Midland Bank............................... 7.650 05/01/25 313,893
150,000 Paine Webber Group......................... 7.000 03/01/00 151,022
350,000 U.S. West Capital Funding.................. 6.850 01/15/02 349,626
----------
1,069,541
----------
Health Care -- 1.0%
250,000 Integrated Health.......................... 9.500 09/15/07 255,625
250,000 Maxxim Medical............................. 10.500 08/01/06 270,000
----------
525,625
----------
</TABLE>
See accompanying notes to financial statements
113
<PAGE>
<PAGE>
Portfolio of Investments (continued)(unaudited)
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Media -- 4.2%
$150,000 Adelphia Communications.................... 12.500% 05/15/02 $ 159,000
250,000 American Media Operation................... 11.625 11/15/04 272,500
250,000 Cablevision Systems........................ 10.500 05/15/16 272,500
375,000 Diamond Cable
(Zero Coupon until 12/15/00, 11.75%
thereafter)(b)........................... 11.087 12/15/05 259,688
200,000 Intermedia Commission of Florida
(Zero Coupon until 05/15/01, 12.50%
thereafter)(b)........................... 10.529 05/15/06 144,000
500,000 Marcus Cable
(Zero Coupon until 06/15/00, 14.125%
thereafter)(b)........................... 12.813 12/15/05 395,000
250,000 SFX Broadcasting........................... 10.750 05/15/06 270,000
250,000 Sun Media.................................. 9.500 05/15/07 253,750
250,000 United International Holdings(b)........... 13.893 11/15/99 192,500
----------
2,218,938
----------
Technology -- 1.5%
250,000 Exide Electronics Group.................... 11.500 03/15/06 268,750
250,000 Packard Bioscience......................... 9.375 03/01/07 250,000
250,000 Talley Manufacturing & Technology.......... 10.750 10/15/03 262,500
----------
781,250
----------
Telecommunications & Utilities -- 1.3%
350,000 ICG Holdings
(Zero Coupon until 09/15/00, 13.50%
thereafter)(b)........................... 11.459 09/15/05 255,500
325,000 International CableTel
(Zero Coupon until 02/01/01, 11.500%
thereafter)(b)........................... 11.029 02/01/06 225,875
200,000 Jacor Communications....................... 9.750 12/15/06 208,000
----------
689,375
----------
Transportation -- 2.0%
250,000 Airplanes Pass Through Trust............... 10.875 03/15/19 288,750
250,000 Central Transport Rental Group............. 9.500 04/30/03 241,250
250,000 Ryder TRS.................................. 10.000 12/01/06 258,750
400,000 TFM
(Zero Coupon until 06/01/02, 11.75%
thereafter)(b)........................... 11.398 06/15/09 233,000
----------
1,021,750
----------
Total Corporate Bonds
(cost $23,802,672)....................... 24,378,107
----------
Sovereign Bonds -- 17.3%
Argentina -- 1.2%
485,000 Republic of Argentina, FRB*................ 6.750 03/31/05 456,203
250,000 Republic of Argentina, Par Bond, Series L * 5.500 03/31/23 173,281
----------
629,484
----------
Australia -- 0.0%
20,000 Government of Australia.................... 10.000 10/15/07 18,342
----------
Brazil -- 2.3%
500,000 Federal Republic of Brazil, DCB Bond *..... 6.938 04/15/12 413,125
952,548 Federal Republic of Brazil, Capitalization
Bond(c).................................. 8.000 04/15/14 765,610
50,000 Federal Republic of Brazil, Global Bond.... 10.125 05/15/27 48,200
----------
1,226,935
----------
</TABLE>
See accompanying notes to financial statements
114
<PAGE>
<PAGE>
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Bulgaria -- 0.4%
$250,000 Republic of Bulgaria, Discount Bond,
Tranche A *............................ 6.563% 07/28/24 $ 184,375
----------
Canada -- 0.5%
CAD 190,000 Government of Canada..................... 7.500 09/01/00 146,207
CAD 130,000 Government of Canada..................... 7.000 12/01/06 98,812
----------
245,019
----------
Denmark -- 0.3%
DKK 840,000 Kingdom of Denmark....................... 8.000 03/15/06 142,216
----------
Ecuador -- 0.5%
600,000 Republic of Ecuador, Par Bond *.......... 3.500 02/28/25 283,125
----------
Germany -- 0.2%
DEM 110,000 Government of Germany.................... 6.000 07/04/07 64,410
DEM 50,000 Government of Germany.................... 8.250 09/20/01 32,782
----------
97,192
----------
Ireland -- 0.5%
IEP 190,000 Irish Gilts.............................. 6.250 04/01/99 288,937
----------
Korea -- 0.8%
400,000 Korea Development Bank................... 9.600 12/01/00 434,492
----------
Mexico -- 3.3%
1,000,000 United Mexico States, Global Bond........ 11.500 05/15/26 1,142,750
750,000 United Mexico States, Par Bond, Series B,
including 750,000 attached warrants... 6.250 12/31/19 579,844
----------
1,722,594
----------
Panama -- 0.4%
250,000 Government of Panama, IRB *.............. 3.500 07/17/14 193,125
----------
Peru -- 1.2%
1,000,000 Government of Peru, PDI Bond *........... 4.000 03/07/17 649,375
----------
Poland -- 0.6%
500,000 Republic of Poland, RSTA Bond *.......... 3.250 10/27/24 318,750
----------
Russia -- 2.2%
1,500,000 Russian Government, IAN(d)............... -- 12/29/49 1,146,563
----------
Venezuela -- 2.9%
952,380 Republic of Venezuela, FLIRB, Series A *. 6.750 03/31/07 888,094
238,095 Republic of Venezuela, FLIRB, Series B *. 6.750 03/31/07 222,024
500,000 Republic of Venezuela, Par Bond,
including 2,500 attached warrants...... 6.750 03/31/20 393,750
----------
1,503,868
----------
Total Sovereign Bonds
(cost $8,187,175)...................... 9,084,392
----------
Loan Participation -- 0.9%
Morocco -- 0.9%
500,000 Kingdom of Morocco, Tranche A *(e)
(Chase Manhattan Bank, N.A. and
Morgan Guaranty Trust Company)
(cost $414,339)......................... 6.813 01/01/09 456,250
----------
</TABLE>
See accompanying notes to financial statements
115
<PAGE>
<PAGE>
Portfolio of Investments (continued)(unaudited)
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Government & Agency -- 16.0%
$ 19,350 Federal Home Loan Mortgage Corporation..... 6.000% 10/01/10 $ 18,769
515,679 Federal Home Loan Mortgage Corporation..... 7.000 07/01/11 515,999
250,051 Federal Home Loan Mortgage Corporation..... 10.000 05/15/20 267,397
544,000 Federal National Mortgage Association...... 7.000 03/25/01 548,505
1,400,000 Federal National Mortgage Association(f)... 7.000 ** 1,372,000
25,092 Federal National Mortgage Association...... 13.000 11/15/15 29,703
103,770 Federal National Mortgage Association...... 10.400 04/25/19 112,721
94,922 Federal National Mortgage Association...... 6.500 02/01/26 90,899
4,188,114 Federal National Mortgage Association--
Interest only *.......................... 0.639 10/01/08 132,024
8,568,714 Federal National Mortgage Association--
Interest only *.......................... 0.571 10/17/36 257,396
2,000,000 U.S. Treasury Bond(g)...................... 5.750 12/31/98 1,994,060
160,000 U.S. Treasury Bond......................... 6.625 02/15/27 156,550
200,000 U.S. Treasury Inflation Index Note......... 3.449 01/15/07 197,355
900,000 U.S. Treasury Note(g)...................... 5.625 02/28/01 879,894
100,000 U.S. Treasury Note(g)...................... 6.500 08/31/01 100,484
70,000 U.S. Treasury Note......................... 6.125 12/31/01 69,311
1,000,000 U.S. Treasury Note......................... 6.625 03/31/02 1,009,060
60,000 U.S. Treasury Note......................... 6.625 05/15/07 60,497
600,000 U.S. Treasury Note......................... 6.250 05/31/99 601,686
-----------
Total U.S. Government & Agency
(cost $8,409,791)........................ 8,414,310
-----------
Shares
------
Warrants -- 0.0%
250 Exide Electronics Group, expires 03/15/06.. 6,250
400 In-Flight Phone, expires 08/31/02.......... 0
1,000 Terex, expires 05/15/02.................... 0
-----------
Total Warrants
(cost $22,396)........................... 6,250
-----------
Total Investments -- 80.7%
(cost $40,836,373)....................... 42,339,309
-----------
Principal
Amount(a)
- ----------
Repurchase Agreements -- 21.4%
$5,620,000 Repurchase Agreement dated 06/30/97, with J.P.
Morgan Securities, collateralized by $5,342,000
U.S. Treasury Bonds, 8.875%, due 02/15/99
valued at $5,749,328; proceeds: $5,620,929... 5.950 07/01/97 5,620,000
5,619,000 Repurchase Agreement dated 06/28/96, with UBS
Securities, collateralized by $3,818,000 U.S.
Treasury Bonds, 11.25%, due 02/15/15 valued
at $5,731,773; proceeds: $5,619,917........ 5.875 07/01/97 5,619,000
-----------
Total Repurchase Agreements
(cost $11,239,000)....................... 11,239,000
-----------
Liabilities in excess of other assets -- (2.1%) (1,136,242)
-----------
Net Assets -- 100.0%....................... $52,442,067
===========
</TABLE>
See accompanying notes to financial statements
116
<PAGE>
<PAGE>
SALOMON BROTHERS STRATEGIC BOND FUND (concluded)
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Unrealized
Maturity Contracts to In Exchange Contracts at Appreciation
Dates Receive/Deliver for Value (Depreciation)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases
07/16/97 CAD 1,702,968 $1,226,039 $1,234,132 $8,093
10/06/97 DEM 180,913 105,797 104,329 (1,468)
07/16/97 DKK 516,033 79,758 77,779 (1,979)
07/03/97 FRF 533,454 91,824 90,813 (1,011)
Sales
07/16/97 AUD 19,326 14,997 14,598 399
07/16/97 CAD 1,912,035 1,381,528 1,385,642 (4,114)
10/03/97 CAD 71,753 51,844 52,141 (297)
07/16/97 DKK 1,424,465 218,610 214,701 3,909
07/03/97 FRF 530,558 94,912 90,320 4,592
10/03/97 IEP 194,955 295,746 294,757 989
------
$9,113
======
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
** To be announced.
(a) Principal denominated in U.S. dollars unless otherwise indicated.
(b) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(c) Payment-in-kind security for which all or part of the interest earned is
paid by the issuance of additional bonds.
(d) When and if issued. Security issued pursuant to Russia's Brady Plan debt
restucturing. The investment advisor believes that the Brady Plan will be
finalized and the related bonds issued. Accordingly, the Fund has
marked-to-market its investment in this security.
(e) Participation interest was acquired through the financial institutions
indicated parenthetically.
(f) Mortgage dollar roll. See Note 1.
(g) All or part of the security is segregated as collateral for mortgage dollar
rolls, to be announced securities, loan participations and when and if
issued securities.
Abbreviations used in this statement:
DCB Debt Conversion Bonds
FLIRB Front-Loaded Interest Reduction Bonds
FRB Floating Rate Bonds
IAN Interest Arrears Notes
IRB Interest Reduction Bonds
PDI Past Due Interest
RSTA Revolving Short-Term Agreement
AUD Australian Dollar
CAD Canadian Dollar
DEM German Deutschemark
DKK Danish Krone
FRF French Franc
IEP Irish Punt
See accompanying notes to financial statements
117
<PAGE>
<PAGE>
Portfolio of Investments (continued) (unaudited)
SALOMON BROTHERS U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Treasury Notes -- 2.3%
$300,000 U.S. Treasury Note (cost $286,048)(a)....... 6.250% 02/15/07 $293,532
----------
U.S. Government Agency -- 94.0%
1,000,000 Federal Farm Credit Corporation ............ 5.380 07/01/97 994,919
500,000 Federal Farm Credit Corporation ............ 5.400 07/11/97 498,950
100,000 Federal Home Loan Bank ..................... 5.940 06/13/00 98,859
388,413 Federal Home Loan Mortgage Corporation ..... 7.500 05/01/07 395,774
32,010 Federal Home Loan Mortgage Corporation ..... 6.000 07/01/10 31,139
35,121 Federal Home Loan Mortgage Corporation ..... 11.750 01/01/11 38,668
189,641 Federal Home Loan Mortgage Corporation(a) .. 7.000 05/01/11 189,758
465,690 Federal Home Loan Mortgage Corporation(a) .. 7.000 07/01/11 465,979
734,935 Federal Home Loan Mortgage Corporation ..... 7.000 07/01/11 735,390
357,675 Federal Home Loan Mortgage Corporation(a) .. 7.000 08/01/11 357,896
899 Federal Home Loan Mortgage Corporation ..... 11.750 06/01/14 970
24,463 Federal Home Loan Mortgage Corporation ..... 11.750 12/01/14 27,338
34,473 Federal Home Loan Mortgage Corporation ..... 11.750 07/01/15 38,524
13,763 Federal Home Loan Mortgage Corporation ..... 11.750 01/01/16 15,513
287,932 Federal Home Loan Mortgage Corporation(a) .. 8.250 04/01/17 300,587
943,585 Federal National Mortgage Association(a) ... 6.783 01/17/03 946,238
288,527 Federal National Mortgage Association ...... 6.500 12/01/03 286,170
1,500,000 Federal National Mortgage Association ...... 7.000 * 1,470,000
400,000 Federal National Mortgage Association(a) ... 7.148 10/17/09 403,703
41,859 Federal National Mortgage Association ...... 14.500 11/01/14 51,748
22,169 Federal National Mortgage Association ...... 12.500 08/01/15 25,611
94,118 Federal National Mortgage Association ...... 12.500 09/01/15 109,060
100,368 Federal National Mortgage Association ...... 13.000 11/15/15 118,810
36,317 Federal National Mortgage Association ...... 12.000 01/01/16 42,672
587,608 Federal National Mortgage Association(a) ... 12.000 01/01/16 670,978
387,691 Federal National Mortgage Association(a) ... 12.500 01/01/16 454,810
32,506 Federal National Mortgage Association ...... 11.500 04/01/19 36,587
219,911 Federal National Mortgage Association ...... 10.500 08/01/20 241,282
397,456 Federal National Mortgage Association ...... 11.000 09/01/20 443,592
2,150,000 Federal National Mortgage Association(b) ... 7.500 * 2,155,375
500,000 Student Loan Marketing Association ......... 5.380 07/31/97 497,684
----------
Total U.S. Government Agency
(cost $12,117,473) ..................... 12,144,584
----------
Total Investments -- 96.3%
(cost $12,403,521) ..................... 12,438,116
----------
</TABLE>
See accompanying notes to financial statements
118
<PAGE>
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT INCOME FUND (concluded)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Repurchase Agreements -- 30.8%
$1,992,000 Repurchase Agreement dated 06/30/97, with J.P.
Morgan Securities, collateralized by $1,894,000
U.S. Treasury Bonds, 8.875%, due 02/15/99,
valued at $2,038,418; proceeds: $1,992,329 ............ 5.950% 07/01/97 $ 1,992,000
1,993,000 Repurchase Agreement dated 06/30/97, with
UBS Securities, collateralized by $1,355,000
U.S. Treasury Bonds, 11.25%, due 02/15/15,
valued at $2,034,194; proceeds: $1,993,325 ............ 5.875 07/01/97 1,993,000
-----------
Total Repurchase Agreements
(cost $3,985,000) ..................................... 3,985,000
-----------
Liabilities in excess of other assets -- (27.1%) ......... (3,505,298)
-----------
Net Assets-- 100.0% ...................................... $12,917,818
===========
</TABLE>
* To be announced.
(a) All or part of the security is segregated as collateral for mortgage dollar
rolls and to be announced securities.
(b) Mortgage dollar roll. See Note 1.
See accompanying notes to financial statements
119
<PAGE>
<PAGE>
Portfolio of Investments (continued) (unaudited)
SALOMON BROTHERS NATIONAL INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Municipal Securities -- 97.2%
Alabama -- 0.8%
$100,000 McIntosh, Alabama Pollution Control VR..... 4.050% 07/01/97 $ 100,000
------------
California -- 4.3%
285,000 Los Angeles, California AMBAC.............. 6.000 08/01/03 306,583
250,000 Oakland, California Port Authority MBIA.... 6.000 11/01/05 268,085
------------
574,668
------------
Florida -- 1.4%
180,000 Florida Housing Finance Agency............. 6.150 07/01/06 184,104
------------
Hawaii -- 1.9%
250,000 Hawaii State Department of Budget &
Finance ................................. 5.600 07/01/06 257,298
------------
Illinois -- 11.6%
300,000 Chicago, Illinois Metropolitan Water GO.... 5.900 12/01/06 323,109
250,000 Chicago, Illinois O'Hare International
Airport ................................. 5.000 01/01/02 252,205
400,000 Illinois Student Assistance Commission..... 6.400 03/01/04 420,060
500,000 Springfield, Illinois Electric MBIA........ 6.000 03/01/06 538,430
------------
1,533,804
------------
Indiana -- 11.3%
500,000 Indiana Health Facilities Finance Authority 5.800 08/15/06 507,030
300,000 Indiana Secondary Market for Education
AMBAC .................................. 5.550 12/01/05 305,025
650,000 Indiana Transportation Finance Authority... 6.250 11/01/03 693,609
------------
1,505,664
------------
Louisiana -- 5.8%
450,000 Louisiana Public Facilities Authority...... 6.750 09/01/06 476,631
200,000 Louisiana State Offshore Terminal Authority
VR ...................................... 4.000 07/01/97 200,000
100,000 St. Charles Parish, Louisiana Pollution
Control VR .............................. 4.250 07/01/97 100,000
------------
776,631
------------
Massachusetts -- 3.3%
400,000 Commonwealth of Massachusetts
Health & Educational Facilities Authority . 6.500 12/01/05 437,924
------------
Mississippi -- 3.6%
460,000 Mississippi Higher Education............... 6.050 09/01/07 475,332
------------
New Jersey -- 3.6%
450,000 Passaic Valley, New Jersey
Sewer Commission AMBAC................... 5.750 12/01/07 472,676
------------
</TABLE>
See accompanying notes to financial statements
120
<PAGE>
<PAGE>
SALOMON BROTHERS NATIONAL INTERMEDIATE MUNICIPAL FUND (concluded)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
New York -- 25.5%
$250,000 Municipal Assistance Corporation,
New York City, New York................ 5.500% 07/01/02 $ 260,748
450,000 New York City, New York GO................. 6.500 02/01/02 478,850
500,000 New York State Dormitory Authority......... 6.000 07/01/06 527,365
700,000 New York State Dormitory Authority MBIA.... 5.600 07/01/06 732,732
400,000 New York State Dormitory Authority
(State University of New York)......... 6.625 07/01/04 447,772
500,000 New York State Mortgage Agency............. 5.900 10/01/06 506,630
400,000 New York State Thruway Authority MBIA...... 6.000 01/01/04 427,924
-----------
3,382,021
-----------
Ohio -- 1.9%
250,000 Miami County, Ohio Hospital Facilities .... 5.600 05/15/02 252,848
-----------
Oregon -- 0.7%
100,000 Oregon State GO VR......................... 4.200 07/01/97 100,000
------------
Pennsylvania -- 9.0%
400,000 Geisinger Authority, Pennsylvania Health
System ................................. 6.000 07/01/01 418,328
500,000 Monroeville, Pennsylvania Hospital Authority 5.750 10/01/05 514,835
265,000 Philadelphia, Pennsylvania Hospital Authority 5.400 07/01/04 264,237
-----------
1,197,400
-----------
South Carolina -- 8.3%
250,000 Piedmont Municipal Power Agency FGIC....... 6.000 01/01/07 268,923
750,000 South Carolina State
Public Service Authority FGIC.......... 6.500 01/01/05 829,538
-----------
1,098,461
-----------
Texas -- 4.2%
500,000 Austin, Texas Airport Systems MBIA......... 6.500 11/15/05 554,020
-----------
Total Investments -- 97.2%
(cost $12,506,458)..................... 12,902,851
Other assets in excess of liabilities -- 2.8% 368,541
-----------
Net Assets -- 100.0% $13,271,392
===========
</TABLE>
Abbreviations used in this statement:
AMBAC Insured as to principal and interest by the American Municipal Bond
Assurance Corporation.
FGIC Insured as to principal and interest by the Financial Guaranty Insurance
Corporation.
GO General Obligation.
MBIA Insured as to principal and interest by the MBIA Insurance Corporation.
VR Variable Rate Demand Note. Maturity date shown is the date of next
interest rate change.
See accompanying notes to financial statements
121
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YIELD TO
PRINCIPAL MATURITY ON DATE MATURITY VALUE
AMOUNT DESCRIPTION OF PURCHASE* DATE (NOTE 1a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Securities -- 98.7%
New York -- 95.7%
$ 725,000 Albany County, New York
Industrial Development Agency VR...... 4.250% 07/03/97 $ 725,000
2,265,000 Albany, New York
Industrial Development Agency PUT.... 4.200 07/01/97 2,265,000
3,100,000 Amherst, New York
Industrial Development Agency PUT..... 3.850 11/01/97 3,100,000
1,770,000 Amherst, New York
Industrial Development Agency VR...... 4.400 07/03/97 1,770,000
1,550,000 Auburn, New York
Industrial Development Agency VR...... 4.400 07/02/97 1,550,000
725,000 Babylon, New York
Industrial Development Agency VR...... 4.400 07/03/97 725,000
1,700,000 Broome County, New York
Industrial Development Agency VR...... 4.250 07/03/97 1,700,000
1,000,000 Capital District Youth Center VR ......... 4.250 07/03/97 1,000,000
1,900,000 Chautauqua County, New York
Industrial Development Agency VR...... 4.400 07/02/97 1,900,000
1,870,000 Chemung County, New York
Industrial Development Agency VR...... 4.250 07/03/97 1,870,000
4,500,000 Chenango, New York
Industrial Development Agency VR...... 4.400 07/03/97 4,500,000
690,000 Colonie, New York
Housing Development Corporation VR.... 4.400 07/02/97 690,000
540,000 Colonie, New York
Industrial Development Agency VR...... 4.250 07/03/97 540,000
1,150,000 Dutchess County, New York
Industrial Development Agency VR...... 4.250 07/03/97 1,150,000
6,000,000 Erie County, New York GO RAN.............. 3.540-3.600 11/19/97 6,014,599
3,000,000 Erie County, New York GO RAN.............. 3.800 6/25/98 3,019,883
1,180,000 Erie County, New York
Industrial Development Agency VR...... 4.250 07/03/97 1,180,000
410,000 Erie County, New York
Industrial Development Agency VR...... 4.250 07/03/97 410,000
326,000 Erie County, New York
Industrial Development Agency VR...... 4.400 07/03/97 326,000
300,000 Erie County, New York
Industrial Development Agency VR...... 4.250 07/03/97 300,000
2,950,000 Islip, New York
Industrial Development Authority VR... 4.250 07/03/97 2,950,000
930,000 Metropolitan Transit Authority, New York.. 4.000 07/01/97 948,600
100,000 Metropolitan Transit Authority, New York VR 4.150 07/02/97 100,000
1,690,000 Monroe County, New York
Industrial Development Agency PUT..... 3.900 12/01/97 1,690,000
</TABLE>
See accompanying notes to financial statements
122
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YIELD TO
PRINCIPAL MATURITY ON DATE MATURITY VALUE
AMOUNT DESCRIPTION OF PURCHASE* DATE (NOTE 1a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 700,000 Monroe County, New York
Industrial Development Agency PUT`.... 4.500% 06/15/98 $ 700,000
6,500,000 Monroe County, New York
Industrial Development Agency VR...... 4.400 07/02/97 6,500,000
3,465,000 Monroe County, New York
Industrial Development Agency VR...... 4.250 07/03/97 3,465,000
3,325,000 Monroe County, New York
Industrial Development Agency VR...... 4.600 07/03/97 3,325,000
3,140,000 Monroe County, New York
Industrial Development Agency VR...... 4.600 07/03/97 3,140,000
2,600,000 Monroe County, New York
Industrial Development Agency VR...... 4.150 07/03/97 2,600,000
2,000,000 Monroe County, New York
Industrial Development Agency VR...... 4.400 07/03/97 2,000,000
1,485,000 Monroe County, New York
Industrial Development Agency VR...... 4.400 07/03/97 1,485,000
1,100,000 Monroe County, New York
Industrial Development Agency VR...... 4.400 07/03/97 1,100,000
885,000 Monroe County, New York
Industrial Development Agency VR...... 4.650 07/03/97 885,000
2,640,000 Monroe County, New York
Industrial Development Agency VR...... 4.250 07/03/97 2,640,000
3,900,000 Mount Pleasant, New York
Industrial Development Agency VR...... 4.300 07/01/97 3,900,000
2,200,000 Municipal Assistance Corporation,
New York City, New York............... 3.800 07/01/97 2,200,001
2,000,000 Municipal Assistance Corporation,
New York City, New York............... 3.800 07/01/97 2,000,001
1,050,000 Nassau County, New York
Industrial Development Agency VR...... 4.250 07/03/97 1,050,000
1,000,000 New York City, New York GO VR............. 4.000 07/01/97 1,000,000
500,000 New York City, New York GO VR............. 5.500 07/01/97 500,000
15,200,000 New York City, New York
Housing Development Corporation VR.... 4.650 07/03/97 15,200,000
2,500,000 New York City, New York
Housing Development Corporation VR.... 4.200 07/02/97 2,500,000
2,000,000 New York City, New York
Housing Development Corporation VR.... 4.700 07/03/97 2,000,000
400,000 New York City, New York
Housing Development Corporation VR.... 4.650 07/03/97 400,000
100,000 New York City, New York
Housing Development Corporation VR.... 4.100 07/02/97 100,000
12,600,000 New York City, New York
Industrial Development Agency VR...... 5.800 07/01/97 12,600,000
3,000,000 New York City, New York
Industrial Development Agency VR...... 4.150 07/02/97 3,000,000
</TABLE>
See accompanying notes to financial statements
123
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YIELD TO
PRINCIPAL MATURITY ON DATE MATURITY VALUE
AMOUNT DESCRIPTION OF PURCHASE* DATE (NOTE 1a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1,600,000 New York City, New York
Industrial Development Agency VR...... 4.150% 07/02/97 $ 1,600,000
845,000 New York City, New York
Industrial Development Agency VR...... 4.150 07/03/97 845,000
500,000 New York City, New York
Industrial Development Agency VR...... 4.400 07/03/97 500,000
325,000 New York City, New York
Industrial Development Agency VR...... 4.600 07/03/97 325,000
200,000 New York City, New York
Industrial Development Agency VR...... 4.150 07/02/97 200,000
100,000 New York City, New York
Industrial Development Agency VR...... 4.150 07/02/97 100,000
100,000 New York City, New York
Industrial Development Agency VR...... 4.150 07/02/97 100,000
3,000,000 New York City, New York
Municipal Water Finance Authority TECP 3.750 07/31/97 3,000,000
300,000 New York State,
Environmental Facilities Corporation.. 3.750 09/15/97 300,613
1,145,000 New York State, Dormitory Authority P/R
(City University System of New York).. 3.750-4.000 07/01/97 1,167,900
5,579,000 New York State, Dormitory Authority TECP.. 4.200 07/10/97 5,579,000
300,000 New York State,
Energy Research & Development Authority VR 5.400 07/01/97 300,000
100,000 New York State,
Housing Finance Agency VR AMBAC....... 4.150 07/02/97 100,000
3,020,000 New York State,
Job Development Authority VR.......... 4.150 07/01/97 3,020,000
1,350,000 New York State,
Job Development Authority VR.......... 4.000 07/01/97 1,350,000
1,045,000 New York State,
Job Development Authority VR.......... 4.100 07/01/97 1,045,000
685,000 New York State,
Job Development Authority VR.......... 4.000 07/01/97 685,000
615,000 New York State,
Job Development Authority VR.......... 4.000 07/01/97 615,000
610,000 New York State,
Job Development Authority VR.......... 4.100 07/01/97 610,000
435,000 New York State,
Job Development Authority VR.......... 4.000 07/01/97 435,000
420,000 New York State,
Job Development Authority VR.......... 4.150 07/01/97 420,000
245,000 New York State,
Job Development Authority VR.......... 4.000 07/01/97 245,000
75,000 New York State,
Job Development Authority VR.......... 4.000 07/01/97 75,000
</TABLE>
See accompanying notes to financial statements
124
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YIELD TO
PRINCIPAL MATURITY ON DATE MATURITY VALUE
AMOUNT DESCRIPTION OF PURCHASE* DATE (NOTE 1a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 2,200,000 New York State,
Urban Development Corporation P/R AMBAC 3.700% 01/01/98 $ 2,284,241
22,000,000 Niagara County, New York
Industrial Development Agency TECP.... 4.750 07/01/97 22,000,000
10,000,000 Niagara County, New York
Industrial Development Agency TECP.... 5.000 07/01/97 10,000,000
20,000,000 Niagara County, New York
Industrial Development Agency VR...... 4.650 07/02/97 20,000,000
910,000 Niagara County, New York
Industrial Development Agency VR...... 4.400 07/03/97 910,000
1,470,000 Oneida County, New York
Industrial Development Agency VR...... 4.400 07/03/97 1,470,000
400,000 Oneida County, New York
Industrial Development Agency VR...... 4.380 07/03/97 400,000
3,800,000 Onondaga County, New York
Industrial Development Agency VR...... 4.400 07/02/97 3,800,000
1,400,000 Onondaga County, New York
Industrial Development Agency VR...... 4.400 07/02/97 1,400,000
3,500,000 Ontario County, New York
Industrial Development Agency VR...... 5.800 07/01/97 3,500,000
1,500,000 Rockland County, New York
Industrial Development Agency VR...... 4.400 07/03/97 1,500,000
260,000 Schoharie County, New York
Industrial Development Agency VR...... 4.380 07/03/97 260,000
2,500,000 St. Lawrence County, New York
Industrial Development Agency VR...... 4.400 07/03/97 2,500,000
1,400,000 Syracuse, New York
Industrial Development Agency PUT..... 4.500 06/15/98 1,400,000
3,550,000 Syracuse, New York
Industrial Development Agency VR...... 4.450 07/02/97 3,550,000
2,460,000 Warren & Washington Counties, New York
Industrial Development Agency VR...... 4.350 07/03/97 2,460,000
6,330,000 Wyoming County, New York
Industrial Development Agency VR...... 4.400 07/03/97 6,330,000
310,000 Wyoming County, New York
Industrial Development Agency VR...... 4.250 07/03/97 310,000
1,180,000 Yates County, New York
Industrial Development Agency VR..... 4.350 07/03/97 1,180,000
920,000 Yonkers, New York
Industrial Development Agency VR...... 4.250 07/03/97 920,000
------------
223,505,838
------------
</TABLE>
See accompanying notes to financial statements
125
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YIELD TO
PRINCIPAL MATURITY ON DATE MATURITY VALUE
AMOUNT DESCRIPTION OF PURCHASE* DATE (NOTE 1a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Puerto Rico -- 3.0%
$ 7,100,000 Puerto Rico Industrial, Tourist,
Educational, Medical & Environmental
Control Facilities VR................. 4.150% 07/02/97 $ 7,100,000
------------
Total Investments -- 98.7%
(cost $230,605,838)................... 230,605,838
Other assets in excess of liabilities--1.3% 2,971,245
------------
Net Assets-- 100.0%........................ $233,577,083
============
</TABLE>
* Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR) and Put Bonds, whose yields are determined on date of the
last interest rate change. For Variable Rate Demand Notes and Put Bonds,
maturity date shown is the date of next interest rate change.
Abbreviations used in this statement:
AMBAC Insured as to principal and interest by the American Municipal Bond
Assurance Corporation.
GO General Obligation.
P/R Prerefunded in U.S. Government Securities.
PUT Optional or mandatory put. Maturity date shown is the put date as well as
the date of the next interest rate change.
RAN Revenue Anticipation Note.
TECP Tax Exempt Commercial Paper.
See accompanying notes to financial statements
126
<PAGE>
<PAGE>
SALOMON BROTHERS CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YIELD TO
PRINCIPAL MATURITY ON DATE MATURITY VALUE
AMOUNT DESCRIPTION OF PURCHASE* DATE (NOTE 1a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Certificates of Deposit-- 30.8%
Banks -- 30.8%
$ 1,000,000 ABN Amro Bank.............................. 6.050% 08/01/97 $ 1,000,197
1,000,000 Banque National de Paris................... 5.660 12/31/97 998,826
1,000,000 Bayerische Vereinsbank..................... 5.500 12/04/97 998,038
1,000,000 Crestar Bank............................... 5.710 07/22/97 1,000,000
1,000,000 Dai-Ichi-Kargo Bank........................ 5.850 07/18/97 1,000,011
1,000,000 Societe Generale........................... 5.850 10/01/97 1,000,421
1,000,000 Swiss Bank................................. 5.500 08/06/97 999,871
1,000,000 West Deutsche Landesbank................... 5.750 11/19/97 1,000,000
------------
Total Certificates of Deposit
(cost $7,997,364)........................ 7,997,364
------------
Commercial Paper -- 30.6%
Banks -- 3.9%
1,000,000 Nordbanken NA.............................. 5.620 07/01/97 1,000,000
------------
Chemicals -- 3.8%
1,000,000 Air Products & Chemicals................... 5.550 08/22/97 991,983
------------
Financial Services -- 7.6%
1,000,000 FP Funding................................. 5.800 09/25/97 986,144
1,000,000 Sigma Finance.............................. 5.660 08/19/97 992,296
------------
1,978,440
------------
Office Equipment -- 3.9%
1,000,000 Avery Dennison............................. 6.220 07/01/97 1,000,000
------------
Retail -- Convenience Stores -- 3.8%
1,000,000 Southland.................................. 5.600 08/05/97 994,556
------------
Securities Brokers -- 3.8%
1,000,000 Merrill Lynch.............................. 5.390 07/07/97 999,101
------------
Transportation -- 3.8%
1,000,000 Daimler-Benz NA............................ 5.530 08/06/97 994,470
-------------
Total Commercial Paper
(cost $7,958,550)........................ 7,958,550
-------------
Corporate Bonds -- 3.9%
Financial Services -- 3.9%
1,000,000 General Electric Capital (cost $1,010,355). 7.650 02/16/98 1,010,355
-------------
Floating Rate Notes -- 21.3%
California -- 1.6%
400,000 Pasadena, California Certificates of
Participation VR........................ 5.750 07/01/97 400,000
-------------
Florida -- 5.4%
1,000,000 Dade County, Florida Expressway
Authority VR............................ 5.600 07/03/97 1,000,000
400,000 Florida Housing Finance Agency VR.......... 5.630 07/02/97 400,000
-------------
1,400,000
-------------
Michigan -- 2.7%
700,000 Genesis Health Systems VR.................. 5.700 07/02/97 700,000
-------------
</TABLE>
See accompanying notes to financial statements
127
<PAGE>
<PAGE>
PORTFOLIO OF INVESTMENTS (continued) (unaudited)
SALOMON BROTHERS CASH MANAGEMENT FUND (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YIELD TO
PRINCIPAL MATURITY ON DATE MATURITY VALUE
AMOUNT DESCRIPTION OF PURCHASE* DATE (NOTE 1A)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Jersey -- 1.0%
$ 270,000 New Jersey Economic Development
Authority VR............................ 5.960% 07/07/97 $ 270,000
------------
New York -- 4.2%
400,000 Health Insurance Plan, Greater New York VR. 5.600 07/02/97 400,000
295,000 New York City, New York
Industrial Development Agency VR......... 5.750 07/02/97 295,000
100,000 New York City, New York
Industrial Development Agency VR......... 5.750 07/02/97 100,000
300,000 Syracuse, New York GO VR................... 5.850 07/02/97 300,000
------------
1,095,000
------------
North Carolina -- 1.5%
380,000 Greensboro, North Carolina GO VR........... 5.700 07/02/97 380,000
------------
Tennessee -- 1.5%
400,000 Community Health Systems VR................ 5.950 07/02/97 400,000
------------
Texas -- 3.4%
875,000 Texas State GO VR.......................... 5.630 07/02/97 875,000
------------
Total Floating Rate Notes
(cost $5,520,000)........................ 5,520,000
------------
Total Investments -- 86.6%
(cost $22,486,269)....................... 22,486,269
------------
Repurchase Agreements -- 12.5%
1,000,000 Repurchase Agreement dated 06/30/97 with
J.P Morgan Securities, collateralized by
$970,000 U.S. Treasury Bonds, 7.125%,
due 02/15/23 valued $1,025,775;
proceeds: $1,000,165..................... 5.950 07/01/97 1,000,000
1,239,158 Repurchase Agreement dated 06/30/97 with
Merrill Lynch, Pierce, Fenner & Smith,
collateralized by $1,265,000 U.S.
Treasury Bonds, 5.50%, due 11/15/98
valued at $1,266,581; proceeds:
$1,239,358............................... 5.800 07/01/97 1,239,158
1,000,000 Repurchase Agreement dated 06/30/97 with
UBS Securities, collateralized by
$1,000,000 U.S. Treasury Bonds, 6.00%,
due 08/15/99 valued at $1,020,000;
proceeds: $1,000,163..................... 5.875 07/01/97 1,000,000
------------
Total Repurchase Agreements
(cost $3,239,158)........................ 3,239,158
------------
Other assets in excess of liabilities -- 0.9% 233,893
------------
Net Assets-- 100.0%........................ $ 25,959,320
============
</TABLE>
* Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR), whose yields are determined on date of last interest rate
change. For Variable Rate Demand Notes, maturity date shown is the date of
next interest rate change.
Abbreviation used in this statement:
GO General Obligation
See accompanying notes to financial statements
128
<PAGE>
<PAGE>
[This page intentionally left blank]
129
<PAGE>
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Asia Capital Investors
Growth Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C> <C> <C>
Investments, at value (Note A) .................................. $ 13,848,917 $155,668,614 $573,694,585
Repurchase agreements, at value and cost ........................ -- 11,209,000 71,482,000
Cash (including foreign currency) ............................... 682,061 1,137 716
Receivable for securities sold .................................. 237,805 1,115,568 4,385,598
Receivable for Fund shares sold ................................. 341,105 186,204 17,816,535
Interest and dividends receivable ............................... 5,947 151,100 587,118
Receivable from investment advisor .............................. 116,945 -- --
Deferred organization expense ................................... 85,535 -- --
Net unrealized appreciation of forward foreign currency contracts -- -- --
Other assets .................................................... -- -- --
------------ ------------ ------------
Total assets .................................................... 15,318,315 168,331,623 667,966,552
------------ ------------ ------------
LIABILITIES:
Payable for:
Securities purchased ........................................ 911,660 1,191,718 1,713,777
Fund shares redeemed ........................................ 31,414 209,300 299,473
Dividends and distributions declared ........................ -- -- --
Affiliate transactions: ..................................... -- -- --
Management fees ......................................... -- 126,206 803,027
Service and distribution fees ........................... 15,975 4,975 92,663
Due to custodian ................................................ -- -- --
Net unrealized depreciation of forward foreign currency contracts 373 -- --
Accrued expenses and other liabilities .......................... 43,036 22,828 165,839
------------ ------------ ------------
Total liabilities ............................................... 1,002,458 1,555,027 3,074,779
------------ ------------ ------------
Net Assets: ..................................................... $ 14,315,857 $166,776,596 $664,891,773
============ ============ ============
NET ASSETS CONSIST OF:
Paid-in capital ................................................. $ 12,447,787 $124,376,067 $411,919,554
Undistributed net investment income or (distributions in excess
of net investment income) ....................................... (6,051) 488,512 2,097,117
Accumulated net realized gain (loss) on investments, options and
foreign currency transactions.................................... 751,136 15,305,958 46,258,963
Net unrealized appreciation on investments, foreign currency
transactions and other assets ................................... 1,122,985 26,606,059 204,616,139
------------ ------------ ------------
Net Assets: ..................................................... $ 14,315,857 $166,776,596 $664,891,773
============ ============ ============
Class A ......................................................... $ 7,114,889 $ 2,647,485 $ 43,864,224
============ ============ ============
Class B ......................................................... $ 5,454,216 $ 1,014,382 $ 32,278,130
============ ============ ============
Class C ......................................................... $ 1,462,140 $ 1,002,459 $ 8,029,858
============ ============ ============
Class O ......................................................... $ 284,612 $162,112,270 $580,719,561
============ ============ ============
Shares Outstanding:
Class A ......................................................... 597,685 118,821 2,045,959
============ ============ ============
Class B ......................................................... 459,133 45,622 1,512,343
============ ============ ============
Class C ......................................................... 123,104 45,049 376,087
============ ============ ============
Class O ......................................................... 23,870 7,258,812 27,065,340
============ ============ ============
Net Asset Value:
Class A Shares
Net asset value and redemption price per share .................. $ 11.90 $ 22.28 $ 21.44
============ ============ ============
Maximum offering price per share (based on maximum sales charge
of 4.75%, except Cash Management Fund and New York
Municipal Money Fund) ........................................... $ 12.49 $ 23.39 $ 22.51
============ ============ ============
Class B Shares
Net asset value and offering price per share * .................. $ 11.88 $ 22.23 $ 21.34
============ ============ ============
CLASS C SHARES
Net asset value and offering price per share * .................. $ 11.88 $ 22.25 $ 21.35
============ ============ ============
Class O Shares
Net asset value, offering price and redemption price per share .. $ 11.92 $ 22.33 $ 21.46
============ ============ ============
Note A: Cost of investments ..................................... $ 12,716,937 $129,062,433 $369,078,347
============ ============ ============
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See accompanying notes to financial statements
130
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
U.S. National New York Cash
Total High Yield Strategic Government Intermediate Municipal Management
Return Fund Bond Fund Bond Fund Income Fund Municipal Fund Money Fund Fund
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 95,326,588 $ 352,099,119 $ 42,339,309 $ 12,438,116 $ 12,902,851 $ 230,605,838 $ 22,486,269
15,405,000 22,536,000 11,239,000 3,985,000 -- -- 3,239,158
14,057 43 269 33 55,582 -- --
-- 2,070,000 3,130,545 500,283 -- -- --
1,341,822 6,751,402 990,489 49,777 25,019 2,172,935 110,018
655,953 6,146,193 683,811 65,960 237,766 1,126,166 257,783
-- -- -- 41,088 43,580 -- --
61,197 78,012 78,290 64,039 61,859 -- --
-- -- 9,113 -- -- -- --
-- 86,310 -- -- -- 111,441 --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
112,804,617 389,767,079 58,470,826 17,144,296 13,326,657 234,016,380 26,093,228
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
4,565,270 11,795,640 5,456,580 4,120,719 -- -- --
128,371 556,156 258,862 34,994 -- 213,967 50,372
42,533 1,305,149 136,098 57,422 44,503 12,105 67,253
20,856 192,873 83,251 -- -- 77,867 14,796
156,118 591,984 90,071 5,676 3,890 -- --
-- -- -- -- -- 60,494 --
-- -- -- -- -- -- --
20,708 31,836 3,897 7,667 6,872 74,864 1,487
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
4,933,856 14,473,638 6,028,759 4,226,478 55,265 439,297 133,908
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 107,870,761 $ 375,293,441 $ 52,442,067 $ 12,917,818 $ 13,271,392 $ 233,577,083 $ 25,959,320
============= ============= ============= ============= ============= ============= =============
$ 97,757,891 $ 361,835,764 $ 51,132,423 $ 12,890,380 $ 12,873,594 $ 233,810,177 $ 25,961,452
110,917 (1,405,848) (404,886) (3,886) 1,380 -- --
1,379,723 1,880,527 203,994 (3,271) 25 (233,094) (2,132)
8,622,230 12,982,998 1,510,536 34,595 396,393 -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 107,870,761 $ 375,293,441 $ 52,442,067 $ 12,917,818 $ 13,271,392 $ 233,577,083 $ 25,959,320
============= ============= ============= ============= ============= ============= =============
$ 39,593,371 $ 122,608,058 $ 13,783,718 $ 1,676,247 $ 838,390 $ 2,330,653 $ 9,788,099
============= ============= ============= ============= ============= ============= =============
$ 55,929,223 $ 212,766,424 $ 28,015,346 $ 1,487,912 $ 938,664 $ 25,000 $ 3,150,215
============= ============= ============= ============= ============= ============= =============
$ 11,263,294 $ 38,064,392 $ 10,303,358 $ 352,268 $ 526,278 $ 25,000 $ 436,378
============= ============= ============= ============= ============= ============= =============
$ 1,084,873 $ 1,854,567 $ 339,645 $ 9,401,391 $ 10,968,060 $ 231,196,430 $ 12,584,628
============= ============= ============= ============= ============= ============= =============
3,123,910 10,390,912 1,265,231 166,928 80,804 2,330,695 9,788,107
============= ============= ============= ============= ============= ============= =============
4,416,442 18,068,698 2,573,747 148,245 90,660 25,000 3,150,217
============= ============= ============= ============= ============= ============= =============
887,203 3,233,366 946,137 35,089 50,816 25,000 436,378
============= ============= ============= ============= ============= ============= =============
85,163 157,189 31,203 936,872 1,057,732 231,430,339 12,586,750
============= ============= ============= ============= ============= ============= =============
$ 12.67 $ 11.80 $ 10.89 $ 10.04 $ 10.38 $ 1.00 $ 1.00
============= ============= ============= ============= ============= ============= =============
$ 13.30 $ 12.39 $ 11.43 $ 10.54 $ 10.90 $ 1.00 $ 1.00
============= ============= ============= ============= ============= ============= =============
$ 12.66 $ 11.78 $ 10.89 $ 10.04 $ 10.35 $ 1.00 $ 1.00
============= ============= ============= ============= ============= ============= =============
$ 12.70 $ 11.77 $ 10.89 $ 10.04 $ 10.36 $ 1.00 $ 1.00
============= ============= ============= ============= ============= ============= =============
$ 12.74 $ 11.80 $ 10.89 $ 10.03 $ 10.37 $ 1.00 $ 1.00
============= ============= ============= ============= ============= ============= =============
$ 86,704,358 $ 339,069,091 $ 40,836,373 $ 12,403,521 $ 12,506,458 $ 230,605,838 $ 22,486,269
============= ============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements
131
<PAGE>
<PAGE>
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Asia
Growth Capital Investors
Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest.................................................... $ 7,988 $ 264,048 $ 1,129,202
Dividends (Note A).......................................... 60,869 1,188,573 4,591,396
---------- ----------- -----------
68,857 1,452,621 5,720,598
Expenses:
Management fee.............................................. 36,538 689,700 1,448,543
Custody and administration fees............................. 100,975 35,299 37,333
Shareholder services........................................ 25,830 28,650 214,200
Registration and filing fees................................ 16,600 16,500 15,000
Amortization of organization expenses....................... 10,740 -- --
Printing.................................................... 1,810 40,550 90,500
Audit and tax return preparation fees....................... 1,810 46,800 54,250
Legal....................................................... 1,680 56,950 54,950
Directors' fees and expenses................................ 905 33,150 37,350
Other....................................................... 1,810 8,501 18,552
---------- ----------- -----------
198,698 956,100 1,970,678
Management fee waived and expenses absorbed by
investment advisor.......................................... (153,483) -- --
Credits earned from custodian on cash balances.............. -- (4) (228)
---------- ----------- -----------
45,215 956,096 1,970,450
Distribution and service fees:
Class A shares.............................................. 5,632 2,151 23,738
Class B shares.............................................. 19,335 3,146 98,979
Class C shares.............................................. 2,915 2,383 25,030
---------- ----------- -----------
Net expenses................................................ 73,097 963,776 2,118,197
---------- ----------- -----------
Net investment income (loss)................................ (4,240) 488,845 3,602,401
========== =========== ===========
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments................................................. 769,793 15,580,171 46,342,708
Options written............................................. -- (210,494) (29,563)
Foreign currency transactions............................... (10,789) (1,268) (1,403)
---------- ----------- -----------
759,004 15,368,409 46,311,742
---------- ----------- -----------
Net change in unrealized appreciation (depreciation) on:
Investments................................................. 1,078,789 4,863,951 33,381,372
Foreign currency transactions and other assets.............. (8,941) (93) 98
---------- ----------- -----------
1,069,848 4,863,858 33,381,470
---------- ----------- -----------
Net realized and unrealized gain (loss)..................... 1,828,852 20,232,267 79,693,212
---------- ----------- -----------
Net increase in net assets from operations.................. $1,824,612 $20,721,112 $83,295,613
========== =========== ===========
Note A: Net of foreign withholding tax of:.................. $ 5,330 $ 38,874 $ 91,170
========== =========== ===========
</TABLE>
See accompanying notes to financial statements
132
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
U.S. National New York Cash
Total High Yield Strategic Government Intermediate Municipal Management
Return Fund Bond Fund Bond Fund Income Fund Municipal Fund Money Fund Fund
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1,365,653 $13,595,538 $1,792,173 $419,765 $325,827 $4,857,289 $725,983
552,739 76,544 -- -- -- -- --
---------- ----------- ---------- -------- -------- --------- --------
1,918,392 13,672,082 1,792,173 419,765 325,827 4,857,289 725,983
206,799 1,031,738 157,200 37,688 29,954 251,337 26,065
45,290 96,340 31,809 14,489 10,020 113,626 21,255
56,905 114,043 54,530 28,340 28,185 56,071 7,220
26,295 49,460 4,420 14,635 15,385 12,089 16,650
9,483 14,603 14,654 11,986 11,579 -- --
9,050 31,475 5,430 1,810 1,810 27,635 2,708
9,955 34,270 5,895 1,810 1,810 30,163 3,623
6,410 14,560 1,810 905 905 13,523 910
905 905 905 905 905 978 908
2,869 6,894 4,810 3,905 3,905 5,810 3,608
---------- ----------- ---------- -------- -------- --------- --------
373,961 1,394,288 281,463 116,473 104,458 511,232 82,947
(185,942) (32,382) (73,950) (78,776) (73,534) -- (11,269)
(20) (13) (9) (9) (970) -- --
---------- ----------- ---------- -------- -------- --------- --------
187,999 1,361,893 207,504 37,688 29,954 511,232 71,678
36,228 116,527 16,912 1,854 935 -- --
196,681 781,317 102,710 6,839 3,943 -- --
31,136 120,586 35,713 2,109 2,534 -- --
---------- ----------- ---------- -------- -------- --------- --------
452,044 2,380,323 362,839 48,490 37,366 511,232 71,678
---------- ----------- ---------- -------- -------- --------- --------
1,466,348 11,291,759 1,429,334 371,275 288,461 4,346,057 654,305
========== =========== ========== ======== ======== ========= ========
1,380,946 2,102,344 181,910 2,188 -- (8,318) (8)
-- -- -- -- -- -- --
(49) -- 25,277 -- -- -- --
---------- ----------- ---------- -------- -------- --------- --------
1,380,897 2,102,344 207,187 2,188 -- (8,318) (8)
---------- ----------- ---------- -------- -------- --------- --------
4,285,759 5,753,128 525,824 (13,024) 50,520 -- --
(1,681) (15,941) 20,537 -- -- -- --
---------- ----------- ---------- -------- -------- --------- --------
4,284,078 5,737,187 546,361 (13,024) 50,520 -- --
---------- ----------- ---------- -------- -------- --------- --------
5,664,975 7,839,531 753,548 (10,836) 50,520 (8,318) (8)
---------- ----------- ---------- -------- -------- --------- --------
$7,131,323 $19,131,290 $2,182,882 $360,439 $338,981 $4,337,739 $654,297
========== =========== ========== ======== ======== ========== ========
$ 4,373 $ -- $ -- $ -- $ -- $ -- $ --
========== =========== ========== ======== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
133
<PAGE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Asia
Growth Capital Investors
Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss)................................ $ (4,240) $ 488,845 $ 3,602,401
Net realized gain (loss) on investments, options,
and foreign currency transactions.......................... 759,004 15,368,409 46,311,742
Net change in unrealized appreciation (depreciation)
on investments, foreign currency transactions
and other assets........................................... 1,069,848 4,863,858 33,381,470
----------- ------------ ------------
Net increase in net assets from operations.................. 1,824,612 20,721,112 83,295,613
----------- ------------ ------------
Dividends and distributions to shareholders:
Dividends from net investment income:
Class A................................................... (11,004) -- (46,865)
Class B................................................... (924) -- (23,302)
Class C................................................... (214) -- (5,957)
Class O................................................... (478) -- (1,431,273)
----------- ------------ ------------
(12,620) -- (1,507,397)
----------- ------------ ------------
Distributions from net realized gains:
Class A................................................... (104,352) (11,743) (149,318)
Class B................................................... (89,299) (9,584) (137,678)
Class C................................................... (11,184) (3,102) (30,508)
Class O................................................... (4,097) (2,614,000) (5,604,683)
----------- ------------ ------------
(208,932) (2,638,429) (5,922,187)
----------- ------------ ------------
Net fund capital share transactions:
Class A................................................... 2,637,730 2,084,017 30,357,639
Class B................................................... 1,643,967 721,634 20,076,873
Class C................................................... 1,077,054 803,344 5,366,955
Class O................................................... 128,678 8,449,548 (7,433,549)
---------- ------------ ------------
Net increase (decrease) in net assets derived from
share transactions.................................. 5,487,429 12,058,543 48,367,918
---------- ------------ ------------
Net increase (decrease) in net assets ...................... 7,090,489 30,141,226 124,233,947
Net assets:
Beginning of period....................................... 7,225,368 136,635,370 540,657,826
----------- ------------ ------------
End of period (a)......................................... $14,315,857 $166,776,596 $664,891,773
=========== ============ ============
(a) Including undistributed net investment income or
(distributions in excess of net investment income) of:..... $ (6,051) $ 488,512 $ 2,097,117
=========== ============ ============
</TABLE>
See accompanying notes to financial statements
134
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
U.S. National New York Cash
Total High Yield Strategic Government Intermediate Municipal Management
Return Fund Bond Fund Bond Fund Income Fund Municipal Fund Money Fund Fund
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,466,348 $ 11,291,759 $ 1,429,334 $ 371,275 $ 288,461 $ 4,346,057 $ 654,305
1,380,897 2,102,344 207,187 2,188 -- (8,318) (8)
4,284,078 5,737,187 546,361 (13,024) 50,520 -- --
- ------------ ------------ ----------- ----------- ----------- ------------ -----------
7,131,323 19,131,290 2,182,882 360,439 338,981 4,337,739 654,297
- ------------ ------------ ----------- ----------- ----------- ------------ -----------
(593,786) (4,492,565) (626,263) (43,328) (17,323) (23,036) (225,848)
(675,213) (7,046,310) (865,631) (34,972) (15,687) (1,283) (94,278)
(105,278) (1,084,337) (300,136) (10,733) (10,130) (431) (9,683)
(14,359) (74,395) (32,254) (286,128) (245,515) (4,321,307) (324,496)
- ------------ ------------ ----------- ----------- ----------- ------------ -----------
(1,388,636) (12,697,607) (1,824,284) (375,161) (288,655) (4,346,057) (654,305)
- ------------ ------------ ----------- ----------- ----------- ------------ -----------
(54,116) (132,020) (10,136) (1,451) (524) -- --
(74,677) (214,885) (14,138) (1,219) (601) -- --
(11,003) (32,266) (6,122) (234) (379) -- --
(970) (2,323) (224) (8,336) (7,121) -- --
- ------------ ------------ ----------- ----------- ----------- ------------ -----------
(140,766) (381,494) (30,620) (11,240) (8,625) -- --
- ------------ ------------ ----------- ----------- ----------- ------------ -----------
16,316,877 54,708,759 5,369,324 490,247 138,052 1,970,782 1,612,989
24,981,606 102,479,012 13,533,925 223,422 235,001 -- (769,861)
7,346,427 23,727,070 5,668,151 (68,201) 57,221 -- 1,495
815,179 1,428,122 (3,484,757) 47,895 1,146,966 (42,529,416) (1,640,676)
- ------------ ------------ ----------- ----------- ----------- ------------ -----------
49,460,089 182,342,963 21,086,643 693,363 1,577,240 (40,558,634) (796,053)
- ------------ ------------ ----------- ----------- ----------- ------------ -----------
55,062,010 188,395,152 21,414,621 667,401 1,618,941 (40,566,952) (796,061)
52,808,751 186,898,289 31,027,446 12,250,417 11,652,451 274,144,035 26,755,381
- ------------ ------------ ----------- ----------- ----------- ------------ -----------
$107,870,761 $375,293,441 $52,442,067 $12,917,818 $13,271,392 $233,577,083 $25,959,320
============ ============ =========== =========== =========== ============ ===========
$ 110,917 $ (1,405,848) $ (404,886) $ (3,886) $ 1,380 $ -- --
============ ============ =========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements
135
<PAGE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Asia
Growth Capital Investors
Fund* Fund Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income....................................... $ 21,810 $ 792,904 $ 6,424,058
Net realized gain (loss) on investments, options, and
foreign currency transactions.............................. 314,293 22,862,752 52,051,843
Net change in unrealized appreciation (depreciation) on
investments, options, foreign currency transactions
and other assets........................................... 53,137 10,601,610 70,016,509
---------- ------------ ------------
Net increase in net assets from operations................. 389,240 34,257,266 128,492,410
---------- ------------ ------------
Dividends and distributions to shareholders:
Dividends from net investment income:
Class A................................................... (16,828) (233) (52,117)
Class B................................................... (1,406) (120) (15,140)
Class C................................................... (329) (120) (3,893)
Class O................................................... (728) (797,069) (6,351,142)
---------- ------------ ------------
(19,291) (797,542) (6,422,292)
---------- ------------ ------------
Dividends in excess of net investment income:
Class A................................................... -- -- --
Class B................................................... -- -- --
Class C................................................... -- -- --
Class O................................................... -- -- --
---------- ------------ ------------
-- -- --
---------- ------------ ------------
Distributions from net realized gains:
Class A................................................... (53,543) (6,217) (766,906)
Class B................................................... (46,007) (3,992) (609,635)
Class C................................................... (3,591) (3,992) (111,830)
Class O................................................... (1,798) (25,587,085) (59,558,730)
---------- ------------ ------------
(104,939) (25,601,286) (61,047,101)
---------- ------------ ------------
Net fund capital share transactions:
Class A................................................... 3,549,887 342,420 10,214,466
Class B................................................... 3,050,781 218,589 8,511,239
Class C................................................... 237,212 130,425 1,554,480
Class O................................................... 117,478 25,656,871 28,941,018
---------- ------------ ------------
Net increase in net assets derived from
share transactions....................................... 6,955,358 26,348,305 49,221,203
---------- ------------ ------------
Net increase in net assets................................. 7,220,368 34,206,743 110,244,220
Net assets:
Beginning of period........................................ 5,000 102,428,627 430,413,606
---------- ------------ ------------
End of period (a).......................................... $7,225,368 $136,635,370 $540,657,826
========== ============ ============
(a) Including undistributed net investment income or
(distributions in excess of net investment income) of:..... $ 10,809 $ (333) $ 2,113
========== ============ ============
</TABLE>
* Fund's commencement of investment operations was May 6, 1996.
See accompanying notes to financial statements
136
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
U.S. National New York Cash
Total High Yield Strategic Government Intermediate Municipal Management
Return Fund Bond Fund Bond Fund Income Fund Municipal Fund Money Fund Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,499,194 $ 6,682,737 $ 1,567,734 $ 601,020 $ 537,550 $ 6,389,305 $ 913,254
540,089 1,779,535 550,506 88,860 23,657 2,563 (10)
3,888,005 6,797,683 413,887 (277,785) (78,007) -- --
- ----------- ------------ ----------- ----------- ----------- ------------- -----------
5,927,268 15,259,955 2,532,127 412,095 483,200 6,391,868 913,244
- ----------- ------------ ----------- ----------- ----------- ------------- -----------
(608,681) (2,693,853) (223,497) (35,750) (28,388) (802) (264,829)
(585,187) (3,488,256) (463,295) (35,916) (23,706) (142) (137,835)
(76,316) (390,999) (103,804) (12,551) (13,552) (142) (13,718)
(195,785) (138,093) (812,077) (516,803) (474,259) (6,388,219) (496,872)
- ----------- ------------ ----------- ----------- ----------- ------------- -----------
(1,465,969) (6,711,201) (1,602,673) (601,020) (539,905) (6,389,305) (913,254)
- ----------- ------------ ----------- ----------- ----------- ------------- -----------
-- -- (1,487) -- -- -- --
-- -- (3,010) -- -- -- --
-- -- (706) -- -- -- --
-- -- (4,733) -- -- -- --
- ----------- ------------ ----------- ----------- ----------- ------------ -----------
-- -- (9,936) -- -- -- --
- ----------- ------------ ----------- ----------- ----------- ------------ -----------
(152,704) (611,200) (125,860) (4,728) (1,449) -- --
(203,017) (942,499) (218,299) (5,771) (1,467) -- --
(25,301) (118,077) (67,806) (2,179) (976) -- --
(28,599) (10,856) (58,871) (65,419) (20,439) -- --
- ----------- ------------ ----------- ----------- ----------- ------------ -----------
(409,621) (1,682,632) (470,836) (78,097) (24,331) -- --
- ----------- ------------ ----------- ----------- ----------- ------------ -----------
15,969,336 52,531,457 7,803,194 914,633 131,024 359,913 6,419,571
20,798,943 93,129,376 12,296,600 707,635 271,514 25,000 1,681,592
2,758,002 12,100,036 4,143,135 157,310 198,788 25,000 252,342
(4,743,447) (7,754,436) (6,230,578) 62,922 185,121 47,182,964 7,541,082
- ----------- ------------ ----------- ----------- ----------- ------------ -----------
34,782,834 150,006,433 18,012,351 1,842,500 786,447 47,592,877 15,894,587
- ----------- ------------ ----------- ----------- ----------- ------------ -----------
38,834,512 156,872,555 18,461,033 1,575,478 705,411 47,595,440 15,894,577
13,974,239 30,025,734 12,566,413 10,674,939 10,947,040 226,548,595 10,860,804
- ----------- ------------ ----------- ----------- ----------- ------------ -----------
$52,808,751 $186,898,289 $31,027,446 $12,250,417 $11,652,451 $274,144,035 $26,755,381
=========== ============ =========== =========== =========== ============ ===========
$ 33,205 $ -- $ (9,936) $ -- $ 1,574 $ -- $ --
=========== ============ =========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements
137
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
The Salomon Brothers Investment Series (the "Investment Series") consists of
certain portfolios of the Salomon Brothers Series Funds Inc (the "Series
Funds"), as indicated below, the Salomon Brothers Investors Fund Inc (the
"Investors Fund") and the Salomon Brothers Capital Fund Inc (the "Capital
Fund"). The Series Funds were incorporated in Maryland on April 17, 1990 as an
open-end management investment company, and currently operate as a series
company comprised of nine portfolios: Salomon Brothers Cash Management Fund (the
"Cash Management Fund"), Salomon Brothers New York Municipal Money Market Fund
(the "New York Municipal Money Fund"), Salomon Brothers Institutional Money
Market Fund (the "Institutional Money Market Fund"), Salomon Brothers National
Intermediate Municipal Fund (the "National Intermediate Municipal Fund"),
Salomon Brothers U.S. Government Income Fund (the "U.S. Government Income
Fund"), Salomon Brothers High Yield Bond Fund (the "High Yield Bond Fund"),
Salomon Brothers Strategic Bond Fund (the "Strategic Bond Fund"), Salomon
Brothers Total Return Fund (the "Total Return Fund"), and Salomon Brothers Asia
Growth Fund (the "Asia Growth Fund"). Separate financial statements are prepared
for the Institutional Money Market Fund which is not part of the Investment
Series. All of the other portfolios of the Series Funds are included in the
Investment Series, which also includes the Investors Fund, a diversified
open-end management investment company incorporated in Maryland on April 2, 1958
and the Capital Fund, a non-diversified open-end management investment company
incorporated in Maryland on August 23, 1976. The Investment Series operates
under a multiple class pricing structure, with each portfolio of the Investment
Series (individually, a "Fund") offering Class A, Class B, Class C, and Class O
shares, each with its own expense structure. Each Fund has a specific investment
objective: the Cash Management Fund's objective is to seek as high a level of
current income as is consistent with liquidity and the stability of principal;
the New York Municipal Money Fund's objective is to seek as high a level of
current income exempt from federal, New York State and New York City personal
income taxes as is consistent with liquidity and the stability of principal; the
National Intermediate Municipal Fund's objective is to seek a high level of
current income which is exempt from regular federal income taxes; the U.S.
Government Income Fund's objective is to seek a high level of current income;
the High Yield Bond Fund's primary objective is to maximize current income; the
Strategic Bond Fund's primary objective is to seek a high level of current
income; the Total Return Fund's primary objective is to obtain above-average
income (compared to a portfolio entirely invested in equity securities); the
Asia Growth Fund's objective is to seek long-term growth of capital
appreciation; the Investors Fund's primary objective is to seek long-term growth
of capital; the Capital Fund's objective is to seek capital appreciation through
investments primarily in common stock, or securities convertible into common
stocks, which are believed to have above average price appreciation potential.
138
<PAGE>
<PAGE>
Certain costs incurred in connection with each Fund's organization, which were
payable to Salomon Brothers Asset Management Inc ("SBAM") have been deferred and
are being amortized by the Funds over a 60 month period from the date each Fund
commenced investment operations. A summary of those expenditures that remain as
of June 30, 1997 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Expiration of Amortization Amount
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Asia Growth Fund................................. May 2001 $85,535
Total Return Fund................................ September 2000 $61,197
High Yield Bond Fund............................. February 2000 $78,012
Strategic Bond Fund.............................. February 2000 $78,290
U.S. Government Income Fund...................... February 2000 $64,039
National Intermediate Municipal Fund............. February 2000 $61,859
</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 ("GAAP"). The
preparation of financial statements in accordance with GAAP requires management
to make estimates of certain reported amounts in the financial statements.
Actual amounts could differ from those estimates.
(a) Investment Valuation. Portfolio securities listed or traded on
national securities exchanges, or reported on the NASDAQ national market
system, are valued at the last sale price, or if there have been no sales
on that day, at the mean of the current bid and asked price which
represents the current value of the security. Over-the-counter securities
are valued at the mean of the current bid and asked price. Debt securities
are valued by using either market quotations or independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Publicly traded sovereign bonds are typically
traded internationally on the over-the-counter market and are valued at the
mean of the last current bid and asked price as of the close of business of
that market. Short-term securities with less than 60 days remaining to
maturity when acquired by a Fund will be valued at amortized cost which
approximates market value. If a Fund, other than the Cash Management Fund
and New York Municipal Money Fund, acquires such securities with more than
60 days remaining to maturity, they will be valued at current market value,
until the 60th day prior to maturity, and will then be valued on an
amortized cost basis.
Portfolio securities for the Cash Management Fund and the New York
Municipal Money Fund are valued using the amortized cost method, which
involves initially valuing an investment at its cost and thereafter
assuming a constant amortization to maturity of any premium or discount.
This method results in a value approximating market value.
Prior governmental approval for foreign investments may be required
under certain circumstances in some emerging market countries, and the
extent of foreign investment in domestic companies may be subject to
limitation in other emerging market countries. Foreign ownership
limitations also may be imposed by the charters of individual companies in
emerging market countries to prevent, among other things, violation of
foreign investment limitations. As a result, an additional class of shares
(identified as "Foreign Shares" in the Portfolio of Investments) may be
created and offered for investment by such companies. The "local" and
"foreign" shares' market values may differ.
Foreign securities quoted in a foreign currency are translated into
U.S. dollars using exchange rates at 2:30 p.m. Eastern time (12:30 p.m. for
the Asia Growth Fund), or at such other rates as SBAM may determine to be
appropriate in computing net asset value.
139
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Securities for which reliable quotations or prices from pricing services
are not readily available (as may be the case for securities of limited
marketability) and all other assets are valued at their respective fair value
as determined in good faith by, or under procedures established by,
the Board of Directors.
(b) Futures Contracts. The National Intermediate Municipal Fund, High
Yield Bond Fund, Strategic Bond Fund, Total Return Fund, Asia Growth Fund,
Investors Fund and Capital Fund may enter into futures contracts, which
involves paying or receiving variation margin, which 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
may involve elements of market risk in excess of amounts reported in the
financial statements.
(c) Option Contracts. When a Fund writes or purchases a call or a put
option, an amount equal to the premium received or paid by the Fund is
recorded as a liability or asset, the value of which is marked-to-market
daily to reflect the current market value of the option. When the option
expires, the Fund realizes a gain or loss equal to the amount of the
premium received or paid. When the Fund exercises an option or enters into
a closing transaction by purchasing or selling an offsetting option, it
realizes a gain or loss without regard to any unrealized gain or loss on
the underlying security. When a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received.
When a written put option is exercised, the amount of the premium received
reduces the cost of the security that the Fund purchased upon exercise of
the option.
(d) Mortgage Rolls. The U.S. Government Income Fund, Strategic Bond
Fund and Total Return Fund may enter into mortgage "dollar rolls" in which
a Fund sells mortgage-backed securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. The Fund
is compensated by a fee paid by the counterparty. Dollar rolls are
accounted for as financing arrangements; the fee is accrued into interest
income ratably over the term of the dollar roll and any gain or loss on the
roll is deferred until disposition of the rolled security. The average
daily balance of dollar rolls outstanding during the six months ended June
30, 1997 was approximately $1,253,000, $2,567,000 and $2,301,000 for the
Total Return Fund, Strategic Bond Fund and U.S. Government Income Fund,
respectively.
(e) Repurchase Agreements. When entering into repurchase agreements, it
is each Fund's policy that the Fund take possession, through its custodian,
of the underlying collateral and monitor the collateral's value at the time
the agreement is entered into and on a daily basis during the term of the
repurchase agreement to ensure that it always equals or exceeds the
repurchase price. In the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings.
(f) Foreign Currency Translation. The accounting records of each Fund
are maintained in U.S. dollars. Investment securities and other assets and
liabilities of the High Yield Bond Fund, Strategic Bond Fund, Total Return
Fund, Asia Growth Fund, Investors Fund and Capital Fund denominated in a
foreign currency are translated into U.S. dollars at the prevailing rates
of exchange each day. Purchases and sales of securities, income receipts
and expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the transactions. Net realized
gains and losses on foreign currency transactions represent net gains and
losses from sales and maturities of forward currency contracts, disposition
of foreign currencies, currency gains and losses realized between the trade
and settlement dates on securities transactions and the difference between
the amount of net investment income accrued and the U.S. dollar amount
actually received. The effect of changes in foreign currency exchange rates
on
140
<PAGE>
<PAGE>
investments in securities are not segregated in the Statements of
Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or
loss on investments.
(g) Forward Foreign Currency Contracts. The High Yield Bond Fund,
Strategic Bond Fund, Total Return Fund, Asia Growth Fund, Investors Fund
and Capital Fund may enter into forward foreign currency contracts. A
forward foreign currency contract is an agreement between two parties to
buy and sell a currency at a set price on a future date. The contract is
marked-to-market daily and the change in value is recorded by the Fund as
an unrealized gain or loss. When a forward foreign currency contract is
extinguished, through either delivery or offset by entering into another
forward foreign currency contract, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value of the contract at the time it was extinguished or
offset.
(h) Loan Participations. The High Yield Bond Fund, Strategic Bond Fund
and Total Return Fund may invest in fixed and floating rate loans arranged
through private negotiations between a foreign sovereign entity and one or
more financial institutions ("lender"). The market values of the High Yield
Bond Fund and the Strategic Bond Fund's loan participations at June 30,
1997 were $16,373,594 and $456,250, respectively.
(i) Federal Income Taxes. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies 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.
The Asia Growth Fund may be subject to taxes imposed by countries in
which it invests. Such taxes are generally based on income and/or capital
gains earned or repatriated. Taxes are accrued and applied to net
investment income, net realized gains and net unrealized appreciation as
such income and/or gains are earned.
(j) Dividends and Distributions to Shareholders. Dividends from net
investment income on the shares of each of the Funds (except the Asia
Growth Fund, Investors Fund, and Capital Fund) are declared each business
day to shareholders of record that day, and are paid on the last business
day of the month. Dividends from net investment income for the Asia Growth
Fund and the Capital Fund will be declared on an annual basis. Dividends
from net investment income for the Investors Fund are declared on a
quarterly basis. Distributions of net realized gains to shareholders of
each Fund, if any, are declared at least annually. Dividends and
distributions to shareholders of each Fund are recorded on the ex-dividend
date and are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles due primarily to
differences in the treatment of foreign currency gains/losses, deferral of
wash sales, and post-October losses incurred by each Fund. Permanent
book/tax differences are reclassified within the capital accounts based on
their federal income tax basis treatment; temporary differences do not
require reclassifications. Dividends and distributions which exceed net
investment income and net realized gains for financial reporting purposes
but not for tax purposes are reported as distributions in excess of net
investment income and distributions in excess of net realized capital
gains.
(k) Class Accounting. Investment income, common expenses and gain
(loss) on investments are allocated to the various classes of a Fund on the
basis of daily net assets of each class. Distribution and shareholder
servicing fees relating to a specific class are charged directly to that
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
141
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
(l) Expenses. Direct expenses are charged to the Fund that incurred
them, and general expenses of the Investment Series are allocated to the
Funds based on each Fund's relative net assets.
(m) Other. Investment transactions are recorded as of the trade date.
Dividend income is recorded on the ex-dividend date (except for the Asia
Growth Fund, where certain dividends may be recorded as soon as the fund is
informed of such dividend). Interest income, including the accretion of
discounts or amortization of premiums, is recognized when earned. Gains or
losses on sales of securities are calculated for financial accounting and
Federal income tax purposes on the identified cost basis. Net investment
income (other than distribution fees) and unrealized and realized gains or
losses are allocated daily to each class of shares based upon the relative
proportion of each class's net assets to the Fund's total net assets.
2. Management Fee and Other Agreements
Each Fund 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 and
Capital Fund) is payable monthly and is based on the following annual
percentages of each Fund's average daily net assets: .20% for the Cash
Management Fund and New York Municipal Money Fund, .50% for the National
Intermediate Municipal Fund, .60% for the U.S. Government Income Fund, .75% for
the High Yield Bond Fund and Strategic Bond Fund, .55% for the Total Return Fund
and .80% for the Asia Growth Fund. The management fee for the Capital Fund is
payable monthly and is based on the following annual percentages of the Fund's
average daily net assets: first $100 million--1%; next $100 million--.75% ; next
$200 million--.625%; excess over $400 million--.50%. SBAM Limited, an affiliate
of SBAM, provides certain advisory services to SBAM for the benefit of the
Strategic Bond Fund, as well as, certain administrative services for the Asia
Growth Fund. SBAM Limited is compensated by SBAM at no additional expense to the
Strategic Bond and Asia Growth Fund. SBAM has retained SBAM AP, an affiliate of
SBAM, to act as sub-advisor to the Asia Growth Fund. SBAM AP is compensated by
SBAM at no additional expense to the Asia Growth Fund.
The Investors Fund pays SBAM a base fee subject to an increase or decrease
depending on the extent, if any, to which the investment performance of the
Investors Fund exceeds or is exceeded by the investment record of the Standard &
Poor's 500 Index of Composite Stocks ("S&P 500 Index"). For the period January
1, 1997 through April 28, 1997 the base fee was paid quarterly based on the
following annual percentages of the Fund's average daily net assets: first $350
million--.50%; next $150 million--.40%; next $250 million--.375%; next $250
million--.35%; excess over $1 billion--.30%. At its Annual Meeting on April 29,
1997, the Fund's shareholders approved an amendment to the Fund's Management
Agreement between the Fund and SBAM to increase the base fee component of the
management fee. Accordingly, as of April 29, 1997, the base fee is paid
quarterly based on the following annual rates:
Average Daily Net Assets Annual Fee Rate
- -------------------------------------------------------------------------------
First $350 million................................................. .650%
Next $150 million.................................................. .550%
Next $250 million.................................................. .525%
Next $250 million.................................................. .500%
Over $1 billion.................................................... .450%
142
<PAGE>
<PAGE>
The performance adjustment is paid quarterly based on a rolling one year period.
A performance adjustment will only be made after the investment performance of
the Investors Fund exceeds or is exceeded by the investment record of the S&P
500 Index by at least one percentage point. For each percentage point by which
the investment performance of the Investors Fund exceeds or is exceeded by the
investment record of the S&P 500 Index, the base fee will be adjusted upward or
downward by .01% (annualized). The maximum annual adjustment is .10% which would
occur if the Investors Fund's performance exceeds or is exceeded by the S&P 500
Index by ten or more percentage points. For the rolling one-year period ended
March 31, 1997, there was no performance adjustment. For the rolling one-year
period ended June 30, 1997, the investment record of the S&P 500 Index exceeded
the Investors Fund's performance by approximately three percent. As a result,
base management fees were decreased by $35,131 for the six months ended June 30,
1997.
For the six months ended June 30, 1997, SBAM waived management fees of $36,538,
$185,942, $32,382, $73,950, $37,688, $29,954, and $11,269 for the Asia Growth
Fund, Total Return Fund, High Yield Bond Fund, Strategic Bond Fund, U.S.
Government Income Fund, National Intermediate Municipal Fund, and Cash
Management Fund, respectively, and voluntarily absorbed expenses of $116,945,
$41,088, and $43,580 for the Asia Growth Fund, U.S. Government Income Fund, and
National Intermediate Municipal Fund, respectively.
Investors Bank & Trust Company serves as custodian and administrator for each
Fund, which includes performing certain administrative services in connection
with the operation of each Fund. During the six months ended June 30, 1997,
credits earned on outstanding cash balances were used to reduce custodian fees.
Each Fund has an agreement with Salomon Brothers Inc ("Salomon Brothers"), an
affiliate of the Investment Adviser, to distribute its shares pursuant to a
multiple pricing system. Each class (except for Class O) of each Fund (except
for the Cash Management Fund and New York Municipal Money Fund) is authorized
pursuant to a services and distribution plan applicable to that class of shares
(the "Class A Plan," the "Class B Plan," and the "Class C Plan," collectively,
the "Plans") adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "1940 Act"), to pay Salomon Brothers an annual service fee
with respect to Class A, Class B, and Class C shares of the applicable Funds at
the rate of .25% of the value of the average daily net assets of the respective
class. Salomon Brothers is also paid an annual distribution fee with respect to
Class B and Class C shares of each Fund (except for the Cash Management Fund and
New York Municipal Money Fund) at the rate of .75% of the value of the average
daily net assets of the respective class. Class O shares are not subject to a
services and distribution plan fee.
Brokerage commissions of $300, $31,518 and $22,200 were paid by the Total Return
Fund, Investors Fund and Capital Fund, respectively, to Salomon Brothers, the
Funds' distributor and an indirect wholly-owned subsidiary of Salomon Inc, for
transactions executed on behalf of the Funds for the six months ended June 30,
1997.
Salomon Brothers received $8,389 as its portion of the front-end sales charge on
sales of Class A shares of the Funds during the period ended June 30, 1997. In
addition, contingent deferred sales charges of $321,787 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, 1997.
3. Capital Stock
At June 30, 1997, the Series Funds had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share, of which the Cash Management Fund, New
York Municipal Money Fund, National Intermediate Municipal Fund, U.S. Government
Income Fund, High Yield Bond Fund, and Strategic Bond Fund, each had
1,000,000,000 shares authorized. The Total Return Fund and Asia Growth Fund had
999,999,992 and 1,000,000,008 shares authorized, respectively. The Investors
Fund had 50,000,000 shares of authorized capital stock, par value $1.00 per
share. The Capital Fund had 25,000,000 shares of authorized capital stock, par
value $.001 per share. Transactions in Fund shares for the periods indicated
were as follows:
143
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Period Ended Six Months Ended Period Ended
June 30, 1997 December 31, 1996 June 30, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asia Growth Fund
Sold ..................... 272,829 $ 2,989,708 356,682 $ 3,537,272 151,734 $ 1,637,253 305,714 $ 3,042,058
Issued as reinvestment ... 4,663 47,952 2,175 22,436 2,762 28,862 846 8,723
Redeemed ................. (37,752) (399,930) (1,037) (9,821) (2,048) (22,148) -- --
---------- ------------ ---------- ------------ --------- ------------ --------- -----------
Net increase ............. 239,740 $ 2,637,730 357,820 $ 3,549,887 152,448 $ 1,643,967 306,560 $ 3,050,781
========== ============ ========== ============ ========= ============ ========= ===========
Capital Fund
Sold ..................... 110,303 $ 2,262,767 17,551 $ 347,514 48,143 $ 1,003,690 11,001 $ 218,589
Issued as reinvestment ... 607 11,477 121 2,304 481 9,583 -- --
Redeemed ................. (9,377) (190,227) (384) (7,398) (14,003) (291,639) -- --
---------- ------------ ---------- ------------ --------- ------------ --------- -----------
Net increase ............. 101,533 $ 2,084,017 17,288 $ 342,420 34,621 $ 721,634 11,001 $ 218,589
========== ============ ========== ============ ========= ============ ========= ===========
Investors Fund
Sold ..................... 1,544,292 $ 31,828,754 557,317 $ 10,367,582 1,047,030 $ 20,775,849 473,935 $ 8,823,215
Issued as reinvestment ... 9,842 188,463 43,043 791,687 7,747 149,907 30,569 561,476
Redeemed ................. (85,348) (1,659,578) (49,750) (944,803) (42,648) (848,883) (47,379) (873,452)
---------- ------------ ---------- ------------ --------- ------------ --------- -----------
Net increase (decrease) .. 1,468,786 $ 30,357,639 550,610 $ 10,214,466 1,012,129 $ 20,076,873 457,125 $ 8,511,239
========== ============ ========== ============ ========= ============ ========= ===========
Total Return Fund
Sold ..................... 1,622,943 $ 19,761,920 1,634,908 $ 18,197,811 2,126,510 $ 25,982,760 1,941,522 $21,665,343
Issued as reinvestment ... 44,461 544,087 56,167 639,053 53,061 648,545 57,560 656,054
Redeemed ................. (329,071) (3,989,130) (252,184) (2,867,528) (136,270) (1,649,699) (136,340) (1,522,454)
---------- ------------ ---------- ------------ --------- ------------ --------- -----------
Net increase (decrease) .. 1,338,333 $ 16,316,877 1,438,891 $ 15,969,336 2,043,301 $ 24,981,606 1,862,742 $20,798,943
========== ============ ========== ============ ========= ============ ========= ===========
High Yield Bond Fund
Sold ..................... 5,314,734 $ 62,012,318 5,579,873 $ 62,422,667 8,966,787 $104,390,343 8,434,142 $94,520,293
Issued as reinvestment ... 233,633 2,718,460 178,995 2,017,850 280,477 3,256,631 173,250 1,963,617
Redeemed ................. (870,060) (10,022,019) (1,070,460) (11,909,060) (444,887) (5,167,962) (301,187) (3,354,534)
---------- ------------ ---------- ------------ --------- ------------ --------- -----------
Net increase (decrease) .. 4,678,307 $ 54,708,759 4,688,408 $ 52,531,457 8,802,377 $102,479,012 8,306,205 $93,129,376
========== ============ ========== ============ ========= ============ ========= ===========
Strategic Bond Fund
Sold ..................... 932,602 $ 10,104,057 749,039 $ 8,090,137 1,247,420 $ 13,476,853 1,214,882 $13,060,764
Issued as reinvestment ... 45,939 495,174 22,056 238,009 42,055 453,430 33,453 360,441
Redeemed ................. (483,979) (5,229,907) (49,131) (524,952) (36,730) (396,358) (105,759) (1,124,605)
---------- ------------ ---------- ------------ --------- ------------ --------- -----------
Net increase (decrease) .. 494,562 $ 5,369,324 721,964 $ 7,803,194 1,252,745 $ 13,533,925 1,142,576 $12,296,600
========== ============ ========== ============ ========= ============ ========= ===========
U.S. Government
Income Fund
Sold ..................... 49,337 $ 494,764 117,000 $ 1,173,487 39,805 $ 398,515 114,615 $ 1,149,715
Issued as reinvestment ... 1,897 18,625 1,688 16,972 1,076 10,762 1,043 10,504
Redeemed ................. (2,310) (23,142) (27,629) (275,826) (18,516) (185,855) (45,248) (452,584)
---------- ------------ ---------- ------------ --------- ------------ --------- -----------
Net increase (decrease) .. 48,924 $ 490,247 91,059 $ 914,633 22,365 $ 223,422 70,410 $ 707,635
========== ============ ========== ============ ========= ============ ========= ===========
National Intermediate
Municipal Fund
Sold ..................... 13,227 $ 135,255 30,133 $ 310,751 22,335 $ 231,647 45,974 $ 472,141
Issued as reinvestment ... 770 7,621 1,305 13,429 327 3,354 623 6,378
Redeemed ................. (466) (4,824) (18,756) (193,156) -- -- (20,022) (207,005)
---------- ------------ ---------- ------------ --------- ------------ --------- -----------
Net increase ............. 13,531 $ 138,052 12,682 $ 131,024 22,662 $ 235,001 26,575 $ 271,514
========== ============ ========== ============ ========= ============ ========= ===========
New York Municipal
Money Fund
Sold ..................... 2,526,644 $ 2,526,644 359,251 $ 359,251 171,196 $ 171,196 25,000 $ 25,000
Issued as reinvestment ... 22,572 22,572 662 662 823 823 -- --
Redeemed ................. (578,434) (578,434) -- -- (172,019) (172,019) -- --
---------- ------------ ---------- ------------ --------- ------------ --------- -----------
Net increase (decrease) .. 1,970,782 $ 1,970,782 359,913 $ 359,913 0 $ 0 25,000 $ 25,000
========== ============ ========== ============ ========= ============ ========= ===========
Cash Management Fund
Sold ..................... 13,169,468 $ 13,169,468 34,309,623 $ 34,309,623 2,900,619 $ 2,900,619 4,686,602 $ 4,686,602
Issued as reinvestment ... 52,810 52,810 59,295 59,295 (3,628) (3,628) 111,779 111,779
Redeemed .................(11,609,289) (11,609,289) (27,949,347) (27,949,347) (3,666,852) (3,666,852) (3,116,789) (3,116,789)
---------- ------------ ---------- ------------ --------- ------------ --------- -----------
Net increase (decrease) .. 1,612,989 $ 1,612,989 6,419,571 $ 6,419,571 (769,861) $ (769,861) 1,681,592 $ 1,681,592
========== ============ ========== ============ ========= ============ ========= ===========
</TABLE>
See accompanying notes to financial statements
144
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Class C Class O
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Period Ended Six Months Ended Period Ended
June 30, 1997 December 31, 1996 June 30, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
100,414 $ 1,090,071 34,069 $ 333,338 11,762 $ 127,402 12,221 $ 121,183
922 9,437 19 190 126 1,288 37 387
(2,111) (22,454) (10,334) (96,316) (1) (12) (400) (4,092)
- ---------- ----------- --------- ----------- ------------ ------------- ------------ -------------
99,225 $ 1,077,054 23,754 $ 237,212 11,887 $ 128,678 11,858 $ 117,478
========== =========== ========= =========== ============ ============= ============ =============
43,576 $ 908,076 6,531 $ 130,425 931,204 $ 19,070,708 1,669,366 $ 33,303,396
155 3,078 -- -- 125,209 2,497,846 1,304,403 24,802,608
(5,213) (107,810) -- -- (637,082) (13,119,006) (1,619,111) (32,449,133)
- ---------- ----------- --------- ----------- ------------ ------------- ------------ -------------
38,518 $ 803,344 6,531 $ 130,425 419,331 $ 8,449,548 1,354,658 $ 25,656,871
========== =========== ========= =========== ============ ============= ============ =============
287,644 $ 5,671,950 100,645 $ 1,851,974 188,483 $ 3,669,872 350,444 $ 6,256,570
1,855 35,668 5,651 103,990 282,421 5,452,921 2,822,018 50,986,119
(17,247) (340,663) (20,916) (401,484) (836,339) (16,556,342) (1,570,151) (28,301,671)
- ---------- ----------- --------- ----------- ------------ ------------- ------------ -------------
272,252 $ 5,366,955 85,380 $ 1,554,480 (365,435) $ (7,433,549) 1,602,311 $ 28,941,018
========== =========== ========= =========== ============ ============= ============ =============
631,512 $ 7,780,356 278,826 $ 3,090,704 67,076 $ 813,336 17,355 $ 195,012
8,405 103,323 7,242 82,831 1,235 15,207 456 5,295
(43,481) (537,252) (37,410) (415,533) (1,080) (13,364) (425,004) (4,943,754)
- ---------- ----------- --------- ----------- ------------ ------------- ------------ -------------
596,436 $ 7,346,427 248,658 $ 2,758,002 67,231 $ 815,179 (407,193) $ (4,743,447)
========== =========== ========= =========== ============ ============= ============ =============
2,073,399 $24,140,771 1,118,377 $12,586,569 118,090 $ 1,369,990 32,418 $ 371,211
65,895 765,156 29,193 330,589 6,516 75,744 495 5,673
(101,156) (1,178,857) (73,411) (817,122) (1,524) (17,612) (744,326) (8,131,320)
- ---------- ----------- --------- ----------- ------------ ------------- ------------ -------------
2,038,138 $23,727,070 1,074,159 $12,100,036 123,082 $ 1,428,122 (711,413) $ (7,754,436)
========== =========== ========= =========== ============ ============= ============ =============
552,305 $ 5,975,749 425,748 $ 4,594,269 1,356 $ 14,651 1,757 $ 18,841
23,022 248,483 13,409 144,660 129 1,622 59 642
(51,917) (556,081) (55,475) (595,794) (323,231) (3,501,030) (575,895) (6,250,061)
- ---------- ----------- --------- ----------- ------------ ------------- ------------ -------------
523,410 $ 5,668,151 383,682 $ 4,143,135 (321,746) $ (3,484,757) (574,079) $ (6,230,578)
========== =========== ========= =========== ============ ============= ============ =============
12,631 $ 126,850 16,846 $ 170,867 4,476 $ 45,020 6,017 $ 60,175
391 3,915 103 1,029 292 2,875 276 2,756
(19,899) (198,966) (1,471) (14,586) -- -- (1) (9)
- ---------- ----------- --------- ----------- ------------ ------------- ------------ -------------
(6,877) $ (68,201) 15,478 $ 157,310 4,768 $ 47,895 6,292 $ 62,922
========== =========== ========= =========== ============ ============= ============ =============
5,026 $ 52,000 18,942 $ 195,000 113,663 $ 1,169,519 18,217 $ 184,880
508 5,221 368 3,788 779 8,011 24 241
-- -- -- -- (2,962) (30,564) -- --
- ---------- ----------- --------- ----------- ------------ ------------- ------------ -------------
5,534 $ 57,221 19,310 $ 198,788 111,480 $ 1,146,966 18,241 $ 185,121
========== =========== ========= =========== ============ ============= ============ =============
-- -- 25,000 $ 25,000 124,347,124 $ 124,347,124 310,065,551 $ 310,065,551
-- -- -- -- 4,229,063 4,229,063 6,167,495 6,167,495
-- -- -- -- (171,105,603) (171,105,603) (269,050,082) (269,050,082)
- ---------- ----------- --------- ----------- ------------ ------------- ------------ -------------
-- -- 25,000 $ 25,000 (42,529,416) $ (42,529,416) 47,182,964 $ 47,182,964
========== =========== ========= =========== ============ ============= ============ =============
1,555,810 $ 1,555,810 1,086,079 $ 1,086,079 39,073,262 $ 39,073,262 51,041,652 $ 51,041,652
2,763 2,763 4,192 4,192 211,036 211,036 342,904 342,904
(1,557,078) (1,557,078) (837,929) (837,929) (40,924,974) (40,924,974) (43,843,474) (43,843,474)
- ---------- ----------- --------- ----------- ------------ ------------- ------------ -------------
1,495 $ 1,495 252,342 $ 252,342 (1,640,676) $ (1,640,676) 7,541,082 $ 7,541,082
========== =========== ========= =========== ============ ============= ============ =============
</TABLE>
See accompanying notes to financial statements
145
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
At June 30, 1997, Salomon Brothers owned approximately the following percentages
of total shares outstanding of the following Funds:
Asia Growth Fund..................................................... 42%
Strategic Bond Fund.................................................. 1%
U.S. Government Income Fund.......................................... 76%
National Intermediate Municipal Fund................................. 78%
4. Portfolio Activity
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, for the six months ended June 30, 1997, were as follows:
Purchases Sales
- ------------------------------------------------------------------------------
Asia Growth Fund............................. $ 13,770,458 $ 8,530,813
============= =============
Capital Fund................................. $ 125,839,333 $ 124,075,750
============= =============
Investors Fund............................... $ 163,439,078 $ 191,704,999
============= =============
Total Return Fund
U.S. Government Securities................. $ 12,532,657 $ 5,516,707
Other Investments.......................... 52,247,092 10,146,911
------------- -------------
$ 64,779,750 $ 22,251,209
============= =============
High Yield Bond Fund......................... $ 243,999,475 $ 76,199,935
============= =============
Strategic Bond Fund
U.S. Government Securities................. $ 9,166,303 $ 8,235,826
Other Investments.......................... 22,105,880 10,146,911
------------- -------------
$ 31,272,183 $ 18,382,737
============= =============
U.S. Government Income Fund
U.S. Government Securities................. $ 18,645,128 $ 19,072,686
============= =============
National Intermediate Municipal Fund......... $ 1,584,091 $ --
============= =============
Transactions in options written for the Funds during the six months ended June
30, 1997 were as follows:
<TABLE>
<CAPTION>
Capital Fund Investors Fund
----------------------- ---------------------
Number of Premiums Number of Premiums
Contracts Received Contracts Received
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1996.............. -- -- -- --
Options written....................................... (1,725) $(252,958) (500) $(85,617)
Options terminated in closing purchase transactions... 1,325 238,446 250 25,874
Options expired....................................... 400 14,512 -- --
Options exercised..................................... -- -- 250 59,743
------ --------- ---- --------
Options outstanding at June 30, 1997.................. -- -- -- --
====== ========= ==== ========
</TABLE>
146
<PAGE>
<PAGE>
5. Portfolio Investment Risks
Credit and Market Risk. Funds that invest in high yield and emerging market
instruments are subject to certain credit and market risks. The yields of high
yield and emerging market debt obligations reflect, among other things,
perceived credit risk. The Funds' investment in securities rated below
investment grade typically involve risks not associated with higher rated
securities including, among others, greater risk of timely and ultimate payment
of interest and principal, greater market price volatility and less liquid
secondary market trading. The consequences of political, social, economic or
diplomatic changes may have disruptive effects on the market prices of
investments held by the Funds. The Funds' investment in non-dollar denominated
securities may also result in foreign currency losses caused by devaluations and
exchange rate fluctuations.
The Cash Management Fund and New York Municipal Money Fund invest in money
market instruments maturing in thirteen months or less whose short-term credit
ratings are within the highest ratings categories of two nationally recognized
statistical rating organizations ("NRSROs") or if rated by only one NRSRO, that
NRSRO, or, if not rated, are believed by the investment manager to be of
comparable quality. The New York Municipal Money Fund pursues its investment
objective by investing at least 80% of its net assets in obligations that are
exempt from federal income taxes and at least 65% of its net assets in
obligations that are exempt from personal income taxes of the State and City of
New York. Because the New York Municipal Money Fund invests primarily in
obligations of the State and City of New York, it is more susceptible to factors
adversely affecting issuers of such obligations than a fund that is more
diversified.
Financial Instruments with Off-Balance Sheet Risk. Certain Funds enter into
forward foreign currency contracts ("forward contracts") to facilitate
settlement of foreign currency denominated portfolio transactions or to manage
foreign currency exposure associated with foreign currency denominated
securities. Forward contracts involve elements of market risk in excess of the
amounts reflected in the Statements of Assets and Liabilities. The Funds bear
the risk of an unfavorable change in the foreign exchange rate underlying the
forward contract. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities markets
and the possibility of political or economic instability.
Funds that enter into mortgage dollar rolls are subject to the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a mortgage dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the dollar roll may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities.
Consistent with their objective to seek high current income, the High Yield Bond
Fund and the Strategic Bond Fund may invest in instruments whose values and
interest rates may be linked to foreign currencies, interest rates, indices or
some other financial indicator. The value at maturity or interest rates for
these instruments will increase or decrease according to the change in the
indicator to which it is indexed. These securities are generally more volatile
in nature and the risk of loss of principal is greater.
147
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
A risk in writing a call option is that the Fund may forego the opportunity of
profit if the market price of the underlying security increases and the option
is exercised. The risk in writing a put option is that the Fund may incur a loss
if the market price of the underlying security decreases and the option is
exercised. In addition, there is the risk that the Fund may not be able to enter
into a closing transaction because of an illiquid secondary market.
In connection with purchasing participations, the Fund generally will have no
right to enforce compliance by the borrower, and the Fund may not benefit
directly from any collateral supporting the loan in which it has purchased the
participation. As a result, the Fund will assume the credit risk of both the
borrower and the lender that is selling the participation. In the event of the
insolvency of the lender selling the participation, the Fund may be treated as a
general creditor of the lender and may not benefit from any set-off between the
lender and the borrower.
6. Tax Information
At December 31, 1996, the New York Municipal Money Fund and the Cash Management
Fund had net capital loss carry-forwards available to offset future capital
gains as follows:
New York
Municipal Cash
Year of Money Management
Expiration Fund Fund
- --------------------------------------------------------------------------------
1999.............................................. $ 64,677 $ 894
2000.............................................. 94,778 396
2001.............................................. -- 409
2002.............................................. 65,321 415
2003.............................................. -- --
2004.............................................. -- 10
-------- ------
$224,776 $2,124
======== ======
At June 30, 1997, the cost for Federal income tax purposes and gross unrealized
appreciation and depreciation in value of investments held in each Fund were as
follows:
<TABLE>
<CAPTION>
Gross Gross Net
Aggregate Unrealized Unrealized Unrealized
Cost Appreciation (Depreciation) Appreciation
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asia Growth Fund..................... $ 12,716,937 $ 1,610,993 $ (479,013) $ 1,131,980
Capital Fund......................... 129,062,433 28,486,131 (1,879,950) 26,606,181
Investors Fund....................... 369,078,347 207,292,975 (2,676,737) 204,616,238
Total Return Fund.................... 86,704,358 9,041,586 (419,356) 8,622,230
High Yield Bond Fund................. 339,069,091 14,725,794 (1,695,766) 13,030,028
Strategic Bond Fund.................. 40,836,373 1,717,423 (214,487) 1,502,936
U.S. Government Income Fund.......... 12,403,521 62,944 (28,349) 34,595
National Intermediate Municipal Fund. 12,506,458 396,393 -- 396,393
</TABLE>
148
<PAGE>
<PAGE>
[This page intentionally left blank]
149
<PAGE>
<PAGE>
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
ASIA GROWTH FUND'SS'
- ----------------------------------------------------------------------------------------------------------------------
Class A Class B
----------------------------------------------------------------
Six Months Six Months
Ended Period Ended Period
June 30, Ended June 30, Ended
1997 December 31, 1997 December 31,
(unaudited) 1996(a) (unaudited) 1996(a)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............... $10.32 $10.00 $10.31 $10.00
------ ------ ------ ------
Net investment income .............................. 0.01 0.05 (0.03) 0.01
Net gain on investments
(both realized and unrealized) .................. 1.85 0.47 1.85 0.46
------ ------ ------ ------
Total from investment operations ................ 1.86 0.52 1.82 0.47
------ ------ ------ ------
Dividends from net investment income ............... (0.03) (0.05) (0.00) (0.01)
Distributions from net realized gain on investments (0.25) (0.15) (0.25) (0.15)
------ ------ ------ ------
Total dividends and distributions ............... (0.28) (0.20) (0.25) (0.16)
------ ------ ------ ------
Net asset value, end of period ..................... $11.90 $10.32 $11.88 $10.31
====== ====== ====== ======
Net assets, end of period (thousands) .............. $7,115 $3,693 $5,454 $3,163
Total return* ...................................... +18.4% +5.2% +18.1% +4.7%
Ratios to average net assets:
Expenses ........................................ 1.24%** 1.24%** 1.99%** 1.99%**
Net investment income ........................... 0.25%** 0.90%** -0.47%** 0.20%**
Portfolio turnover rate ............................ 95% 119% 95% 119%
Average Broker Commission Rate ..................... $0.0055 $0.0052 $0.0055 $0.0052
Before waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share
and expense ratios would have been:
Net investment income per share ............... ($0.16) ($0.18) ($0.20) ($0.23)
Expense ratio ................................. 4.60%** 5.50%** 5.35%** 6.25%**
</TABLE>
<TABLE>
<CAPTION>
CAPITAL FUND
- --------------------------------------------------------------------------------------------------------------
Class A Class B
----------------------------------------------------------
Six Months Six Months
Ended Period Ended Period
June 30, Ended June 30, Ended
1997'SS' December 31, 1997'SS' December 31,
(unaudited) 1996(b)'SS' (unaudited) 1996(b)'SS'
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .............. $19.88 $21.98 $19.90 $21.98
------ ------ ------ ------
Net investment income ............................. 0.05 0.01 (0.03) (0.02)
Net gain (loss) on investments
(both realized and unrealized) ................. 2.73 1.54 2.74 1.56
------ ------ ------ ------
Total from investment operations ............... 2.78 1.55 2.71 1.54
------ ------ ------ ------
Dividends from net investment income .............. -- (0.15) -- (0.12)
Distributions from net realized gain on investments (0.38) (3.50) (0.38) (3.50)
Distributions in excess of net realized gains ..... -- -- -- --
------ ------ ------ ------
Total dividends and distributions .............. (0.38) (3.65) (0.38) (3.62)
------ ---- ------ ------
Net asset value, end of period .................... $22.28 $19.88 $22.23 $19.90
====== ====== ====== ======
Net assets, end of period (thousands) ............. $2,647 $344 $1,014 $219
Total return* ..................................... +14.3% +7.7% +14.0% +7.6%
Ratios to average net assets:
Expenses ....................................... 1.52%** 1.88%** 2.28%** 2.73%**
Net investment income .......................... 0.48%** 0.18%** -0.27%** -0.66%**
Portfolio turnover rate ........................... 86% 191% 86% 191%
Average Broker Commission Rate .................... $0.0494 $0.0586 $0.0494 $0.0586
</TABLE>
(a) May 6, 1996, commencement of investment operations, through December 31,
1996.
(b) November 1, 1996, commencement of investment operations, through December
31, 1996.
'SS' Per share information calculated using the average shares outstanding
method, which more accurately represents amounts.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
150
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Class C Class O
- ---------------------------------------------------------------------------------------------
Six Months Six Months
Ended Period Ended Period
June 30, Ended June 30, Ended
1997 December 31, 1997 December 31,
(unaudited) 1996(a) (unaudited) 1996(a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$10.30 $10.00 $10.32 $10.00
------ ------ ------ ------
(0.02) 0.01 0.03 0.07
1.85 0.45 1.85 0.46
------ ------ ------ ------
1.83 0.46 1.88 0.53
------ ------ ------ ------
(0.00) (0.01) (0.03) (0.06)
(0.25) (0.15) (0.25) (0.15)
------ ------ ------ ------
(0.25) (0.16) (0.28) (0.21)
------ ------ ------ ------
$11.88 $10.30 $11.92 $10.32
====== ====== ====== ======
$1,462 $246 $285 $124
+18.1% +4.6% +18.7% +5.3%
2.00%** 2.00%** 0.99%** 0.99%**
-0.45%** 0.08%** 0.55%** 1.21%**
95% 119% 95% 119%
$0.0055 $0.0052 $0.0055 $0.0052
($0.20) ($0.20) ($0.15) ($0.18)
5.36%** 6.26%** 4.35%** 5.25%**
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Class C Class O
- ------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Period Ended
June 30, Ended June 30, Year Ended December 31,
1997'SS' December 31, 1997'SS' -------------------------------------------------------------------
(unaudited) 1996(b)'SS' (unaudited) 1996'SS' 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$19.91 $21.98 $ 19.88 $ 18.67 $ 15.62 $ 20.80 $ 19.64 $ 19.06
------ ------ -------- -------- -------- ------- -------- --------
(0.03) (0.02) 0.07 0.13 0.14 0.03 0.028 0.10
2.75 1.57 2.76 5.70 5.27 (2.87) 3.242 0.80
------ ------ -------- -------- -------- ------- -------- --------
2.72 1.55 2.83 5.83 5.41 (2.84) 3.27 0.90
------ ------ -------- -------- -------- ------- -------- --------
-- (0.12) -- (0.15) (0.14) (0.03) (0.035) (0.105)
(0.38) (3.50) (0.38) (4.47) (2.22) (1.51) (2.075) (0.215)
-- -- -- -- -- (0.80) -- --
------ ------ -------- -------- -------- ------- -------- --------
(0.38) (3.62) (0.38) (4.62) (2.36) (2.34) (2.11) (0.32)
------ ------ -------- -------- -------- ------- -------- --------
$22.25 $19.91 $ 22.33 $ 19.88 $ 18.67 $ 15.62 $ 20.80 $ 19.64
====== ====== ======== ======== ======== ======= ======== ========
$1,002 $ 130 $162,112 $135,943 $102,429 $86,704 $113,905 $103,356
+14.0% +7.7% +14.5% +33.3% +34.9% -14.2% +17.2% +4.7%
2.28%** 2.45%** 1.27%** 1.38% 1.36% 1.30% 1.31% 1.34%
-0.29%** -0.05%** 0.66%** 0.67% 0.74% 0.12% 0.13% 0.58%
86% 191% 86% 191% 217% 152% 104% 41%
$0.0494 $0.0586 $0.0494 $0.0586 N/A N/A N/A N/A
</TABLE>
151
<PAGE>
<PAGE>
Financial Highlights (continued)
Selected data per share of capital stock outstanding throughout each period:
INVESTORS FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Class A Class B
----------------------------------------------------------------------------------
Six Months Six Months
Ended Ended
June 30, Year Ended December 31, June 30, Year Ended December 31,
1997 ----------------------- 1997 -----------------------
(unaudited) 1996 1995 (unaudited) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .. $ 18.89 $ 16.62 $13.61 $ 18.86 $ 16.61 $13.61
------- ------- ------ ------- ------- ------
Net investment income ................. 0.06 0.19 0.19 0.02 0.08 0.10
Net gain (loss) on investments
(both realized and unrealized) ..... 2.74 4.63 4.55 2.69 4.60 4.54
------- ------- ------ ------- ------- ------
Total from investment operations ... 2.80 4.82 4.74 2.71 4.68 4.64
------- ------- ------ ------- ------- ------
Dividends from net investment income .. (0.04) (0.22) (0.23) (0.02) (0.10) (0.14)
Distributions from net realized gain on
investments ........................ (0.21) (2.33) (1.50) (0.21) (2.33) (1.50)
------- ------- ------ ------- ------- ------
Total dividends and distributions .. (0.25) (2.55) (1.73) (0.23) (2.43) (1.64)
------- ------- ------ ------- ------- ------
Net asset value, end of period ........ $ 21.44 $ 18.89 $16.62 $ 21.34 $ 18.86 $16.61
======= ======= ====== ======= ======= ======
Net assets, end of period (thousands) . $43,864 $10,905 $ 441 $32,278 $ 9,433 $ 716
Total return * ........................ +14.9% +30.3% +35.3% +14.5% +29.2% +34.5%
Ratios to average net assets:
Expenses ........................... 0.94%** 1.06% 0.94% 1.69%** 1.82% 1.71%
Net investment income .............. 1.10%** 0.94% 1.41% 0.36%** 0.21% 0.63%
Portfolio turnover rate ............... 30% 58% 86% 30% 58% 86%
Average Broker Commission Rate ........ $0.0600 $0.0593 N/A $0.0600 $0.0593 N/A
</TABLE>
TOTAL RETURN FUND'SS'
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Year Period Ended Year Period
June 30, Ended Ended June 30 Ended Ended
1997 December 31, December 31, 1997, December 31, December 31,
(unaudited) 1996 1995(a) (unaudited) 1996 1995(a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................ $ 11.82 $ 10.55 $10.00 $ 11.82 $ 10.54 $10.00
------- ------- ------ ------- ------- ------
Net investment income ............................... 0.26 0.54 0.15 0.22 0.45 0.13
Net gain on investments
(both realized and unrealized) ................... 0.86 1.35 0.52 0.85 1.35 0.51
------- ------- ------ ------- ------- ------
Total from investment operations ................. 1.12 1.89 0.67 1.07 1.80 0.64
------- ------- ------ ------- ------- ------
Dividends from net investment income ................ (0.25) (0.52) (0.11) (0.21) (0.42) (0.09)
Distributions from net realized gain on
investments ...................................... (0.02) (0.10) (0.01) (0.02) (0.10) (0.01)
------- ------- ------ ------- ------- ------
Total dividends and distributions ................ (0.27) (0.62) (0.12) (0.23) (0.52) (0.10)
------- ------- ------ ------- ------- ------
Net asset value, end of period ...................... $12.67 $ 11.82 $10.55 $ 12.66 $ 11.82 $10.54
======= ======= ====== ======= ======= ======
Net assets, end of period (thousands) ............... $39,593 $21,109 $3,658 $55,929 $28,043 $5,378
Total return * ...................................... +9.6% +18.3% +6.7% +9.2% +17.4% +6.4%
Ratios to average net assets:
Expenses ......................................... 0.75%** 0.75% 0.74%** 1.50%** 1.50% 1.49%**
Net investment income ............................ 4.34%** 4.81% 4.82%** 3.61%** 4.06% 4.06%**
Portfolio turnover rate ............................. 33% 76% 16% 33% 76% 16%
Average Broker Commission Rate ...................... $0.0592 $0.0534 N/A $0.0592 $0.0534 N/A
Before waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share .................. $ 0.23 $ 0.44 $ 0.13 $ 0.19 $ 0.36 $ 0.11
Expense ratio .................................... 1.24%** 1.61% 1.45%** 2.00%** 2.36% 2.19%**
</TABLE>
(a) September 11, 1995, commencement of investment operations, through December
31, 1995.
'SS' Per share information calculated using the average shares outstanding
method, which more accurately represents amounts.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge
is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
152
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class C Class O
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Ended
June 30, Year Ended December 31, June 30, Year Ended December 31,
1997 ----------------------- 1997 -----------------------------------------------------------------
(unaudited) 1996 1995 (unaudited) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 18.86 $ 16.61 $13.61 $ 18.90 $ 16.61 $ 13.63 $ 15.60 $ 16.10 $ 17.10
------- ------- ------ -------- -------- -------- -------- -------- --------
0.02 0.07 0.09 0.11 0.25 0.27 0.27 0.32 0.41
2.70 4.60 4.55 2.71 4.62 4.48 (0.48) 2.03 0.79
------- ------- ------ -------- -------- -------- -------- -------- --------
2.72 4.67 4.64 2.82 4.87 4.75 (0.21) 2.35 1.20
------- ------- ------ -------- -------- -------- -------- -------- --------
(0.02) (0.09) (0.14) (0.05) (0.25) (0.27) (0.27) (0.33) (0.41)
(0.21) (2.33) (1.50) (0.21) (2.33) (1.50) (1.49) (2.52) (1.79)
------- ------- ------ -------- -------- -------- -------- -------- --------
(0.23) (2.42) (1.64) (0.26) (2.58) (1.77) (1.76) (2.85) (2.20)
------- ------- ------ -------- -------- -------- -------- -------- --------
$ 21.35 $ 18.86 $16.61 $ 21.46 $ 18.90 $ 16.61 $ 13.63 $ 15.60 $ 16.10
======= ======= ====== ======== ======== ======== ======== ======== ========
$ 8,030 $ 1,959 $ 306 $580,720 $518,361 $428,950 $348,214 $386,147 $370,350
+14.5% +29.3% +34.5% +15.1% +30.6% +35.4% -1.3% +15.1% +7.4%
1.69%** 1.80% 1.68% 0.68%** 0.76% 0.69% 0.69% 0.68% 0.68%
0.36%** 0.23% 0.66% 1.29%** 1.36% 1.67% 1.75% 1.90% 2.47%
30% 58% 86% 30% 58% 86% 66% 79% 48%
$0.0600 $0.0593 N/A $ 0.0600 $ 0.0593 N/A N/A N/A N/A
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Class C Class O
- -----------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Year Period Ended Year Period
June 30, Ended Ended June 30, Ended Ended
1997 December 31, December 31, 1997 December 31, December 31,
(unaudited) 1996 1995(a) (unaudited) 1996 1995(a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 11.85 $ 10.56 $10.00 $ 11.88 $ 10.57 $10.00
------- ------- ------ ------- ------- ------
0.22 0.46 0.14 0.29 0.57 0.17
0.86 1.35 0.51 0.86 1.39 0.52
------- ------- ------ ------- ------- ------
1.08 1.81 0.65 1.15 1.96 0.69
------- ------- ------ ------- ------- ------
(0.21) (0.42) (0.08) (0.27) (0.55) (0.11)
(0.02) (0.10) (0.01) (0.02) (0.10) (0.01)
------- ------- ------ ------- ------- ------
(0.23) (0.52) (0.09) (0.29) (0.65) (0.12)
------- ------- ------ ------- ------- ------
$ 12.70 $ 11.85 $10.56 $ 12.74 $ 11.88 $10.57
======= ======= ====== ======= ======= ======
$11,263 $ 3,445 $ 445 $ 1,085 $ 213 $4,494
+9.2% +17.5% +6.5% +9.8% +19.0% +6.9%
1.50%** 1.50% 1.51%** 0.51%** 0.50% 0.51%**
3.59%** 4.07% 4.26%** 4.73%** 5.13% 5.30%**
33% 76% 16% 33% 76% 16%
$0.0592 $0.0534 N/A $0.0592 $0.0534 N/A
$ 0.19 $ 0.36 $ 0.11 $ 0.26 $ 0.47 $ 0.15
1.99%** 2.36% 2.22%** 1.00%** 1.36% 1.22%**
</TABLE>
See accompanying notes to financial statements
153
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, Year Ended Period Ended June 30, Year Ended Period Ended
1997 December 31, December 31, 1997 December 31, December 31,
(unaudited) 1996 1995(a) (unaudited) 1996 1995(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.54 $ 10.53 $ 10.00 $ 11.53 $ 10.53 $ 10.00
-------- ------- ------- -------- -------- -------
Net investment income............... 0.52 1.10 0.92 0.48 1.02 0.85
Net gain on investments
(both realized and unrealized)... 0.32 1.11 0.67 0.32 1.11 0.68
-------- ------- ------- -------- -------- -------
Total from investment operations. 0.84 2.21 1.59 0.80 2.13 1.53
-------- ------- ------- -------- -------- -------
Dividends from net investment income (0.56) (1.10) (0.91) (0.53) (1.03) (0.85)
Distributions from net realized
gain on investments............. (0.02) (0.10) (0.15) (0.02) (0.10) (0.15)
-------- ------- ------- -------- -------- -------
Total dividends and distributions... (0.58) (1.20) (1.06) (0.55) (1.13) (1.00)
-------- ------- ------- -------- -------- -------
Net asset value, end of period...... $ 11.80 $ 11.54 $ 10.53 $ 11.78 $ 11.53 $ 10.53
======== ======= ======= ======== ======== =======
Net assets, end of period
(thousands)...................... $122,608 $65,935 $10,789 $212,766 $106,797 $10,108
Total return*....................... +7.4% +21.9% +16.6% +6.9% +21.2% +15.7%
Ratios to average net assets:
Expenses......................... 1.24%** 1.24% 1.24%** 1.99%** 1.99% 1.96%**
Net investment income............ 8.71%** 9.38% 10.58%** 7.94%** 8.49% 9.53%**
Portfolio turnover rate............. 29% 85% 109% 29% 85% 109%
Before applicable waiver of
management fee and credits earned
on custodian cash balances, net
investment income per share and
expense ratios would have been:
Net investment income per share $ 0.52 $ 1.09 $ 0.87 $ 0.48 $ 1.01 $ 0.80
Expense ratio.................. 1.27%** 1.50% 1.80%** 2.01%** 2.24% 2.51%**
<CAPTION>
STRATEGIC BOND FUND
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, Year Ended Period Ended June 30, Year Ended Period Ended
1997'SS' December 31, December 31, 1997'SS' December 31, December 31,
(unaudited) 1996'SS' 1995(a) (unaudited) 1996'SS' 1995(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.83 $ 10.53 $ 10.00 $ 10.82 $ 10.53 $ 10.00
-------- ------- ------- -------- -------- -------
Net investment income............... 0.39 0.87 0.84 0.35 0.79 0.76
Net gain on investments
(both realized and unrealized)... 0.18 0.55 0.78 0.19 0.53 0.79
-------- ------- ------- -------- -------- -------
Total from investment operations. 0.57 1.42 1.62 0.54 1.32 1.55
-------- ------- ------- -------- -------- -------
Dividends from net investment
income.......................... (0.50) (0.94) (0.85) (0.46) (0.85) (0.78)
Dividends in excess of net
investment income............... -- (0.01) -- -- (0.01) --
Distributions from net realized
gain on investments............ (0.01) (0.17) (0.24) (0.01) (0.17) (0.24)
-------- ------- ------- -------- -------- -------
Total dividends and distributions (0.51) (1.12) (1.09) (0.47) (1.03) (1.02)
-------- ------- ------- -------- -------- -------
Net asset value, end of period...... $ 10.89 $ 10.83 $ 10.53 $ 10.89 $ 10.82 $ 10.53
======== ======= ======= ======== ======== =======
Net assets, end of period
(thousands)...................... $ 13,784 $ 8,345 $ 513 $ 28,015 $ 14,291 $ 1,879
Total return*....................... +5.4% +14.1% +16.8% +5.1% +13.0% +16.1%
Ratios to average net assets:
Expenses......................... 1.25%** 1.24% 1.23%** 1.99%** 1.98% 1.97%**
Net investment income............ 7.36%** 8.09% 9.51%** 6.55%** 7.34% 8.75%**
Portfolio turnover rate............. 52% 122% 161% 52% 122% 161%
Before waiver of management fee,
expenses absorbed by SBAM and
credits earned on custodian cash
balances, net investment income
per share and expense ratios
would have been:
Net investment income per share $ 0.37 $ 0.79 $ 0.76 $ 0.33 $ 0.71 $ 0.69
Expense ratio.................. 1.60%** 1.98% 2.11%** 2.34%** 2.73% 2.85%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
'SS' Per share information calculated using the average shares outstanding
method, which more accurately represents amounts.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge
is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
154
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Class C Class O
- ------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, Year Ended Period Ended June 30, Year Ended Period Ended
1997 December 31, December 31, 1997 December 31, December 31,
(unaudited) 1996 1995(a) (unaudited) 1996'SS' 1995(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 11.52 $ 10.53 $10.00 $11.53 $10.54 $10.00
------- ------- ------ ------ ------ ------
0.48 1.02 0.85 0.53 1.16 0.95
0.32 1.10 0.68 0.33 1.05 0.67
------- ------- ------ ------ ------ ------
0.80 2.12 1.53 0.86 2.21 1.62
------- ------- ------ ------ ------ ------
(0.53) (1.03) (0.85) (0.57) (1.12) (0.93)
(0.02) (0.10) (0.15) (0.02) (0.10) (0.15)
------- ------- ------ ------ ------ ------
(0.55) (1.13) (1.00) (0.59) (1.22) (1.08)
------- ------- ------ ------ ------ ------
$ 11.77 $ 11.52 $10.53 $11.80 $11.53 $10.54
======= ======= ====== ====== ====== ======
$38,064 $13,773 $1,274 $1,855 $ 393 $7,854
+7.0% +21.1% +15.8% +7.6% +22.0% +16.8%
1.99%** 1.99% 1.98%** 0.99%** 0.99% 1.00%**
7.91%** 8.43% 9.61%** 8.93%** 10.64% 10.59%**
29% 85% 109% 29% 85% 109%
$ 0.48 $ 1.01 $ 0.80 $ 0.53 $ 1.13 $ 0.90
2.01%** 2.24% 2.54%** 1.01%** 1.24% 1.55%**
<CAPTION>
- ------------------------------------------------------------------------------------------------
Class C Class O
- ------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, Year Ended Period Ended June 30, Year Ended Period Ended
1997'SS' December 31, December 31, 1997'SS' December 31, December 31,
(unaudited) 1996'SS' 1995(a) (unaudited) 1996'SS' 1995(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 10.82 $ 10.53 $10.00 $10.82 $10.53 $10.00
------- ------- ------ ------ ------ ------
0.35 0.78 0.77 0.40 0.92 0.87
0.19 0.54 0.78 0.19 0.51 0.77
------- ------- ------ ------ ------ ------
0.54 1.32 1.55 0.59 1.43 1.64
------- ------- ------ ------ ------ ------
(0.46) (0.85) (0.78) (0.51) (0.96) (0.87)
-- (0.01) -- -- (0.01) --
(0.01) (0.17) (0.24) (0.01) (0.17) (0.24)
------- ------- ------ ------ ------ ------
(0.47) (1.03) (1.02) (0.52) (1.14) (1.11)
------- ------- ------ ------ ------ ------
$ 10.89 $ 10.82 $10.53 $10.89 $10.82 $10.53
======= ======= ====== ====== ====== ======
$10,303 $ 4,575 $ 411 $ 340 $3,817 $9,763
+5.1% +13.1% +16.1% +5.6% +14.2% +17.0%
1.99%** 1.98% 1.99%** 0.95%** 1.00% 0.99%**
6.52%** 7.26% 8.77%** 7.34%** 8.65% 9.74%**
52% 122% 161% 52% 122% 161%
$ 0.33 $ 0.70 $ 0.70 $ 0.38 $ 0.84 $ 0.79
2.34%** 2.72% 2.87%** 1.31%** 1.74% 1.87%**
</TABLE>
See accompanying notes to financial statements
155
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
Selected data per share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, Year Ended Period Ended June 30, Year Ended Period Ended
1997 December 31, December 31, 1997 December 31, December 31,
(unaudited) 1996 1995(a) (unaudited) 1996 1995(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $10.07 $10.32 $10.00 $10.06 $10.32 $10.00
------ ------ ------ ------ ------ ------
Net investment income............ 0.29 0.54 0.49 0.25 0.46 0.43
Net gain on investments
(both realized and unrealized) (0.02) (0.19) 0.43 -- (0.20) 0.43
------ ------ ------ ------ ------ ------
Total from investment
operations................. 0.27 0.35 0.92 0.25 0.26 0.86
------ ------ ------ ------ ------ ------
Dividends from net investment
income........................ (0.29) (0.54) (0.49) (0.26) (0.46) (0.43)
Distributions from net realized
gain on investments........... (0.01) (0.06) (0.10) (0.01) (0.06) (0.10)
Distributions in excess of net
realized gain on investments.. -- -- (0.01) -- -- (0.01)
------ ------ ------ ------ ------ ------
Total dividends and
distributions.............. (0.30) (0.60) (0.60) (0.27) (0.52) (0.54)
------ ------ ------ ------ ------ ------
Net asset value, end of period... $10.04 $10.07 $10.32 $10.04 $10.06 $10.32
====== ====== ====== ====== ====== ======
Net assets, end of period
(thousands)................... $1,676 $1,188 $ 278 $1,488 $1,266 $ 572
Total return*.................... +2.8% +3.6% +9.5% +2.5% +2.7% +8.8%
Ratios to average net assets:
Expenses...................... 0.85%** 0.84% 0.85%** 1.60%** 1.59% 1.60%**
Net investment income......... 5.80%** 5.22% 5.67%** 5.07%** 4.51% 4.85%**
Portfolio turnover rate.......... 172% 365% 230% 172% 365% 230%
Before applicable waiver of
management fee, expenses
absorbed by SBAM and credits
earned on custodian cash
balances, net investment
income per share and expense
ratios would have been:
Net investment income per
share..................... $ 0.23 $ 0.38 $ 0.40 $ 0.19 $0.30 $ 0.34
Expense ratio............... 2.10%** 2.21% 1.90%** 2.85%** 2.96% 2.64%**
<CAPTION>
NATIONAL INTERMEDIATE MUNICIPAL FUND
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, Year Ended Period Ended June 30, Year Ended Period Ended
1997 December 31, December 31, 1997 December 31, December 31,
(unaudited) 1996 1995(a) (unaudited) 1996 1995(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $10.35 $10.43 $10.00 $10.33 $10.42 $10.00
------ ------ ------ ------ ------ ------
Net investment income............ 0.24 0.48 0.40 0.20 0.40 0.34
Net gain on investments
(both realized and unrealized) 0.04 (0.06) 0.46 0.03 (0.06) 0.45
------ ------ ------ ------ ------ ------
Total from investment
operations................. 0.28 0.42 0.86 0.23 0.34 0.79
------ ------ ------ ------ ------ ------
Dividends from net investment
income........................ (0.24) (0.48) (0.40) (0.20) (0.41) (0.34)
Distributions from net realized
gain on investments........... (0.01) (0.02) (0.03) (0.01) (0.02) (0.03)
------ ------ ------ ------ ------ ------
Total dividends and
distributions.............. (0.25) (0.50) (0.43) (0.21) (0.43) (0.37)
------ ------ ------ ------ ------ ------
Net asset value, end of period... $10.38 $10.35 $10.43 $10.35 $10.33 $10.42
====== ====== ====== ====== ====== ======
Net assets, end of period
(thousands)................... $ 838 $ 696 $ 569 $ 939 $ 702 $ 432
Total return*.................... +2.7% +4.2% +8.7% +2.3% +3.4% +8.0%
Ratios to average net assets:
Expenses...................... 0.75%** 0.75% 0.75%** 1.50%** 1.50% 1.50%**
Net investment income......... 4.68%** 4.62% 4.63%** 3.92%** 3.88% 3.85%**
Portfolio turnover rate.......... 0% 19% 29% 0% 19% 29%
Before applicable waiver of
management fee, expenses
absorbed by SBAM and credits
earned on custodian cash
balances, net investment
income per share and expense
ratios would have been:
Net investment income per
share.................. $ 0.18 $ 0.35 $ 0.32 $ 0.14 $ 0.27 $ 0.25
Expense ratio............. 1.99%** 2.02% 1.71%** 2.74%** 2.77% 2.45%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return. Total return calculated
for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
156
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Class C Class O
- ------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, Year Ended Period Ended June 30, Year Ended Period Ended
1997 December 31, December 31, 1997 December 31, December 31,
(unaudited) 1996 1995(a) (unaudited) 1996 1995(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10.05 $10.32 $10.00 $10.06 $10.32 $10.00
------ ------ ------ ------ ------ ------
0.25 0.46 0.43 0.30 0.56 0.52
0.01 (0.21) 0.43 (0.01) (0.20) 0.42
------ ------ ------ ------ ------ ------
0.26 0.25 0.86 0.29 0.36 0.94
------ ------ ------ ------ ------ ------
(0.26) (0.46) (0.43) (0.31) (0.56) (0.52)
(0.01) (0.06) (0.10) (0.01) (0.06) (0.10)
-- -- (0.01) -- -- --
------ ------ ------ ------ ------ ------
(0.27) (0.52) (0.54) (0.32) (0.62) (0.62)
------ ------ ------ ------ ------ ------
$10.04 $10.05 $10.32 $10.03 $10.06 $10.32
====== ====== ====== ====== ====== ======
$ 352 $ 422 $ 273 $9,401 $9,375 $9,552
+2.5% +2.7% +8.8% +2.9% +3.7% +9.7%
1.60%** 1.60% 1.60%** 0.60%** 0.60% 0.60%**
5.05%** 4.51% 4.92%** 6.09%** 5.53% 5.92%**
172% 365% 230% 172% 365% 230%
$ 0.19 $ 0.31 $ 0.34 $ 0.24 $ 0.41 $ 0.42
2.85%** 2.97% 2.64%** 1.86%** 1.97% 1.64%**
<CAPTION>
- ----------------------------------------------------------------------------------------------
Class C Class O
- ----------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, Year Ended Period Ended June 30, Year Ended Period Ended
1997 December 31, December 31, 1997 December 31, December 31,
(unaudited) 1996 1995(a) (unaudited) 1996 1995(a)
- ----------------------------------------------------------------------------------------------
$10.33 $10.42 $10.00 $ 10.34 $10.43 $10.00
------ ------ ------ ------- ------ ------
0.20 0.40 0.34 0.25 0.50 0.42
0.04 (0.06) 0.45 0.04 (0.07) 0.46
------ ------ ------ ------- ------ ------
0.24 0.34 0.79 0.29 0.43 0.88
------ ------ ------ ------- ------ ------
(0.20) (0.41) (0.34) (0.25) (0.50) (0.42)
(0.01) (0.02) (0.03) (0.01) (0.02) (0.03)
------ ------ ------ ------- ------ ------
(0.21) (0.43) (0.37) (0.26) (0.52) (0.45)
------ ------ ------ ------- ------ ------
$10.36 $10.33 $10.42 $ 10.37 $10.34 $10.43
====== ====== ====== ======= ====== ======
$ 526 $ 468 $ 271 $10,968 $9,786 $9,675
+2.4% +3.4% +8.0% +2.9% +4.3% +9.0%
1.50%** 1.50% 1.50%** 0.50%** 0.50% 0.50%**
3.94%** 3.88% 3.85%** 4.94%** 4.88% 4.86%**
0% 19% 29% 0% 19% 29%
$ 0.14 $ 0.27 $ 0.25 $ 0.19 $ 0.37 $ 0.34
2.74%** 2.77% 2.46%** 1.74%** 1.77% 1.46%**
</TABLE>
See accompanying notes to financial statements
157
<PAGE>
<PAGE>
Financial Highlights (concluded)
Selected data per share of capital stock outstanding throughout each period:
NEW YORK MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, Period Ended June 30, Period Ended
1997 December 31, 1997 December 31,
(unaudited) 1996(a) (unaudited) 1996(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ........................... $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------
Net investment income .......................................... 0.017 0.006 0.017 0.006
Dividends from net investment income ........................... (0.017) (0.006) (0.017) (0.006)
------ ------ ------ ------
Net asset value, end of period ................................. $1.000 $1.000 $1.000 $1.000
====== ====== ====== ======
Net assets, end of period (thousands) .......................... $2,331 $360 $25 $25
Total return* .................................................. +1.7% +0.6% +1.7% +0.6%
Ratios to average net assets:
Expenses .................................................... 0.41%** 0.38%** 0.40%** 0.40%**
Net investment income ....................................... 3.55%** 3.56%** 3.32%** 3.40%**
Before applicable waiver of management fee and credits earned on
custodian cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ........................... -- $0.006 -- $0.006
Expense ratio ............................................. -- 0.39%** -- 0.41%**
</TABLE>
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, Year Ended December 31, June 30, Year Ended December 31,
1997 ----------------------- 1997 -----------------------
(unaudited) 1996 1995 (unaudited) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------
Net investment income .............................. 0.025 0.050 0.044 0.025 0.050 0.043
Dividends from net investment income ............... (0.025) (0.050) (0.044) (0.025) (0.050) (0.043)
------ ------ ------ ------ ------ ------
Net asset value, end of period ..................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ======
Net assets, end of period (thousands) .............. $9,788 $8,175 $1,756 $3,150 $3,920 $2,238
Total return* ...................................... +2.5% +5.1% +4.5% +2.5% +5.1% +4.4%
Ratios to average net assets:
Expenses ........................................ 0.55%** 0.55% 0.55% 0.55%** 0.55% 0.55%
Net investment income ........................... 5.02%** 4.95% 5.42% 5.02%** 4.95% 5.38%
Before applicable waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share
and expense ratios would have been:
Net investment income per share ............... $0.024 $0.047 $0.037 $0.024 $0.047 $0.037
Expense ratio ................................. 0.64%** 0.82% 1.35% 0.64%** 0.82% 1.34%
</TABLE>
(a) November 1, 1996, commencement of investment operations, through December
31, 1996.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the payable date, and a sale at net asset value on the last day of each
period reported. Total return calculated for a period of less than one year
is not annualized.
** Annualized.
See accompanying notes to financial statements
158
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Class C Class O
- ----------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Ended
June 30, Period Ended June 30, Year Ended December 31,
1997 December 31, 1997 ------------------------------------------------------------
(unaudited) 1996(a) (unaudited) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1.000 $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------ ------ -------- -------- -------- -------- -------- --------
0.017 0.006 0.017 0.032 0.037 0.027 0.023 0.031
(0.017) (0.006) (0.017) (0.032) (0.037) (0.027) (0.023) (0.031)
------ ------ -------- -------- -------- -------- -------- --------
$1.000 $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
====== ====== ======== ======== ======== ======== ======== ========
$ 25 $ 25 $231,196 $273,734 $226,549 $269,788 $262,413 $263,685
+1.7% +0.6% +1.7% +3.3% +3.7% +2.7% +2.3% +3.1%
0.40%** 0.40%** 0.41%** 0.53% 0.43% 0.41% 0.41% 0.42%
3.48%** 3.40%** 3.46%** 3.25% 3.67% 2.63% 2.31% 3.07%
-- $0.006 -- $0.032 $0.037 -- -- --
-- 0.41%** -- 0.53% 0.45% -- -- --
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Class C Class O
- ------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Ended
June 30, Year Ended December 31, June 30, Year Ended December 31,
1997 ----------------------- 1997 -----------------------------------------------------
(unaudited) 1996 1995 (unaudited) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- ------- ------- ------- ------- -------
0.025 0.050 0.043 0.025 0.050 0.055 0.038 0.027 0.033
(0.025) (0.050) (0.043) (0.025) (0.050) (0.055) (0.038) (0.027) (0.033)
------- ------- ------- ------- ------- ------- ------- ------- -------
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= ======= ======= ======= =======
$ 436 $ 435 $ 183 $12,585 $14,225 $ 6,684 $19,127 $15,049 $11,613
+2.5% +5.1% +4.4% +2.5% +5.1% +5.6% +3.9% +2.7% +3.4%
0.55%** 0.55% 0.55% 0.55%** 0.55% 0.55% 0.61% 0.65% 0.65%
5.05%** 4.95% 5.40% 5.02%** 4.95% 5.46% 3.79% 2.68% 3.41%
$ 0.024 $ 0.047 $ 0.036 $ 0.024 $ 0.047 $ 0.047 $ 0.036 $ 0.025 $ 0.030
0.64%** 0.82% 1.34% 0.64%** 0.82% 1.34% 0.81% 0.85% 0.85%
</TABLE>
See accompanying notes to financial statements
159
<PAGE>
<PAGE>
[This page intentionally left blank]
160
<PAGE>
<PAGE>
Portfolio of Investments (December 31, 1996)
SALOMON BROTHERS ASIA GROWTH FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Common Stocks -- 91.7%
Hong Kong -- 32.3%
53,600 Asia Satellite Telecommunications Holdings*....................................$ 124,393
116,000 ASM Pacific Technology......................................................... 89,986
15,800 Bank of East Asia Hong Kong.................................................... 70,272
14,000 Cheung Kong.................................................................... 124,442
59,000 Cheung Kong Infrastructure*.................................................... 156,377
162,000 China Overseas Land & Investment............................................... 82,210
85,000 China Resources Beijing Land*.................................................. 53,850
78,000 China Resources Enterprises.................................................... 175,474
70,000 Cosco Pacific.................................................................. 81,453
19,000 Dickson Concepts International................................................. 71,239
48,000 First Pacific.................................................................. 62,370
62,000 Giordano Holdings.............................................................. 52,906
86,000 Guang Nan Holdings............................................................. 73,941
4,900 Guangdong Tannery*............................................................. 1,235
3,000 HSBC Holdings.................................................................. 64,193
20,000 Hutchison Whampoa.............................................................. 157,088
36,000 Hysan Development.............................................................. 143,358
115,000 Kerry Properties*.............................................................. 315,211
17,000 New World Development.......................................................... 114,843
150,000 Qingling Motors................................................................ 82,908
18,000 Shanghai Industrial Holdings*.................................................. 65,628
290,000 Shanghai Petrochemical......................................................... 88,112
172,000 USI Holdings................................................................... 80,057
----------
2,331,546
----------
India -- 9.9%
22,300 Arvind Mills-- GDR............................................................. 101,465
7,200 Ashok Leyland-- GDR............................................................ 67,680
8,000 Gujarat Ambuja Cements-- GDR................................................... 68,800
6,000 Industrial Credit & Investment-- GDR........................................... 58,500
10,000 Mahindra & Mahindra-- GDR...................................................... 117,500
5,100 Reliance Industries-- GDR...................................................... 61,200
7,950 State Bank of India-- GDR...................................................... 138,092
9,400 Tata Engineering & Locomotive-- GDR............................................ 99,875
----------
713,112
----------
Indonesia -- 3.2%
37,500 Lippo Karawaci (a)*............................................................ 42,866
50,000 PT Inti Indorayon Utama (a).................................................... 37,045
78,000 PT Lippo Life Insurance (a).................................................... 71,825
44,000 PT Telekomunikasion (a)........................................................ 75,910
----------
227,646
----------
Korea -- 4.7%
3,800 Dong Ah Construction........................................................... 80,947
1,500 Hanwha Chemical................................................................ 11,627
4,532 Korea Mobile Telecommunications--ADR*.......................................... 58,350
4,800 LG Electronics................................................................. 60,781
1,400 LG Information & Communication................................................. 89,467
2,740 Shinhan Bank................................................................... 37,290
----------
338,462
----------
</TABLE>
See accompanying notes to financial statements
161
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS ASIA GROWTH FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Malaysia -- 14.3%
13,000 Ekran..........................................................................$ 54,563
26,000 IJM, Class A................................................................... 61,255
67,000 IOI............................................................................ 102,934
12,000 Kian Joo Can Factory........................................................... 66,521
25,000 Land & General Holdings........................................................ 59,889
35,000 Leader Universal Holdings...................................................... 73,451
14,000 Malakoff....................................................................... 68,739
40,000 MBM Resources.................................................................. 85,528
76,000 Pernas International Holdings.................................................. 92,687
16,000 Rashid Hussein................................................................. 105,801
63,000 Renong......................................................................... 111,756
17,000 United Engineers............................................................... 153,475
----------
1,036,599
----------
Pakistan -- 0.4%
4,420 Pakistan State Oil............................................................. 28,562
----------
Philippines -- 3.6%
137,000 Ayala Land, Series B........................................................... 156,275
125,000 Belle*......................................................................... 34,696
78,000 Pilipino Telephone............................................................. 65,989
----------
256,960
----------
Singapore -- 8.1%
8,000 Cycle & Carriage............................................................... 97,763
13,000 Hong Leong Finance (a)......................................................... 45,151
20,000 Sembawang...................................................................... 105,767
2,500 Singapore Press Holdings (a)................................................... 49,310
15,000 United Overseas Bank (a)....................................................... 167,226
42,000 Wing Tai Holdings.............................................................. 120,060
----------
585,277
----------
Sri Lanka -- 0.5%
162,800 Asia Capital*.................................................................. 22,240
26,000 United Motors Lanka............................................................ 12,661
----------
34,901
----------
Taiwan -- 10.9%
31,000 Accton Technology*............................................................. 110,473
23,000 Cathay Life Insurance.......................................................... 146,364
63,000 China Steel.................................................................... 59,105
54,843 First International Computer*.................................................. 104,700
30,000 Formosa Plastics............................................................... 75,273
28,000 International Commercial Bank China............................................ 85,527
133,000 Pacific Construction*.......................................................... 113,655
71,690 Yang Ming Marine Transport..................................................... 94,891
----------
789,988
----------
</TABLE>
See accompanying notes to financial statements
162
<PAGE>
<PAGE>
SALOMON BROTHERS ASIA GROWTH FUND (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Thailand -- 3.8%
13,650 Bangkok Bank...................................................................$ 101,659
18,000 Dhana Siam Finance (a)......................................................... 42,814
15,000 Property Perfect............................................................... 14,915
16,800 Thai Farmers Bank.............................................................. 81,884
41,000 Thai Telephone & Telecommunications (a)*....................................... 36,770
----------
278,042
----------
Total Common Stocks
(cost $6,667,747)............................................................ 6,621,095
----------
Warrants* -- 2.6%
370,000 China Resources, expires 08/28/97.............................................. 53,578
126,000 Credit Lyonnais Finance, expires 10/23/97...................................... 36,654
2,050,000 Guandong Investments Call, expires 11/27/97.................................... 51,419
800,000 Lai Sun Call, expires 11/13/97................................................. 22,755
120,000 Shanghai & Shenzen, expires 11/20/97........................................... 25,680
----------
Total Warrants
(cost $116,053).............................................................. 190,086
----------
Contracts
- ---------
Purchased Options* -- 0.8%
48,000 Hysan Call (expiring 01/17/97, exercise price $25.3575)........................ 33,822
401 Hang Seng Index OTC Put (expiring 4/2/97, exercise price 13,500 HKD)........... 26,441
----------
Total Purchased Options
(cost $34,452)............................................................... 60,263
----------
Total Investments -- 95.1%
(cost $6,818,252)............................................................ 6,871,444
Other assets in excess of liabilities -- 4.9%.................................. 353,924
----------
Net Assets -- 100.0% ..........................................................$7,225,368
==========
</TABLE>
* Non-income producing security.
(a) Foreign Shares
Abbreviations used in this statement:
ADR American Depository Receipt
GDR Global Depository Receipt
HKD Hong Kong Dollar
OTC Over The Counter
See accompanying notes to financial statements
163
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS CAPITAL FUND INC
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Common Stock -- 93.6%
Basic Industries -- 5.0%
25,000 Guilford Mills............................................................... $ 665,625
65,000 Nalco Chemical............................................................... 2,348,125
60,000 OM Group..................................................................... 1,620,000
40,000 Steel Dynamics *............................................................. 765,000
30,000 Union Camp................................................................... 1,432,500
-----------
6,831,250
-----------
Capital Goods -- 6.2%
45,000 Fluor........................................................................ 2,823,750
55,000 Gulfstream Aerospace *....................................................... 1,333,750
50,000 Lear *....................................................................... 1,706,250
50,000 Tyco International........................................................... 2,643,750
-----------
8,507,500
-----------
Consumer Cyclicals -- 16.7%
20,000 Eastman Kodak................................................................ 1,605,000
40,000 Federated Department Stores *................................................ 1,365,000
125,000 Fine Host *.................................................................. 2,406,250
60,000 Ford Motor................................................................... 1,912,500
25,000 General Motors............................................................... 1,393,750
192,500 Hollinger.................................................................... 1,780,625
20,000 Hollinger International...................................................... 230,000
30,000 Magna International, Class A................................................. 1,672,500
40,000 Omnicom Group................................................................ 1,830,000
140,000 Price/Costco *............................................................... 3,517,500
30,000 Quality Dining *............................................................. 536,250
100,000 Sears, Roebuck............................................................... 4,612,500
-----------
22,861,875
-----------
Consumer Non-Cyclicals -- 16.6%
75,000 Coca-Cola Enterprises........................................................ 3,637,500
400,000 Food Lion.................................................................... 4,050,000
100,000 Hormel Foods................................................................. 2,700,000
100,000 Kroger *..................................................................... 4,650,000
15,000 Loews........................................................................ 1,413,750
75,000 Penn Traffic *............................................................... 271,875
15,000 Philip Morris Companies...................................................... 1,689,375
60,000 Pittston Brink's Group....................................................... 1,620,000
30,000 Ryland Group................................................................. 412,500
100,000 Whitman...................................................................... 2,287,500
-----------
22,732,500
-----------
</TABLE>
See accompanying notes to financial statements
164
<PAGE>
<PAGE>
SALOMON BROTHERS CAPITAL FUND INC (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Energy -- 15.3%
15,000 Amoco........................................................................ $ 1,207,500
40,000 Ashland...................................................................... 1,755,000
45,000 Devon Energy................................................................. 1,563,750
75,000 Holly........................................................................ 2,006,250
20,000 Nuevo Energy *............................................................... 1,040,000
10,000 Oryx Energy Company *........................................................ 247,500
80,000 Sun.......................................................................... 1,950,000
20,000 Tejas Gas *.................................................................. 952,500
75,000 Ultramar Diamond Shamrock.................................................... 2,371,875
150,000 Union Pacific Resources Group................................................ 4,387,500
90,000 Williams Companies........................................................... 3,375,000
-----------
20,856,875
-----------
Financial Services -- 10.2%
20,000 Bank of Boston............................................................... 1,285,000
100,000 Bank of New York............................................................. 3,375,000
15,000 Chase Manhattan Bank......................................................... 1,338,750
100,000 Dime Bancorp *............................................................... 1,475,000
30,000 Glendale Federal Bank *...................................................... 697,500
15,000 Long Island Bancorp.......................................................... 525,000
40,000 Mercantile Bankshares........................................................ 1,280,000
20,000 MGIC Investment ............................................................. 1,520,000
55,000 Travelers Group.............................................................. 2,495,625
-----------
13,991,875
-----------
Health Care -- 8.4%
35,000 Aetna........................................................................ 2,800,000
90,000 Columbia/HCA Healthcare...................................................... 3,667,500
20,000 Rhone-Poulenc Rorer.......................................................... 1,562,500
50,000 SmithKline Beecham-- ADR..................................................... 3,400,000
-----------
11,430,000
-----------
Technology -- 8.4%
20,000 BA Merchant Services, Class A *.............................................. 357,500
62,000 Electric Fuel *.............................................................. 434,000
45,000 First Data................................................................... 1,642,500
10,000 International Business Machines.............................................. 1,510,000
90,000 Plantronics *................................................................ 4,050,000
100,000 S3 *......................................................................... 1,625,000
75,000 Silicon Graphics *........................................................... 1,912,500
-----------
11,531,500
-----------
Telecommunications & Utilities -- 2.6%
80,000 AT&T......................................................................... 3,480,000
-----------
Transportation -- 4.2%
75,000 Canadian National Railway.................................................... 2,850,000
110,000 Canadian Pacific............................................................. 2,915,000
-----------
5,765,000
-----------
Total Common Stocks
(cost $106,691,533)........................................................ 127,988,375
-----------
</TABLE>
See accompanying notes to financial statements
165
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS CAPITAL FUND INC (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Convertible Preferred Stocks -- 2.2%
Capital Goods--1.1%
30,000 Crown Cork & Seal 4.50%...................................................... $1,560,000
-----------
Consumer Cyclicals--1.1%
125,000 Hollinger International 9.75%................................................ 1,437,500
-----------
Total Convertible Preferred Stocks
(cost $2,549,313).......................................................... 2,997,500
-----------
Principal
Amount
- ---------
Corporate Bonds--1.5%
Consumer Non-Cyclicals--1.5%
$ 3,500,000 Penn Traffic, 9.625%, due 04/15/05 (cost $1,963,300)......................... 2,021,250
-----------
Contracts
- ----------
Purchased Options*--0.1%
50 S&P Midcap Index Call
(expiring January 1997, exercise price $240)............................... 76,875
100 S&P Midcap Index Call
(expiring January 1997, exercise price $265)............................... 6,875
100 S&P 500 Index Call
(expiring January 1997, exercise price $800)............................... 3,750
-----------
Total Purchased Options
(cost $148,250)........................................................... 87,500
-----------
Total Investments--97.4%
(cost $111,352,396)...................................................... 133,094,625
Principal
Amount
- ---------
Repurchase Agreement--2.7%
$ 3,667,000 Repurchase Agreement, 6.75%, due 01/02/97, dated
12/31/96, with UBS Securities, collateralized by
$3,029,000 U.S. Treasury Bonds, 8.75%, due
05/15/17 valued at $3,740,815; proceeds: $3,668,375
(cost $3,667,000).......................................................... 3,667,000
Liabilities in excess of other assets--(0.1%).............................. (126,255)
------------
Net Assets--100.0%..................................................... $136,635,370
============
</TABLE>
* Non-income producing security.
Abbreviation used in this statement:
ADR American Depository Receipt
See accompanying notes to financial statements
166
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTORS FUND INC
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Common Stocks--94.7%
Basic Industries--8.3%
90,700 Crown Cork & Seal............................................................ $ 4,931,813
96,000 Du Pont (E.I.) de Nemours.................................................... 9,060,000
7,800 Millennium Chemicals......................................................... 138,450
150,000 Nalco Chemical............................................................... 5,418,750
318,000 OM Group..................................................................... 8,586,000
265,000 Praxair...................................................................... 12,223,125
100,000 Union Camp................................................................... 4,775,000
-----------
45,133,138
-----------
Capital Goods--8.5%
100,000 AlliedSignal................................................................. 6,700,000
115,500 Deere........................................................................ 4,692,188
77,500 General Electric............................................................. 7,662,813
385,000 Gulfstream Aerospace *....................................................... 9,336,250
225,000 Tyco International........................................................... 11,896,875
100,000 York International........................................................... 5,587,500
-----------
45,875,626
-----------
Consumer Cyclicals--11.4%
100,000 Eastman Kodak................................................................ 8,025,000
140,000 Federated Department Stores *................................................ 4,777,500
72,000 Ford Motor................................................................... 2,295,000
80,000 General Motors............................................................... 4,460,000
366,500 Host Marriott *.............................................................. 5,864,000
195,000 Lear *....................................................................... 6,654,375
70,000 Magna International, Class A................................................. 3,902,500
300,000 Price/Costco *............................................................... 7,537,500
168,200 Sears, Roebuck............................................................... 7,758,225
105,000 Sherwin-Williams............................................................. 5,880,000
132,200 U.S. Industries *............................................................ 4,544,375
-----------
61,698,475
-----------
Consumer Non-Cyclicals--9.5%
191,700 Coca-Cola Enterprises........................................................ 9,297,450
105,000 ConAgra...................................................................... 5,223,750
70,000 Estee Lauder Companies, Class A.............................................. 3,561,250
175,400 Hormel Foods................................................................. 4,735,800
209,200 Kroger *..................................................................... 9,727,800
50,000 Loews........................................................................ 4,712,500
99,000 Penn Traffic *............................................................... 358,875
60,500 Philip Morris Companies...................................................... 6,813,813
250,000 Pittston Brink's Group....................................................... 6,750,000
-----------
51,181,238
-----------
</TABLE>
See accompanying notes to financial statements
167
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS INVESTORS FUND INC (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Energy--11.8%
113,500 Amoco........................................................................ $ 9,136,750
85,000 Chevron...................................................................... 5,525,000
75,000 Dresser Industries........................................................... 2,325,000
92,700 Mobil........................................................................ 11,332,575
69,000 Royal Dutch Petroleum, 5 Guilder............................................. 11,781,750
150,000 Suncor....................................................................... 6,206,250
133,557 TOTAL-- ADR.................................................................. 5,375,669
131,613 Union Pacific Resources Group................................................ 3,849,663
215,700 Williams Companies........................................................... 8,088,750
-----------
63,621,407
-----------
Financial Services--14.8%
57,500 ADVANTA, Class B............................................................. 2,350,313
85,600 American Express............................................................. 4,836,400
78,300 Associates First Capital..................................................... 3,454,988
157,500 Bank of Boston............................................................... 10,119,375
414,400 Bank of New York............................................................. 13,986,000
29,000 Chase Manhattan Bank......................................................... 2,588,250
146,000 Dime Bancorp *............................................................... 2,153,500
73,500 Federal Home Loan Mortgage Corporation....................................... 8,094,188
57,500 Federal National Mortgage Association........................................ 2,141,875
110,000 Long Island Bancorp.......................................................... 3,850,000
82,500 MGIC Investment.............................................................. 6,270,000
175,000 SunAmerica................................................................... 7,765,625
277,686 Travelers Group.............................................................. 12,599,999
-----------
80,210,513
-----------
Health Care--11.6%
106,500 Aetna........................................................................ 8,520,000
120,000 American Home Products....................................................... 7,035,000
210,000 Astra AB, Class A............................................................ 10,378,126
360,000 Columbia/HCA Healthcare...................................................... 14,670,000
125,000 Rhone-Poulenc Rorer.......................................................... 9,765,625
180,000 SmithKline Beecham-- ADR..................................................... 12,240,000
-----------
62,608,751
-----------
Real Estate Investment Trusts--5.2%
235,000 Arden Realty Group........................................................... 6,521,250
112,000 Beacon Properties............................................................ 4,102,000
150,000 Highwoods Properties......................................................... 5,062,500
149,500 Patriot American Hospitality................................................. 6,447,188
178,100 Sun Communities.............................................................. 6,144,450
-----------
28,277,388
-----------
</TABLE>
See accompanying notes to financial statements
168
<PAGE>
<PAGE>
SALOMON BROTHERS INVESTORS FUND INC (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Technology--7.4%
80,000 BA Merchant Services, Class A *.............................................. $ 1,430,000
162,500 Ceridian *................................................................... 6,581,250
35,500 DST Systems *................................................................ 1,113,813
379,000 First Data................................................................... 13,833,500
16,000 First USA Paymentech *....................................................... 542,000
46,000 International Business Machines.............................................. 6,946,000
30,000 National Data................................................................ 1,305,000
56,600 Plantronics *................................................................ 2,547,000
90,239 Seagate Technology *......................................................... 3,564,441
75,500 Silicon Graphics *........................................................... 1,925,250
-----------
39,788,254
-----------
Telecommunications & Utilities--1.3%
156,400 AT&T......................................................................... 6,803,400
-----------
Transportation--4.9%
375,000 Canadian National Railway.................................................... 14,250,000
365,000 Canadian Pacific............................................................. 9,672,500
45,000 Union Pacific................................................................ 2,705,625
-----------
26,628,125
-----------
Total Common Stocks
(cost $341,266,581)........................................................ 511,826,315
-----------
Convertible Preferred Stocks--0.5%
Financial Services--0.5%
65,000 SunAmerica $3.188 (cost $2,437,500)...................................... 2,746,250
-----------
Principal
Amount
- --------
Convertible Corporate Bonds--0.9%
Consumer Cyclicals--0.4%
$ 2,000,000 Federated Department Stores, 5.00%, due 10/01/03 ......................... 2,295,000
-----------
Financial Services--0.5%
2,500,000 National Data, 5.00%, due 11/01/03........................................ 2,593,750
-----------
Total Convertible Corporate Bonds
(cost $4,522,368)....................................................... 4,888,750
-----------
Total Investments--96.1%
(cost $348,226,449).................................................... 519,461,315
Repurchase Agreement--3.9%
21,222,000 Repurchase Agreement, 6.75%, due 01/02/97, dated 12/31/96,
with UBS Securities, collateralized by $18,191,000
U.S. Treasury Bonds, 8.125%, due 8/15/19,
valued at $21,647,290; proceeds: $21,229,958
(cost $21,222,000)........................................................ 21,222,000
Liabilities in excess of other assets--(0.0%)............................ (25,489)
------------
Net Assets--100.0%....................................................... $540,657,826
============
</TABLE>
* Non-income producing security.
Abbreviation used in this statement:
ADR American Depository Receipt
See accompanying notes to financial statements
169
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS TOTAL RETURN FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Common Stocks--44.7%
Basic Industries--6.5%
5,000 Aluminum Company of America.................................................. $ 318,750
4,600 Dow Chemical................................................................. 360,525
7,000 Du Pont (E.I.) de Nemours.................................................... 660,625
10,000 Monsanto..................................................................... 388,750
16,000 Nalco Chemical............................................................... 578,000
11,000 Petrolite.................................................................... 528,000
12,000 Union Camp................................................................... 573,000
-----------
3,407,650
-----------
Capital Goods--2.4%
4,800 Boeing....................................................................... 510,600
8,000 Deere........................................................................ 325,000
5,000 Raytheon..................................................................... 240,625
2,200 Textron...................................................................... 207,350
-----------
1,283,575
-----------
Consumer Cyclicals--5.3%
13,000 Eastman Kodak................................................................ 1,043,250
14,000 Ford Motor................................................................... 446,250
5,000 General Motors............................................................... 278,750
9,100 May Department Stores........................................................ 425,425
7,499 Price/Costco *............................................................... 188,412
10,000 Ryland Group................................................................. 137,500
5,700 Sears, Roebuck............................................................... 262,913
-----------
2,782,500
-----------
Consumer Non-Cyclicals--2.5%
75,000 Food Lion.................................................................... 759,375
5,000 Philip Morris Companies...................................................... 563,125
-----------
1,322,500
-----------
Energy--8.5%
6,500 Amoco........................................................................ 523,250
16,000 Dresser Industries........................................................... 496,000
4,000 Exxon........................................................................ 392,000
2,000 Mobil........................................................................ 244,500
2,000 Royal Dutch Petroleum, 5 Guilder............................................. 341,500
12,500 Sun.......................................................................... 304,688
20,000 Suncor....................................................................... 827,500
3,000 Texaco....................................................................... 294,375
17,000 USX-Marathon Group........................................................... 405,875
18,000 Williams Companies........................................................... 675,000
-----------
4,504,688
-----------
Financial Services--5.1%
8,000 Allstate..................................................................... 463,000
10,000 Bay View Capital............................................................. 423,750
2,500 Cigna........................................................................ 341,563
5,300 Citicorp..................................................................... 545,900
10,000 First Virginia Banks......................................................... 478,750
6,000 UNUM......................................................................... 433,500
-----------
2,686,463
-----------
</TABLE>
See accompanying notes to financial statements
170
<PAGE>
<PAGE>
SALOMON BROTHERS TOTAL RETURN FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Value
Shares Description (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Health Care--3.4%
6,000 Aetna........................................................................ $ 480,000
9,000 American Home Products....................................................... 527,625
11,200 SmithKline Beecham--ADR....................................................... 761,600
-----------
1,769,225
-----------
Real Estate Investment Trusts--5.9%
20,000 Arden Realty Group........................................................... 555,000
21,000 Beacon Properties............................................................ 769,125
22,000 Highwoods Properties......................................................... 742,500
15,000 Patriot American Hospitality................................................. 646,875
18,000 Prentiss Properties Trust *.................................................. 450,000
-----------
3,163,500
-----------
Telecommunications & Utilities--2.8%
6,000 American Electric Power...................................................... 246,750
5,000 Ameritech.................................................................... 303,125
10,000 AT&T......................................................................... 435,000
11,000 GTE.......................................................................... 500,500
-----------
1,485,375
-----------
Transportation--2.3%
32,000 Canadian National Railway.................................................... 1,216,000
-----------
Total Common Stocks
(cost $19,765,803)......................................................... 23,621,476
-----------
Convertible Preferred Stocks--4.7%
Basic Industries--0.8%
3,000 AK Steel Holdings 7.00%...................................................... 105,750
4,000 Boise Cascade $1.58.......................................................... 104,500
4,000 Crown Cork & Seal 4.50%...................................................... 208,000
-----------
418,250
-----------
Consumer Cyclicals--0.5%
15,000 Hollinger International 9.75%................................................ 172,500
2,000 Host Marriott 6.75%.......................................................... 107,250
-----------
279,750
-----------
Consumer Non-Cyclicals--0.2%
2,000 James River $3.50............................................................ 103,500
-----------
Energy--2.0%
2,500 Ashland $3.125............................................................... 171,563
6,500 Enron 6.25%.................................................................. 156,000
30,000 Mesa 8.00% (a)............................................................... 191,250
7,500 Sun $1.80.................................................................... 188,438
3,000 Tosco 5.75%.................................................................. 154,500
2,000 Ultramar Diamond Shamrock 5.00%.............................................. 123,000
2,500 USX 6.75%.................................................................... 65,938
-----------
1,050,689
-----------
</TABLE>
See accompanying notes to financial statements
171
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS TOTAL RETURN FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Interest Maturity Value
Shares Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C>
Financial Services--0.6%
2,500 Finova Finance Trust 5.50%................................................... $131,250
3,000 Glendale Federal Bank 8.75%.................................................. 176,250
-----------
307,500
-----------
Health Care--0.3%
2,000 Aetna 6.25%.................................................................. 158,750
-----------
Technology--0.3%
2,000 Microsoft $2.196............................................................. 160,250
-----------
Total Convertible Preferred Stocks
(cost $2,284,669).......................................................... 2,478,689
-----------
Principal
Amount
- --------
Corporate Bonds--21.5%
Basic Industries--3.9%
$100,000 Algoma Steel............................... 12.375% 07/15/05 108,000
200,000 Alvey Systems.............................. 11.375 01/31/03 208,500
200,000 Clark-Schwebel............................. 10.500 04/15/06 214,000
100,000 Crown Paper................................ 11.000 09/01/05 94,000
100,000 Foamex..................................... 11.875 10/01/04 106,750
200,000 Four M..................................... 12.000 06/01/06 208,000
200,000 Norcal Waste Systems....................... 13.000 11/15/05 221,000
375,000 Pohang Iron & Steel........................ 7.500 08/01/02 385,586
100,000 Renco Metals............................... 11.500 07/01/03 104,500
200,000 Southdown.................................. 10.000 03/01/06 211,000
200,000 Specialty Equipment........................ 11.375 12/01/03 218,500
-----------
2,079,836
-----------
Consumer Cyclicals--3.2%
50,000 Continental Homes Holding.................. 6.875 11/01/02 52,938
150,000 Finlay Fine Jewelry........................ 10.625 05/01/03 150,750
100,000 Guitar Center Management................... 11.000 07/01/06 106,000
100,000 Herff Jones................................ 11.000 08/15/05 107,500
200,000 Hines Horticulture......................... 11.750 10/15/05 214,000
100,000 Jitney-Jungle Stores....................... 12.000 03/01/06 105,750
200,000 Revlon Worldwide (b)....................... 10.379 03/15/98 172,000
100,000 Speedy Muffler King........................ 10.875 10/01/06 106,625
380,000 Stand Credit Card Master Trust............. 7.850 02/07/02 395,675
50,000 U.S. Home.................................. 4.875 11/01/05 44,250
200,000 Wyndham Hotel.............................. 10.500 05/15/06 213,000
-----------
1,668,488
-----------
</TABLE>
See accompanying notes to financial statements
172
<PAGE>
<PAGE>
SALOMON BROTHERS TOTAL RETURN FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer Non-Cyclicals--4.8%
$100,000 American Safety Razor...................... 9.875% 08/01/05 $ 106,250
100,000 Americold.................................. 12.875 05/01/08 103,500
200,000 Berry Plastics............................. 12.250 04/15/04 221,000
100,000 Borg-Warner................................ 9.125 05/01/03 98,000
100,000 Carr-Gottstein Foods....................... 12.000 11/15/05 106,750
100,000 Cobb Theatres.............................. 10.625 03/01/03 105,750
150,000 Doane Products............................. 10.625 03/01/06 159,750
150,000 Eyecare Centers of America................. 12.000 10/01/03 162,750
100,000 Iron Mountain.............................. 10.125 10/01/06 106,000
200,000 Jordan Industries.......................... 10.375 08/01/03 197,000
200,000 Radnor Holdings............................ 10.000 12/01/03 204,000
200,000 Rayovac.................................... 10.250 11/01/06 206,000
200,000 Remington Product.......................... 11.000 05/15/06 171,000
100,000 Samsonite.................................. 11.125 07/15/05 109,500
100,000 Selmer..................................... 11.000 05/15/05 108,000
200,000 Stroh Brewery.............................. 11.100 07/01/06 209,500
200,000 Trump Atlantic City........................ 11.250 05/01/06 198,000
-----------
2,572,750
-----------
Energy--0.8%
200,000 Cliffs Drilling............................ 10.250 05/15/03 212,750
200,000 National Energy Group...................... 10.750 11/01/06 208,000
-----------
420,750
-----------
Financial Services--4.2%
495,000 Associates N.A............................. 5.600 01/15/01 477,175
275,000 Commercial Credit.......................... 6.875 05/01/02 277,076
200,000 Dollar Financial........................... 10.875 11/15/06 207,000
525,000 Ford Motor Credit.......................... 6.250 12/08/05 497,427
250,000 Mellon Financial........................... 9.750 06/15/01 277,920
350,000 Nationsbank Credit Card Master Trust....... 6.450 04/15/03 351,313
100,000 USL Capital................................ 8.125 02/15/00 104,450
-----------
2,192,361
-----------
Health Care--0.8%
300,000 Aetna...................................... 7.625 08/15/26 302,502
100,000 Fresenius Medical Care..................... 9.000 12/01/06 101,750
-----------
404,252
-----------
Media--1.7%
200,000 American Media Operation................... 11.625 11/15/04 215,000
200,000 Cablevision Systems........................ 10.500 05/15/16 206,500
200,000 Diamond Cable
(Zero Coupon until 12/15/00, 11.75%
thereafter) (b).......................... 11.750 12/15/05 144,000
200,000 Marcus Cable
(Zero Coupon until 12/15/00, 14.125%
thereafter) (b).......................... 12.921 12/15/05 141,250
100,000 SFX Broadcasting........................... 10.750 05/15/06 105,500
150,000 United International Holdings (b).......... 13.187 11/15/99 106,500
-----------
918,750
-----------
</TABLE>
See accompanying notes to financial statements
173
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS TOTAL RETURN FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Technology--1.1%
$200,000 Exide Electronics Group, including 200 warrants 11.500% 03/15/06 $ 219,000
100,000 Talley Manufacturing & Technology.......... 10.750 10/15/03 103,250
100,000 UNC........................................ 11.000 06/01/06 107,500
150,000 Xilinx..................................... 5.250 11/01/02 149,250
-----------
579,000
-----------
Telecommunications & Utilities--1.0%
200,000 Arch Communications Group
(Zero Coupon until 03/15/01, 10.875%
thereafter) (b)........................ 10.875 03/15/08 114,000
125,000 ICG Holdings
(Zero Coupon until 09/15/00, 13.50%
thereafter) (b)......................... 12.725 09/15/05 88,125
150,000 International CableTel
(Zero Coupon until 02/01/01, 11.500%
thereafter) (b)......................... 11.804 02/01/06 102,000
200,000 Western Wireless.......................... 10.500 06/01/06 209,500
-----------
513,625
-----------
Total Corporate Bonds
(cost $11,125,665)....................... 11,349,812
-----------
Convertible Corporate Bonds--7.4%
Basic Industries--0.5%
150,000 Coeur D'Alene Mines........................ 6.375 01/31/04 140,250
100,000 Inco....................................... 5.750 07/01/04 123,000
-----------
263,250
-----------
Consumer Cyclicals--2.4%
100,000 Charming Shoppes........................... 7.500 07/15/06 99,500
150,000 Federated Department Stores................ 5.000 10/01/03 172,125
125,000 Guilford Mills............................. 6.000 09/15/12 126,875
750,000 Hollinger (b).............................. 6.607 10/05/13 266,250
200,000 Home Depot................................. 3.250 10/01/01 195,000
150,000 Magna International........................ 5.000 10/15/02 172,125
75,000 Price/Costco............................... 5.500 02/28/12 78,750
150,000 Waban...................................... 6.500 07/01/02 163,875
-----------
1,274,500
-----------
Consumer Non-Cyclicals--0.8%
450,000 Texas Instruments.......................... 6.125 02/01/06 424,665
-----------
Energy--0.6%
200,000 Baker Hughes (b)........................... 3.246 05/05/08 151,000
150,000 Pennzoil................................... 4.750 10/01/03 175,500
-----------
326,500
-----------
Financial Services--0.7%
75,000 First Financial Management................. 5.000 12/15/99 129,281
200,000 Sandoz Capital............................. 2.000 10/06/02 216,000
-----------
345,281
-----------
</TABLE>
See accompanying notes to financial statements
174
<PAGE>
<PAGE>
SALOMON BROTHERS TOTAL RETURN FUND (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Technology--1.6%
$200,000 Data General............................... 7.750% 06/01/01 $206,000
50,000 General Signal............................. 5.750 06/01/02 54,750
150,000 National Data.............................. 5.000 11/01/03 155,625
75,000 Quantum.................................... 5.000 03/01/03 104,531
150,000 S3......................................... 5.750 10/01/03 168,000
300,000 Silicon Graphics (b)....................... 3.836 11/02/13 157,875
-----------
846,781
-----------
Telecommunications & Utilities--0.5%
750,000 U.S. Cellular (b).......................... 5.573 06/15/15 250,313
-----------
Transportation--0.3%
150,000 Continental Airlines....................... 6.750 04/15/06 165,000
-----------
Total Convertible Corporate Bonds
(cost $3,820,099)........................ 3,896,290
-----------
U.S. Government & Agency--11.4%
295,188 Federal Home Loan Mortgage Corporation..... 6.500 03/01/26 282,637
298,440 Federal Home Loan Mortgage Corporation..... 6.500 03/01/26 285,663
250,000 Federal National Mortgage Association (c).. 7.000 ** 244,766
250,000 Federal National Mortgage Association...... 7.000 ** 244,765
44,838 Federal National Mortgage Association...... 6.500 10/01/10 44,181
297,977 Federal National Mortgage Association...... 6.500 10/01/11 292,948
102,927 Federal National Mortgage Association...... 7.500 08/01/23 103,230
96,652 Federal National Mortgage Association...... 7.000 09/01/25 94,603
89,578 Federal National Mortgage Association...... 6.500 12/01/25 85,573
293,575 Federal National Mortgage Association...... 7.000 03/01/26 287,611
503,209 Federal National Mortgage Association...... 6.500 06/01/26 480,082
94,917 Government National Mortgage Association... 7.500 01/15/23 95,772
202,380 Government National Mortgage Association... 7.500 03/15/26 202,760
200,000 U.S. Treasury Bond......................... 7.625 02/15/25 222,156
710,000 U.S. Treasury Note......................... 6.625 07/31/01 721,317
540,000 U.S. Treasury Note......................... 6.250 10/31/01 540,508
950,000 U.S. Treasury Note......................... 5.750 08/15/03 921,496
325,000 U.S. Treasury Note (d)..................... 7.000 07/15/06 337,646
525,000 U.S. Treasury Note......................... 6.500 10/15/06 527,872
-----------
Total U.S. Government & Agency
(cost $6,029,146)........................ 6,015,586
-----------
Total Investments--89.7%
(cost $43,025,382)....................... 47,361,853
Repurchase Agreements--9.5%
4,996,000 Repurchase Agreement dated 12/31/96, with J.P.
Morgan Securities, collateralized by $4,053,000
U.S. Treasury Bonds, 8.75%, due 08/15/20 valued
at $5,121,979; proceeds: $4,997,832
(cost $4,996,000)......................... 6.600 01/02/97 4,996,000
Other assets in excess of liabilities--0.8%. 450,898
-----------
Net Assets--100.0%.......................... $52,808,751
===========
</TABLE>
* Non-income producing security.
** To be announced.
(a) Security pays payment-in-kind dividends through 09/30/00.
(b) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(c) Mortgage Dollar Roll. See Note 1.
(d) Security segregated for mortgage dollar roll.
Abbreviation used in this statement:
ADR American Depository Receipt
See accompanying notes to financial statements
175
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Bonds -- 73.8%
Basic Industries -- 15.1%
1,000,000 Algoma Steel............................... 12.375% 07/15/05 $1,080,000
1,500,000 Alvey Systems.............................. 11.375 01/31/03 1,563,750
500,000 Asia Pulp & Paper International Finance.... 11.750 10/01/05 536,250
1,500,000 Clark Materials............................ 10.750 11/15/06 1,560,000
1,000,000 Clark-Schwebel............................. 10.500 04/15/06 1,070,000
1,000,000 Commonwealth Aluminum...................... 10.750 10/01/06 1,030,000
1,000,000 Crown Paper................................ 11.000 09/01/05 940,000
500,000 Doman Industries Limited................... 8.750 03/15/04 467,500
1,500,000 Foamex..................................... 11.875 10/01/04 1,601,250
500,000 Forest Oil................................. 11.250 09/01/03 527,500
1,000,000 Freedom Chemical........................... 10.625 10/15/06 1,050,000
1,000,000 ISP Holdings............................... 9.000 10/15/03 1,015,000
1,000,000 Mesa Operating............................. 10.625 07/01/06 1,085,000
3,350,000 NL Industries
(Zero Coupon until 10/15/98, 13.00%
thereafter)(b)........................... 11.777 10/15/05 2,881,000
1,000,000 Norcal Waste Systems *..................... 13.000 11/15/05 1,105,000
1,000,000 Pierce Leahy............................... 11.125 07/15/06 1,092,500
1,000,000 Plastic Containers......................... 10.000 12/15/06 1,040,000
1,000,000 Renco Metals............................... 11.500 07/01/03 1,045,000
500,000 Repap Wisconsin............................ 9.875 05/01/06 510,000
1,000,000 Sequa...................................... 9.375 12/15/03 1,020,000
500,000 Southdown.................................. 10.000 03/01/06 527,500
1,250,000 Specialty Equipment........................ 11.375 12/01/03 1,365,625
1,000,000 Spinnaker Industries....................... 10.750 10/15/06 1,045,000
500,000 Terex...................................... 13.250 05/15/02 542,500
1,500,000 Texas Petrochemical........................ 11.125 07/01/06 1,612,500
1,000,000 Valcor..................................... 9.625 11/01/03 945,000
-----------
28,257,875
-----------
Consumer Cyclicals -- 13.9%
1,000,000 AmeriKing.................................. 10.750 12/01/06 1,040,000
1,500,000 Cinemark USA............................... 9.625 08/01/08 1,500,000
1,300,000 Cole National Group........................ 9.875 12/31/06 1,339,000
1,500,000 CSK Auto................................... 11.000 11/01/06 1,575,000
2,000,000 Delta Beverage............................. 9.750 12/15/03 2,052,500
1,500,000 E & S Holdings............................. 10.375 10/01/06 1,571,250
1,000,000 Guitar Center Management................... 11.000 07/01/06 1,060,000
1,000,000 Herff Jones................................ 11.000 08/15/05 1,075,000
500,000 Hines Horticulture......................... 11.750 10/15/05 535,000
1,000,000 Hollinger International Publishing......... 9.250 02/01/06 990,000
1,800,000 Lamar Advertising.......................... 9.625 12/01/06 1,872,000
1,000,000 Newport News Shipbuilding.................. 9.250 12/01/06 1,025,000
3,500,000 Revlon Worldwide(b)........................ 11.494 03/15/98 3,010,000
1,000,000 Safelite Glass............................. 9.875 12/15/06 1,032,500
1,500,000 Scholastic Brands.......................... 11.000 01/15/07 1,526,250
500,000 Simmons.................................... 10.750 04/15/06 522,500
500,000 Specialty Retailers........................ 11.000 08/15/03 515,000
1,000,000 Speedy Muffler King........................ 10.875 10/01/06 1,066,250
1,500,000 Universal Outdoor.......................... 9.750 10/15/06 1,548,750
1,000,000 Wyndham Hotel.............................. 10.500 05/15/06 1,065,000
-----------
25,921,000
-----------
</TABLE>
See accompanying notes to financial statements
176
<PAGE>
<PAGE>
SALOMON BROTHERS HIGH YIELD BOND FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer Non-Cyclicals -- 15.1%
500,000 Americold.................................. 12.875% 05/01/08 $ 517,500
1,500,000 Berry Plastics............................. 12.250 04/15/04 1,657,500
1,000,000 Big V Supermarkets......................... 11.000 12/15/04 920,000
500,000 Borg-Warner................................ 9.125 05/01/03 490,000
1,000,000 Carr-Gottstein Foods....................... 12.000 11/15/05 1,067,500
500,000 Cobb Theatres.............................. 10.625 03/01/03 528,750
1,000,000 Dade International......................... 11.125 05/01/06 1,085,000
1,500,000 Doane Products............................. 10.625 03/01/06 1,597,500
1,000,000 Ekco Group................................. 9.250 04/01/06 980,000
750,000 Harvey Casinos............................. 10.625 06/01/06 791,250
1,000,000 Hills Stores............................... 12.500 07/01/03 887,500
250,000 Hollywood Casino........................... 12.750 11/01/03 240,000
1,300,000 IMED....................................... 9.750 12/01/06 1,322,750
1,000,000 Iron Mountain.............................. 10.125 10/01/06 1,060,000
1,000,000 Jordan Industries.......................... 10.375 08/01/03 985,000
250,000 Jordan Industries
(Zero Coupon until 08/01/98, 11.75%
thereafter)(b)............................ 14.013 08/01/05 198,750
1,000,000 Majestic Star Casino....................... 12.750 05/15/03 1,072,500
1,000,000 Penn Traffic............................... 9.625 04/15/05 577,500
1,000,000 Plastic Specialties........................ 11.250 12/01/03 1,040,000
2,000,000 Radnor Holdings............................ 10.000 12/01/03 2,040,000
1,500,000 Rayovac.................................... 10.250 11/01/06 1,545,000
1,500,000 Remington Product.......................... 11.000 05/15/06 1,282,500
800,000 Rose Hills................................. 9.500 11/15/04 822,000
500,000 Selmer..................................... 11.000 05/15/05 540,000
1,000,000 Smiths Food & Drug......................... 11.250 05/15/07 1,105,000
250,000 Specialty Foods............................ 11.125 10/01/02 237,500
2,000,000 Stroh Brewery.............................. 11.100 07/01/06 2,095,000
1,000,000 Trump Atlantic City........................ 11.250 05/01/06 990,000
500,000 Twin Laboratories.......................... 10.250 05/15/06 515,000
-----------
28,191,000
-----------
Energy -- 4.2%
500,000 Benton Oil & Gas........................... 11.625 05/01/03 553,750
1,500,000 Cliffs Drilling............................ 10.250 05/15/03 1,595,625
2,000,000 Costilla Energy............................ 10.250 10/01/06 2,090,000
750,000 Flores & Rucks............................. 9.750 10/01/06 795,000
1,500,000 National Energy Group...................... 10.750 11/01/06 1,560,000
1,250,000 Parker Drilling............................ 9.750 11/15/06 1,318,750
-----------
7,913,125
-----------
Financial Services -- 4.0%
1,000,000 Aames Financial............................ 9.125 11/01/03 1,017,500
1,000,000 Dollar Financial........................... 10.875 11/15/06 1,035,000
1,000,000 First Nationwide Escrow.................... 10.625 10/01/03 1,080,000
1,400,000 HMH Properties............................. 9.500 05/15/05 1,456,000
1,000,000 Intertek Finance PLC....................... 10.250 11/01/06 1,040,000
2,000,000 Tembec Finance............................. 9.875 09/30/05 1,870,000
-----------
7,498,500
-----------
</TABLE>
See accompanying notes to financial statements
177
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS HIGH YIELD BOND FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal
Value Interest Maturity
Amount(a) Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Health Care -- 1.1%
1,000,000 Fresenius Medical Care..................... 9.000% 12/01/06 $1,017,500
1,000,000 Maxxim Medical............................. 10.500 08/01/06 1,045,000
-----------
2,062,500
-----------
Media -- 7.1%
2,000,000 Adelphia Communications.................... 12.500 05/15/02 2,050,000
500,000 American Media Operation................... 11.625 11/15/04 537,500
2,000,000 Cablevision Systems........................ 10.500 05/15/16 2,065,000
1,500,000 Chancellor Broadcasting.................... 9.375 10/01/04 1,515,000
1,500,000 Diamond Cable
(Zero Coupon until 12/15/00, 11.75%
thereafter)(b)........................... 11.732 12/15/05 1,080,000
2,750,000 Marcus Cable
(Zero Coupon until 06/15/00, 14.125%
thereafter)(b)........................... 13.068 12/15/05 1,942,188
1,000,000 Rogers Cable Systems....................... 10.000 03/15/05 1,072,500
1,500,000 SFX Broadcasting........................... 10.750 05/15/06 1,582,500
1,750,000 United International Holdings(b)........... 12.392 11/15/99 1,242,500
250,000 Wireless One............................... 13.000 10/15/03 242,500
-----------
13,329,688
-----------
Technology -- 2.9%
1,000,000 Exide Electronics Group.................... 11.500 03/15/06 1,065,000
1,000,000 Mettler Toledo............................. 9.750 10/01/06 1,050,000
1,500,000 Talley Manufacturing & Technology ......... 10.750 10/15/03 1,548,750
500,000 Telex Communications....................... 12.000 07/15/04 557,500
1,000,000 UNC........................................ 11.000 06/01/06 1,075,000
-----------
5,296,250
-----------
Telecommunications & Utilities -- 7.8%
1,000,000 AES........................................ 10.250 07/15/06 1,080,000
1,500,000 AES China Generating....................... 10.125 12/15/06 1,567,500
900,000 Arch Communications Group
(Zero Coupon until 03/15/01, 10.875%
thereafter)(b)........................... 10.875 03/15/08 513,000
500,000 El Paso Electric........................... 9.400 05/01/11 530,000
2,500,000 ICG Holdings
(Zero Coupon until 09/15/00, 13.50%
thereafter)(b)........................... 11.712 09/15/05 1,762,500
1,000,000 Intermedia Commission of Florida
(Zero Coupon until 05/15/01, 12.50%
thereafter)(b)............................ 12.271 05/15/06 680,000
2,250,000 International CableTel
(Zero Coupon until 02/01/01, 11.500%
thereafter)(b)............................ 11.416 02/01/06 1,530,000
1,810,000 Jacor Communications....................... 9.750 12/15/06 1,846,200
1,000,000 Nextlink................................... 12.500 04/15/06 1,065,000
2,000,000 Paging Network............................. 10.000 10/15/08 2,032,500
1,500,000 Western Wireless........................... 10.500 06/01/06 1,571,250
600,000 Winstar Communications
(Zero Coupon until 10/15/00, 14.00%
thereafter)(b)............................ 14.000 10/15/05 370,500
-----------
14,548,450
-----------
</TABLE>
See accompanying notes to financial statements
178
<PAGE>
<PAGE>
SALOMON BROTHERS HIGH YIELD BOND FUND (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transportation -- 2.6%
500,000 Airplanes Pass Through Trust ................. 10.875% 03/15/19 $ 556,250
2,000,000 Central Transport Rental Group ............... 9.500 04/30/03 1,900,000
250,000 Petro PSC Properties.......................... 12.500 06/01/02 255,000
1,300,000 Ryder TRS..................................... 10.000 12/01/06 1,355,250
890,000 Venture Holdings Trust........................ 9.750 04/01/04 818,800
-----------
4,885,300
-----------
Total Corporate Bonds
(cost $133,998,075)......................... 137,903,688
-----------
Convertible Corporate Bonds -- 0.1%
Telecommunications & Utilities -- 0.1%
300,000 Winstar Communications
(Zero Coupon until 10/15/00, 14.00%
thereafter)(b) (cost $180,024).............. 14.000 10/15/05 198,000
-----------
Sovereign Bonds -- 17.5%
Argentina -- 2.7%
3,675,000 Republic of Argentina FRB *................... 6.625 03/31/05 3,201,844
ARP 684,712 Republic of Argentina, BOCON, Pre 1 *(c)...... 3.576 04/01/01 593,952
1,044,668 Republic of Argentina, BOCON, Pre 2 *(c)...... 5.375 04/01/01 990,000
250,000 Republic of Argentina, Par Bond, Series L*.... 5.250 03/31/23 157,656
-----------
4,943,452
-----------
Brazil -- 3.7%
7,984,933 Federal Republic of Brazil,
Capitalization Bond(c) ..................... 4.500 04/15/14 5,893,876
1,500,000 Federal Republic of Brazil,
Investment (Exit) Bond ..................... 6.000 09/15/13 1,074,375
-----------
6,968,251
-----------
Bulgaria -- 0.8%
3,000,000 Republic of Bulgaria FLIRB, Series A * ....... 2.250 07/28/12 1,153,125
750,000 Republic of Bulgaria, Discount Bond,
Tranche A * ................................ 6.688 07/28/24 426,094
-----------
1,579,219
-----------
Ecuador -- 2.6%
6,714,429 Republic of Ecuador, PDI Bond *(c)............ 6.500 02/27/15 4,129,374
1,057,404 Republic of Ecuador, Registered PDI Bond *(c). 6.500 02/27/15 650,304
-----------
4,779,678
-----------
Mexico -- 2.7%
2,000,000 United Mexico States, Global Bond............. 11.500 05/15/26 2,115,000
4,000,000 United Mexico States, Par Bonds, Series A,
including 4,000,000 attached warrants....... 6.250 12/31/19 2,932,500
-----------
5,047,500
-----------
</TABLE>
See accompanying notes to financial statements
179
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS HIGH YIELD BOND FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Panama -- 2.3%
4,000,000 Government of Panama IRB *................. 3.500% 07/17/14 $2,770,000
2,000,000 Government of Panama, PDI Bond *........... 4.000 07/17/16 1,562,500
-----------
4,332,500
-----------
Poland -- 0.1%
350,000 Republic of Poland, RSTA Bond *............ 3.250 10/27/24 219,625
-----------
Russia -- 0.7%
2,000,000 Russian Government IAN(d).................. -- 12/29/49 1,388,750
-----------
Venezuela -- 1.9%
3,000,000 Republic of Venezuela FLIRB, Series B *.... 6.438 03/31/07 2,681,250
1,000,000 Republic of Venezuela FLIRB, Series A *.... 6.625 03/31/07 893,750
-----------
3,575,000
-----------
Total Sovereign Bonds
(cost $30,135,267)....................... 32,833,975
-----------
Loan Participations -- 4.2%
Morocco -- 3.3%
7,500,000 Kingdom of Morocco, Tranche A *(e)
(Chase Manhattan Bank, N.A. and
Morgan Guaranty Trust Company)........... 6.375 01/01/09 6,192,188
-----------
Russia -- 0.9%
2,000,000 Russian Bank of Foreign Economic Affairs(e)(f)
(Merrill Lynch International)............ -- 12/29/49 1,590,000
-----------
Total Loan Participations (cost $7,092,194) 7,782,188
-----------
Shares
- ------
Warrants -- 0.0%
500 Exide Electronics Group, expires 03/15/06.. 15,000
900 In Flight Phone, expires 08/31/02.......... 0
2,000 Terex, expires 05/15/02.................... 0
750 Wireless One, expires 10/19/00............. 0
-----------
Total Warrants
(cost $50,391)........................... 15,000
-----------
Total Investments -- 95.6%
(cost $171,455,951)...................... 178,732,851
</TABLE>
See accompanying notes to financial statements
180
<PAGE>
<PAGE>
SALOMON BROTHERS HIGH YIELD BOND FUND (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal
Amount(a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreement -- 10.6%
19,870,000 Repurchase Agreement dated 12/31/96, with J.P.
Morgan Securities, collateralized by $16,117,000
U.S. Treasury Bonds, 8.750%, due 08/15/20,
valued at $20,367,859; proceeds: $19,877,286
(cost $19,870,000)(g).................... 6.600 01/02/97 19,870,000
Liabilities in excess of other assets -- (6.2%) (11,704,562)
-----------
Net Assets-- 100.0%........................ $186,898,289
===========
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
(a) Principal denominated in U.S. dollars unless otherwise indicated.
(b) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(c) Payment-in-kind security for which all or part of the interest earned is
paid by the issuance of additional bonds.
(d) When and if issued. Security issued pursuant to Russia's Brady Plan debt
restructuring. The investment advisor believes that the Brady Plan will be
finalized and the related bonds issued. Accordingly, the Fund has
marked-to-market its investment in this security at year end.
(e) Participation interest was acquired through the financial institutions
indicated parenthetically.
(f) Security is in default.
(g) Held in segregated account as collateral for when and if issued securities.
Abbreviations used in this statement:
ARP Argentinean Peso
FLIRB Front-Loaded Interest Reduction Bonds
FRB Floating Rate Bonds
IAN Interest Arrears Notes
IRB Interest Reduction Bonds
PDI Past Due Interest
RSTA Revolving Short-Term Agreement
See accompanying notes to financial statements
181
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS STRATEGIC BOND FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Bonds--44.0%
Basic Industries--8.9%
250,000 Algoma Steel............................... 12.375% 07/15/05 $ 270,000
250,000 Alvey Systems.............................. 11.375 01/31/03 260,625
250,000 Clark-Schwebel............................. 10.500 04/15/06 267,500
250,000 Crown Paper................................ 11.000 09/01/05 235,000
250,000 Foamex..................................... 11.875 10/01/04 266,875
200,000 Forest Oil................................. 11.250 09/01/03 211,000
400,000 International Semi-Technology
(Zero Coupon until 08/15/00, 11.50%
thereafter)(b)........................... 11.737 08/15/03 258,000
250,000 NL Industries
(Zero Coupon until 10/15/98, 13.00%
thereafter)(b)........................... 12.619 10/15/05 215,000
250,000 Norcal Waste Systems *..................... 13.000 11/15/05 276,250
250,000 Terex...................................... 13.250 05/15/02 271,250
250,000 Valcor..................................... 9.625 11/01/03 236,250
----------
2,767,750
----------
Consumer Cyclicals--4.4%
250,000 Hines Horticulture......................... 11.750 10/15/05 267,500
300,000 Revlon Worldwide (b)....................... 11.105 03/15/98 258,000
250,000 Speedy Muffler King........................ 10.875 10/01/06 266,563
150,000 Universal Outdoor.......................... 9.750 10/15/06 154,875
200,000 U.S. Leasing International................. 8.450 01/25/05 216,276
200,000 Wyndham Hotel.............................. 10.500 05/15/06 213,000
----------
1,376,214
----------
Consumer Non-Cyclicals-- 14.1%
250,000 Americold.................................. 12.875 05/01/08 258,750
250,000 Berry Plastics............................. 12.250 04/15/04 276,250
250,000 Cobb Theatres.............................. 10.625 03/01/03 264,375
250,000 Dade International......................... 11.125 05/01/06 271,250
250,000 Doane Products............................. 10.625 03/01/06 266,250
200,000 Dole Foods................................. 6.750 07/15/00 199,696
250,000 Ekco Group................................. 9.250 04/01/06 245,000
250,000 Eyecare Centers of America................. 12.000 10/01/03 271,250
125,000 Hollywood Casino........................... 12.750 11/01/03 120,000
250,000 Iron Mountain.............................. 10.125 10/01/06 265,000
250,000 Jordan Industries
(Zero Coupon until 08/01/98, 11.75%
thereafter)(b)........................... 14.013 08/01/05 198,750
250,000 Radnor Holdings............................ 10.000 12/01/03 255,000
250,000 Rayovac.................................... 10.250 11/01/06 257,500
250,000 Remington Product.......................... 11.000 05/15/06 213,750
250,000 Selmer..................................... 11.000 05/15/05 270,000
250,000 Smiths Food & Drug......................... 11.250 05/15/07 276,250
250,000 Stroh Brewery.............................. 11.100 07/01/06 261,875
200,000 Twin Laboratories.......................... 10.250 05/15/06 206,000
----------
4,376,946
----------
Energy--3.3%
200,000 Arkla...................................... 8.875 07/15/99 210,088
250,000 Benton Oil & Gas........................... 11.625 05/01/03 276,875
250,000 Cliffs Drilling............................ 10.250 05/15/03 265,938
250,000 National Energy Group...................... 10.750 11/01/06 260,000
----------
1,012,901
----------
</TABLE>
See accompanying notes to financial statements
182
<PAGE>
<PAGE>
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Services--0.7%
60,000 Mellon Financial........................... 9.750% 06/15/01 $ 66,701
150,000 Paine Webber Group......................... 7.000 03/01/00 151,031
----------
217,732
----------
Media--6.1%
150,000 Adelphia Communications.................... 12.500 05/15/02 153,750
250,000 American Media Operation................... 11.625 11/15/04 268,750
250,000 Cablevision Systems........................ 10.500 05/15/16 258,125
375,000 Diamond Cable
(Zero Coupon until 12/15/00, 11.75%
thereafter)(b)........................... 11.087 12/15/05 270,000
500,000 Marcus Cable
(Zero Coupon until 06/15/00, 14.125%
thereafter)(b) ......................... 12.813 12/15/05 353,125
350,000 People's Choice TV
(Zero Coupon until 06/01/00, 13.125%
thereafter)(b)........................... 13.125 06/01/04 147,000
250,000 SFX Broadcasting........................... 10.750 05/15/06 263,750
250,000 United International Holdings(b)........... 13.893 11/15/99 177,500
----------
1,892,000
----------
Technology--2.2%
250,000 Exide Electronics Group.................... 11.500 03/15/06 266,250
150,000 Quest Diagnostic........................... 10.750 12/15/06 157,500
250,000 Talley Manufacturing & Technology.......... 10.750 10/15/03 258,125
----------
681,875
----------
Telecommunications & Utilities--2.6%
300,000 Arch Communications Group
(Zero Coupon until 03/15/01, 10.875%
thereafter)(b)........................... 10.875 03/15/08 171,000
350,000 ICG Holdings
(Zero Coupon until 09/15/00, 13.50%
thereafter)(b)........................... 11.459 09/15/05 246,750
200,000 Jacor Communications....................... 9.750 12/15/06 204,000
300,000 Winstar Communications
(Zero Coupon until 10/15/00, 14.00%
thereafter)(b)........................... 14.000 10/15/05 185,250
----------
807,000
----------
Transportation -- 1.7%
250,000 Airplanes Pass Through Trust............... 10.875 03/15/19 278,125
250,000 Central Transport Rental Group............. 9.500 04/30/03 237,500
----------
515,625
----------
Total Corporate Bonds
(cost $13,253,361)....................... 13,648,043
----------
</TABLE>
See accompanying notes to financial statements
183
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible Corporate Bonds -- 0.3%
Telecommunications & Utilities -- 0.3%
$150,000 Winstar Communications
(Zero Coupon until 10/15/00, 14.00%
thereafter)(b) (cost $90,011)...... 14.000% 10/15/05 $ 99,000
----------
Sovereign Bonds -- 21.2%
Argentina -- 2.1%
522,334 Republic of Argentina, BOCON, Pre 2*(c) 5.375 04/01/01 495,000
250,000 Republic of Argentina, Par Bond, Series L* 5.250 03/31/23 157,656
----------
652,656
----------
Australia -- 0.1%
AUD 20,000 Government of Australia.............. 6.750 11/15/06 15,191
----------
Brazil -- 3.5%
1,486,850 Federal Republic of Brazil,
Capitalization Bond(c)............. 4.500 04/15/14 1,097,481
----------
Bulgaria -- 1.7%
1,000,000 Republic of Bulgaria FLIRB, Series A* 2.250 07/28/12 384,375
250,000 Republic of Bulgaria, Discount Bond,
Tranche A* .......................... 6.688 07/28/24 142,031
----------
526,406
----------
Canada -- 1.9%
CAD 430,000 Government of Canada................. 6.500 08/01/99 328,314
CAD 190,000 Government of Canada................. 7.500 09/01/00 149,613
CAD 160,000 Government of Canada................. 7.000 09/01/01 124,255
----------
602,182
----------
Denmark -- 0.3%
DKK 560,000 Kingdom of Denmark................... 8.000 11/15/01 105,531
----------
Ecuador -- 0.9%
600,000 Republic of Ecuador, Par Bond*....... 6.500 02/28/25 279,750
----------
Germany -- 0.4%
DEM 100,000 Government of Germany................ 7.500 11/11/04 72,557
DEM 50,000 Government of Germany................ 8.250 09/20/01 37,164
----------
109,721
----------
Ireland -- 0.7%
IEP 70,000 Irish Gilts.......................... 6.500 10/18/01 120,786
IEP 60,000 Irish Gilts.......................... 6.250 04/01/99 102,209
----------
222,995
----------
Korea -- 1.4%
400,000 Korea Development Bank............... 9.600 12/01/00 440,444
----------
Mexico -- 1.8%
750,000 United Mexico States, Series B,
including 750,000 attached warrants 6.250 12/31/19 549,837
----------
</TABLE>
See accompanying notes to financial statements
184
<PAGE>
<PAGE>
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount(a) Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Panama -- 0.6%
250,000 Government of Panama IRB *................. 3.500% 07/17/14 $ 173,125
----------
Poland -- 1.0%
500,000 Republic of Poland, RSTA Bond*............. 3.250 10/27/24 313,750
----------
Russia -- 3.4%
1,500,000 Russian Government IAN (d)................. -- 12/29/49 1,041,563
----------
Venezuela -- 1.4%
250,000 Republic of Venezuela DCB, Series DL*...... 6.500 12/18/07 220,625
250,000 Republic of Venezuela FLIRB Series B*...... 6.438 03/31/07 223,438
----------
444,063
----------
Total Sovereign Bonds
(cost $6,097,858)........................ 6,574,695
----------
Loan Participation -- 4.0%
Morocco -- 4.0%
1,500,000 Kingdom of Morocco, Tranche A * (e)
(Chase Manhattan Bank, N.A. and
Morgan Guaranty Trust Company)
(cost $1,151,408)........................ 6.375 01/01/09 1,238,438
----------
U.S. Government & Agency -- 24.6%
19,897 Federal Home Loan Mortgage Corporation..... 6.000 10/01/10 19,233
540,493 Federal Home Loan Mortgage Corporation..... 7.000 07/01/11 540,369
288,697 Federal Home Loan Mortgage Corporation..... 10.000 05/15/20 309,717
200,000 Federal National Mortgage Association(f)... 7.000 ** 195,813
28,523 Federal National Mortgage Association...... 13.000 11/15/15 33,684
117,446 Federal National Mortgage Association...... 10.400 04/25/19 126,694
99,201 Federal National Mortgage Association...... 6.500 02/01/26 94,642
969,571 Federal National Mortgage Assaociation..... 6.500 03/01/26 926,222
2,000,000 U.S. Treasury Bond......................... 5.750 12/31/98 1,995,320
80,000 U.S. Treasury Bond (g)..................... 6.750 08/15/26 80,600
60,000 U.S. Treasury Note......................... 6.125 05/31/97 60,169
510,000 U.S. Treasury Note......................... 5.625 02/28/01 499,882
600,000 U.S. Treasury Note (g)..................... 6.250 04/30/01 601,314
100,000 U.S. Treasury Note......................... 6.500 08/31/01 101,094
750,000 U.S. Treasury Note......................... 6.125 12/31/01 747,188
250,000 U.S. Treasury Note (g)..................... 5.875 11/15/05 241,055
480,000 U.S. Treasury Note (g)..................... 6.875 05/15/06 494,626
550,000 U.S. Treasury Note......................... 6.500 10/15/06 553,009
----------
Total U.S. Government & Agency
(cost $7,596,161)........................ 7,620,631
----------
</TABLE>
See accompanying notes to financial statements
185
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS STRATEGIC BOND FUND (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Interest Maturity Value
Shares Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Warrants -- 0.0%
250 Exide Electronics Group, expires 03/15/06.. $ 7,500
400 In Flight Phone, expires 08/31/02.......... 0
1,000 Terex, expires 05/15/02.................... 0
----------
Total Warrants
(cost $22,396)........................... 7,500
----------
Total Investments -- 94.1%
(cost $28,211,195)....................... 29,188,307
----------
Principal
Amount(a)
- ---------
Repurchase Agreements -- 22.2%
3,446,000 Repurchase Agreement dated 12/31/96,
with J.P. Morgan Securities,
collateralized by $2,866,000
U.S. Treasury Bonds, 8.500%,
due 02/15/20valued at $3,532,345;
proceeds: $3,447,264 ......................... 6.600% 01/02/97 3,446,000
3,447,000 Repurchase Agreement dated 12/31/96,
with Merrill Lynch, Pierce, Fenner & Smith,
collateralized by $2,750,000 U.S. Treasury
Bonds, 8.875%, due 02/15/19, valued at
$3,516,563; proceeds: $3,448,245.............. 6.500 01/02/97 3,447,000
----------
Total Repurchase Agreements
(cost $6,893,000).............................. 6,893,000
----------
Liabilities in excess of other assets--(16.3%) (5,053,861)
----------
Net Assets-- 100.0%........................ $31,027,446
==========
</TABLE>
See accompanying notes to financial statements
186
<PAGE>
<PAGE>
SALOMON BROTHERS STRATEGIC BOND FUND (concluded)
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Maturity Contracts to In Exchange Contracts at Appreciation
Dates Receive/Deliver for Value (Depreciation)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases
01/22/97 DEM 2,696,748 $1,774,086 $1,755,127 $(18,959)
01/22/97 DKK 200,634 33,720 34,097 377
01/22/97 IEP 519,731 858,216 880,373 22,157
01/22/97 NZD 663,350 466,534 467,520 986
Sales
01/22/97 AUD 19,327 15,268 15,342 (74)
01/22/97 CAD 839,558 626,986 613,681 13,305
01/22/97 DEM 2,695,607 1,760,970 1,754,384 6,586
01/22/97 DKK 808,055 138,913 137,325 1,588
01/22/97 IEP 651,650 1,064,055 1,103,830 (39,775)
01/22/97 NZD 663,350 468,375 467,520 855
--------
$(12,954)
========
</TABLE>
* Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
** To be announced.
(a) Principal denominated in U.S. dollars unless otherwise indicated.
(b) Zero or step coupon bond. Interest rate shown reflects yield to maturity on
date of purchase.
(c) Payment-in-kind security for which all or part of the interest earned is
paid by the issuance of additional bonds.
(d) When and if issued. Security issued pursuant to Russia's Brady Plan debt
restucturing. The investment advisor believes that the Brady Plan will be
finalized and the related bonds issued. Accordingly, the Fund has
marked-to-market its investment in this security at year end.
(e) Participation interest was acquired through the financial institutions
indicated parenthetically.
(f) Mortgage Dollar Roll. See Note 1.
(g) Segregated as collateral for mortgage dollar rolls and when and if issued
security.
Abbreviations used in this statement:
DCB Debt Conversion Bonds
FLIRB Front-Loaded Interest Reduction Bonds
IAN Interest Arrears Notes
IRB Interest Reduction Bonds
RSTA Revolving Short-Term Agreement
AUD Australian Dollar
CAD Canadian Dollar
IEP Irish Punt
DEM German Deutschemark
DKK Danish Krone
NZD New Zealand Dollar
See accompanying notes to financial statements
187
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- ---------------------------------------------------------------------------------------------------------
U.S. Treasury Notes -- 46.2%
<S> <C> <C> <C>
$3,350,000 U.S. Treasury Note (a) 6.125% 05/31/97 $3,359,414
550,000 U.S. Treasury Note 6.625 07/31/01 558,767
500,000 U.S. Treasury Note 6.500 08/15/05 503,205
150,000 U.S. Treasury Note 5.875 11/15/05 144,633
575,000 U.S. Treasury Note 7.000 07/15/06 597,373
500,000 U.S. Treasury Note 6.500 10/15/06 502,735
----------
Total U.S. Treasury Notes
(cost $5,662,963)................. 5,666,127
----------
U.S. Government Agency -- 45.5%
100,000 Federal Home Loan Bank 5.940 06/13/00 99,047
34,574 Federal Home Loan Mortgage Corporation 6.000 07/01/10 33,562
37,145 Federal Home Loan Mortgage Corporation 11.750 01/01/11 40,943
198,439 Federal Home Loan Mortgage Corporation 7.000 05/01/11 198,394
488,099 Federal Home Loan Mortgage Corporation 7.000 07/01/11 487,986
769,039 Federal Home Loan Mortgage Corporation 7.000 07/01/11 768,862
375,975 Federal Home Loan Mortgage Corporation 7.000 08/01/11 375,888
917 Federal Home Loan Mortgage Corporation 11.750 06/01/14 991
24,905 Federal Home Loan Mortgage Corporation 11.750 12/01/14 27,976
35,390 Federal Home Loan Mortgage Corporation 11.750 07/01/15 39,753
13,857 Federal Home Loan Mortgage Corporation 11.750 01/01/16 15,637
298,190 Federal Home Loan Mortgage Corporation 8.250 04/01/17 308,522
316,220 Federal National Mortgage Association 6.500 12/01/03 314,009
1,300,000 Federal National Mortgage Association(b) 7.000 ** 1,272,781
50,512 Federal National Mortgage Association 14.500 11/01/14 62,304
23,500 Federal National Mortgage Association 12.500 08/01/15 27,602
103,547 Federal National Mortgage Association 12.500 09/01/15 119,694
114,092 Federal National Mortgage Association 13.000 11/15/15 134,735
40,499 Federal National Mortgage Association 12.000 01/01/16 47,472
34,658 Federal National Mortgage Association 11.500 04/01/19 39,521
199,072 Federal National Mortgage Association 11.500 02/01/20 227,004
245,235 Federal National Mortgage Association 10.500 08/01/20 272,133
65,319 Federal National Mortgage Association 6.500 04/01/26 62,317
416,772 Federal National Mortgage Association 6.500 04/01/26 398,138
200,000 Government National Mortgage Association(b) 7.000 01/22/26 195,938
----------
Total U.S. Government Agency
(cost $5,526,754) 5,571,209
----------
Total Investments -- 91.7%
(cost $11,189,717) 11,237,336
----------
Repurchase Agreements -- 18.9%
1,156,000 Repurchase Agreement dated 12/31/96, with
Merrill Lynch, Pierce, Fenner & Smith,
collateralized by $925,000 U.S. Treasury Bonds,
8.875%, due 02/15/19, valued at $1,182,844;
proceeds: $1,156,417 6.500 01/02/97 1,156,000
1,156,000 Repurchase Agreement dated 12/31/96, with
J.P. Morgan Securities, collateralized
by $938,000 U.S. Treasury Bonds, 8.75%,
due 08/15/20 valued at $1,185,398;
proceeds: $1,156,424 6.600 01/02/97 1,156,000
----------
Total Repurchase Agreements
(cost $2,312,000)........................... 2,312,000
----------
Liabilities in excess of other assets -- (10.6%) (1,298,919)
----------
Net Assets-- 100.0% $12,250,417
============
</TABLE>
(a) A portion of the security held is segregated as collateral for mortgage
dollar rolls.
(b) Mortgage Dollar Roll. See Note 1.
** To be announced.
See accompanying notes to financial statements
188
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS NATIONAL INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Securities -- 95.9%
California -- 2.6%
$285,000 Los Angeles, California AMBAC.............. 6.000% 08/01/03 $306,224
----------
Florida -- 1.6%
180,000 Florida Housing Finance Agency............. 6.150 07/01/06 184,012
----------
Hawaii -- 2.2%
250,000 Hawaii State Department of Budget & Finance 5.600 07/01/06 256,291
----------
Illinois -- 8.6%
300,000 Chicago, Illinois Metropolitan Water GO.... 5.900 12/01/06 322,839
250,000 Chicago, Illinois O'Hare International Airport 5.000 01/01/02 253,750
400,000 Illinois Student Assistance Commission..... 6.400 03/01/04 423,960
----------
1,000,549
----------
Indiana -- 12.9%
500,000 Indiana Health Facilities Finance Authority 5.800 08/15/06 499,595
300,000 Indiana Secondary Market for Education AMBAC 5.550 12/01/05 303,771
650,000 Indiana Transportation Finance Authority... 6.250 11/01/03 694,668
----------
1,498,034
----------
Louisiana -- 4.9%
100,000 Ascension Parish, Louisiana Pollution
Authority VR............................. 5.100 01/02/97 100,000
450,000 Louisiana Public Facilities Authority...... 6.750 09/01/06 473,837
----------
573,837
----------
Massachusetts -- 3.8%
400,000 Commonwealth of Massachusetts
Health & Educational Facilities Authority. 6.500 12/01/05 437,064
----------
Mississippi -- 4.0%
460,000 Mississippi Higher Education............... 6.050 09/01/07 470,704
----------
New Jersey -- 4.0%
450,000 Passaic Valley, New Jersey
Sewer Commission AMBAC.................... 5.750 12/01/07 471,821
----------
New York -- 26.7%
450,000 New York City, New York GO................. 6.500 02/01/02 475,979
500,000 New York State Dormitory Authority......... 6.000 07/01/06 520,185
700,000 New York State Dormitory Authority MBIA.... 5.600 07/01/06 729,309
400,000 New York State Dormitory Authority
(State University of New York)........... 6.625 07/01/04 451,568
500,000 New York State Mortgage Agency............. 5.900 10/01/06 504,815
400,000 New York State Thruway Authority MBIA...... 6.000 01/01/04 430,716
----------
3,112,572
----------
Ohio -- 2.2%
250,000 Miami County, Ohio Hospital Facilities..... 5.600 05/15/02 252,323
----------
Pennsylvania -- 8.0%
400,000 Geisinger Authority, Pennsylvania Health
System.................................... 6.000 07/01/01 421,368
500,000 Monroeville, Pennsylvania Hospital Authority 5.750 10/01/05 510,175
----------
931,543
----------
</TABLE>
See accompanying notes to financial statements
189
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS NATIONAL INTERMEDIATE MUNICIPAL FUND (concluded)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
South Carolina -- 7.1%
$750,000 South Carolina State
Public Service Authority FGIC............ 6.500% 01/01/05 $829,680
----------
Texas -- 5.6%
500,000 Austin, Texas Airport Systems MBIA......... 6.500 11/15/05 553,935
100,000 Lubbock, Texas Health Facilities VR........ 5.000 01/02/97 100,000
----------
653,935
----------
Wyoming -- 1.7%
200,000 Uinta County, Wyoming Pollution Control VR. 5.000 01/02/97 200,000
----------
Total Investments -- 95.9%
(cost $10,832,716)....................... 11,178,589
Other assets in excess of liabilities-- 4.1%
473,862
----------
Net Assets-- 100.0%........................ $11,652,451
==========
</TABLE>
Abbreviations used in this statement:
AMBAC Insured as to principal and interest by the American Municipal Bond
Assurance Corporation. FGIC Insured as to principal and interest by the
Financial Guaranty Insurance Corporation.
GO General Obligation.
MBIA Insured as to principal and interest by the MBIA Insurance Corporation.
VR Variable Rate Demand Note. Maturity date shown is the date of next
interest rate change.
See accompanying notes to financial statements
190
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Principal Interest Maturity Value
Amount Description Rate Date (Note 1a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Securities -- 97.1%
New York -- 93.9%
$150,000 Grand Central District Management
Association ............................. 5.250% 01/01/22 $ 139,556
150,000 Metropolitan Transportation Authority
New York FSA ............................ 5.700 07/01/24 149,586
200,000 Nassau County, New York GO FGIC............ 5.200 08/01/12 196,598
300,000 New York City, New York GO................. 7.375 08/15/13 332,643
300,000 New York City, New York GO................. 6.750 10/01/17 311,115
100,000 New York City, New York
Industrial Development Agency VR......... 5.050 01/02/97 100,000
300,000 New York City, New York
Municipal Water Finance Authority........ 6.000 06/15/17 304,122
150,000 New York State Dormitory Authority......... 6.250 07/01/13 152,709
150,000 New York State Dormitory Authority......... 5.875 08/01/16 151,684
150,000 New York State Dormitory Authority......... 5.500 07/01/25 140,984
150,000 New York State Dormitory Authority......... 5.500 05/15/23 138,629
100,000 New York State Dormitory Authority
(City University System of New York)..... 5.750 07/01/18 99,148
140,000 New York State Dormitory Authority
. (State University Educational Facilities). 6.000 05/15/17 138,690
200,000 New York State GO.......................... 6.000 03/15/20 208,738
200,000 New York State Energy Research &
Development Authority MBIA .............. 5.500 01/01/21 196,600
100,000 New York State Energy Research &
Development Authority VR ................ 4.400 01/02/97 100,000
100,000 New York State Energy Research &
Development Authority VR ................ 4.750 01/02/97 100,000
250,000 New York State
Local Government Assistance Corporation.. 6.000 04/01/18 254,230
100,000 New York State Medical Care Facilities
Finance Agency MBIA ..................... 5.900 02/15/21 101,969
200,000 New York State Mortgage Agency............. 6.500 04/01/13 209,574
150,000 New York State Thruway Authority........... 6.000 04/01/10 151,382
150,000 New York State
Urban Development Corporation............ 5.500 01/01/14 145,967
150,000 New York State
Urban Development Corporation............ 5.500 01/01/19 143,907
200,000 Port Authority of New York & New Jersey.... 5.500 09/01/13 198,690
150,000 Triborough Bridge & Tunnel Authority
New York ................................ 5.500 01/01/17 151,455
200,000 Western Nassau County, New York
Water Authority AMBAC.................... 5.500 05/01/16 198,106
----------
4,516,082
----------
Puerto Rico -- 3.2%
150,000 Commonwealth of Puerto Rico GO............. 6.000 07/01/14 152,168
----------
Total Investments -- 97.1%
(cost $4,560,814)........................ 4,668,250
Other assets in excess of liabilities-- 2.9% 138,141
----------
Net Assets-- 100.0%........................ $4,806,391
==========
</TABLE>
Abbreviations used in this statement:
AMBAC Insured as to principal and interest by the American Municipal Bond
Assurance Corporation.
FGIC Insured as to principal and interest by the Financial Guaranty Insurance
Corporation.
FSA Insured as to principal and interest by the Financial Security Assurance
Corporation.
GO General Obligation.
MBIA Insured as to principal and interest by the MBIA Insurance Corporation.
VR Variable Rate Demand Note. Maturity date shown is the date of next
interest rate change.
See accompanying notes to financial statements
191
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Securities -- 99.4%
New York -- 96.8%
$ 90,000 Albany County, New York
Industrial Development Agency VR......... 4.400% 01/02/97 $ 90,000
2,265,000 Albany, New York
Industrial Development Agency PUT........ 4.200 07/01/97 2,265,000
2,185,000 Amherst, New York
Industrial Development Agency VR......... 4.550 01/02/97 2,185,000
3,100,000 Amherst, New York
Industrial Development Agency PUT........ 3.650 05/01/97 3,100,000
1,550,000 Auburn, New York
Industrial Development Agency VR......... 4.550 01/01/97 1,550,000
725,000 Babylon, New York
Industrial Development Agency VR......... 4.550 01/02/97 725,000
1,700,000 Broome County, New York
Industrial Development Agency VR......... 4.400 01/02/97 1,700,000
1,300,000 Buffalo, New York GO RAN................... 3.600 07/15/97 1,304,430
2,100,000 Chautauqua County, New York
Industrial Development Agency VR......... 4.550 01/01/97 2,100,000
1,990,000 Chemung County, New York
Industrial Development Agency VR......... 4.400 01/02/97 1,990,000
710,000 Colonie, New York
Housing Development Corporation VR....... 3.650 01/01/97 710,000
540,000 Colonie, New York
Industrial Development Agency VR......... 4.400 01/02/97 540,000
1,000,000 Delhi, New York
Central School District BAN.............. 3.900 06/27/97 1,002,788
1,150,000 Dutchess County, New York
Industrial Development Agency VR......... 4.400 01/02/97 1,150,000
5,000,000 Erie County, New York GO RAN............... 3.600 11/19/97 5,027,644
1,180,000 Erie County, New York
Industrial Development Agency VR......... 4.400 01/02/97 1,180,000
410,000 Erie County, New York
Industrial Development Agency VR......... 4.400 01/02/97 410,000
326,000 Erie County, New York
Industrial Development Agency VR......... 4.400 01/02/97 326,000
300,000 Erie County, New York
Industrial Development Agency VR......... 4.400 01/02/97 300,000
1,805,000 Fulton County, New York
Industrial Development Agency VR......... 4.300 01/02/97 1,805,000
390,000 Geneva, New York
Industrial Development Authority VR...... 4.300 01/02/97 390,000
2,950,000 Islip, New York
Industrial Development Authority VR...... 4.400 01/02/97 2,950,000
1,690,000 Monroe County, New York
Industrial Development Agency PUT........ 3.700 06/01/97 1,690,000
700,000 Monroe County, New York
Industrial Development Agency PUT........ 4.050 06/15/97 700,000
2,700,000 Monroe County, New York
Industrial Development Agency VR......... 4.300 01/02/97 2,700,000
3,925,000 Monroe County, New York
Industrial Development Agency VR......... 4.400 01/02/97 3,925,000
</TABLE>
See accompanying notes to financial statements
192
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,640,000 Monroe County, New York
Industrial Development Agency VR......... 4.400% 01/02/97 $1,640,000
6,500,000 Monroe County, New York
Industrial Development Agency VR......... 4.550 01/01/97 6,500,000
3,325,000 Monroe County, New York
Industrial Development Agency VR......... 4.550 01/02/97 3,325,000
3,140,000 Monroe County, New York
Industrial Development Agency VR......... 4.550 01/02/97 3,140,000
2,190,000 Monroe County, New York
Industrial Development Agency VR......... 4.550 01/02/97 2,190,000
1,535,000 Monroe County, New York
Industrial Development Agency VR......... 4.550 01/02/97 1,535,000
1,420,000 Monroe County, New York
Industrial Development Agency VR......... 4.550 01/02/97 1,420,000
885,000 Monroe County, New York
Industrial Development Agency VR......... 4.550 01/02/97 885,000
1,800,000 Monroe County, New York
Industrial Development Agency VR.......... 4.600 01/01/97 1,800,000
2,200,000 Municipal Assistance Corporation,
New York City, New York................... 3.800 07/01/97 2,202,845
2,000,000 Municipal Assistance Corporation,
New York City, New York................... 3.800 07/01/97 2,029,888
450,000 Nassau County, New York
Industrial Development Agency VR.......... 4.400 01/02/97 450,000
2,000,000 New York City, New York GO P/R............. 3.670 11/01/97 2,111,442
5,235,000 New York City, New York GO VR.............. 4.500 01/02/97 5,235,000
400,000 New York City, New York GO VR.............. 4.500 01/02/97 400,000
6,200,000 New York City, New York GO VR.............. 5.000 01/02/97 6,200,000
2,200,000 New York City, New York GO VR.............. 5.000 01/02/97 2,200,000
700,000 New York City, New York GO VR.............. 5.000 01/02/97 700,000
500,000 New York City, New York GO VR.............. 5.000 01/02/97 500,000
500,000 New York City, New York GO VR.............. 5.000 01/02/97 500,000
500,000 New York City, New York GO VR.............. 5.000 01/02/97 500,000
400,000 New York City, New York GO VR.............. 5.000 01/02/97 400,000
2,000,000 New York City, New York GO VR FGIC......... 4.500 01/02/97 2,000,000
10,000,000 New York City, New York
Housing Development Corporation VR........ 4.000 01/02/97 10,000,000
3,500,000 New York City, New York
Housing Development Corporation VR........ 4.250 01/02/97 3,500,000
15,200,000 New York City, New York
Housing Development Corporation VR........ 4.300 01/02/97 15,200,000
400,000 New York City, New York
Housing Development Corporation VR........ 4.300 01/02/97 400,000
2,000,000 New York City, New York
Housing Development Corporation VR........ 4.350 01/02/97 2,000,000
1,600,000 New York City, New York
Industrial Development Agency VR.......... 4.000 01/01/97 1,600,000
200,000 New York City, New York
Industrial Development Agency VR.......... 4.100 01/01/97 200,000
2,000,000 New York City, New York.
Industrial Development Agency VR.......... 4.200 01/02/97 2,000,000
965,000 New York City, New York
Industrial Development Agency VR.......... 4.300 01/02/97 965,000
See accompanying notes to financial statements
</TABLE>
193
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,535,000 New York City, New York
Industrial Development Agency VR........ 4.550% 01/02/97 $ 1,535,000
700,000 New York City, New York
Industrial Development Agency VR........ 4.550 01/02/97 700,000
500,000 New York City, New York
Industrial Development Agency VR........ 4.550 01/02/97 500,000
325,000 New York City, New York
Industrial Development Agency VR........ 4.700 01/02/97 325,000
1,600,000 New York City, New York
Industrial Development Agency VR........ 4.800 01/02/97 1,600,000
12,500,000 New York City, New York
Industrial Development Agency VR........ 5.050 01/02/97 12,500,000
2,205,000 New York City, New York
Municipal Water Finance Authority P/R.... 3.75-3.80 06/15/97 2,299,323
1,000,000 New York City, New York
Municipal Water Finance Authority TECP... 5.000 01/02/97 1,000,000
500,000 New York City, New York
Municipal Water Finance Authority VR FGIC 4.700 01/02/97 500,000
5,000,000 New York City, New York TECP.............. 5.000 01/02/97 5,000,000
9,259,000 New York State, Dormitory Authority TECP.. 4.000 02/12/97 9,259,000
2,500,000 New York State,
Dormitory Authority VR................... 4.000 01/02/97 2,500,000
10,500,000 New York State, Energy Research &
Development Authority VR ................ 4.700 01/01/97 10,500,000
3,400,000 New York State,
Energy Research & Development
Authority VR ............................ 4.750 01/01/97 3,400,000
1,020,000 New York State,
Job Development Authority VR............. 3.600 01/02/97 1,020,000
820,000 New York State,
Job Development Authority VR............. 3.600 01/02/97 820,000
675,000 New York State,
Job Development Authority VR............. 3.600 01/02/97 675,000
535,000 New York State,
Job Development Authority VR............. 3.600 01/02/97 535,000
315,000 New York State,
Job Development Authority VR............. 3.600 01/02/97 315,000
85,000 New York State,
Job Development Authority VR............. 3.600 01/02/97 85,000
1,390,000 New York State,
Job Development Authority VR.............. 3.750 01/02/97 1,390,000
1,160,000 New York State,
Job Development Authority VR.............. 3.750 01/02/97 1,160,000
700,000 New York State,
Job Development Authority VR.............. 5.000 01/02/97 700,000
500,000 New York State,
Job Development Authority VR.............. 5.000 01/02/97 500,000
255,000 New York State,
Job Development Authority VR.............. 5.000 01/02/97 255,000
100,000 New York State,
Job Development Authority VR.............. 5.000 01/02/97 100,000
4,700,000 New York State,
Local Government Assistance
Corporation VR ........................... 4.000 01/01/97 4,700,000
</TABLE>
See accompanying notes to financial statements
194
<PAGE>
<PAGE>
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2,700,000 New York State, Local
Government Assistance Corporation VR .... 4.000% 01/01/97 $ 2,700,000
2,000,000 New York State, Local Government
Assistance Corporation VR ............... 4.000 01/01/97 2,000,000
1,400,000 New York State, Local Government
Assistance Corporation VR ............... 4.000 01/02/97 1,400,000
2,000,000 New York State,
Medical Care Facilities P/R.............. 3.800 08/15/97 2,099,948
5,000,000 Niagara County, New York
Industrial Development Agency TECP....... 3.750 01/08/97 5,000,000
3,400,000 Niagara County, New York
Industrial Development Agency TECP....... 3.900 01/10/97 3,400,000
16,000,000 Niagara County, New York
Industrial Development Agency TECP....... 3.900 02/05/97 16,000,000
10,000,000 Niagara County, New York
Industrial Development Agency VR......... 4.450 01/01/97 10,000,000
1,045,000 Niagara County, New York
Industrial Development Agency VR......... 4.550 01/02/97 1,045,000
400,000 Oneida County, New York
Industrial Development Agency VR......... 4.250 01/02/97 400,000
1,760,000 Oneida County, New York
Industrial Development Agency VR......... 4.550 01/02/97 1,760,000
3,800,000 Onondaga County, New York
Industrial Development Agency VR......... 4.500 01/01/97 3,800,000
1,400,000 Onondaga County, New York
Industrial Development Agency VR......... 4.500 01/01/97 1,400,000
3,500,000 Ontario County, New York
Industrial Development Agency VR......... 5.000 01/02/97 3,500,000
1,000,000 Port Authority of New York & New
Jersey VR. .............................. 4.850 01/02/97 1,000,000
1,500,000 Rockland County, New York
Industrial Development Agency VR......... 4.550 01/02/97 1,500,000
260,000 Schoharie County, New York
Industrial Development Agency VR......... 4.250 01/02/97 260,000
2,500,000 St. Lawrence County, New York
Industrial Development Agency VR......... 4.550 01/02/97 2,500,000
1,450,000 Syracuse, New York
Industrial Development Agency PUT........ 4.050 06/15/97 1,450,000
3,550,000 Syracuse, New York
Industrial Development Agency VR......... 4.600 01/01/97 3,550,000
1,000,000 Triborough Bridge & Tunnel
Authority New York ...................... 3.700 01/01/97 1,000,000
1,460,000 Warren & Washington Counties, New York
Industrial Development Agency VR......... 4.300 01/02/97 1,460,000
310,000 Wyoming County, New York
Industrial Development Agency VR......... 4.400 01/02/97 310,000
6,330,000 Wyoming County, New York
Industrial Development Agency VR......... 4.550 01/02/97 6,330,000
1,315,000 Yates County, New York
Industrial Development Agency VR......... 4.300 01/02/97 1,315,000
920,000 Yonkers, New York
Industrial Development Agency VR......... 4.400 01/02/97 920,000
-----------
265,518,308
-----------
</TABLE>
See accompanying notes to financial statements
195
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS NEW YORK MUNICIPAL MONEY MARKET FUND (concluded)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Puerto Rico -- 2.6%
$7,100,000 Puerto Rico Industrial,
Tourist, Educational, Medical
& Environmental Control
Facilities VR .................... 4.100% 01/01/97 $ 7,100,000
------------
Total Investments -- 99.4%
(cost $272,618,308)............... 272,618,308
Other assets in excess
of liabilities-- 0.6% ............ 1,525,727
------------
Net Assets-- 100%.................. $274,144,035
============
</TABLE>
* Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR) and Put Bonds, whose yields are determined on date of
the last interest rate change. For Variable Rate Demand Notes and Put Bonds,
maturity date shown is the date of next interest rate change.
Abbreviations used in this statement:
BAN Bond Anticipation Note.
FGIC Insured as to principal and interest by the Financial Guaranty
Insurance Corporation.
GO General Obligation.
P/R Prerefunded in U.S. Government Securities.
PUT Optional or mandatory put. Maturity date shown is the put date as
well as the date of the next interest rate change.
RAN Revenue Anticipation Note.
TECP Tax Exempt Commercial Paper.
See accompanying notes to financial statements
196
<PAGE>
<PAGE>
SALOMON BROTHERS CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificates of Deposit -- 9.3%
Banks -- 9.3%
$1,000,000 Bank Austria............................................ 5.380% 01/21/97 $1,000,005
1,000,000 Mellon Bank N.A......................................... 5.750 02/18/97 1,000,126
500,000 Rabobank................................................ 5.530 02/10/97 500,000
----------
Total Certificates of Deposit
(cost $2,500,131)..................................... 2,500,131
----------
Commercial Paper -- 58.5%
Aerospace & Defense -- 3.7%
1,000,000 AlliedSignal............................................ 5.600 01/27/97 995,956
----------
Banks -- 14.7%
800,000 ANZ Delaware............................................ 5.280 05/12/97 784,628
800,000 BBL North America....................................... 5.340 01/07/97 799,288
570,000 Commerzbank U.S. Finance................................ 5.350 01/31/97 567,459
800,000 Nordbanken N.A.......................................... 5.380 02/28/97 793,066
1,000,000 UBS Finance............................................. 5.550 01/21/97 996,917
----------
3,941,358
----------
Chemicals -- 3.7%
1,000,000 Air Products & Chemicals................................ 5.400 03/28/97 987,100
----------
Communications -- 3.7%
1,000,000 Lucent Technologies..................................... 5.370 04/07/97 985,680
----------
Education -- 3.0%
800,000 Regents of the University of California................. 5.330 01/17/97 798,105
----------
Financial Services -- 6.6%
1,000,000 General Electric Capital................................ 5.340 06/23/97 974,338
800,000 Metlife Funding......................................... 5.300 01/27/97 796,938
----------
1,771,276
----------
Food -- 3.0%
800,000 Heinz (H.J.)............................................ 5.400 01/22/97 797,480
----------
Heavy Machinery -- 3.0%
800,000 Cooperative Association of Tractor Dealers.............. 5.550 01/23/97 797,287
----------
Household Products -- 3.7%
1,000,000 Clorox.................................................. 5.350 04/22/97 983,504
----------
Municipal -- 4.5%
400,000 De Kalb County, Georgia Development Authority........... 5.500 02/04/97 400,000
400,000 Methodist Hospital (Houston, Texas)..................... 5.450 04/01/97 400,000
400,000 New York City, New York GO.............................. 5.550 02/19/97 400,000
----------
1,200,000
----------
Office Equipment -- 3.0%
800,000 Xerox................................................... 5.300 01/14/97 798,469
----------
Securities Brokers -- 2.9%
800,000 Goldman Sachs Group..................................... 5.340 02/14/97 794,779
----------
</TABLE>
See accompanying notes to financial statements
197
<PAGE>
<PAGE>
Portfolio of Investments (continued)
SALOMON BROTHERS CASH MANAGEMENT FUND (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation -- 3.0%
$800,000 Daimler-Benz NA.......................................... 5.320% 01/13/97 $ 798,581
----------
Total Commercial Paper
(cost $15,649,575)..................................... 15,649,575
----------
Floating Rate Notes -- 17.3%
California -- 1.5%
400,000 Pasadena, California Certificates of Participation VR ... 5.800 01/07/97 400,000
----------
Florida -- 1.5%
400,000 Florida Housing Finance Agency VR........................ 5.880 01/01/97 400,000
----------
Michigan -- 0.7%
200,000 Genesis Health Systems VR................................ 5.950 01/01/97 200,000
----------
New Jersey -- 1.9%
285,000 New Jersey Economic Development Authority VR ............ 6.230 01/06/97 285,000
230,000 New Jersey Economic Development Authority VR ............ 6.110 01/06/97 230,000
----------
515,000
----------
New York -- 5.8%
390,000 Fulton County, New York Industrial Development Agency VR.. 6.050 01/02/97 390,000
400,000 Health Insurance Plan, Greater New York VR. 5.800 01/01/97 400,000
350,000 New York City, New York Industrial Development Agency VR . 6.000 01/01/97 350,000
100,000 New York City, New York Industrial Development Agency VR . 6.000 01/01/97 100,000
300,000 Syracuse, New York GO VR.................................. 6.200 01/01/97 300,000
----------
1,540,000
----------
North Carolina -- 1.5%
390,000 Greensboro, North Carolina GO VR.......................... 5.950 01/01/97 390,000
----------
Tennessee -- 1.5%
400,000 Community Health Systems VR............................... 5.900 01/01/97 400,000
----------
Texas -- 1.4%
375,000 Texas State GO VR......................................... 5.880 01/01/97 375,000
----------
Virginia -- 1.5%
400,000 Virginia State, Housing Development Authority VR ......... 5.800 01/01/97 400,000
----------
Total Floating Rate Notes
(cost $4,620,000)....................................... 4,620,000
----------
Total Investments -- 85.1%
(cost $22,769,706)...................................... 22,769,706
----------
</TABLE>
See accompanying notes to financial statements
198
<PAGE>
<PAGE>
SALOMON BROTHERS CASH MANAGEMENT FUND (concluded)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Yield to
Principal Maturity on Date Maturity Value
Amount Description of Purchase* Date (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Repurchase Agreements -- 14.6%
$1,947,134 Repurchase Agreement dated
12/31/96 with J.P.
Morgan Securities, collateralized by $1,962,000
U.S. Treasury Bonds, 6.375%, due 05/15/99
valued at $1,996,335; proceeds: $1,947,848 .......... 6.600% 01/02/97 $ 1,947,134
1,947,134 Repurchase Agreement dated 12/31/96 with
UBS Securities, collateralized by $1,554,000
U.S. Treasury Bonds, 8.875%, due 02/15/19
valued at $1,987,178; proceeds: $1,947,837 .......... 6.500 01/02/97 1,947,134
----------
Total Repurchase Agreements
(cost $3,894,268)..................................... 3,894,268
----------
Other assets in excess of liabilities -- 0.3% 91,407
----------
Net Assets-- 100.0% ................................... $26,755,381
==========
</TABLE>
* Yield to maturity on date of purchase, except in the case of Variable Rate
Demand Notes (VR), whose yields are determined on date of last interest
rate change. For Variable Rate Demand Notes, maturity date shown is the
date of next interest rate change.
Abbreviations used in this statement:
GO General Obligation.
See accompanying notes to financial statements
199
<PAGE>
<PAGE>
Statements of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Asia Capital Investors
Growth Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (Note A) ............................. $ 6,871,444 $ 133,094,625 $ 519,461,315
Repurchase agreements, at value and cost ................... -- 3,667,000 21,222,000
Cash (including foreign currency) .......................... 353,589 969 737
Receivable for securities sold ............................. -- 771,904 --
Receivable for Fund shares sold ............................ 39,181 514,657 396,076
Interest and dividends receivable .......................... 4,079 204,143 600,215
Receivable from investment advisor ......................... 132,687 -- --
Deferred organization expense .............................. 86,584 -- --
------------- ------------- -------------
Total assets ............................................... 7,487,564 138,253,298 541,680,343
------------- ------------- -------------
LIABILITIES:
Payable for:
Securities purchased ..................................... 72,323 1,382,706 --
Fund shares redeemed ..................................... 11 5,605 29,995
Dividends and distributions declared ..................... 92,494 -- --
Affiliate transactions: .................................. -- -- --
Management fees ........................................ -- 106,287 688,509
Service and distribution fees .......................... 9,880 258 25,178
Net unrealized depreciation of forward foreign currency
contracts ................................................ -- -- --
Accrued expenses and other liabilities ..................... 87,488 123,072 278,835
------------- ------------- -------------
Total liabilities .......................................... 262,196 1,617,928 1,022,517
------------- ------------- -------------
Net assets ................................................. $ 7,225,368 $ 136,635,370 $ 540,657,826
============= ============= =============
Net assets consist of:
Paid-in capital ............................................ $ 6,960,358 $ 112,317,524 $ 363,551,636
Undistributed net investment income or (distributions in
excess of net investment income) ......................... 10,809 (333) 2,113
Accumulated net realized gain (loss) on investments,
options and foreign currency transactions ................ 201,064 2,575,978 5,869,408
Net unrealized appreciation on investments, foreign
currency transactions and other assets ................... 53,137 21,742,201 171,234,669
------------- ------------- -------------
Net assets ................................................. $ 7,225,368 $ 136,635,370 $ 540,657,826
============= ============= =============
Class A .................................................... $ 3,693,002 $ 343,683 $ 10,904,980
============= ============= =============
Class B .................................................... $ 3,162,606 $ 218,901 $ 9,433,023
============= ============= =============
Class C .................................................... $ 246,067 $ 130,007 $ 1,958,792
============= ============= =============
Class O .................................................... $ 123,693 $ 135,942,779 $ 518,361,031
============= ============= =============
Shares outstanding:
Class A .................................................... 357,945 17,288 577,173
============= ============= =============
Class B .................................................... 306,685 11,001 500,214
============= ============= =============
Class C .................................................... 23,879 6,531 103,835
============= ============= =============
Class O .................................................... 11,983 6,839,481 27,430,775
============= ============= =============
Net asset value:
Class A shares
Net asset value and redemption price per share ............. $ 10.32 $ 19.88 $ 18.89
============= ============= =============
Maximum offering price per share (based on maximum sales
charge of 4.75%, except Cash Management Fund and New
York Municipal Money Fund)................................ $ 10.83 $ 20.87 $ 19.83
============= ============= =============
Class B shares
Net asset value and offering price per share*............... $ 10.31 $ 19.90 $ 18.86
============= ============= =============
Class C shares
Net asset value and offering price per share*............... $ 10.30 $ 19.91 $ 18.86
============= ============= =============
Class O shares
Net asset value, offering price and redemption price per
share..................................................... $ 10.32 $ 19.88 $ 18.90
============= ============= =============
Note A: Cost of investments................................. $ 6,818,252 $ 111,352,396 $ 348,226,449
============= ============= =============
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See accompanying notes to financial statements
200
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
U.S. National New York New York Cash
Total High Yield Strategic Government Intermediate Municipal Municipal Management
Return Fund Bond Fund Bond Fund Income Fund Municipal Fund Bond Fund Money Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 47,361,853 $ 178,732,851 $ 29,188,307 $ 11,237,336 $ 11,178,589 $ 4,668,250 $ 272,618,308 $ 22,769,706
4,996,000 19,870,000 6,893,000 2,312,000 -- -- -- 3,894,268
103 40 959 451 80,247 30,738 83,818 --
22,540 2,974,633 1,265,920 503,393 -- -- -- --
517,104 2,757,082 544,013 40 106,079 -- 752,568 111,727
418,702 3,301,417 384,866 103,414 206,205 90,029 1,195,185 67,372
102,651 -- -- 85,462 83,959 25,063 -- 13,646
70,680 92,615 92,944 76,025 73,438 13,855 -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
53,489,633 207,728,638 38,370,009 14,318,121 11,728,517 4,827,935 274,649,879 26,856,719
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
492,280 19,052,322 7,016,787 1,983,715 -- -- -- --
11,027 49,719 55,939 10 -- -- 238,521 42,403
26,957 1,011,711 196,961 69,780 65,933 7,296 11,529 41,058
-- -- -- -- -- -- -- --
-- 374,129 1,835 -- -- -- 49,967 --
78,250 265,252 39,302 4,361 2,937 2,510 -- --
-- -- 12,954 -- -- -- -- --
72,368 77,216 18,785 9,838 7,196 11,738 205,827 17,877
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
680,882 20,830,349 7,342,563 2,067,704 76,066 21,544 505,844 101,338
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 52,808,751 $ 186,898,289 $ 31,027,446 $ 12,250,417 $ 11,652,451 $ 4,806,391 $ 274,144,035 $ 26,755,381
============= ============= ============= ============= ============= ============= ============= =============
$ 48,297,802 $ 179,492,801 $ 30,045,780 $ 12,197,017 $ 11,296,354 $ 5,311,298 $ 274,368,811 $ 26,757,505
33,205 -- (9,936) -- 1,574 4,786 -- --
139,592 159,677 27,427 5,781 8,650 (617,129) (224,776) (2,124)
4,338,152 7,245,811 964,175 47,619 345,873 107,436 -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 52,808,751 $ 186,898,289 $ 31,027,446 $ 12,250,417 $ 11,652,451 $ 4,806,391 $ 274,144,035 $ 26,755,381
============= ============= ============= ============= ============= ============= ============= =============
$ 21,108,539 $ 65,934,945 $ 8,344,667 $ 1,187,796 $ 696,228 $ 792,077 $ 359,918 $ 8,175,114
============= ============= ============= ============= ============= ============= ============= =============
$ 28,042,598 $ 106,796,993 $ 14,290,631 $ 1,266,160 $ 702,385 $ 539,449 $ 25,000 $ 3,920,077
============= ============= ============= ============= ============= ============= ============= =============
$ 3,444,600 $ 13,773,078 $ 4,574,873 $ 421,662 $ 467,863 $ 281,799 $ 25,000 $ 434,883
============= ============= ============= ============= ============= ============= ============= =============
$ 213,014 $ 393,273 $ 3,817,275 $ 9,374,799 $ 9,785,975 $ 3,193,066 $ 273,734,117 $ 14,225,307
============= ============= ============= ============= ============= ============= ============= =============
1,785,577 5,712,605 770,669 118,004 67,273 79,813 359,913 8,175,118
============= ============= ============= ============= ============= ============= ============= =============
2,373,141 9,266,321 1,321,002 125,880 67,998 54,372 25,000 3,920,078
============= ============= ============= ============= ============= ============= ============= =============
290,767 1,195,228 422,727 41,966 45,282 28,400 25,000 434,883
============= ============= ============= ============= ============= ============= ============= =============
17,932 34,107 352,949 932,104 946,252 321,703 273,959,755 14,227,426
============= ============= ============= ============= ============= ============= ============= =============
$ 11.82 $ 11.54 $ 10.83 $ 10.07 $ 10.35 $ 9.92 $ 1.00 $ 1.00
============= ============= ============= ============= ============= ============= ============= =============
$ 12.41 $ 12.12 $ 11.37 $ 10.57 $ 10.87 $ 10.41 $ 1.00 $ 1.00
============= ============= ============= ============= ============= ============= ============= =============
$ 11.82 $ 11.53 $ 10.82 $ 10.06 $ 10.33 $ 9.92 $ 1.00 $ 1.00
============= ============= ============= ============= ============= ============= ============= =============
$ 11.85 $ 11.52 $ 10.82 $ 10.05 $ 10.33 $ 9.92 $ 1.00 $ 1.00
============= ============= ============= ============= ============= ============= ============= =============
$ 11.88 $ 11.53 $ 10.82 $ 10.06 $ 10.34 $ 9.93 $ 1.00 $ 1.00
============= ============= ============= ============= ============= ============= ============= =============
$ 43,025,382 $ 171,455,951 $ 28,211,195 $ 11,189,717 $ 10,832,716 $ 4,560,814 $ 272,618,308 $ 22,769,706
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements
201
<PAGE>
<PAGE>
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Asia
Growth Capital Investors
Fund* Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest ............................................................... $ 18,814 $ 514,027 $ 1,523,972
Dividends (Note A) ..................................................... 64,177 1,913,899 8,551,401
--------- ----------- ------------
82,991 2,427,926 10,075,373
Expenses:
Management fee ......................................................... 30,723 1,143,084 2,455,501
Registration and filing fees ........................................... 2,450 40,000 40,001
Custody and administration fees ........................................ 126,686 62,524 68,889
Legal .................................................................. 1,267 130,000 89,999
Printing ............................................................... 5,798 38,500 285,001
Shareholder services ................................................... 14,500 45,000 393,000
Amortization of organization expenses .................................. 13,416 -- --
Audit and tax return preparation fees .................................. 3,356 77,000 86,001
Directors' fees and expenses ........................................... 1,951 67,725 77,998
Other .................................................................. 1,500 31,000 110,000
--------- ----------- ------------
201,647 1,634,833 3,606,390
Management fee waived and expenses absorbed by investment advisor ...... (163,410) -- --
Credits earned from custodian on cash balances ......................... (219) (69) (242)
--------- ----------- ------------
38,018 1,634,764 3,606,148
Distribution and service fees:
Class A Shares ......................................................... 4,842 45 9,375
Class B Shares ......................................................... 17,196 105 28,496
Class C Shares ......................................................... 1,125 108 7,296
--------- ----------- ------------
Net expenses ........................................................... 61,181 1,635,022 3,651,315
--------- ----------- ------------
Net investment income .................................................. 21,810 792,904 6,424,058
========= =========== ============
Realized and unrealized gain (loss): Net realized gain (loss) on:
Investments (Note B) ................................................... 319,467 22,843,163 52,051,879
Options written ........................................................ 319 19,754 --
Foreign currency transactions .......................................... (5,493) (165) (36)
--------- ----------- ------------
314,293 22,862,752 52,051,843
--------- ----------- ------------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................................ 53,192 10,601,638 70,016,706
Foreign currency transactions and other assets ......................... (55) (28) (197)
--------- ----------- ------------
53,137 10,601,610 70,016,509
--------- ----------- ------------
Net realized and unrealized gain (loss) ................................ 367,430 33,464,362 122,068,352
--------- ----------- ------------
Net increase in net assets from operations ............................. $ 389,240 $34,257,266 $128,492,410
========= =========== ============
Note A: Net of foreign withholding tax of: ............................. $ 6,183 $ 29,513 $ 158,622
========= =========== ============
Note B: Net of foreign withholding tax of: ............................. $ 2,237 $ -- $ --
========= =========== ============
</TABLE>
* Fund's commencement of investment operations was May 6, 1996.
See accompanying notes to financial statements
202
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
U.S. National New York New York Cash
Total High Yield Strategic Government Intermediate Municipal Municipal Management
Return Fund Bond Fund Bond Fund Income Fund Municipal Fund Bond Fund Money Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,325,501 $ 7,951,108 $1,847,036 $ 680,165 $ 604,683 $239,208 $7,434,967 $1,014,725
539,726 -- -- -- -- -- -- --
---------- ----------- ---------- --------- --------- -------- ---------- ----------
1,865,227 7,951,108 1,847,036 680,165 604,683 239,208 7,434,967 1,014,725
184,118 565,248 146,387 66,682 56,186 21,043 393,078 36,898
37,968 69,000 27,234 27,000 27,000 7,002 2,500 35,001
65,358 88,500 43,029 26,573 19,554 11,315 236,311 33,909
17,301 3,899 333 -- -- -- 53,700 3,602
17,601 26,502 10,300 6,300 5,100 -- 87,000 7,901
75,000 86,000 52,500 49,000 49,000 2,900 110,001 12,600
19,175 29,894 29,998 24,603 23,780 14,040 -- --
24,401 50,000 14,500 7,000 7,000 3,500 130,001 12,701
1,739 1,903 1,929 1,929 1,929 2,430 2,811 2,811
11,532 17,000 12,000 9,800 9,100 7,000 32,737 6,601
---------- ----------- ---------- --------- --------- -------- ---------- ----------
454,193 937,946 338,210 218,887 198,649 69,230 1,048,139 152,024
(286,769) (191,119) (144,551) (152,144) (140,145) (46,106) -- (50,544)
(44) (700) (429) (61) (2,317) (2,080) (2,477) (9)
---------- ----------- ---------- --------- --------- -------- ---------- ----------
167,380 746,127 193,230 66,682 56,187 21,044 1,045,662 101,471
31,644 72,432 7,229 1,712 1,550 1,659 -- --
147,557 404,316 63,712 7,971 5,978 5,193 -- --
19,472 45,496 15,131 2,780 3,418 2,715 -- --
---------- ----------- ---------- --------- --------- -------- ---------- ----------
366,053 1,268,371 279,302 79,145 67,133 30,611 1,045,662 101,471
---------- ----------- ---------- --------- --------- -------- ---------- ----------
1,499,174 6,682,737 1,567,734 601,020 537,550 208,597 6,389,305 913,254
========== =========== ========== ========= ========= ======== ========== ==========
540,093 1,779,535 467,146 88,860 23,657 6,816 2,563 (10)
(4) -- 83,360 -- -- -- -- --
---------- ----------- ---------- --------- --------- -------- ---------- ----------
540,089 1,779,535 550,506 88,860 23,657 6,816 2,563 (10)
---------- ----------- ---------- --------- --------- -------- ---------- ----------
3,888,005 6,815,932 410,629 (277,785) (78,007) (43,124) -- --
-- (18,249) 3,258 -- -- -- -- --
---------- ----------- ---------- --------- --------- -------- ---------- ----------
3,888,005 6,797,683 413,887 (277,785) (78,007) (43,124) -- --
---------- ----------- ---------- --------- --------- -------- ---------- ----------
4,428,094 8,577,218 964,393 (188,925) (54,350) (36,308) 2,563 (10)
$5,927,268 $15,259,955 $2,532,127 $ 412,095 $ 483,200 $172,289 $6,391,868 $ 913,244
========== =========== ========== ========= ========= ======== ========== ==========
$ 5,576 $ -- $ -- $ -- $ -- $ -- $ -- $ --
========== =========== ========== ========= ========= ======== ========== ==========
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
========== =========== ========== ========= ========= ======== ========== ==========
</TABLE>
203
<PAGE>
<PAGE>
Statements of Changes in Net Assets
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Asia
Growth Capital Investors
Fund* Fund Fund
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ......................................... $ 21,810 $ 792,904 $ 6,424,058
Net realized gain (loss) on investments, options, and
foreign currency transactions ................................. 314,293 22,862,752 52,051,843
Net change in unrealized appreciation (depreciation) on
investments, options, foreign currency transactions
and other assets .............................................. 53,137 10,601,610 70,016,509
------------- ------------- -------------
Net increase in net assets from operations .................... 389,240 34,257,266 128,492,410
------------- ------------- -------------
Dividends and distributions to shareholders:
Dividends from net investment income:
Class A ..................................................... (16,828) (233) (52,117)
Class B ..................................................... (1,406) (120) (15,140)
Class C ..................................................... (329) (120) (3,893)
Class O ..................................................... (728) (797,069) (6,351,142)
------------- ------------- -------------
(19,291) (797,542) (6,422,292)
------------- ------------- -------------
Dividends in excess of net investment income:
Class A ..................................................... -- -- --
Class B ..................................................... -- -- --
Class C ..................................................... -- -- --
Class O ..................................................... -- -- --
------------- ------------- -------------
-- -- --
------------- ------------- -------------
Distributions from net realized gains:
Class A ..................................................... (53,543) (6,217) (766,906)
Class B ..................................................... (46,007) (3,992) (609,635)
Class C ..................................................... (3,591) (3,992) (111,830)
Class O ..................................................... (1,798) (25,587,085) (59,558,730)
------------- ------------- -------------
(104,939) (25,601,286) (61,047,101)
------------- ------------- -------------
Net fund capital share transactions:
Class A ..................................................... 3,549,887 342,420 10,214,466
Class B ..................................................... 3,050,781 218,589 8,511,239
Class C ..................................................... 237,212 130,425 1,554,480
Class O ..................................................... 117,478 25,656,871 28,941,018
------------- ------------- -------------
Net increase in net assets derived from share transactions . 6,955,358 26,348,305 49,221,203
------------- ------------- -------------
Net increase in net assets ...................................... 7,220,368 34,206,743 110,244,220
Net assets:
Beginning of period ........................................... 5,000 102,428,627 430,413,606
------------- ------------- -------------
End of period (a) ............................................. $ 7,225,368 $ 136,635,370 $ 540,657,826
============= ============= =============
(a) Including undistributed net investment income or
distributions in excess of net investment income of: ........ $ 2,519 $ (111,168) $ 1,766
============= ============= =============
</TABLE>
* Fund's commencement of investment operations was May 6, 1996.
See accompanying notes to financial statements
204
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
U.S. National New York New York Cash
Total High Yield Strategic Government Intermediate Municipal Municipal Management
Return Fund Bond Fund Bond Fund Income Fund Municipal Fund Bond Fund Money Fund Fund
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,499,174 $ 6,682,737 $ 1,567,734 $ 601,020 $ 537,550 $ 208,597 $ 6,389,305 $ 913,254
540,089 1,779,535 550,506 88,860 23,657 6,816 2,563 (10)
3,888,005 6,797,683 413,887 (277,785) (78,007) (43,124) -- --
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
5,927,268 15,259,955 2,532,127 412,095 483,200 172,289 6,391,868 913,244
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
(608,681) (2,693,853) (223,497) (35,750) (28,388) (32,335) (802) (264,829)
(585,187) (3,488,256) (463,295) (35,916) (23,706) (21,617) (142) (137,835)
(76,316) (390,999) (103,804) (12,551) (13,552) (11,310) (142) (13,718)
(195,785) (138,093) (812,077) (516,803) (474,259) (141,908) (6,388,219) (496,872)
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
(1,465,969) (6,711,201) (1,602,673) (601,020) (539,905) (207,170) (6,388,219) (913,254)
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
-- -- (1,487) -- -- -- -- --
-- -- (3,010) -- -- -- -- --
-- -- (706) -- -- -- -- --
-- -- (4,733) -- -- -- -- --
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
-- -- (9,936) -- -- -- -- --
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
(152,704) (611,200) (125,860) (4,728) (1,449) -- -- --
(203,017) (942,499) (218,299) (5,771) (1,467) -- -- --
(25,301) (118,077) (67,806) (2,179) (976) -- -- --
(28,599) (10,856) (58,871) (65,419) (20,439) -- -- --
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
(409,621) (1,682,632) (470,836) (78,097) (24,331) -- -- --
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
15,969,336 52,531,457 7,803,194 914,633 131,024 252,823 359,913 6,419,571
20,798,943 93,129,376 12,296,600 707,635 271,514 21,121 25,000 1,681,592
2,758,002 12,100,036 4,143,135 157,310 198,788 20,592 25,000 252,342
(4,743,447) (7,754,436) (6,230,578) 62,922 185,121 712,785 47,182,964 7,541,082
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
34,782,834 150,006,433 18,012,351 1,842,500 786,447 1,007,321 47,592,877 15,894,587
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
38,834,512 156,872,555 18,461,033 1,575,478 705,411 972,440 47,595,440 15,894,577
13,974,239 30,025,734 12,566,413 10,674,939 10,947,040 3,833,951 226,548,595 10,860,804
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
$ 52,808,751 $186,898,289 $31,027,446 $12,250,417 $11,652,451 $4,806,391 $274,144,035 $26,755,381
============ ============ =========== =========== =========== ========== ============ ===========
$ 33,205 $ (395,860) $ (212,591) $ (61,032) $ 1,574 $ 4,786 $ -- $ --
- ------------ ------------ ----------- ----------- ----------- ---------- ------------ -----------
</TABLE>
See accompanying notes to financial statements
205
<PAGE>
<PAGE>
Statements of Changes in Net Assets
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Asia
Growth Capital Investors
Fund(a) Fund Fund
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income........................................... $ -- $ 702,996 $ 6,537,153
Net realized gain (loss) on investments, options, and foreign
curency transactions.......................................... -- 20,581,764 49,873,168
Net change in unrealized appreciation (depreciation) on
investments, options, foreign currency transactions and
other assets................................................... -- 7,415,877 62,151,251
----------- ---------- --------------
Net increase in net assets from operations...................... -- 28,700,637 118,561,572
----------- ---------- --------------
Dividends and distributions to shareholders:
Dividends from net investment income:
Class A........................................................ -- -- (4,087)
Class B........................................................ -- -- (2,179)
Class C........................................................ -- -- (1,577)
Class O........................................................ -- (698,526) (6,529,373)
----------- ----------- --------------
-- (698,526) (6,537,216)
----------- ------------- --------------
Distributions from net realized gains:
Class A........................................................ -- -- (37,569)
Class B........................................................ -- -- (61,264)
Class C........................................................ -- -- (26,879)
Class O........................................................ -- (11,082,177) (36,419,464)
----------- ------------- --------------
-- (11,082,177) (36,545,176)
----------- ------------- --------------
Distributions in excess of net realized gains:
Class A........................................................ -- -- --
Class B........................................................ -- -- --
Class C........................................................ -- -- --
Class O........................................................ -- -- --
----------- ------------- -------------
-- -- --
----------- ------------- -------------
Net fund capital share transactions:
Class A........................................................ -- -- 396,175
Class B........................................................ -- -- 675,659
Class C........................................................ -- -- 264,858
Class O........................................................ -- (1,195,665) 5,383,498
----------- -------------- -------------
Net increase (decrease) in net assets derived from share
transactions.................................................. -- (1,195,665) 6,720,190
----------- -------------- -------------
Net increase (decrease) in net assets............................ -- 15,724,269 82,199,370
Net assets:
Beginning of period............................................ -- 86,704,358 348,214,236
----------- -------------- -------------
End of period *................................................ -- $102,428,627 $430,413,606
=========== =============== =============
* Including undistributed net investment income or
distributions in excess of net investment income of: $ -- $ 4,470 $ --
========== ================ =============
</TABLE>
(a) Fund's commencement of investment operations was May 6, 1996.
(b) Fund's commencement of investment operations was September 11, 1995.
(c) Fund's commencement of investment operations was February 22, 1995.
See accompanying notes to financial statements
206
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
U.S. National New York New York Cash
Total High Yield Strategic Government Intermediate Municipal Municipal Management
Return Fund(b) Bond Fund(c) Bond Fund(c) Income Fund(c) Municipal Fund(c) Bond Fund Money Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 132,091 $ 1,503,286 $ 912,394 $ 517,510 $ 430,514 $ 202,366 $ 8,261,332 $ 695,618
24,049 472,003 278,481 110,378 39,589 (65,526) 27,905 --
450,147 448,128 550,288 325,404 423,880 481,771 -- --
- ------------ ------------- ------------- ------------- --------------- -------------- ------------- ------------
606,287 2,423,417 1,741,163 953,292 893,983 618,611 8,289,237 695,618
- ------------ ------------- ------------- ------------- --------------- -------------- ------------- ------------
(35,724) (428,959) (30,591) (12,734) (17,376) (11,538) -- (40,161)
(47,121) (212,975) (59,198) (16,038) (11,207) (12,739) -- (26,516)
(3,465) (42,228) (23,725) (10,967) (8,442) (9,206) -- (2,693)
(45,781) (790,660) (804,713) (477,771) (389,560) (165,524) (8,261,332) (626,248)
- ------------ ------------ ------------- -------------- --------------- -------------- ------------ ------------
(132,091) (1,474,822) (918,227) (517,510) (426,585) (199,007) (8,261,332) (695,618)
- ------------ ------------ ------------- -------------- --------------- -------------- ------------ ------------
(3,900) (146,101) (11,724) (2,801) (1,569) -- -- --
5,711) (137,393) (42,853) (4,374) (1,193) -- -- --
(469) (17,451) (9,338) (2,795) (749) -- -- --
(4,845) (108,284) (226,037) (100,408) (26,754) -- -- --
- ------------ -------------- ------------- -------------- --------------- -------------- ----------- ------------
(14,925) (409,229) (289,952) (110,378) (30,265) -- -- --
- ----------- -------------- ------------- -------------- --------------- -------------- ----------- ------------
-- -- -- (216) -- -- -- --
-- -- -- (1,765) -- -- -- --
-- -- -- (174) -- -- -- --
-- -- -- (2,827) -- -- -- --
- ----------- -------------- ------------ -------------- -------------- -------------- ----------- ------------
-- -- -- (4,982) -- -- -- --
- ----------- -------------- ------------ -------------- -------------- -------------- ----------- ------------
3,580,176 10,746,292 498,371 269,838 551,191 528,982 -- 1,755,547
5,255,708 10,103,804 1,866,229 561,475 417,842 504,427 -- 2,238,486
424,084 1,264,713 397,920 265,054 260,067 250,059 -- 182,541
4,250,000 7,371,479 9,270,829 9,258,070 9,280,727 (1,202,551) (43,267,305) (12,442,586)
- ----------- -------------- ------------ -------------- -------------- -------------- ----------- -----------
13,509,968 29,486,288 12,033,349 10,354,437 10,509,827 80,917 (43,267,305) (8,266,012)
- ----------- -------------- ------------ -------------- -------------- -------------- ----------- -----------
13,969,239 30,025,654 12,566,333 10,674,859 10,946,960 500,521 (43,239,400) (8,266,012)
5,000 80 80 80 80 3,333,430 269,787,995 19,126,816
- ----------- -------------- ------------- -------------- -------------- -------------- ------------ ------------
$13,974,239 $ 30,025,734 $12,566,413 $10,674,939 $ 10,947,040 $ 3,833,951 $226,548,595 $ 10,860,804
=========== ============== ============= ============== ============== ============== ============ ============
$ -- $ 28,464 $ (29,376) $ -- $ 3,929 $ 3,359 $ -- $ --
=========== ============== ============= ============== ============== ============== ============ ============
</TABLE>
See accompanying notes to financial statements
207
<PAGE>
<PAGE>
Notes to Financial Statements
1. Organization and Significant Accounting Policies
The Salomon Brothers Investment Series (the "Investment Series") consists of
certain portfolios of the Salomon Brothers Series Funds Inc (the "Series
Funds"), as indicated below, the Salomon Brothers Investors Fund Inc (the
"Investors Fund") and the Salomon Brothers Capital Fund Inc (the "Capital
Fund"). The Series Funds were incorporated in Maryland on April 17, 1990 as an
open-end management investment company, and currently operate as a series
company comprised of ten portfolios: Salomon Brothers Cash Management Fund (the
"Cash Management Fund"), Salomon Brothers New York Municipal Money Market Fund
(the "New York Municipal Money Fund"), Salomon Brothers Institutional Money
Market Fund (the "Institutional Money Market Fund"), Salomon Brothers 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 Asia Growth Fund (the "Asia Growth Fund"). Separate financial
statements are prepared for the Institutional Money Market Fund which is not
part of the Investment Series. All of the other portfolios of the Series Funds
are included in the Investment Series, which also includes the Investors Fund, a
diversified open-end management investment company incorporated in Maryland on
April 2, 1958 and the Capital Fund, a non-diversified open-end management
investment company incorporated in Maryland on August 23, 1976. The Investment
Series operates under a multiple class pricing structure, with each portfolio of
the Investment Series (individually, a "Fund") offering Class A, Class B, Class
C, and Class O shares, each with their own expense structure. Each Fund has a
specific investment objective: the Cash Management Fund's and New York Municipal
Money Fund's objective is to seek as high a level of current income as is
consistent with liquidity and the stability of principal; the New York Municipal
Bond Fund's 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 National
Intermediate Municipal Fund's objective is to seek a high level of current
income which is exempt from regular federal income taxes; the U.S. Government
Income Fund's objective is to seek a high level of current income; the High
Yield Bond Fund's primary objective is to maximize current income; the Strategic
Bond Fund's primary objective is to seek a high level of current income; the
Total Return Fund's primary objective is to obtain above-average income
(compared to a portfolio entirely invested in equity securities); the Asia
Growth Fund's objective is to seek long-term capital appreciation; the Investors
Fund's primary objective is to seek long-term growth of capital; the Capital
Fund's objective is to seek capital appreciation.
208
<PAGE>
<PAGE>
Certain costs incurred in connection with each Fund's organization, which were
payable to Salomon Brothers Asset Management Inc ("SBAM") have been deferred and
are being amortized by the Funds over a 60 month period from the date each Fund
commenced investment operations. A summary of those expenditures that remain as
of December 31, 1996 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Expiration of Amortization Amount
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
New York Municipal Bond Fund............................. February 1998 $13,855
National Intermediate Municipal Fund..................... February 2000 $73,438
U.S. Government Income Fund.............................. February 2000 $76,025
High Yield Bond Fund..................................... February 2000 $92,615
Strategic Bond Fund...................................... February 2000 $92,944
Total Return Fund........................................ September 2000 $70,680
Asia Growth Fund......................................... May 2001 $86,584
</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 ("GAAP"). The
preparation of financial statements in accordance with GAAP requires management
to make estimates of certain reported amounts in the financial statements.
Actual amounts could differ from those estimates.
(a) Investment Valuation. Portfolio securities listed or traded on
national securities exchanges, or reported on the NASDAQ national market
system, are valued at the last sale price, or if there have been no sales
on that day, at the mean of the current bid and asked price which
represents the current value of the security. Over-the-counter securities
are valued at the mean of the current bid and asked price. Debt securities
are valued by using either market quotations or independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Publicly traded sovereign bonds are typically
traded internationally on the over-the-counter market and are valued at the
mean of the last current bid and asked price as of the close of business of
that market. Short-term securities with less than 60 days remaining to
maturity when acquired by a Fund will be valued at amortized cost which
approximates market value. If a Fund, other than the Cash Management Fund
and New York Municipal Money Fund, acquires such securities with more than
60 days remaining to maturity, they will be valued at current market value,
until the 60th day prior to maturity, and will then be valued on an
amortized cost basis.
Portfolio securities for the Cash Management Fund and the New York
Municipal Money Fund are valued using the amortized cost method, which
involves initially valuing an investment at its cost and thereafter
assuming a constant amortization to maturity of any premium or discount.
This method results in a value approximating market value.
Prior governmental approval for foreign investments may be required
under certain circumstances in some emerging market countries, and the
extent of foreign investment in domestic companies may be subject to
limitation in other emerging market countries. Foreign ownership
limitations also may be imposed by the charters of individual companies in
emerging market countries to prevent, among other things, violation of
foreign investment limitations. As a result, an additional class of shares
(identified as "Foreign Shares" in the Portfolio of Investments) may be
created and offered for investment by such companies. The "local" and
"foreign" shares' market values may differ.
Foreign securities quoted in a foreign currency are translated into
U.S. dollars using exchange rates at 2:30 p.m.
209
<PAGE>
<PAGE>
Notes to Financial Statements (continued)
Eastern time (12:30 p.m. for the Asia Growth Fund), or at such other
rates as SBAM may determine to be appropriate in computing net asset value.
Securities for which reliable quotations or prices from pricing
services are not readily available (as may be the case for securities of
limited marketability) and all other assets are valued at their respective
fair value as determined in good faith by, or under procedures established
by, the Board of Directors.
(b) Futures Contracts. The New York Municipal Bond Fund, National
Intermediate Municipal Fund, High Yield Bond Fund, Strategic Bond Fund,
Total Return Fund, Asia Growth Fund, Investors Fund and Capital Fund may
enter into futures contracts, which involves paying or receiving variation
margin, which 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 may involve elements of market
risk in excess of amounts reported in the financial statements.
(c) Option Contracts. When a Fund writes or purchases a call or a put
option, an amount equal to the premium received or paid by the Fund is
recorded as a liability or asset, the value of which is marked-to-market
daily to reflect the current market value of the option. When the option
expires, the Fund realizes a gain or loss equal to the amount of the
premium received or paid. When the Fund exercises an option or enters into
a closing transaction by purchasing or selling an offsetting option, it
realizes a gain or loss without regard to any unrealized gain or loss on
the underlying security. When a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received.
When a written put option is exercised, the amount of the premium received
reduces the cost of the security that the Fund purchased upon exercise of
the option.
(d) Mortgage Rolls. The U.S. Government Income Fund, Strategic Bond
Fund and Total Return Fund may enter into mortgage "dollar rolls" in which
a Fund sells mortgage-backed securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. The Fund
is compensated by a fee paid by the counterparty. Dollar rolls are
accounted for as financing arrangements; the fee is accrued into interest
income ratably over the term of the dollar roll and any gain or loss on the
roll is deferred until disposition of the rolled security. The average
daily balance of dollar rolls outstanding during the year ended December
31, 1996 was approximately $1,181,000, $334,000 and $471,000 for the U.S.
Government Income Fund, Strategic Bond Fund and Total Return Fund,
respectively.
(e) Repurchase Agreements. When entering into repurchase agreements, it
is each Fund's policy that the Fund take possession, through its custodian,
of the underlying collateral and monitor the collateral's value at the time
the agreement is entered into and on a daily basis during the term of the
repurchase agreement to ensure that it always equals or exceeds the
repurchase price. In the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings.
(f) Foreign Currency Translation. The accounting records of each Fund
are maintained in U.S. dollars. Investment securities and other assets and
liabilities of the High Yield Bond Fund, Strategic Bond Fund, Total Return
Fund, Asia Growth Fund, Investors Fund and Capital Fund denominated in a
foreign currency are translated into U.S. dollars at the prevailing rates
of exchange each day. Purchases and sales of securities, income receipts
and expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the transactions. Net realized
gains and losses on foreign currency transactions represent net gains and
losses from sales and maturities
210
<PAGE>
<PAGE>
of forward currency contracts, disposition of foreign currencies, currency
gains and losses realized between the trade and settlement dates on
securities transactions and the difference between the amount of net
investment income accrued and the U.S. dollar amount actually received. The
effect of changes in foreign currency exchange rates on investments in
securities are not segregated in the Statements of Operations from the
effects of changes in market prices of those securities, but are included
with the net realized and unrealized gain or loss on investments.
(g) Forward Foreign Currency Contracts. The High Yield Bond Fund,
Strategic Bond Fund, Total Return Fund, Asia Growth Fund and Investors Fund
may enter into forward foreign currency contracts. A forward foreign
currency contract is an agreement between two parties to buy and sell a
currency at a set price on a future date. The contract is marked-to-market
daily and the change in value is recorded by the Fund as an unrealized gain
or loss. When a forward foreign currency contract is extinguished, through
either delivery or offset by entering into another forward foreign currency
contract, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value
of the contract at the time it was extinguished or offset.
(h) Loan Participations. The High Yield Bond Fund, Strategic Bond Fund,
Total Return Fund and Asia Growth Fund may invest in fixed and floating
rate loans arranged through private negotiations between a foreign
sovereign entity and one or more financial institutions ("lender"). The
market values of the High Yield Bond Fund and the Strategic Bond Fund's
loan participations at December 31, 1996 were $7,782,188 and $1,238,438,
respectively.
(i) Federal Income Taxes. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies 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.
The Asia Growth Fund may be subject to taxes imposed by countries in
which it invests. Such taxes are generally based on income and/or capital
gains earned or repatriated. Taxes are accrued and applied to net
investment income, net realized gains and net unrealized appreciation as
such income and/or gains are earned.
(j) Dividends and Distributions to Shareholders. Dividends from net
investment income on the shares of each of the Funds (except the Asia
Growth Fund, Investors Fund, and Capital Fund) are declared each business
day to shareholders of record that day, and are paid on the last business
day of the month. Dividends from net investment income for the Asia Growth
Fund and the Capital Fund will be declared on an annual basis. Dividends
from net investment income for the Investors Fund are declared on a
quarterly basis. Distributions of net realized gains to shareholders of
each Fund, if any, are declared at least annually. Dividends and
distributions to shareholders of each Fund are recorded on the ex-dividend
date and are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles due primarily to
differences in the treatment of foreign currency gains/losses, deferral of
wash sales, and post-October losses incurred by each Fund. Permanent
book/tax differences are reclassified within the capital accounts based on
their federal income tax basis treatment; temporary differences do not
require reclassifications. Dividends and distributions which exceed net
investment income and net realized gains for financial reporting purposes
but not for tax purposes are reported as distributions in excess of net
investment income and distributions in excess of net realized capital
gains.
(k) Class Accounting. Investment income, common expenses and gain
(loss) on investments are allocated to the various classes of a Fund on the
basis of daily net assets of each class. Distribution and shareholder
servicing fees relating to a specific class are charged directly to that
class. No class has preferential dividend rights; differences in
211
<PAGE>
<PAGE>
Notes to Financial Statements (continued)
per share dividend rates are generally due to differences in separate class
expenses.
(l) Expenses. Direct expenses are charged to the Fund that incurred
them, and general expenses of the Investment Series are allocated to the
Funds based on each Fund's relative net assets.
(m) Other. Investment transactions are recorded as of the trade date.
Dividend income is recorded on the ex-dividend date (except for the Asia
Growth Fund, where certain dividends may be recorded as soon as the Fund is
informed of such dividends). Interest income, including the accretion of
discounts or amortization of premiums, is recognized when earned. Gains or
losses on sales of securities are calculated for financial accounting and
Federal income tax purposes on the identified cost basis. Net investment
income (other than distribution fees) and unrealized and realized gains or
losses are allocated daily to each class of shares based upon the relative
proportion of each class's net assets to the Fund's total net assets.
2. Management Fee and Other Agreements
Each Fund 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 and
Capital Fund) is payable monthly and is based on the following annual
percentages of each Fund's average daily net assets: .20% for the Cash
Management Fund and New York Municipal Money Fund, .50% for the New York
Municipal Bond Fund and the National Intermediate Municipal Fund, .60% for the
U.S. Government Income Fund, .75% for the High Yield Bond Fund and Strategic
Bond Fund, .55% for the Total Return Fund and .80% for the Asia Growth Fund. The
management fee for the Capital Fund is payable monthly and is based on the
following annual percentages of the Fund's average daily net assets: first $100
million--1%; next $100 million--.75% ; next $200 million--.625%; excess over
$400 million--.50%. SBAM Limited, an affiliate of SBAM, provides certain
advisory services to SBAM for the benefit of the Strategic Bond Fund, as well
as, certain administrative services for the Asia Growth Fund. SBAM Limited is
compensated by SBAM at no additional expense to the Strategic Bond and Asia
Growth Fund. SBAM has retained SBAM AP, an affiliate of SBAM, to act as
sub-advisor to the Asia Growth Fund. SBAM AP is compensated by SBAM at no
additional expense to the Asia Growth Fund.
The Investors Fund pays SBAM a base fee subject to an increase or decrease
depending on the extent, if any, to which the investment performance of the
Investors Fund exceeds or is exceeded by the investment record of the Standard &
Poor's 500 Index of Composite Stocks ("S&P 500 Index"). 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>
The performance adjustment is paid quarterly based on a rolling one year period.
A performance adjustment will only be made after the investment performance of
the Investors Fund exceeds or is exceeded by the investment record of the S&P
500 Index by at least one percentage point. For each percentage point by which
the investment performance of the
212
<PAGE>
<PAGE>
Investors Fund exceeds or is exceeded by the investment record of the S&P 500
Index, the base fee will be adjusted upward or downward by .01% (annualized).
The maximum annual adjustment is .10% which would occur if the Investors Fund's
performance exceeds or is exceeded by the S&P 500 Index by ten or more
percentage points. For the rolling one-year periods, ended March 31, 1996, June
30, 1996, September 30, 1996 and December 31, 1996 the Investors Fund's
performance exceeded the investment record of the S&P Index by approximately
two, three, six, and six percent, respectively. As a result, base management
fees were increased in aggregate by $199,931 for the year ended December 31,
1996.
For the year ended December 31, 1996, SBAM waived management fees of $36,898,
$21,043, $56,186, $66,682, $191,119, $144,551, $184,118 and $30,723 for the 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, and Asia Growth Fund, respectively, and voluntarily absorbed
expenses of $13,646, $25,063, $83,959, $85,462, $102,651 and $132,687 for the
Cash Management Fund, New York Municipal Bond Fund, National Intermediate
Municipal Fund, U.S. Government Income Fund, Total Return Fund and Asia Growth
Fund, respectively.
Investors Bank & Trust Company serves as custodian and administrator for each
Fund, which includes performing certain administrative services in connection
with the operation of each Fund. During the year ended December 31, 1996,
credits earned on outstanding cash balances were used to reduce custodian fees.
Each Fund has an agreement with Salomon Brothers Inc ("Salomon Brothers"), an
affiliate of the Investment Adviser, to distribute its shares pursuant to a
multiple pricing system. Each class (except for Class O) of each Fund (except
for the Cash Management Fund and New York Municipal Money Fund) is authorized
pursuant to a services and distribution plan applicable to that class of shares
(the "Class A Plan," the "Class B Plan," and the "Class C Plan," collectively,
the "Plans") adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "1940 Act"), to pay Salomon Brothers an annual service fee
with respect to Class A, Class B, and Class C shares of the applicable Funds at
the rate of .25% of the value of the average daily net assets of the respective
class. Salomon Brothers is also paid an annual distribution fee with respect to
Class B and Class C shares of each Fund (except for the Cash Management Fund and
New York Municipal Money Fund) at the rate of .75% of the value of the average
daily net assets of the respective class. Class O shares are not subject to a
services and distribution plan fee.
Brokerage commissions of $1,758, $59,316 and $29,772 were paid by the Total
Return Fund, Investors Fund and Capital Fund, respectively, to Salomon Brothers,
the Funds' distributor and an indirect wholly-owned subsidiary of Salomon Inc,
for transactions executed on behalf of the Funds for the year ended December 31,
1996.
Salomon Brothers received $20,462 as its portion of the front-end sales charge
on sales of Class A shares of the Funds during the year ended December 31, 1996.
In addition, contingent deferred sales charges of $160,530 were paid to Salomon
Brothers in connection with redemptions of certain Class B and Class C shares of
the Funds during the year ended December 31, 1996.
3. Capital Stock
At December 31, 1996, the Series Funds had 10,000,000,000 shares of authorized
capital stock, par value $.001 per share, of which the Cash Management Fund, New
York Municipal Money Fund, New York Municipal Bond Fund, National Intermediate
Municipal Fund, U.S. Government Income Fund, High Yield Bond Fund, and Strategic
Bond Fund, each had 1,000,000,000 shares authorized. The Total Return Fund and
Asia Growth Fund had 999,999,992 and 1,000,000,008 shares authorized,
respectively. The Investors Fund had 50,000,000 shares of authorized capital
stock, par value $1.00 per share. The Capital Fund had 25,000,000 shares of
authorized capital stock, par value $.001 per share. Transactions in Fund shares
for the periods indicated were as follows:
213
<PAGE>
<PAGE>
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
Class A Class B
- -------------------------------------------------------------------------------------------------------------------------------
Period Ended Period Ended Period Ended Period Ended
December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asia Growth Fund
Sold ................... 356,682 $ 3,537,272 -- -- 305,714 $ 3,042,058 -- --
Issued as reinvestment . 2,175 22,436 -- -- 846 8,723 -- --
Redeemed ............... (1,037) (9,821) -- -- -- -- -- --
----------- ------------ ---------- ------------ ---------- ----------- --------- -----------
Net increase ........... 357,820 $ 3,549,887 -- -- 306,560 $ 3,050,781 -- --
=========== ============ ========== ============ ========== =========== ========= ===========
Capital Fund
Sold ................... 17,551 $ 347,514 -- -- 11,001 $ 218,589 -- --
Issued as reinvestment . 121 2,304 -- -- -- -- -- --
Redeemed ............... (384) (7,398) -- -- -- -- -- --
----------- ------------ ---------- ------------ ---------- ----------- --------- -----------
Net increase (decrease) 17,288 $ 342,420 -- -- 11,001 $ 218,589 -- --
=========== ============ ========== ============ ========== =========== ========= ===========
Investors Fund
Sold ................... 557,317 $ 10,367,582 27,922 $ 420,791 473,935 $ 8,823,215 41,769 $ 654,082
Issued as reinvestment . 43,043 791,687 760 12,451 30,569 561,476 1,335 21,837
Redeemed ............... (49,750) (944,803) (2,119) (37,067) (47,379) (873,452) (15) (260)
----------- ------------ ---------- ------------ ---------- ----------- --------- -----------
Net increase ........... 550,610 $ 10,214,466 26,563 $ 396,175 457,125 $ 8,511,239 43,089 $ 675,659
=========== ============ ========== ============ ========== =========== ========= ===========
Total Return Fund
Sold ................... 1,634,908 $ 18,197,811 343,940 $ 3,552,510 1,941,522 $21,665,343 518,625 $ 5,342,405
Issued as reinvestment . 56,167 639,053 2,713 28,624 57,560 656,054 3,801 40,062
Redeemed ............... (252,184) (2,867,528) (93) (958) (136,340) (1,522,454) (12,152) (126,759)
----------- ------------ ---------- ---------- ---------- ----------- -------- --------
Net increase (decrease) 1,438,891 $ 15,969,336 346,560 $ 3,580,176 1,862,742 $20,798,943 510,274 $ 5,255,708
=========== ============ ========== ============ ========== =========== ========= ===========
High Yield Bond Fund
Sold ................... 5,579,873 $ 62,422,667 1,019,841 $ 10,701 8,434,142 $94,520,293 946,768 $ 9,961,848
Issued as reinvestment . 178,995 2,017,850 40,936 430,949 173,250 1,963,617 15,920 168,888
Redeemed ............... (1,070,460) (11,909,060) (36,582) (386,153) (301,187) (3,354,534) (2,574) (26,932)
----------- ------------ ---------- ---------- ---------- ----------- -------- --------
Net increase (decrease) 4,688,408 $ 52,531,457 1,024,195 $ 10,746,292 8,306,205 $93,129,376 960,114 $10,103,804
=========== ============ ========== ============ ========== =========== ========= ===========
Strategic Bond Fund
Sold ................... 749,039 $ 8,090,137 53,771 $ 551,616 1,214,882 $13,060,764 174,744 $ 1,827,448
Issued as reinvestment . 22,056 238,009 1,158 12,171 33,453 360,441 3,737 39,371
Redeemed ............... (49,131) (524,952) (6,226) (65,416) (105,759) (1,124,605) (57) (590)
----------- ------------ ---------- ---------- ---------- ----------- -------- --------
Net increase (decrease) 721,964 $ 7,803,194 48,703 $ 498,371 1,142,576 $12,296,600 178,424 $ 1,866,229
=========== ============ ========== ============ ========== =========== ========= ===========
U.S. Government Income
Fund
Sold ................... 117,000 $ 1,173,487 26,869 $ 269,137 114,615 $ 1,149,715 54,833 $ 554,953
Issued as reinvestment . 1,688 16,972 76 721 1,043 10,504 637 6,542
Redeemed ............... (27,629) (275,826) (2) (20) (45,248) (452,584) (2) (20)
----------- ------------ ---------- ---------- ---------- ----------- -------- --------
Net increase ........... 91,059 $ 914,633 26,943 $ 269,838 70,410 $ 707,635 55,468 $ 561,475
=========== ============ ========== ============ ========== =========== ========= ===========
National Intermediate
Municipal Fund
Sold ................... 30,133 $ 310,751 54,100 $ 546,146 45,974 $ 472,141 41,260 $ 416,180
Issued as reinvestment . 1,305 13,429 710 7,331 623 6,378 163 1,682
Redeemed ............... (18,756) (193,156) (221) (2,286) (20,022) (207,005) (2) (20)
----------- ------------ ---------- ------------ ---------- ----------- --------- -----------
Net increase ........... 12,682 $ 131,024 54,589 $ 551,191 26,575 $ 271,514 41,421 $ 417,842
=========== ============ ========== ============ ========== =========== ========= ===========
New York Municipal Bond
Fund
Sold ................... 36,597 $ 358,657 53,966 $ 528,846 1,615 $ 16,000 52,010 $ 502,220
Issued as reinvestment . 424 4,166 16 157 523 5,121 226 2,229
Redeemed ............... (11,188) (110,000) (2) (21) -- -- (2) (22)
----------- ------------ ---------- ------------ ---------- ----------- --------- -----------
Net increase (decrease) 25,833 $ 252,823 53,980 $ 528,982 2,138 $ 21,121 52,234 $ 504,427
=========== ============ ========== ============ ========== =========== ========= ===========
New York Municipal Money
Fund
Sold ................... 359,251 $ 359,251 -- -- 25,000 $ 25,000 -- --
Issued as reinvestment . 662 662 -- -- -- -- -- --
Redeemed ............... -- -- -- -- -- -- -- --
----------- ------------ ---------- ------------ ---------- ----------- --------- -----------
Net increase (decrease) 359,913 $ 359,913 -- -- 25,000 $ 25,000 -- --
=========== ============ ========== ============ ========== =========== ========= ===========
Cash Management Fund
Sold ................... 34,309,623 $ 34,309,623 8,291,614 $ 8,291,614 4,686,602 $ 4,686,602 3,213,151 $ 3,213,151
Issued as reinvestment . 59,295 59,295 4,672 4,672 111,779 111,779 24,262 24,262
Redeemed ............... (27,949,347) (27,949,347) (6,540,739) (6,540,739) (3,116,789) (3,116,789) (998,927) (998,927)
----------- ------------ ---------- ------------ ---------- ----------- --------- -----------
Net increase (decrease) 6,419,571 $ 6,419,571 1,755,547 $ 1,755,547 1,681,592 $ 1,681,592 2,238,486 $ 2,238,486
=========== ============ ========== ============ ========== =========== ========= ===========
See accompanying notes to financial statements
214
<PAGE>
<PAGE>
<CAPTION>
Class C Class O
- ----------------------------------------------------------------------------------------------------------------------------------
Period Ended Period Ended Period Ended Period Ended
December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
34,069 $ 333,338 -- -- 12,221 $ 123,183 -- --
19 190 -- -- 37 387 -- --
(10,334) (96,316) -- -- (400) (4,092) -- --
--------- ------------ ------- ----------- ---------- ------------- ----------- -------------
23,754 $ 237,212 -- -- 11,858 $ 117,478 -- --
========= ============ ======= =========== ========== ============= =========== =============
6,531 $ 130,425 -- -- 1,669,366 $ 33,303,396 1,609,281 $ 29,031,088
-- -- -- -- 1,304,403 24,802,608 600,042 11,026,944
-- -- -- -- (1,619,111) (32,449,133) (2,277,011) (41,253,697)
--------- ------------ ------- ----------- ---------- ------------- ----------- -------------
6,531 $ 130,425 -- -- 1,354,658 $ 25,656,871 (67,688) $ (1,195,665)
========= ============ ======= =========== ========== ============= =========== =============
100,645 $ 1,851,974 18,595 $ 267,020 350,444 $ 6,256,570 245,958 $ 3,783,857
5,651 103,990 60 980 2,822,018 50,986,119 2,017,845 32,672,713
(20,916) (401,484) (200) (3,142) (1,570,151) (28,301,671) (1,987,122) (31,073,072)
--------- ------------ ------- ----------- ---------- ------------- ----------- -------------
85,380 $ 1,554,480 18,455 $ 264,858 1,602,311 $ 28,941,018 276,681 $ 5,383,498
========= ============ ======= =========== ========== ============= =========== =============
278,826 $ 3,090,704 41,886 $ 423,053 17,355 $ 195,012 425,000 $ 4,250,000
7,242 82,831 99 1,041 456 5,295 -- --
(37,410) (415,533) (1) (10) (425,004) (4,943,754) -- --
--------- ------------ ------- ----------- ---------- ------------- ----------- -------------
248,658 $ 2,758,002 41,984 $ 424,084 (407,193) $ (4,743,447) 425,000 $ 4,250,000
========= ============ ======= =========== ========== ============= =========== =============
1,118,377 $ 12,586,569 124,291 $ 1,298,229 32,418 $ 371,211 926,518 $ 9,265,788
29,193 330,589 1,229 12,925 495 5,673 791 7,911
(73,411) (817,122) (4,453) (46,441) (744,326) (8,131,320) (181,791) (1,902,220)
--------- ------------ ------- ----------- ---------- ------------- ----------- -------------
1,074,159 $ 12,100,036 121,067 $ 1,264,713 (711,413) $ (7,754,436) 745,518 $ 7,371,479
========= ============ ======= =========== ========== ============= =========== =============
425,748 $ 4,594,269 38,420 $ 391,367 1,757 $ 18,841 926,274 $ 9,263,323
13,409 144,660 625 6,573 59 642 754 7,526
(55,475) (595,794) (2) (20) (575,895) (6,250,061) (2) (20)
--------- ------------ ------- ----------- ---------- ------------- ----------- -------------
383,682 $ 4,143,135 39,043 $ 397,920 (574,079) $ (6,230,578) 927,026 $ 9,270,829
========= ============ ======= =========== ========== ============= =========== =============
16,846 $ 170,867 27,164 $ 272,000 6,017 $ 60,175 925,200 $ 9,252,000
103 1,029 20 206 276 2,757 816 8,164
(1,471) (14,586) (698) (7,152) (1) (10) (206) (2,094)
--------- ------------ ------- ----------- ---------- ------------- ----------- -------------
15,478 $ 157,310 26,486 $ 265,054 6,292 $ 62,922 925,810 $ 9,258,070
========= ============ ======= =========== ========== ============= =========== =============
18,942 $ 195,000 25,963 $ 260,000 18,217 $ 184,880 927,748 $ 9,278,117
368 3,788 9 87 24 241 263 2,630
-- -- (2) (20) -- -- (2) (20)
--------- ------------ ------- ----------- ---------- ------------- ----------- -------------
19,310 $ 198,788 25,970 $ 260,067 18,241 $ 185,121 928,009 $ 9,280,727
========= ============ ======= =========== ========== ============= =========== =============
2,072 $ 20,000 26,263 $ 250,020 134,576 $ 1,300,860 14,323 $ 137,924
61 592 6 60 11,918 117,064 17,711 169,082
-- -- (2) (21) (71,444) (705,139) (156,388) (1,509,557)
--------- ------------ ------- ----------- ---------- ------------- ----------- -------------
2,133 $ 20,592 26,267 $ 250,059 75,050 $ 712,785 (124,354) $ 1,202,550
========= ============ ======= =========== ========== ============= =========== =============
25,000 $ 25,000 -- -- 310,065,553 $ 310,065,553 298,776,320 $ 298,776,320
-- -- -- -- 6,167,495 6,167,495 7,924,931 7,924,931
-- -- -- -- (269,050,082) (269,050,082) (349,968,556) (349,968,556)
--------- ------------ ------- ----------- ---------- ------------- ----------- -------------
25,000 $ 25,000 -- -- 47,182,964 $ 47,182,964 (43,267,305) $ (43,267,305)
========= ============ ======= =========== ========== ============= =========== =============
1,086,079 $ 1,086,079 180,044 $ 180,044 51,041,652 $ 51,041,652 47,254,877 $ 47,254,877
4,192 4,192 2,497 2,497 342,904 342,904 431,706 431,706
(837,929) (837,929) -- -- (43,843,474) (43,843,474) (60,129,169) (60,129,169)
--------- ------------ ------- ----------- ---------- ------------- ----------- -------------
252,342 $ 252,342 182,541 $ 182,541 7,541,082 $ 7,541,082 (12,442,586) $ (12,442,586)
========= ============ ======= =========== ========== ============= =========== =============
</TABLE>
See accompanying notes to financial statements
215
<PAGE>
<PAGE>
Notes to Financial Statements (continued)
At December 31, 1996, Salomon Brothers owned approximately the following
percentages of total shares outstanding of the following Funds:
<TABLE>
<S> <C>
New York Municipal Bond Fund........................................ 16%
National Intermediate Municipal Fund................................ 89%
U.S. Government Income Fund......................................... 80%
Strategic Bond Fund................................................. 12%
Asia Growth Fund.................................................... 71%
</TABLE>
4. Portfolio Activity
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, for the year ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
- -----------------------------------------------------------------------------
<S> <C> <C>
New York Municipal Bond Fund................ $ 1,796,965 $ 730,598
============= =============
National Intermediate Municipal Fund........ $ 2,450,323 $ 2,093,489
============= =============
U.S. Government Income Fund
U.S. Government Securities................ $ 37,700,042 $ 36,421,810
============= =============
High Yield Bond Fund........................ $202,131,817 $ 61,569,952
============= =============
Strategic Bond Fund
U.S. Government Securities................ $ 10,744,465 $ 4,812,199
Other Investments......................... 27,396,761 16,899,420
------------- -------------
$ 38,141,226 $ 21,711,619
============= =============
Total Return Fund
U.S. Government Securities................ $ 10,269,335 $ 6,137,663
Other Investments......................... 42,111,218 16,232,109
------------- -------------
$ 52,380,553 $ 22,369,771
============= =============
Asia Growth Fund............................ $ 13,109,300 $ 6,614,370
============= =============
Investors Fund.............................. $263,706,387 $275,088,241
============= =============
Capital Fund................................ $216,469,842 $212,131,218
============= =============
</TABLE>
216
<PAGE>
<PAGE>
Transactions in options written for the Funds during the year ended December 31,
1996 were as follows:
<TABLE>
<CAPTION>
Asia Growth Fund Capital Fund
----------------------------------------------------
Number of Premiums Number of Premiums
Contracts Received Contracts Received
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1995...... -- -- -- --
Options written............................... (26,000) $(4,353) (245) $(41,326)
Options terminated in closing purchase
transactions................................ 26,000 4,353 245 41,326
------- ------- ---- --------
Options outstanding at December 31, 1996...... -- -- -- --
======= ======= ==== ========
</TABLE>
5. Portfolio Investment Risks
Credit and Market Risk. Funds that invest in high yield and emerging market
instruments are subject to certain credit and market risks. The yields of high
yield and emerging market debt obligations reflect, among other things,
perceived credit risk. The Funds' investment in securities rated below
investment grade typically involve risks not associated with higher rated
securities including, among others, greater risk of timely and ultimate payment
of interest and principal, greater market price volatility and less liquid
secondary market trading. The consequences of political, social, economic or
diplomatic changes may have disruptive effects on the market prices of
investments held by the Funds. The Funds' investment in non- dollar denominated
securities may also result in foreign currency losses caused by devaluations and
exchange rate fluctuations.
The Cash Management Fund and New York Municipal Money Fund invest in money
market instruments maturing in thirteen months or less whose short-term credit
ratings are within the highest ratings categories of two nationally recognized
statistical rating organizations ("NRSROs") or if rated by only one NRSRO, that
NRSRO, or, if not rated, are believed by the investment manager to be of
comparable quality. The New York Municipal Bond Fund and New York Municipal
Money Fund pursues their investment objectives by investing at least 80% of
their net assets in obligations that are exempt from regular federal income
taxes and at least 65% of their net assets in obligations that are exempt from
personal income taxes of the State and City of New York. Because the New York
Municipal Bond and the New York Municipal Fund invests primarily in obligations
of the State and City of New York, it is more susceptible to factors adversely
affecting issuers of such obligations than a fund that is more diversified.
Financial Instruments with Off-Balance Sheet Risk. Certain Funds enter into
forward foreign currency contracts ("forward contracts") to facilitate
settlement of foreign currency denominated portfolio transactions or to manage
foreign currency exposure associated with foreign currency denominated
securities. Forward contracts involve elements of market risk in excess of the
amounts reflected in the Statements of Assets and Liabilities. The Funds bear
the risk of an unfavorable change in the foreign exchange rate underlying the
forward contract. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities markets
and the possibility of political or economic instability.
Funds that enter into mortgage dollar rolls are subject to the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a mortgage dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the dollar roll may be restricted
217
<PAGE>
<PAGE>
Notes to Financial Statements (continued)
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities.
Consistent with their objective to seek high current income, the High Yield Bond
Fund and the Strategic Bond Fund may invest in instruments whose values and
interest rates may be linked to foreign currencies, interest rates, indices or
some other financial indicator. The value at maturity or interest rates for
these instruments will increase or decrease according to the change in the
indicator to which it is indexed. These securities are generally more volatile
in nature and the risk of loss of principal is greater.
The risk in writing a covered call option is that the Fund may forego the
opportunity of profit if the market price of the underlying security increases
and the option is exercised. The risk in writing a put option is that the Fund
may incur a loss if the market price of the underlying security decreases and
the option is exercised. In addition, there is the risk that the Fund may not be
able to enter into a closing transaction because of an illiquid secondary
market.
In connection with purchasing participations, the Fund generally will have no
right to enforce compliance by the borrower, and the Fund may not benefit
directly from any collateral supporting the loan in which it has purchased the
participation. As a result, the Fund will assume the credit risk of both the
borrower and the lender that is selling the participation. In the event of the
insolvency of the lender selling the participation, the Fund may be treated as a
general creditor of the lender and may not benefit from any set-off between the
lender and the borrower.
6. Tax Information
At December 31, 1996, the New York Municipal Money Fund, 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 New York
Municipal Cash Municipal
Year of Money Management Bond
Expiration Fund Fund Fund
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
1999................................. $ 64,677 $ 894 --
2000................................. 94,778 396 --
2001................................. -- 409 --
2002................................. 65,321 415 $299,006
2003................................. -- -- 318,123
2004................................. -- 10 --
-------- ------ --------
$224,776 $2,124 $617,129
======== ====== ========
</TABLE>
During the year ended December 31, 1996, the New York Municipal Money Fund and
New York Municipal Bond Fund utilized capital loss carryforwards of $2,563 and
$6,816, respectively, to offset net realized capital gains. In addition, as
permitted under Federal income tax regulations, the High Yield Bond Fund and
Strategic Bond Fund have elected to defer $182,015 and $6,605, respectively, of
Post-October net capital losses to the next taxable year. The Asia Growth Fund,
Investors Fund and Capital Fund have also elected to defer to January 1, 1997,
Post-October net foreign currency losses of $1,390, $71 and $333, respectively.
218
<PAGE>
<PAGE>
At December 31, 1996, paid-in capital, undistributed net investment income and
accumulated net realized gain (loss) on investments have been adjusted for
current period permanent book/tax differences which arose principally from
differing book/tax treatments of foreign currency transactions and gains of
securities of certain corporations designated as "passive foreign investment
companies." The Strategic Bond Fund, Asia Growth Fund, Investors Fund and
Capital Fund reclassified $64,315, $8,290, $347 and $165, respectively, from
accumulated net realized gain (loss) on investments to undistributed net
investment income. Net investment income, net realized gain (loss) on
investments and net assets were not affected by this reclassification.
At December 31, 1996, 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>
Gross Gross Net
Aggregate Unrealized Unrealized Unrealized
Cost Appreciation (Depreciation)
Appreciation
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York Municipal Bond Fund.......... $ 4,560,814 $ 123,494 $ (16,058) $ 107,436
National Intermediate Municipal Fund.. 10,832,716 349,615 (3,742) 345,873
U.S. Government Income Fund........... 13,507,302 82,435 (40,401) 42,034
High Yield Bond Fund.................. 191,372,174 7,975,293 (744,616) 7,230,677
Strategic Bond Fund................... 35,138,730 1,138,471 (195,894) 942,577
Total Return Fund..................... 48,046,839 4,637,625 (326,611) 4,311,014
Asia Growth Fund...................... 6,826,585 558,417 (513,558) 44,859
Investors Fund........................ 369,242,001 175,377,475 (3,936,161) 171,441,314
Capital Fund.......................... 115,034,839 22,886,941 (1,160,155) 21,726,786
</TABLE>
7. Subsequent Event
On January 28, 1997, pending shareholder approval, the Board of Directors of the
Investors Fund approved an increase in the base management fee payable to SBAM.
Information regarding this matter will be contained in a proxy statement to be
mailed to Investors Fund shareholders on or about March 7, 1997.
219
<PAGE>
<PAGE>
Financial Highlights
Selected data per share of capital stock outstanding throughout each period:
ASIA GROWTH FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class O
-------------------------------------------------------------
Period Ended December 31, 1996 (a)'SS'
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 10.00 $10.00 $ 10.00 $ 10.00
--------- --------- -------- --------
Net investment income .................................... 0.05 0.01 0.01 0.07
Net gain on investments
(both realized and unrealized) ........................ 0.47 0.46 0.45 0.46
--------- --------- -------- --------
Total from investment operations ...................... 0.52 0.47 0.46 0.53
--------- --------- -------- --------
Dividends from net investment income ..................... (0.05) (0.01) (0.01) (0.06)
Distributions from net realized gain on investments ...... (0.15) (0.15) (0.15) (0.15)
--------- --------- -------- --------
Total dividends and distributions ..................... (0.20) (0.16) (0.16) (0.21)
--------- --------- -------- --------
Net asset value, end of period ........................... $ 10.32 $ $10.31 $ 10.30 $ 10.32
========= ========= ======== ========
Net assets, end of period (thousands) .................... $ 3,693 $ 3,163 $ 246 $124
Total return* ............................................ +5.2 % +4.7 % +4.6 % +5.3 %
Ratios to average net assets:
Expenses .............................................. 1.24%** 1.99%** 2.00%** 0.99%**
Net investment income ................................. 0.90%** 0.20%** 0.08%** 1.21%**
Portfolio turnover rate .................................. 119% 119% 119% 119%
Average Broker Commission Rate ........................... $ 0.0052 $ 0.0052 $ 0.0052 $ 0.0052
Before waiver of management fee, expenses
absorbed by SBAM and credits earned on custodian
cash balances, net investment income per share and
expense ratios would have been:
Net investment income per share ....................... ($0.18) ($0.23) ($0.20) ($0.18)
Expense ratio ......................................... 5.50%** 6.25%** 6.26%** 5.25%**
</TABLE>
CAPITAL FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C
---------------------------------------------
Period Ended December 31, 1996 (b)'SS'
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ..................... $ 21.98 $ 21.98 $ 21.98
-------- -------- --------
Net investment income .................................... 0.01 (0.02) (0.02)
Net gain on investments
(both realized and unrealized) ........................ 1.54 1.56 1.57
-------- -------- --------
Total from investment operations ...................... 1.55 1.54 1.55
-------- -------- --------
Dividends from net investment income ..................... (0.15) (0.12) (0.12)
Distributions from net realized gain on investments ...... (3.50) (3.50) (3.50)
Distributions in excess of net realized gains ............ -- -- --
-------- -------- --------
Total dividends and distributions ..................... (3.65) (3.62) (3.62)
- -------- -------- --------
Net asset value, end of period ........................... $ 19.88 $ 19.90 $ 19.91
======== ======== ========
Net assets, end of period (thousands) .................... $ 344 $ 219 $ 130
Total return* ............................................ +7.7 % +7.6 % +7.7 %
Ratios to average net assets:
Expenses .............................................. 1.88%** 2.73%** 2.45%**
Net investment income ................................. 0.18%** -0.66%** -0.05%**
Portfolio turnover rate .................................. 191% 191% 191%
Average Broker Commission Rate ........................... $ 0.0586 $ 0.0586 $ 0.0586
</TABLE>
(a) May 6, 1996, commencement of investment operations, through December 31,
1996.
(b) November 1, 1996, commencement of investment operations, through December
31, 1996.
'SS' Per share information calculated using the average shares outstanding
method, whch more accurately represents amounts.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
220
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Class O
- --------------------------------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------
1996'SS' 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 18.67 $ 15.62 $ 20.80 $ 19.64 $ 19.06
-------- -------- -------- -------- --------
0.13 0.14 0.03 0.028 0.10
5.70 5.27 (2.87) 3.242 0.80
-------- -------- -------- -------- --------
5.83 5.41 (2.84) 3.27 0.90
-------- -------- -------- -------- --------
(0.15) (0.14) (0.03) (0.035) (0.105)
(4.47) (2.22) (1.51) (2.075) (0.215)
-- -- (0.80) -- --
-------- -------- -------- -------- --------
(4.62) (2.36) (2.34) (2.11) (0.32)
-------- -------- -------- --------- --------
$ 19.88 $ 18.67 $ 15.62 $ 20.80 $ 19.64
======== ======== ======== ======== ========
$135,943 $102,429 $ 86,704 $113,905 $103,356
+33.3 % +34.9 % -14.2 % +17.2 % +4.7 %
1.38% 1.36% 1.30% 1.31% 1.34%
0.67% 0.74% 0.12% 0.13% 0.58%
191% 217% 152% 104% 41%
$ 0.0586 N/A N/A N/A N/A
</TABLE>
221
<PAGE>
<PAGE>
Financial Highlights (continued)
Selected data per share of capital stock outstanding throughout each period:
INVESTORS FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
----------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 16.62 $ 13.61 $ 16.61 $ 13.61
------- ------- ------- -------
Net investment income .................................... 0.19 0.19 0.08 0.10
Net gain (loss) on investments
(both realized and unrealized) ........................ 4.63 4.55 4.60 4.54
------- ------- ------- -------
Total from investment operations ...................... 4.82 4.74 4.68 4.64
------- ------- ------- -------
Dividends from net investment income ..................... (0.22) (0.23) (0.10) (0.14)
Distributions from net realized gain on investments ...... (2.33) (1.50) (2.33) (1.50)
------- ------- ------- -------
Total dividends and distributions ..................... (2.55) (1.73) (2.43) (1.64)
------- ------- ------- -------
Net asset value, end of period ........................... $ 18.89 $ 16.62 $ 18.86 $ 16.61
======= ======= ======= =======
Net assets, end of period (thousands) .................... $10,905 $ 441 $ 9,433 $ 716
Total return* ............................................ +30.3 % +35.3 % +29.2 % +34.5 %
Ratios to average net assets:
Expenses .............................................. 1.06% 0.94% 1.82% 1.71%
Net investment income ................................. 0.94% 1.41% 0.21% 0.63%
Portfolio turnover rate .................................. 58% 86% 58% 86%
Average Broker Commission Rate ........................... $0.0593 N/A $0.0593 N/A
</TABLE>
TOTAL RETURN FUND'SS'
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996 1995(a) 1996 1995(a)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 10.55 $ 10.00 $ 10.54 $ 10.00
------- ------- ------- -------
Net investment income .................................... 0.54 0.15 0.45 0.13
Net gain on investments
(both realized and unrealized) ........................ 1.35 0.52 1.35 0.51
------- ------- ------- -------
Total from investment operations ...................... 1.89 0.67 1.80 0.64
------- ------- ------- -------
Dividends from net investment income ..................... (0.52) (0.11) (0.42) (0.09)
Distributions from net realized gain on investments ...... (0.10) (0.01) (0.10) (0.01)
------- ------- ------- -------
Total dividends and distributions ..................... (0.62) (0.12) (0.52) (0.10)
------- ------- ------- -------
Net asset value, end of period ........................... $ 11.82 $ 10.55 $ 11.82 $ 10.54
======= ======= ======= =======
Net assets, end of period (thousands) .................... $21,109 $ 3,658 $28,043 $ 5,378
Total return* ............................................ +18.3 % +6.7 % +17.4 % +6.4 %
Ratios to average net assets:
Expenses .............................................. 0.75% 0.74%** 1.50% 1.49%**
Net investment income ................................. 4.81% 4.82%** 4.06% 4.06%**
Portfolio turnover rate .................................. 76% 16% 76% 16%
Average Broker Commission Rate ........................... $0.0534 N/A $0.0534 N/A
Before waiver of management fee, expenses absorbed
by SBAM and credits earned on custodian cash
balances, net investment income
per share and expense ratios would have been:
Net investment income per share ....................... $ 0.44 $ 0.13 $ 0.36 $ 0.11
Expense ratio ......................................... 1.61% 1.45%** 2.36% 2.19%**
</TABLE>
(a) September 11, 1995, commencement of investment operations, through December
31, 1995.
'SS' Per share information calculated using the average shares outstanding
method, which more accurately represents amounts.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge
is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
222
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Class C Class O
- --------------------------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$16.61 $13.61 $16.61 $13.63 $15.60 $16.10 $17.10
-------- -------- -------- -------- -------- -------- --------
0.07 0.09 0.25 0.27 0.27 0.32 0.41
4.60 4.55 4.62 4.48 (0.48) 2.03 0.79
-------- -------- -------- -------- -------- -------- --------
4.67 4.64 4.87 4.75 (0.21) 2.35 1.20
-------- -------- -------- -------- -------- -------- --------
(0.09) (0.14) (0.25) (0.27) (0.27) (0.33) (0.41)
(2.33) (1.50) (2.33) (1.50) (1.49) (2.52) (1.79)
-------- -------- -------- -------- -------- -------- --------
(2.42) (1.64) (2.58) (1.77) (1.76) (2.85) (2.20)
-------- -------- -------- -------- -------- -------- --------
$18.86 $16.61 $18.90 $16.61 $13.63 $15.60 $16.10
======== ======== ======== ======== ======== ======== ========
$1,959 $306 $518,361 $428,950 $348,214 $386,147 $370,350
+29.3 % +34.5 % +30.6 % +35.4 % -1.3 % +15.1 % +7.4 %
1.80% 1.68% 0.76% 0.69% 0.69% 0.68% 0.68%
0.23% 0.66% 1.36% 1.67% 1.75% 1.90% 2.47%
58% 86% 58% 86% 66% 79% 48%
$0.0593 N/A $0.0593 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Class C Class O
- ----------------------------------------------------------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996 1995(a) 1996 1995(a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$10.56 $10.00 $10.57 $10.00
------- ------- ------- -------
0.46 0.14 0.57 0.17
1.35 0.51 1.39 0.52
------- ------- ------- -------
1.81 0.65 1.96 0.69
------- ------- ------- -------
(0.42) (0.08) (0.55) (0.11)
(0.10) (0.01) (0.10) (0.01)
------- ------- ------- -------
(0.52) (0.09) (0.65) (0.12)
------- ------- ------- -------
$11.85 $10.56 $11.88 $10.57
======= ======= ======= =======
$3,445 $445 $213 $4,494
+17.5 % +6.5 % +19.0 % +6.9 %
1.50% 1.51%** 0.50% 0.51%**
4.07% 4.26%** 5.13% 5.30%**
76% 16% 76% 16%
$0.0534 N/A $0.0534 N/A
$0.36 $0.11 $0.47 $0.15
2.36% 2.22%** 1.36% 1.22%**
</TABLE>
223
<PAGE>
<PAGE>
Financial Highlights (continued)
Selected data per share of capital stock outstanding throughout each period:
HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996 1995(a) 1996 1995(a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 10.53 $ 10.00 $ 10.53 $ 10.00
--------- --------- -------- --------
Net investment income......................... 1.10 0.92 1.02 0.85
Net gain on investments
(both realized and unrealized)............. 1.11 0.67 1.11 0.68
--------- --------- -------- --------
Total from investment operations........... 2.21 1.59 2.13 1.53
--------- --------- -------- --------
Dividends from net investment income.......... (1.10) (0.91) (1.03) (0.85)
Distributions from net realized gain on
investments................................ (0.10) (0.15) (0.10) (0.15)
--------- --------- -------- --------
Total dividends and distributions.......... (1.20) (1.06) (1.13) (1.00)
--------- --------- -------- --------
Net asset value, end of period................ $ 11.54 $ 10.53 $ 11.53 $ 10.53
========= ========= ======== ========
Net assets, end of period (thousands)......... $ 65,935 $ 10,789 $ 106,797 $ 10,108
Total return*................................. +21.9 % +16.6 % +21.2 % +15.7 %
Ratios to average net assets:
Expenses................................... 1.24% 1.24%** 1.99% 1.96%**
Net investment income...................... 9.38% 10.58%** 8.49% 9.53%**
Portfolio turnover rate....................... 85% 109% 85% 109%
Before waiver of management fee and credits earned on custodian
cash balances, net investment income per share and expense ratios
would have been:
Net investment income per share............ $ 1.09 $ 0.87 $ 1.01 $ 0.80
Expense ratio.............................. 1.50% 1.80%** 2.24% 2.51%**
</TABLE>
STRATEGIC BOND FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Class A Class B
- -------------------------------------------------------------------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996'SS' 1995(a) 1996'SS' 1995(a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 10.53 $ 10.00 $ 10.53 $ 10.00
------- ------- ------- -------
Net investment income......................... 0.87 0.84 0.79 0.76
Net gain on investments
(both realized and unrealized)............. 0.55 0.78 0.53 0.79
------- ------- ------- -------
Total from investment operations........... 1.42 1.62 1.32 1.55
------- ------- ------- -------
Dividends from net investment income.......... (0.94) (0.85) (0.85) (0.78)
Dividends in excess of net investment income.. (0.01) -- (0.01) --
Distributions from net realized gain on
investments................................ (0.17) (0.24) (0.17) (0.24)
------- ------- ------- -------
Total dividends and distributions.......... (1.12) (1.09) (1.03) (1.02)
------- ------- ------- -------
Net asset value, end of period................ $ 10.83 $ 10.53 $ 10.82 $ 10.53
======= ======= ======= =======
Net assets, end of period (thousands)......... $ 8,345 $ 513 $14,291 $ 1,879
Total return*................................. +14.1 % +16.8 % +13.0 % +16.1 %
Ratios to average net assets:
Expenses................................... 1.24% 1.23%** 1.98% 1.97%**
Net investment income...................... 8.09% 9.51%** 7.34% 8.75%**
Portfolio turnover rate....................... 122% 161% 122% 161%
Before waiver of management fee, expenses
absorbed by SBAM and credits earned on
custodian cash balances, net investment
income per share and expense ratios
would have been:
Net investment income per share............ $ 0.79 $ 0.76 $ 0.71 $ 0.69
Expense ratio.............................. 1.98% 2.11%** 2.73% 2.85%**
</TABLE>
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
'SS' Per share information calculated using the average shares outstanding
method, which more accurately represents amounts.
Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge
is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
224
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Class C Class O
- ----------------------------------------------------------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996 1995(a) 1996'SS' 1995(a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 10.53 $ 10.00 $ 10.54 $ 10.00
-------- -------- --------- --------
1.02 0.85 1.16 0.95
1.10 0.68 1.05 0.67
-------- -------- --------- --------
2.12 1.53 2.21 1.62
-------- -------- --------- --------
(1.03) (0.85) (1.12) (0.93)
(0.10) (0.15) (0.10) (0.15)
-------- -------- --------- --------
(1.13) (1.00) (1.22) (1.08)
-------- -------- --------- --------
$ 11.52 $ 10.53 $ 11.53 $ 10.54
======== ======== ========= ========
$ 13.773 $ 1,274 $ 393 $ 7,854
+21.1 % +15.8 % +22.0 % +16.8%
1.99% 1.98%** 0.99% 1.00%**
8.43% 9.61%** 10.64% 10.59%**
85% 109% 85% 109%
$ 1.01 $ 0.80 $ 1.13 $ 0.90
2.24% 2.54%** 1.24% 1.55%**
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Class C Class O
- ----------------------------------------------------------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996'SS' 1995(a) 1996'SS' 1995(a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 10.53 $ 10.00 $ 10.53 $ 10.00
-------- -------- -------- -------
0.78 0.77 0.92 0.87
0.54 0.78 0.51 0.77
-------- -------- -------- -------
1.32 1.55 1.43 1.64
-------- -------- -------- -------
(0.85) (0.78) (0.96) (0.87)
(0.01) -- (0.01) --
(0.17) (0.24) (0.17) (0.24)
-------- -------- --------- --------
(1.03) (1.02) (1.14) (1.11)
-------- -------- --------- --------
$ 10.82 $ 10.53 $ 10.82 $ 10.53
======== ======== ======== ========
$ 4,575 $ 411 $ 3,817 $ 9,763
+13.1% +16.1% +14.2% +17.0%
1.98% 1.99%** 1.00% 0.99%**
7.26% 8.77%** 8.65% 9.74%**
122% 161% 122% 161%
$ 0.70 $ 0.70 $ 0.84 $ 0.79
2.72% 2.87%** 1.74% 1.87%**
</TABLE>
225
<PAGE>
<PAGE>
Financial Highlights (continued)
Selected data per share of capital stock outstanding throughout each period:
U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996 1995(a) 1996 1995(a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $10.32 $10.00 $10.32 $10.00
------ ------ ------ ------
Net investment income ....................................... 0.54 0.49 0.46 0.43
Net gain on investments
(both realized and unrealized) ........................... (0.19) 0.43 (0.20) 0.43
------ ------ ------ ------
Total from investment operations ......................... 0.35 0.92 0.26 0.86
------ ------ ------ ------
Dividends from net investment income ........................ (0.54) (0.49) (0.46) (0.43)
Distributions from net realized gain on investments ......... (0.06) (0.10) (0.06) (0.10)
Distributions in excess of net realized gain on investments . -- (0.01) -- (0.01)
------ ------ ------ ------
Total dividends and distributions ........................ (0.60) (0.60) (0.52) (0.54)
------ ------ ------ ------
Net asset value, end of period .............................. $10.07 $10.32 $10.06 $10.32
====== ====== ====== ======
Net assets, end of period (thousands) ....................... $1,188 $278 $1,266 $572
Total return* ............................................... +3.6 % +9.5 % +2.7 % +8.8 %
Ratios to average net assets:
Expenses ................................................. 0.84% 0.85%** 1.59% 1.60%**
Net investment income .................................... 5.22% 5.67%** 4.51% 4.85%**
Portfolio turnover rate ..................................... 365% 230% 365% 230%
Before applicable waiver of management fee,
expenses absorbed by SBAM and credits earned on
custodian cash balances, net investment income
per share and expense ratios would have been:
Net investment income per share ............................. $0.38 $0.40 $0.30 $0.34
Expense ratio ............................................... 2.21% 1.90%** 2.96% 2.64%**
</TABLE>
NATIONAL INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996 1995(a) 1996 1995(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $10.43 $10.00 $10.42 $10.00
------ ------ ------ ------
Net investment income ....................................... 0.48 0.40 0.40 0.34
Net gain on investments
(both realized and unrealized) ........................... (0.06) 0.46 (0.06) 0.45
------ ------ ------ ------
Total from investment operations ......................... 0.42 0.86 0.34 0.79
------ ------ ------ ------
Dividends from net investment income ........................ (0.48) (0.40) (0.41) (0.34)
Distributions from net realized gain on investments ......... (0.02) (0.03) (0.02) (0.03)
------ ------ ------ ------
Total dividends and distributions ........................ (0.50) (0.43) (0.43) (0.37)
------ ------ ------ ------
Net asset value, end of period .............................. $10.35 $10.43 $10.33 $10.42
====== ====== ====== ======
Net assets, end of period (thousands) ....................... $696 $569 $702 $432
Total return* ............................................... +4.2 % +8.7 % +3.4 % +8.0 %
Ratios to average net assets:
Expenses ................................................. 0.75% 0.75%** 1.50% 1.50%**
Net investment income .................................... 4.62% 4.63%** 3.88% 3.85%**
Portfolio turnover rate ..................................... 19% 29% 19% 29%
Before applicable waiver of management fee, expenses absorbed
by SBAM and credits earned on custodian cash balances,
net investment income per share
and expense ratios would have been:
Net investment income per share .......................... $0.35 $0.32 $0.27 $0.25
Expense ratio ........................................... 2.02% 1.71%** 2.77% 2.45%**
(a) February 22, 1995, commencement of investment operations, through December
31, 1995.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the payable date, and a sale at net asset value on the last day of each
period reported. Initial sales charge or contingent deferred sales charge
is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
226
<PAGE>
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Class C Class O
- ----------------------------------------------------------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996 1995(a) 1996 1995(a)
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <C>
$10.32 $10.00 $10.32 $10.00
------ ------ ------ ------
0.46 0.43 0.56 0.52
(0.21) 0.43 (0.20) 0.42
------ ------ ------ ------
0.25 0.86 0.36 0.94
------ ------ ------ ------
(0.46) (0.43) (0.56) (0.52)
(0.06) (0.10) (0.06) (0.10)
-- (0.01) -- --
------ ------ ------ ------
(0.52) (0.54) (0.62) (0.62)
------ ------ ------ ------
$10.05 $10.32 $10.06 $10.32
====== ====== ====== ======
$422 $273 $9,375 $9,552
+2.7 % +8.8 % +3.7 % +9.7 %
1.60% 1.60%** 0.60% 0.60%**
4.51% 4.92%** 5.53% 5.92%**
365% 230% 365% 230%
$0.31 $0.34 $0.41 $0.42
2.97% 2.64%** 1.97% 1.64%**
- ----------------------------------------------------------------------------------------------
Class C Class O
- ----------------------------------------------------------------------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996 1995(a) 1996 1995(a)
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <C>
$10.42 $10.00 $10.43 $10.00
------ ------ ------ ------
0.40 0.34 0.50 0.42
(0.06) 0.45 (0.07) 0.46
------ ------ ------ ------
0.34 0.79 0.43 0.88
------ ------ ------ ------
(0.41) (0.34) (0.50) (0.42)
(0.02) (0.03) (0.02) (0.03)
------ ------ ------ ------
(0.43) (0.37) (0.52) (0.45)
------ ------ ------ ------
$10.33 $10.42 $10.34 $10.43
====== ====== ====== ======
$468 $271 $9,786 $9,675
+3.4 % +8.0 % +4.3 % +9.0 %
1.50% 1.50%** 0.50% 0.50%**
3.88% 3.85%** 4.88% 4.86%**
19% 29% 19% 29%
$0.27 $0.25 $0.37 $0.34
2.77% 2.46%** 1.77% 1.46%**
</TABLE>
227
<PAGE>
<PAGE>
Financial Highlights (continued)
Selected data per share of capital stock outstanding throughout each period:
NEW YORK MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Class A Class B
- ----------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.......... $10.11 $ 8.96 $10.11 $ 8.96
------ ------ ------ ------
Net investment income......................... 0.48 0.42 0.41 0.36
Net gain (loss) on securities and futures
(both realized and unrealized)............. (0.19) 1.14 (0.19) 1.14
------ ------ ------ ------
Total from investment operations........... 0.29 1.56 0.22 1.50
------ ------ ------ ------
Dividends from net investment income.......... (0.48) (0.41) (0.41) (0.35)
Distributions from net realized gain on
securities and futures..................... -- -- -- --
------ ------ ------ ------
Total dividends and distributions.......... (0.48) (0.41) (0.41) (0.35)
------ ------ ------ ------
Net asset value, end of period................ $ 9.92 $10.11 $ 9.92 $10.11
====== ====== ====== ======
Net assets, end of period (thousands)......... $ 792 $ 546 $ 539 $ 528
Total return*................................. +3.0 % +17.7 % +2.3 % +17.0 %
Ratios to average net assets:
Expenses................................... 0.75% 0.75% 1.50% 1.50%
Net investment income...................... 4.91% 5.12% 4.18% 4.30%
Portfolio turnover rate....................... 19% 22% 19% 22%
Before applicable waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment income per share and expense
ratios would have been:
Net investment income per share............ $ 0.37 $ 0.24 $ 0.30 $ 0.17
Expense ratio.............................. 1.89% 2.96% 2.64% 3.74%
</TABLE>
NEW YORK MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Class A Class B Class C
- ------------------------------------------------------------------------------------------------------
Period ended December 31, 1996(b)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period.......... $1.000 $1.000 $1.000
------ ------ ------
Net investment income......................... 0.006 0.006 0.006
Dividends from net investment income.......... (0.006) (0.006) (0.006)
------ ------ ------
Net asset value, end of period................ $1.000 $1.000 $1.000
====== ====== ======
Net assets, end of period (thousands)......... $ 360 $ 25 $ 25
Total return*................................. +0.6 % +0.6 % +0.6 %
Ratios to average net assets:
Expenses................................... 0.38 %** 0.40 %** 0.40 %**
Net investment income...................... 3.56 %** 3.40 %** 3.40 %**
Before applicable waiver of management fee
and credits earned on custodian cash
balances, net investment income per share
and expense ratios would have been:
Net investment income per share............ $0.006 $0.006 $0.006
Expense ratio.............................. 0.39 %** 0.41 %** 0.41 %**
</TABLE>
(a) February 1, 1993, commencement of investment operations, through December
31, 1993.
(b) November 1, 1996, commencement of investment operations, through December
31, 1996.
* Total return is calculated assuming a $1,000 investment on the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period reported. Initial sales charge or contingent deferred sales
charge is not reflected in the calculation of total return. Total return
calculated for a period of less than one year is not annualized.
** Annualized.
See accompanying notes to financial statements
228
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Class C Class O
- -----------------------------------------------------------------------------------------------------
Period Ended
Year Ended December 31, December 31,
- -----------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1994 1993(a)
- -----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$10.11 $ 8.96 $10.11 $ 8.98 $10.44 $10.00
------ ------ ------ ------ ------ ------
0.41 0.36 0.50 0.53 0.55 0.46
(0.19) 1.14 (0.18) 1.12 (1.46) 0.46
------ ------ ------ ------ ------ ------
0.22 1.50 0.32 1.65 (0.91) 0.92
------ ------ ------ ------ ------ ------
(0.41) (0.35) (0.50) (0.52) (0.55) (0.46)
-- -- -- -- -- (0.02)
------ ------ ------ ------ ------ ------
(0.41) (0.35) (0.50) (0.52) (0.55) (0.48)
------ ------ ------ ------ ------ ------
$ 9.92 $10.11 $ 9.93 $10.11 $ 8.98 $10.44
====== ====== ====== ====== ====== ======
$ 282 $ 266 $3,193 $2,494 $3,333 $8,364
+2.3 % +17.0 % +3.4 % +18.8 % -8.8 % +9.4 %
1.50% 1.50% 0.50% 0.50% 0.50% 0.50%**
4.19% 4.38% 5.19% 5.50% 5.72% 4.99%**
19% 22% 19% 22% 63% 24%
$ 0.30 $ 0.18 $ 0.40 $ 0.32 $ 0.49 $ 0.40
2.64% 3.71% 1.65% 2.71% 1.17% 1.24%**
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Class O
- ---------------------------------------------------------------------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- -------- -------- -------- --------
0.032 0.037 0.027 0.023 0.031
(0.032) (0.037) (0.027) (0.023) (0.031)
------- -------- -------- -------- --------
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======== ======== ======== ========
$273,734 $226,549 $269,788 $262,413 $263,685
+3.3 % +3.7 % +2.7 % +2.3 % +3.1 %
0.53 % 0.43 % 0.41 % 0.41 % 0.42 %
3.25 % 3.67 % 2.63 % 2.31 % 3.07 %
$ 0.032 $ 0.037 -- -- --
0.53 % 0.45 % -- -- --
</TABLE>
229
<PAGE>
<PAGE>
Financial Highlights (concluded)
Selected data per share of capital stock outstanding throughout each period:
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........... $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------
Net investment income.......................... 0.050 0.044 0.050 0.043
Dividends from net investment income........... (0.050) (0.044) (0.050) (0.043)
------ ------ ------ ------
Net asset value, end of period................. $1.000 $1.000 $1.000 $1.000
====== ====== ====== ======
Net assets, end of period (thousands).......... $8,175 $1,756 $3,920 $2,238
Total return*.................................. +5.1 % +4.5 % +5.1 % +4.4 %
Ratios to average net assets:
Expenses................................... 0.55 % 0.55 % 0.55 % 0.55 %
Net investment income...................... 4.95 % 5.42 % 4.95 % 5.38 %
Before applicable waiver of management fee,
expenses absorbed by SBAM and credits
earned on custodian cash balances, net
investment income per share and
expense ratios would have been:
Net investment income per share............ $0.047 $0.037 $0.047 $0.037
Expense ratio............................... 0.82 % 1.35 % 0.82 % 1.34 %
</TABLE>
* 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.
See accompanying notes to financial statements
230
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Class C Class O
- -------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.000 $1.000 $1.000 $1.000 $1.000 $ 1.000 $1.000
------ ------ ------- ------ ------- ------- -------
0.050 0.043 0.050 0.055 0.038 0.027 0.033
(0.050) (0.043) (0.050) (0.055) (0.038) (0.027) (0.033)
------ ------ ------- ------ ------- ------- -------
$1.000 $1.000 $1.000 $1.000 $1.000 $ 1.000 $1.000
====== ====== ======= ====== ======= ======= =======
$ 435 $ 183 $14,225 $6,684 $19,127 $15,049 $11,613
+5.1 % +4.4 % +5.1 % +5.6 % +3.9 % +2.7 % +3.4 %
0.55 % 0.55 % 0.55 % 0.55 % 0.61 % 0.65 % 0.65 %
4.95 % 5.40 % 4.95 % 5.46 % 3.79 % 2.68 % 3.41 %
$0.047 $0.036 $ 0.047 $0.047 $ 0.036 $ 0.025 $0.030
0.82 % 1.34 % 0.82 % 1.34 % 0.81 % 0.85 % 0.85 %
</TABLE>
231
<PAGE>
<PAGE>
Report of Independent Accountants
To the Boards of Directors and Shareholders of
Salomon Brothers Cash Management Fund
Salomon Brothers New York Municipal Money Market Fund
Salomon Brothers 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
Salomon Brothers Total Return Fund
Salomon Brothers Asia Growth Fund
Salomon Brothers Investors Fund Inc
Salomon Brothers Capital Fund Inc
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Salomon Brothers Cash
Management Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon
Brothers 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, Salomon Brothers
Total Return Fund, Salomon Brothers Asia Growth Fund (nine of the portfolios
constituting Salomon Brothers Series Funds Inc), Salomon Brothers Investors Fund
Inc and Salomon Brothers Capital Fund Inc (hereafter referred to as the "Funds")
at December 31, 1996, the results of each of their operations, the changes in
each of their net assets and the financial highlights for the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 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 18, 1997
232
<PAGE>
<PAGE>
SALOMON BROTHERS SERIES FUNDS INC
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements included in Part A:
Selected Per Share Data and Ratios for the specified periods for the
following Funds are presented under the heading 'Financial Highlights' in
the Investment Series Prospectus: Salomon Brothers Cash Management Fund
('Cash Management Fund'), the Salomon Brothers New York Municipal Money
Market Fund ('New York Money Market Fund'), the Salomon Brothers National
Intermediate Municipal Fund ('National Intermediate Municipal Fund'), the
Salomon Brothers U.S. Government Income Fund ('U.S. Government Income
Fund'), the Salomon Brothers High Yield Bond Fund ('High Yield Bond Fund'),
the Salomon Brothers Strategic Bond Fund ('Strategic Bond Fund'), the
Salomon Brothers Total Return Fund ('Total Return Fund'), Salomon Brothers
Asia Growth Fund ('Asia Growth Fund'), the Salomon Brothers Investors Fund
Inc ('Investors Fund') and the Salomon Brothers Capital Fund Inc ('Capital
Fund'):
For the Salomon Brothers Institutional Money Market Fund, selected Per
Share Data and Ratios for the specified periods for such Fund are presented
under the heading 'Financial Highlights' in the Prospectus for Institutional
Investment Series.
Financial Statements included in Part B:
(1) For Cash Management Fund, New York Municipal Money Market 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, Asia Growth Fund, Capital Fund and Investors Fund:
(i) Portfolio of Investments at December 31, 1996
(ii) Statement of Assets and Liabilities at December 31, 1996
(iii) Statement of Operations for each Fund (except Asia Growth
Fund) for the fiscal year ended December 31, 1996
Statement of Operations for Asia Growth Fund for the period
May 6, 1996 (commencement of operations) to December 31, 1996
(iv) Statement of Changes in Net Assets for each Fund (except Asia
Growth Fund) for the fiscal year ended December 31, 1996.
Statement of Changes in Net Assets for Asia Growth Fund for
the period May 6, 1996 (commencement of operations) to December 31, 1996
Statement of Changes in Net Assets for New York Municipal
Money Market Fund, Cash Management Fund and New York Municipal Bond Fund
for the fiscal year ended December 31, 1995.
Statement of Changes in Net Assets for Total Return Fund for
the period September 11, 1995 (commencement of operations) to December
31, 1995
Statement of Changes in Net Assets for National Intermediate
Municipal Fund, U.S. Government Income Fund, Strategic Bond Fund and
High Yield Bond Fund for the period February 22, 1995 (commencement of
operations) to December 31, 1995
(v) Notes to Financial Statements
(vi) Financial Highlights
(vii) Report of Independent Accountants
(2) For Salomon Brothers Institutional Money Market Fund:
(i) Portfolio of Investments at December 31, 1996
(ii) Statement of Assets and Liabilities at December 31, 1996
C-1
<PAGE>
<PAGE>
(iii) Statement of Operations for the fiscal year ended December
31, 1996
(iv) Statement of Changes in Net Assets for the fiscal years ended
December 31, 1996 and 1995
(v) Financial Highlights
(vi) Notes to Financial Statements
(vii) Report of Independent Accountants
(3) For Cash Management Fund, New York Municipal Money Market Fund,
National Intermediate Municipal Fund, U.S. Government Income Fund, High
Yield Bond Fund, Strategic Bond Fund, Total Return Fund, Asia Growth Fund,
Capital Fund and Investors Fund:
(i) Portfolio of Investments at June 30, 1997
(ii) Statements of Assets and Liabilities at June 30, 1997
(iii) Statements of Operations for the six months ended June 30,
1997
(iv) Statements of Changes in Net Assets for the six months ended
June 30, 1997
(v) Notes to Financial Statements
(vi) Financial Highlights
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------------------------------------
<C> <S>
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 (filed as Exhibit 1(f) to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A and incorporated herein by reference).
1 (g) -- Form of Articles Supplementary (filed as Exhibit 1(g) to Post-Effective Amendment No. 17 to the
Registration Statement and incorporated by reference herein).
1 (h) -- Form of Articles of Amendment (filed as Exhibit 1(h) to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A and incorporated herein by reference).
1 (i) -- Form of Articles Supplementary (filed as Exhibit 1(i) to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A and incorporated herein by reference).
1 (j) -- Form of Articles Supplementary is to be filed by Amendment.
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).
</TABLE>
C-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------------------------------------
<C> <S>
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).
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 Specimen Stock Certificates for Total Return Fund -- A, Total Return Fund -- B, Total Return
Fund -- C and Total Return Fund -- O (filed as Exhibit 4(f) to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A and incorporated herein by reference).
4 (g) -- Forms of Specimen Stock Certificates for Asia Growth Fund -- A, Asia Growth Fund -- B, Asia Growth
Fund -- C and Asia Growth Fund -- O (filed as Exhibit 4(g) to Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A and incorporated herein by reference).
4 (h) -- Forms of Specimen Stock Certificates for: International Growth Fund -- A, International Growth
Fund -- B, International Growth Fund -- C, International Growth Fund -- O, Small Cap Growth Fund -- A,
Small Cap Growth Fund -- B, Small Cap Growth Fund -- C, Small Cap Growth Fund -- O are to be filed by
Amendment.
5 (a) -- Management Contract between Registrant and Salomon Brothers Asset Management Inc ('SBAM') dated
September 27, 1990 relating to the Cash Management Fund and the 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 SBAM dated December 7, 1990 relating to the Money Market
Fund (formerly 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 SBAM dated December 8, 1992 relating to the 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 SBAM relating to the 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 SBAM relating to the 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).
5 (f) -- Form of Management Contract between Registrant and SBAM relating to the 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).
</TABLE>
C-3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------------------------------------
<C> <S>
5 (g) -- Form of Management Contract between Registrant and SBAM relating to the 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 SBAM and Salomon Brothers Asset Management Limited
('SBAM 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 SBAM relating to the Total Return Fund (filed as
Exhibit 5(i) to Post-Effective Amendment No. 15 to the Registration Statement on Form N-1A and
incorporated herein by reference).
5 (j) -- Form of Management Contract between Registrant and SBAM relating to the Asia Growth Fund (filed as
Exhibit 5(j) to Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A and
incorporated herein by reference).
5 (k) -- Form of Sub-advisory Contract between SBAM and Salomon Brothers Asset Management Asia Pacific Limited
('SBAM AP') relating to the Salomon Brothers Asia Growth Fund (filed as Exhibit 5(k) to Post-Effective
Amendment No. 18 to the Registration Statement on Form N-1A and incorporated herein by reference).
5 (l) -- Form of Management Contract between Registrant and SBAM relating to International Growth Fund is to
be filed by amendment.
5 (m) -- Form of Management Contract between Registrant and SBAM relating to Small Cap Growth Fund is to be
filed by amendment.
6 (a) -- Distribution Agreement between Registrant and Salomon Brothers Inc ('Salomon Brothers') 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 dated December 7, 1990 relating to the
U.S. Treasury Money Market Fund (filed as Exhibit 6 to Post-Effective Amendment No. 5 to the
Registration Statement 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 New York Municipal Money Market Fund and the 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 relating to 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 (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 relating to Total Return Fund
(filed as Exhibit 6(f) to Post-Effective Amendment No. 15 to the Registration Statement on Form N-1A
and incorporated herein by reference).
6 (g) -- Form of Distribution Agreement between Registrant and Salomon Brothers relating to Asia Growth Fund
(filed as Exhibit 6(g) to Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A
and incorporated herein by reference).
</TABLE>
C-4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------------------------------------
<C> <S>
6 (h) -- Form of Distribution Agreement between Registrant and Salomon Brothers relating to New York Municipal
Money Market Fund (filed as Exhibit 6(h) to Post-Effective Amendment No. 19 to the Registration
Statement on Form N-1A and incorporated herein by reference).
6 (i) -- Form of Distribution Agreement between Registrant and Salomon Brothers relating to International
Growth Fund and Small Cap Growth Fund is to be filed by amendment.
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).
9 (e) -- Form of Transfer Agency Agreement among the Registrant, Salomon Brothers Institutional Series Funds
Inc and Investors Bank & Trust Company filed as Exhibit 9(e) to Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A (File Nos. 33-34423 and 811-06087) and incorporated herein by
reference.
9 (f) -- Form of Subadministration Agreement between SBAM and SBAM Limited filed as Exhibit 9(f) to
Post-Effective Amendment No. 18 to the Registration Amendment on Form N-1A (File Nos. 33-34423 and
811-06087) and incorporated herein by reference.
10 -- Opinion and Consent of Counsel of Piper & Marbury, LLP as to the Legality of Securities Being
Registered are to be filed by Amendment.
11 -- Consents of Independent Accountants are filed herewith.
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 National Intermediate Municipal Fund, U.S. Government
Income Fund, High Yield Bond Fund and the Strategic Bond Fund (filed as Exhibit 13(b) to
Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A and incorporated herein by
reference).
13 (c) -- Form of Share Purchase Agreement Relating to Total Return Fund (filed as Exhibit 13(c) to
Post-Effective Amendment No. 15 to the Registration Statement on Form N-1A (File Nos. 33-34423 and
811-06087) and incorporated herein by reference).
13 (d) -- Form of Share Purchase Agreement Relating to Asia Growth Fund filed as Exhibit 13(d) to
Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A (File Nos. 33-34423 and
811-06087 and incorporated herein by reference).
</TABLE>
C-5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------------------------------------
<C> <S>
13 (e) -- Form of Share Purchase Agreement relating to New York Municipal Money Market Fund (filed as Exhibit
13(e) to Post-Effective Amendment No. 19 to the Registration Statement on Form N-1A and incorporated
herein by reference).
13 (f) -- Form of Share Purchase Agreement relating to International Growth Fund and Small Cap Growth Fund is
to be filed by amendment.
14 -- None.
15 (a) -- Form of Services and Distribution Plan for Salomon Brothers Series Funds Inc (filed as Exhibit 15(a)
to Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A and incorporated herein
by reference).
16 (a) -- Schedule of 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 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 for Cash Management Fund, National Intermediate Municipal Fund, Institutional Money
Market Fund, New York Municipal Money Market Fund, U.S. Government Income Fund, High Yield Bond Fund,
Strategic Bond Fund, Total Return Fund and Asia Growth Fund are filed herewith.
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>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Entities within the Salomon Brothers Group own greater than 25% of the
outstanding shares of: (i) certain classes of the Registrant's portfolios, as
set forth below, (ii) the Asia Growth Fund portfolio of Salomon Brothers
Institutional Series Funds Inc and (iii) Class O shares of Capital Fund Inc, and
therefore may be deemed to be control persons of such classes and funds. As a
result, such classes and funds may be deemed to be under common control.
New York Municipal Money Market Fund -- Class B and C
National Intermediate Municipal Fund -- Class O, A, B and C
U.S. Government Income Fund -- Class O and C
Strategic Bond Fund -- Class O
Asia Growth Fund -- Class O, A and B
C-6
<PAGE>
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS OCTOBER 14, 1997
- ---------------------------------------------------------------------------------------------- ----------------
<S> <C>
Shares of Cash Management Fund, par value $.001 per share
Class A.................................................................................. 90
Class B.................................................................................. 31
Class C.................................................................................. 23
Class O.................................................................................. 154
Shares of New York Municipal Money Market Fund, par value $.001 per share.
Class A.................................................................................. 38
Class B.................................................................................. 1
Class C.................................................................................. 1
Class O.................................................................................. 763
Shares of Salomon Brothers Institutional Money Market Fund, par value $.001 per share......... 65
Shares of National Intermediate Municipal Fund, par value $.001 per share
Class A.................................................................................. 1,000
Class B.................................................................................. 16
Class C.................................................................................. 7
Class O.................................................................................. 11
Shares of U.S. Government Income Fund, par value $.001 per share
Class A.................................................................................. 1,021
Class B.................................................................................. 61
Class C.................................................................................. 12
Class O.................................................................................. 7
Shares of High Yield Bond Fund, par value $.001 per share
Class A.................................................................................. 5,665
Class B.................................................................................. 10,662
Class C.................................................................................. 2,120
Class O.................................................................................. 43
Shares of Strategic Bond Fund, par value $.001 per share
Class A.................................................................................. 1,698
Class B.................................................................................. 1,529
Class C.................................................................................. 486
Class O.................................................................................. 12
Shares of Total Return Fund, par value $.001 per share
Class A.................................................................................. 2,952
Class B.................................................................................. 3,917
Class C.................................................................................. 621
Class O.................................................................................. 38
Shares of Asia Growth Fund, par value $.001 per share
Class A.................................................................................. 1,509
Class B.................................................................................. 422
Class C.................................................................................. 195
Class O.................................................................................. 26
</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
C-7
<PAGE>
<PAGE>
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, SBAM
Limited, SBAM AP and Mastholm Asset Management, L.L.C., 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, SBAM Limited, SBAM AP and Mastholm Asset Management,
L.L.C., respectively, pursuant to the Advisers Act (SEC File Nos. 801-32046,
801-43335, 801-51393 and 801-54834, respectively).
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Salomon Brothers currently acts as distributor for, in addition to the
Registrant, Salomon Brothers Capital Fund, Salomon Brothers Investors Fund Inc,
Salomon Brothers Institutional Series Funds 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.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
(1) SBAM
7 World Trade Center
New York, New York 10048
(2) Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
(3) First Data Investor Services Group, Inc.
P.O. Box 5127
Westborough, Massachusetts 01581-5127
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Registrant undertakes to file a post-effective amendment with respect
to the International Growth Fund and the Small Cap Growth Fund, using financial
statements which need not be certified, within four to six months from the later
of the effective date of this Post-Effective Amendment No. 24 or the
commencement of a public offering of the shares of the International Growth Fund
and the Small Cap Growth 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-8
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Post-Effective Amendment to the 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 15th day of October, 1997.
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
- ----------------------------------------- ------------------------------------------------- -----------------
<C> <S> <C>
/S/ MICHAEL S. HYLAND Director and President (Principal Executive October 15, 1997
........................................ Officer)
(MICHAEL S. HYLAND)
* Director October 15, 1997
........................................
(CHARLES F. BARBER)
* Director October 15, 1997
........................................
(CAROL L. COLMAN)
* Director October 15, 1997
........................................
(DANIEL P. CRONIN)
/S/ ALAN M. MANDEL Treasurer (Principal Financial and Accounting October 15, 1997
........................................ Officer)
(ALAN M. MANDEL)
/s/ ALAN M. MANDEL
*By ........................................
ALAN M. MANDEL
AS ATTORNEY-IN-FACT
</TABLE>
C-9
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------------------------------------
<C> <S>
11 -- Consents of Independent Accountants.
17 -- Financial Data Schedules.
</TABLE>
<PAGE>
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as ................................... 'D'
The section symbol shall be expressed as .................................. 'SS'
Characters normally expressed as superscript shall be preceded by ......... `pp`
<PAGE>
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 24 to the Registration
Statement on Form N-1A (the 'Registration Statement') of our report dated
February 18, 1997, relating to the financial Statements and financial highlights
of Salomon Brothers Cash Management Fund, Salomon Brothers New York Municipal
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, Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth Fund
(nine of the portfolios constituting Salomon Brothers Series Funds Inc), Salomon
Brothers Investors Fund Inc and Salomon Brothers Capital Fund Inc, which appears
in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the heading
'Independent Accountants' in such Statement of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 14, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> Cash Management Fund, Class A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 25,725,427
<INVESTMENTS-AT-VALUE> 25,725,427
<RECEIVABLES> 367,801
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,093,228
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133,908
<TOTAL-LIABILITIES> 133,908
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,961,452
<SHARES-COMMON-STOCK> 9,788,107
<SHARES-COMMON-PRIOR> 8,175,118
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,132)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 9,788,099
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 250,572
<OTHER-INCOME> 0
<EXPENSES-NET> 24,724
<NET-INVESTMENT-INCOME> 225,848
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 225,844
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 225,848
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,169,468
<NUMBER-OF-SHARES-REDEEMED> 11,609,289
<SHARES-REINVESTED> 52,810
<NET-CHANGE-IN-ASSETS> 1,612,985
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,124)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26,065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 82,947
<AVERAGE-NET-ASSETS> 9,065,870
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> Cash Management Fund, Class B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 25,725,427
<INVESTMENTS-AT-VALUE> 25,725,427
<RECEIVABLES> 367,801
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,093,228
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133,908
<TOTAL-LIABILITIES> 133,908
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,961,452
<SHARES-COMMON-STOCK> 3,150,217
<SHARES-COMMON-PRIOR> 3,920,078
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,132)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,150,215
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 104,597
<OTHER-INCOME> 0
<EXPENSES-NET> 10,319
<NET-INVESTMENT-INCOME> 94,278
<REALIZED-GAINS-CURRENT> (1)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 94,277
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 94,278
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,900,619
<NUMBER-OF-SHARES-REDEEMED> 3,666,852
<SHARES-REINVESTED> (3,628)
<NET-CHANGE-IN-ASSETS> (769,862)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,124)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26,065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 82,947
<AVERAGE-NET-ASSETS> 3,783,849
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> Cash Management Fund, Class C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 25,725,427
<INVESTMENTS-AT-VALUE> 25,725,427
<RECEIVABLES> 367,801
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,093,228
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133,908
<TOTAL-LIABILITIES> 133,908
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,961,452
<SHARES-COMMON-STOCK> 436,378
<SHARES-COMMON-PRIOR> 434,883
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,132)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 436,378
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,737
<OTHER-INCOME> 0
<EXPENSES-NET> 1,054
<NET-INVESTMENT-INCOME> 9,683
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9,683
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,683
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,555,810
<NUMBER-OF-SHARES-REDEEMED> 1,557,078
<SHARES-REINVESTED> 2,763
<NET-CHANGE-IN-ASSETS> 1,495
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,124)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26,065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 82,947
<AVERAGE-NET-ASSETS> 386,322
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 04
<NAME> Cash Management Fund, Class O
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 25,725,427
<INVESTMENTS-AT-VALUE> 25,725,427
<RECEIVABLES> 367,801
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,093,228
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133,908
<TOTAL-LIABILITIES> 133,908
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,961,452
<SHARES-COMMON-STOCK> 12,586,750
<SHARES-COMMON-PRIOR> 14,227,426
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,132)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 12,584,628
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 360,077
<OTHER-INCOME> 0
<EXPENSES-NET> 35,581
<NET-INVESTMENT-INCOME> 324,496
<REALIZED-GAINS-CURRENT> (3)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 324,493
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 324,496
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 39,073,262
<NUMBER-OF-SHARES-REDEEMED> 40,924,974
<SHARES-REINVESTED> 211,036
<NET-CHANGE-IN-ASSETS> (1,640,679)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,124)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26,065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 82,947
<AVERAGE-NET-ASSETS> 13,044,529
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 05
<NAME> New York Muni Money Mkt Fund, Class A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 230,605,838
<INVESTMENTS-AT-VALUE> 230,605,838
<RECEIVABLES> 3,299,101
<ASSETS-OTHER> 111,441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 234,016,380
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 439,297
<TOTAL-LIABILITIES> 439,297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,810,177
<SHARES-COMMON-STOCK> 2,330,653
<SHARES-COMMON-PRIOR> 359,918
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (233,094)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,330,653
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 25,718
<OTHER-INCOME> 0
<EXPENSES-NET> 2,683
<NET-INVESTMENT-INCOME> 23,035
<REALIZED-GAINS-CURRENT> (47)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 22,988
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 23,036
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,526,644
<NUMBER-OF-SHARES-REDEEMED> 578,434
<SHARES-REINVESTED> 22,572
<NET-CHANGE-IN-ASSETS> 1,970,735
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 251,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 511,232
<AVERAGE-NET-ASSETS> 1,310,369
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 06
<NAME> New York Muni Money Mkt Fund, Class B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 230,605,838
<INVESTMENTS-AT-VALUE> 230,605,838
<RECEIVABLES> 3,299,101
<ASSETS-OTHER> 111,441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 234,016,380
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 439,297
<TOTAL-LIABILITIES> 439,297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,810,177
<SHARES-COMMON-STOCK> 25,000
<SHARES-COMMON-PRIOR> 25,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (233,094)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 25,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,439
<OTHER-INCOME> 0
<EXPENSES-NET> 155
<NET-INVESTMENT-INCOME> 1,284
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,284
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,283
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 171,196
<NUMBER-OF-SHARES-REDEEMED> 172,019
<SHARES-REINVESTED> 823
<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> 251,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 511,232
<AVERAGE-NET-ASSETS> 78,065
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 07
<NAME> New York Muni Money Mkt Fund, Class C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 230,605,838
<INVESTMENTS-AT-VALUE> 230,605,838
<RECEIVABLES> 3,299,101
<ASSETS-OTHER> 111,441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 234,016,380
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 439,297
<TOTAL-LIABILITIES> 439,297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,810,177
<SHARES-COMMON-STOCK> 25,000
<SHARES-COMMON-PRIOR> 25,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (233,094)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 25,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 481
<OTHER-INCOME> 0
<EXPENSES-NET> 50
<NET-INVESTMENT-INCOME> 431
<REALIZED-GAINS-CURRENT> (1)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 430
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 431
<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> 251,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 511,232
<AVERAGE-NET-ASSETS> 25,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 08
<NAME> New York Muni Money Mkt Fund, Class O
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 230,605,838
<INVESTMENTS-AT-VALUE> 230,605,838
<RECEIVABLES> 3,299,101
<ASSETS-OTHER> 111,441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 234,016,380
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 439,297
<TOTAL-LIABILITIES> 439,297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,810,177
<SHARES-COMMON-STOCK> 231,196,430
<SHARES-COMMON-PRIOR> 273,959,755
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (233,094)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 231,196,430
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,829,651
<OTHER-INCOME> 0
<EXPENSES-NET> 508,344
<NET-INVESTMENT-INCOME> 4,321,307
<REALIZED-GAINS-CURRENT> (8,270)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,313,037
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,321,307
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 124,347,124
<NUMBER-OF-SHARES-REDEEMED> 171,105,603
<SHARES-REINVESTED> 4,229,063
<NET-CHANGE-IN-ASSETS> (42,537,687)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 251,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 511,232
<AVERAGE-NET-ASSETS> 252,006,860
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 09
<NAME> Institutional Money Market Fund
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 104,476,327
<INVESTMENTS-AT-VALUE> 104,476,327
<RECEIVABLES> 816,587
<ASSETS-OTHER> 23,091
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 105,316,005
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,304,686
<TOTAL-LIABILITIES> 1,304,686
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,011,387
<SHARES-COMMON-STOCK> 104,011,387
<SHARES-COMMON-PRIOR> 11,425,468
<ACCUMULATED-NII-CURRENT> 265
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (333)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 104,011,319
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,497,350
<OTHER-INCOME> 0
<EXPENSES-NET> 113,092
<NET-INVESTMENT-INCOME> 3,384,258
<REALIZED-GAINS-CURRENT> (333)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,383,925
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,384,258
<DISTRIBUTIONS-OF-GAINS> 378
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 67,376,278
<NUMBER-OF-SHARES-REDEEMED> 125,544,685
<SHARES-REINVESTED> 2,529,659
<NET-CHANGE-IN-ASSETS> (55,639,459)
<ACCUMULATED-NII-PRIOR> 265
<ACCUMULATED-GAINS-PRIOR> 378
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 124,985
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 287,958
<AVERAGE-NET-ASSETS> 126,699,669
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> New York Municipal Bond Fund, Class A
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<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> 16,015
<OTHER-INCOME> 0
<EXPENSES-NET> 1,922
<NET-INVESTMENT-INCOME> 14,093
<REALIZED-GAINS-CURRENT> 2,259
<APPREC-INCREASE-CURRENT> (9,039)
<NET-CHANGE-FROM-OPS> 7,313
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,041
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 79,940
<SHARES-REINVESTED> 127
<NET-CHANGE-IN-ASSETS> (792,077)
<ACCUMULATED-NII-PRIOR> 4,786
<ACCUMULATED-GAINS-PRIOR> (617,129)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,797
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21,992
<AVERAGE-NET-ASSETS> 772,716
<PER-SHARE-NAV-BEGIN> 9.92
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> (0.18)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.78
<EXPENSE-RATIO> 0.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> New York Municipal Bond Fund, Class B
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<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> 10,694
<OTHER-INCOME> 0
<EXPENSES-NET> 2,321
<NET-INVESTMENT-INCOME> 8,373
<REALIZED-GAINS-CURRENT> 4,121
<APPREC-INCREASE-CURRENT> (12,697)
<NET-CHANGE-FROM-OPS> (203)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,144
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 54,537
<SHARES-REINVESTED> 165
<NET-CHANGE-IN-ASSETS> (539,449)
<ACCUMULATED-NII-PRIOR> 4,786
<ACCUMULATED-GAINS-PRIOR> (617,129)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,797
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21,992
<AVERAGE-NET-ASSETS> 510,729
<PER-SHARE-NAV-BEGIN> 9.92
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> (0.16)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.78
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 12
<NAME> New York Municipal Bond Fund, Class C
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<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> 5,740
<OTHER-INCOME> 0
<EXPENSES-NET> 1,207
<NET-INVESTMENT-INCOME> 4,533
<REALIZED-GAINS-CURRENT> 2,800
<APPREC-INCREASE-CURRENT> (10,650)
<NET-CHANGE-FROM-OPS> (3,317)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,512
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 28,429
<SHARES-REINVESTED> 29
<NET-CHANGE-IN-ASSETS> (281,799)
<ACCUMULATED-NII-PRIOR> 4,786
<ACCUMULATED-GAINS-PRIOR> (617,129)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,797
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21,992
<AVERAGE-NET-ASSETS> 277,349
<PER-SHARE-NAV-BEGIN> 9.92
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> (0.16)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.78
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 13
<NAME> New York Municipal Bond Fund, Class O
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<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> 63,604
<OTHER-INCOME> 0
<EXPENSES-NET> 5,691
<NET-INVESTMENT-INCOME> 57,913
<REALIZED-GAINS-CURRENT> 24,840
<APPREC-INCREASE-CURRENT> (75,050)
<NET-CHANGE-FROM-OPS> 7,703
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 57,784
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,046
<NUMBER-OF-SHARES-REDEEMED> 351,343
<SHARES-REINVESTED> 4,594
<NET-CHANGE-IN-ASSETS> (3,193,066)
<ACCUMULATED-NII-PRIOR> 4,786
<ACCUMULATED-GAINS-PRIOR> (617,129)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,797
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21,992
<AVERAGE-NET-ASSETS> 3,058,094
<PER-SHARE-NAV-BEGIN> 9.93
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> (0.14)
<PER-SHARE-DIVIDEND> (0.18)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.78
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 14
<NAME> Natl Intermediate Muni Fund, Class A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 12,506,458
<INVESTMENTS-AT-VALUE> 12,902,851
<RECEIVABLES> 306,365
<ASSETS-OTHER> 117,441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,326,657
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,265
<TOTAL-LIABILITIES> 55,265
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,873,594
<SHARES-COMMON-STOCK> 80,804
<SHARES-COMMON-PRIOR> 67,273
<ACCUMULATED-NII-CURRENT> 1,380
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 396,393
<NET-ASSETS> 838,390
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,304
<OTHER-INCOME> 0
<EXPENSES-NET> 2,802
<NET-INVESTMENT-INCOME> 17,502
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 4,455
<NET-CHANGE-FROM-OPS> 21,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,323
<DISTRIBUTIONS-OF-GAINS> 524
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,227
<NUMBER-OF-SHARES-REDEEMED> 466
<SHARES-REINVESTED> 770
<NET-CHANGE-IN-ASSETS> 142,162
<ACCUMULATED-NII-PRIOR> 1,574
<ACCUMULATED-GAINS-PRIOR> 8,650
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,954
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 111,870
<AVERAGE-NET-ASSETS> 753,970
<PER-SHARE-NAV-BEGIN> 10.35
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 15
<NAME> Natl Intermediate Muni Fund, Class B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 12,506,458
<INVESTMENTS-AT-VALUE> 12,902,851
<RECEIVABLES> 306,365
<ASSETS-OTHER> 117,441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,326,657
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,265
<TOTAL-LIABILITIES> 55,265
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,873,594
<SHARES-COMMON-STOCK> 90,660
<SHARES-COMMON-PRIOR> 67,998
<ACCUMULATED-NII-CURRENT> 1,380
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 396,393
<NET-ASSETS> 938,664
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,373
<OTHER-INCOME> 0
<EXPENSES-NET> 5,905
<NET-INVESTMENT-INCOME> 15,468
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 2,100
<NET-CHANGE-FROM-OPS> 17,568
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15,687
<DISTRIBUTIONS-OF-GAINS> 601
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,335
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 327
<NET-CHANGE-IN-ASSETS> 236,279
<ACCUMULATED-NII-PRIOR> 1,574
<ACCUMULATED-GAINS-PRIOR> 8,650
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,954
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 111,870
<AVERAGE-NET-ASSETS> 795,193
<PER-SHARE-NAV-BEGIN> 10.33
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> (0.20)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 16
<NAME> Natl Intermediate Muni Fund, Class C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 12,506,458
<INVESTMENTS-AT-VALUE> 12,902,851
<RECEIVABLES> 306,365
<ASSETS-OTHER> 117,441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,326,657
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,265
<TOTAL-LIABILITIES> 55,265
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,873,594
<SHARES-COMMON-STOCK> 50,816
<SHARES-COMMON-PRIOR> 45,282
<ACCUMULATED-NII-CURRENT> 1,380
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 396,393
<NET-ASSETS> 526,278
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,793
<OTHER-INCOME> 0
<EXPENSES-NET> 3,801
<NET-INVESTMENT-INCOME> 9,992
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 1,710
<NET-CHANGE-FROM-OPS> 11,702
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,130
<DISTRIBUTIONS-OF-GAINS> 379
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,026
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 508
<NET-CHANGE-IN-ASSETS> 58,415
<ACCUMULATED-NII-PRIOR> 1,574
<ACCUMULATED-GAINS-PRIOR> 8,650
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,954
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 111,870
<AVERAGE-NET-ASSETS> 511,020
<PER-SHARE-NAV-BEGIN> 10.33
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.20)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.36
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 17
<NAME> Natl Intermediate Muni Fund, Class O
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 12,506,458
<INVESTMENTS-AT-VALUE> 12,902,851
<RECEIVABLES> 306,365
<ASSETS-OTHER> 117,441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,326,657
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,265
<TOTAL-LIABILITIES> 55,265
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,873,594
<SHARES-COMMON-STOCK> 1,057,732
<SHARES-COMMON-PRIOR> 946,252
<ACCUMULATED-NII-CURRENT> 1,380
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 396,393
<NET-ASSETS> 10,968,060
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 270,357
<OTHER-INCOME> 0
<EXPENSES-NET> 24,858
<NET-INVESTMENT-INCOME> 245,499
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 42,255
<NET-CHANGE-FROM-OPS> 287,754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 245,515
<DISTRIBUTIONS-OF-GAINS> 7,121
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 113,663
<NUMBER-OF-SHARES-REDEEMED> 2,962
<SHARES-REINVESTED> 779
<NET-CHANGE-IN-ASSETS> 1,182,085
<ACCUMULATED-NII-PRIOR> 1,574
<ACCUMULATED-GAINS-PRIOR> 8,650
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,954
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 111,870
<AVERAGE-NET-ASSETS> 10,020,755
<PER-SHARE-NAV-BEGIN> 10.34
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.37
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 18
<NAME> U.S. Government Income Fund, Class A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 16,388,521
<INVESTMENTS-AT-VALUE> 16,423,116
<RECEIVABLES> 657,108
<ASSETS-OTHER> 64,072
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,144,296
<PAYABLE-FOR-SECURITIES> 4,120,719
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105,759
<TOTAL-LIABILITIES> 4,226,478
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,890,380
<SHARES-COMMON-STOCK> 166,928
<SHARES-COMMON-PRIOR> 118,004
<ACCUMULATED-NII-CURRENT> (3,886)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,271)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,595
<NET-ASSETS> 1,676,247
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 49,334
<OTHER-INCOME> 0
<EXPENSES-NET> 6,285
<NET-INVESTMENT-INCOME> 43,049
<REALIZED-GAINS-CURRENT> 389
<APPREC-INCREASE-CURRENT> (455)
<NET-CHANGE-FROM-OPS> 42,983
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 43,328
<DISTRIBUTIONS-OF-GAINS> 1,451
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 49,337
<NUMBER-OF-SHARES-REDEEMED> 2,310
<SHARES-REINVESTED> 1,897
<NET-CHANGE-IN-ASSETS> 488,451
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,781
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 37,688
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 127,275
<AVERAGE-NET-ASSETS> 1,495,756
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 19
<NAME> U.S. Government Income Fund, Class B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 16,388,521
<INVESTMENTS-AT-VALUE> 16,423,116
<RECEIVABLES> 657,108
<ASSETS-OTHER> 64,072
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,144,296
<PAYABLE-FOR-SECURITIES> 4,120,719
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105,759
<TOTAL-LIABILITIES> 4,226,478
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,890,380
<SHARES-COMMON-STOCK> 148,245
<SHARES-COMMON-PRIOR> 125,880
<ACCUMULATED-NII-CURRENT> (3,886)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,271)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,595
<NET-ASSETS> 1,487,912
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 45,584
<OTHER-INCOME> 0
<EXPENSES-NET> 10,933
<NET-INVESTMENT-INCOME> 34,651
<REALIZED-GAINS-CURRENT> 289
<APPREC-INCREASE-CURRENT> (419)
<NET-CHANGE-FROM-OPS> 34,521
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 34,972
<DISTRIBUTIONS-OF-GAINS> 1,219
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 39,805
<NUMBER-OF-SHARES-REDEEMED> 18,516
<SHARES-REINVESTED> 1,076
<NET-CHANGE-IN-ASSETS> 221,752
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,781
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 37,688
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 127,275
<AVERAGE-NET-ASSETS> 1,379,075
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 20
<NAME> U.S. Government Income Fund, Class C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 16,388,521
<INVESTMENTS-AT-VALUE> 16,423,116
<RECEIVABLES> 657,108
<ASSETS-OTHER> 64,072
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,144,296
<PAYABLE-FOR-SECURITIES> 4,120,719
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105,759
<TOTAL-LIABILITIES> 4,226,478
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,890,380
<SHARES-COMMON-STOCK> 35,089
<SHARES-COMMON-PRIOR> 41,966
<ACCUMULATED-NII-CURRENT> (3,886)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,271)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,595
<NET-ASSETS> 352,268
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,026
<OTHER-INCOME> 0
<EXPENSES-NET> 3,367
<NET-INVESTMENT-INCOME> 10,659
<REALIZED-GAINS-CURRENT> 42
<APPREC-INCREASE-CURRENT> (926)
<NET-CHANGE-FROM-OPS> 9,775
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,733
<DISTRIBUTIONS-OF-GAINS> 234
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,631
<NUMBER-OF-SHARES-REDEEMED> 19,899
<SHARES-REINVESTED> 391
<NET-CHANGE-IN-ASSETS> (69,394)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,781
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 37,688
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 127,275
<AVERAGE-NET-ASSETS> 425,244
<PER-SHARE-NAV-BEGIN> 10.05
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 21
<NAME> U.S. Government Income Fund, Class O
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 16,388,521
<INVESTMENTS-AT-VALUE> 16,423,116
<RECEIVABLES> 657,108
<ASSETS-OTHER> 64,072
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,144,296
<PAYABLE-FOR-SECURITIES> 4,120,719
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105,759
<TOTAL-LIABILITIES> 4,226,478
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,890,380
<SHARES-COMMON-STOCK> 936,872
<SHARES-COMMON-PRIOR> 932,104
<ACCUMULATED-NII-CURRENT> (3,886)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,271)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,595
<NET-ASSETS> 9,401,391
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 310,821
<OTHER-INCOME> 0
<EXPENSES-NET> 27,905
<NET-INVESTMENT-INCOME> 282,916
<REALIZED-GAINS-CURRENT> 1,468
<APPREC-INCREASE-CURRENT> (11,224)
<NET-CHANGE-FROM-OPS> 273,160
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 286,128
<DISTRIBUTIONS-OF-GAINS> 8,336
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,476
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 292
<NET-CHANGE-IN-ASSETS> 26,592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,781
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 37,688
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 127,275
<AVERAGE-NET-ASSETS> 9,366,589
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> (0.01)
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.03
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 22
<NAME> High Yield Bond Fund, Class A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 361,605,091
<INVESTMENTS-AT-VALUE> 374,635,119
<RECEIVABLES> 14,967,595
<ASSETS-OTHER> 164,365
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 389,767,079
<PAYABLE-FOR-SECURITIES> 11,795,640
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,677,998
<TOTAL-LIABILITIES> 14,473,638
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 361,835,764
<SHARES-COMMON-STOCK> 10,390,912
<SHARES-COMMON-PRIOR> 5,712,605
<ACCUMULATED-NII-CURRENT> (1,405,848)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,880,527
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,982,998
<NET-ASSETS> 122,608,058
<DIVIDEND-INCOME> 25,981
<INTEREST-INCOME> 4,614,764
<OTHER-INCOME> 0
<EXPENSES-NET> 578,671
<NET-INVESTMENT-INCOME> 4,062,074
<REALIZED-GAINS-CURRENT> 707,011
<APPREC-INCREASE-CURRENT> 1,819,855
<NET-CHANGE-FROM-OPS> 6,588,940
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,693,853
<DISTRIBUTIONS-OF-GAINS> 611,200
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,314,734
<NUMBER-OF-SHARES-REDEEMED> 870,060
<SHARES-REINVESTED> 233,633
<NET-CHANGE-IN-ASSETS> 56,673,113
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 159,677
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,031,738
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,412,718
<AVERAGE-NET-ASSETS> 93,994,112
<PER-SHARE-NAV-BEGIN> 11.54
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.32
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.80
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 23
<NAME> High Yield Bond Fund, Class B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 361,605,091
<INVESTMENTS-AT-VALUE> 374,635,119
<RECEIVABLES> 14,967,595
<ASSETS-OTHER> 164,365
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 389,767,079
<PAYABLE-FOR-SECURITIES> 11,795,640
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,677,998
<TOTAL-LIABILITIES> 14,473,638
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 361,835,764
<SHARES-COMMON-STOCK> 18,068,698
<SHARES-COMMON-PRIOR> 9,266,321
<ACCUMULATED-NII-CURRENT> (1,405,848)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,880,527
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,982,998
<NET-ASSETS> 212,766,424
<DIVIDEND-INCOME> 43,454
<INTEREST-INCOME> 7,718,218
<OTHER-INCOME> 0
<EXPENSES-NET> 1,554,486
<NET-INVESTMENT-INCOME> 6,207,186
<REALIZED-GAINS-CURRENT> 1,191,268
<APPREC-INCREASE-CURRENT> 3,353,160
<NET-CHANGE-FROM-OPS> 10,751,614
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,488,256
<DISTRIBUTIONS-OF-GAINS> 942,499
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,966,787
<NUMBER-OF-SHARES-REDEEMED> 444,887
<SHARES-REINVESTED> 280,477
<NET-CHANGE-IN-ASSETS> 105,969,431
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 159,677
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,031,738
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,412,718
<AVERAGE-NET-ASSETS> 157,558,311
<PER-SHARE-NAV-BEGIN> 11.53
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 0.32
<PER-SHARE-DIVIDEND> (0.53)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.78
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 24
<NAME> High Yield Bond Fund, Class C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 361,605,091
<INVESTMENTS-AT-VALUE> 374,635,119
<RECEIVABLES> 14,967,595
<ASSETS-OTHER> 164,365
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 389,767,079
<PAYABLE-FOR-SECURITIES> 11,795,640
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,677,998
<TOTAL-LIABILITIES> 14,473,638
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 361,835,764
<SHARES-COMMON-STOCK> 3,233,366
<SHARES-COMMON-PRIOR> 1,195,228
<ACCUMULATED-NII-CURRENT> (1,405,848)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,880,527
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,982,998
<NET-ASSETS> 38,064,392
<DIVIDEND-INCOME> 6,684
<INTEREST-INCOME> 1,187,239
<OTHER-INCOME> 0
<EXPENSES-NET> 239,640
<NET-INVESTMENT-INCOME> 954,283
<REALIZED-GAINS-CURRENT> 191,354
<APPREC-INCREASE-CURRENT> 535,209
<NET-CHANGE-FROM-OPS> 1,680,846
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 390,999
<DISTRIBUTIONS-OF-GAINS> 118,077
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,073,399
<NUMBER-OF-SHARES-REDEEMED> 101,156
<SHARES-REINVESTED> 65,895
<NET-CHANGE-IN-ASSETS> 24,291,314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 159,677
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,031,738
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,412,718
<AVERAGE-NET-ASSETS> 24,317,126
<PER-SHARE-NAV-BEGIN> 11.52
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 0.32
<PER-SHARE-DIVIDEND> (0.53)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.77
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 25
<NAME> High Yield Bond Fund, Class O
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 361,605,091
<INVESTMENTS-AT-VALUE> 374,635,119
<RECEIVABLES> 14,967,595
<ASSETS-OTHER> 164,365
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 389,767,079
<PAYABLE-FOR-SECURITIES> 11,795,640
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,677,998
<TOTAL-LIABILITIES> 14,473,638
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 361,835,764
<SHARES-COMMON-STOCK> 157,189
<SHARES-COMMON-PRIOR> 34,107
<ACCUMULATED-NII-CURRENT> (1,405,848)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,880,527
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,982,998
<NET-ASSETS> 1,854,567
<DIVIDEND-INCOME> 424
<INTEREST-INCOME> 75,319
<OTHER-INCOME> 0
<EXPENSES-NET> 7,527
<NET-INVESTMENT-INCOME> 68,216
<REALIZED-GAINS-CURRENT> 12,711
<APPREC-INCREASE-CURRENT> 28,963
<NET-CHANGE-FROM-OPS> 109,890
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 138,093
<DISTRIBUTIONS-OF-GAINS> 10,856
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 118,090
<NUMBER-OF-SHARES-REDEEMED> 1,524
<SHARES-REINVESTED> 6,516
<NET-CHANGE-IN-ASSETS> 1,461,294
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 159,677
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,031,738
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,412,718
<AVERAGE-NET-ASSETS> 1,540,576
<PER-SHARE-NAV-BEGIN> 11.53
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> (0.57)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.80
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 26
<NAME> Strategic Bond Fund, Class A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 52,075,373
<INVESTMENTS-AT-VALUE> 53,578,309
<RECEIVABLES> 4,804,845
<ASSETS-OTHER> 87,672
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,470,826
<PAYABLE-FOR-SECURITIES> 5,456,580
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 572,179
<TOTAL-LIABILITIES> 6,028,759
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,132,423
<SHARES-COMMON-STOCK> 1,265,231
<SHARES-COMMON-PRIOR> 770,669
<ACCUMULATED-NII-CURRENT> (404,886)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 203,994
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,510,536
<NET-ASSETS> 13,783,718
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 581,936
<OTHER-INCOME> 0
<EXPENSES-NET> 84,258
<NET-INVESTMENT-INCOME> 497,678
<REALIZED-GAINS-CURRENT> 67,275
<APPREC-INCREASE-CURRENT> 141,172
<NET-CHANGE-FROM-OPS> 706,125
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 626,263
<DISTRIBUTIONS-OF-GAINS> 10,136
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 932,602
<NUMBER-OF-SHARES-REDEEMED> 483,979
<SHARES-REINVESTED> 45,939
<NET-CHANGE-IN-ASSETS> 5,439,051
<ACCUMULATED-NII-PRIOR> (9,936)
<ACCUMULATED-GAINS-PRIOR> 27,427
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 157,200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 436,798
<AVERAGE-NET-ASSETS> 13,642,083
<PER-SHARE-NAV-BEGIN> 10.83
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 0.18
<PER-SHARE-DIVIDEND> (0.50)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.89
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 27
<NAME> Strategic Bond Fund, Class B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 52,075,373
<INVESTMENTS-AT-VALUE> 53,578,309
<RECEIVABLES> 4,804,845
<ASSETS-OTHER> 87,672
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,470,826
<PAYABLE-FOR-SECURITIES> 5,456,580
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 572,179
<TOTAL-LIABILITIES> 6,028,759
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,132,423
<SHARES-COMMON-STOCK> 2,573,747
<SHARES-COMMON-PRIOR> 1,321,002
<ACCUMULATED-NII-CURRENT> (404,886)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 203,994
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,510,536
<NET-ASSETS> 28,015,346
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 877,118
<OTHER-INCOME> 0
<EXPENSES-NET> 204,293
<NET-INVESTMENT-INCOME> 672,825
<REALIZED-GAINS-CURRENT> 102,223
<APPREC-INCREASE-CURRENT> 295,511
<NET-CHANGE-FROM-OPS> 1,070,559
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 865,631
<DISTRIBUTIONS-OF-GAINS> 14,138
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,247,420
<NUMBER-OF-SHARES-REDEEMED> 36,730
<SHARES-REINVESTED> 42,055
<NET-CHANGE-IN-ASSETS> 13,724,715
<ACCUMULATED-NII-PRIOR> (9,936)
<ACCUMULATED-GAINS-PRIOR> 27,427
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 157,200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 436,798
<AVERAGE-NET-ASSETS> 20,712,260
<PER-SHARE-NAV-BEGIN> 10.82
<PER-SHARE-NII> 0.35
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.89
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 28
<NAME> Strategic Bond Fund, Class C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 52,075,373
<INVESTMENTS-AT-VALUE> 53,578,309
<RECEIVABLES> 4,804,845
<ASSETS-OTHER> 87,672
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,470,826
<PAYABLE-FOR-SECURITIES> 5,456,580
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 572,179
<TOTAL-LIABILITIES> 6,028,759
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,132,423
<SHARES-COMMON-STOCK> 946,137
<SHARES-COMMON-PRIOR> 422,727
<ACCUMULATED-NII-CURRENT> (404,886)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 203,994
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,510,536
<NET-ASSETS> 10,303,358
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 303,849
<OTHER-INCOME> 0
<EXPENSES-NET> 70,920
<NET-INVESTMENT-INCOME> 232,929
<REALIZED-GAINS-CURRENT> 34,754
<APPREC-INCREASE-CURRENT> 98,909
<NET-CHANGE-FROM-OPS> 366,592
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 300,136
<DISTRIBUTIONS-OF-GAINS> 6,122
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 552,305
<NUMBER-OF-SHARES-REDEEMED> 51,917
<SHARES-REINVESTED> 23,022
<NET-CHANGE-IN-ASSETS> 5,728,485
<ACCUMULATED-NII-PRIOR> (9,936)
<ACCUMULATED-GAINS-PRIOR> 27,427
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 157,200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 436,798
<AVERAGE-NET-ASSETS> 7,201,757
<PER-SHARE-NAV-BEGIN> 10.82
<PER-SHARE-NII> 0.35
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.89
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 29
<NAME> Strategic Bond Fund, Class O
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 52,075,373
<INVESTMENTS-AT-VALUE> 53,578,309
<RECEIVABLES> 4,804,845
<ASSETS-OTHER> 87,672
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,470,826
<PAYABLE-FOR-SECURITIES> 5,456,580
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 572,179
<TOTAL-LIABILITIES> 6,028,759
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,132,423
<SHARES-COMMON-STOCK> 31,203
<SHARES-COMMON-PRIOR> 352,949
<ACCUMULATED-NII-CURRENT> (404,886)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 203,994
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,510,536
<NET-ASSETS> 339,645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,270
<OTHER-INCOME> 0
<EXPENSES-NET> 3,368
<NET-INVESTMENT-INCOME> 25,902
<REALIZED-GAINS-CURRENT> 2,935
<APPREC-INCREASE-CURRENT> 10,769
<NET-CHANGE-FROM-OPS> 39,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 32,254
<DISTRIBUTIONS-OF-GAINS> 224
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,356
<NUMBER-OF-SHARES-REDEEMED> 323,231
<SHARES-REINVESTED> 129
<NET-CHANGE-IN-ASSETS> (3,477,630)
<ACCUMULATED-NII-PRIOR> (9,936)
<ACCUMULATED-GAINS-PRIOR> 27,427
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 157,200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 436,798
<AVERAGE-NET-ASSETS> 711,360
<PER-SHARE-NAV-BEGIN> 10.82
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> (0.51)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.89
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 30
<NAME> Total Return Fund, Class A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 102,109,358
<INVESTMENTS-AT-VALUE> 110,731,588
<RECEIVABLES> 1,997,775
<ASSETS-OTHER> 75,254
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 112,804,617
<PAYABLE-FOR-SECURITIES> 4,565,270
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 368,586
<TOTAL-LIABILITIES> 4,933,856
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,757,891
<SHARES-COMMON-STOCK> 3,123,910
<SHARES-COMMON-PRIOR> 1,785,577
<ACCUMULATED-NII-CURRENT> 110,917
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,379,723
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,622,230
<NET-ASSETS> 39,593,371
<DIVIDEND-INCOME> 212,564
<INTEREST-INCOME> 525,182
<OTHER-INCOME> 0
<EXPENSES-NET> 108,588
<NET-INVESTMENT-INCOME> 629,158
<REALIZED-GAINS-CURRENT> 532,052
<APPREC-INCREASE-CURRENT> 1,654,648
<NET-CHANGE-FROM-OPS> 2,815,858
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 593,786
<DISTRIBUTIONS-OF-GAINS> 54,116
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,622,943
<NUMBER-OF-SHARES-REDEEMED> 329,071
<SHARES-REINVESTED> 44,461
<NET-CHANGE-IN-ASSETS> 18,484,832
<ACCUMULATED-NII-PRIOR> 33,205
<ACCUMULATED-GAINS-PRIOR> 139,592
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 206,799
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 638,006
<AVERAGE-NET-ASSETS> 29,222,296
<PER-SHARE-NAV-BEGIN> 11.82
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.86
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.67
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 31
<NAME> Total Return Fund, Class B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 102,109,358
<INVESTMENTS-AT-VALUE> 110,731,588
<RECEIVABLES> 1,997,775
<ASSETS-OTHER> 75,254
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 112,804,617
<PAYABLE-FOR-SECURITIES> 4,565,270
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 368,586
<TOTAL-LIABILITIES> 4,933,856
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,757,891
<SHARES-COMMON-STOCK> 4,416,442
<SHARES-COMMON-PRIOR> 2,373,141
<ACCUMULATED-NII-CURRENT> 110,917
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,379,723
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,622,230
<NET-ASSETS> 55,929,223
<DIVIDEND-INCOME> 289,632
<INTEREST-INCOME> 715,593
<OTHER-INCOME> 0
<EXPENSES-NET> 295,237
<NET-INVESTMENT-INCOME> 709,988
<REALIZED-GAINS-CURRENT> 724,933
<APPREC-INCREASE-CURRENT> 2,219,988
<NET-CHANGE-FROM-OPS> 3,654,909
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 675,213
<DISTRIBUTIONS-OF-GAINS> 74,677
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,126,510
<NUMBER-OF-SHARES-REDEEMED> 136,270
<SHARES-REINVESTED> 53,061
<NET-CHANGE-IN-ASSETS> 27,886,625
<ACCUMULATED-NII-PRIOR> 33,205
<ACCUMULATED-GAINS-PRIOR> 139,592
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 206,799
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 638,006
<AVERAGE-NET-ASSETS> 39,662,224
<PER-SHARE-NAV-BEGIN> 11.82
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 0.85
<PER-SHARE-DIVIDEND> (0.21)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.66
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 32
<NAME> Total Return Fund, Class C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 102,109,358
<INVESTMENTS-AT-VALUE> 110,731,588
<RECEIVABLES> 1,997,775
<ASSETS-OTHER> 75,254
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 112,804,617
<PAYABLE-FOR-SECURITIES> 4,565,270
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 368,586
<TOTAL-LIABILITIES> 4,933,856
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,757,891
<SHARES-COMMON-STOCK> 887,203
<SHARES-COMMON-PRIOR> 290,767
<ACCUMULATED-NII-CURRENT> 110,917
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,379,723
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,622,230
<NET-ASSETS> 11,263,294
<DIVIDEND-INCOME> 45,606
<INTEREST-INCOME> 112,678
<OTHER-INCOME> 0
<EXPENSES-NET> 46,551
<NET-INVESTMENT-INCOME> 111,733
<REALIZED-GAINS-CURRENT> 112,061
<APPREC-INCREASE-CURRENT> 364,754
<NET-CHANGE-FROM-OPS> 588,548
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 105,278
<DISTRIBUTIONS-OF-GAINS> 11,003
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 631,512
<NUMBER-OF-SHARES-REDEEMED> 43,481
<SHARES-REINVESTED> 8,405
<NET-CHANGE-IN-ASSETS> 7,818,694
<ACCUMULATED-NII-PRIOR> 33,205
<ACCUMULATED-GAINS-PRIOR> 139,592
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 206,799
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 638,006
<AVERAGE-NET-ASSETS> 6,278,847
<PER-SHARE-NAV-BEGIN> 11.85
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 0.86
<PER-SHARE-DIVIDEND> (0.21)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.70
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 33
<NAME> Total Return Fund, Class O
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 102,109,358
<INVESTMENTS-AT-VALUE> 110,731,588
<RECEIVABLES> 1,997,775
<ASSETS-OTHER> 75,254
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 112,804,617
<PAYABLE-FOR-SECURITIES> 4,565,270
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 368,586
<TOTAL-LIABILITIES> 4,933,856
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,757,891
<SHARES-COMMON-STOCK> 85,163
<SHARES-COMMON-PRIOR> 17,932
<ACCUMULATED-NII-CURRENT> 110,917
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,379,723
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,622,230
<NET-ASSETS> 1,084,873
<DIVIDEND-INCOME> 4,938
<INTEREST-INCOME> 12,199
<OTHER-INCOME> 0
<EXPENSES-NET> 1,668
<NET-INVESTMENT-INCOME> 15,469
<REALIZED-GAINS-CURRENT> 11,851
<APPREC-INCREASE-CURRENT> 44,688
<NET-CHANGE-FROM-OPS> 72,008
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,359
<DISTRIBUTIONS-OF-GAINS> 970
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 67,076
<NUMBER-OF-SHARES-REDEEMED> 1,080
<SHARES-REINVESTED> 1,235
<NET-CHANGE-IN-ASSETS> 871,859
<ACCUMULATED-NII-PRIOR> 33,205
<ACCUMULATED-GAINS-PRIOR> 139,592
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 206,799
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 638,006
<AVERAGE-NET-ASSETS> 659,437
<PER-SHARE-NAV-BEGIN> 11.88
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 0.86
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.74
<EXPENSE-RATIO> 0.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 34
<NAME> Asia Growth Fund, Class A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 12,716,937
<INVESTMENTS-AT-VALUE> 13,848,917
<RECEIVABLES> 701,802
<ASSETS-OTHER> 767,596
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,318,315
<PAYABLE-FOR-SECURITIES> 911,660
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,798
<TOTAL-LIABILITIES> 1,002,458
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,447,787
<SHARES-COMMON-STOCK> 597,685
<SHARES-COMMON-PRIOR> 357,945
<ACCUMULATED-NII-CURRENT> (6,051)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 751,136
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,122,985
<NET-ASSETS> 7,114,889
<DIVIDEND-INCOME> 29,760
<INTEREST-INCOME> 3,906
<OTHER-INCOME> 0
<EXPENSES-NET> 27,944
<NET-INVESTMENT-INCOME> 5,722
<REALIZED-GAINS-CURRENT> 374,326
<APPREC-INCREASE-CURRENT> 519,465
<NET-CHANGE-FROM-OPS> 899,513
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,004
<DISTRIBUTIONS-OF-GAINS> 104,352
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 272,829
<NUMBER-OF-SHARES-REDEEMED> 37,752
<SHARES-REINVESTED> 4,663
<NET-CHANGE-IN-ASSETS> 3,421,887
<ACCUMULATED-NII-PRIOR> 10,809
<ACCUMULATED-GAINS-PRIOR> 201,064
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36,538
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 226,580
<AVERAGE-NET-ASSETS> 4,542,882
<PER-SHARE-NAV-BEGIN> 10.32
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 1.85
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.25)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.90
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 35
<NAME> Asia Growth Fund, Class B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 12,716,937
<INVESTMENTS-AT-VALUE> 13,848,917
<RECEIVABLES> 701,802
<ASSETS-OTHER> 767,596
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,318,315
<PAYABLE-FOR-SECURITIES> 911,660
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,798
<TOTAL-LIABILITIES> 1,002,458
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,447,787
<SHARES-COMMON-STOCK> 459,133
<SHARES-COMMON-PRIOR> 306,685
<ACCUMULATED-NII-CURRENT> (6,051)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 751,136
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,122,985
<NET-ASSETS> 5,454,216
<DIVIDEND-INCOME> 25,915
<INTEREST-INCOME> 3,401
<OTHER-INCOME> 0
<EXPENSES-NET> 38,443
<NET-INVESTMENT-INCOME> (9,127)
<REALIZED-GAINS-CURRENT> 308,598
<APPREC-INCREASE-CURRENT> 438,396
<NET-CHANGE-FROM-OPS> 737,867
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 924
<DISTRIBUTIONS-OF-GAINS> 89,299
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 151,734
<NUMBER-OF-SHARES-REDEEMED> 2,048
<SHARES-REINVESTED> 2,762
<NET-CHANGE-IN-ASSETS> 2,291,610
<ACCUMULATED-NII-PRIOR> 10,809
<ACCUMULATED-GAINS-PRIOR> 201,064
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36,538
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 226,580
<AVERAGE-NET-ASSETS> 3,898,977
<PER-SHARE-NAV-BEGIN> 10.31
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 1.85
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.25)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.88
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 36
<NAME> Asia Growth Fund, Class C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 12,716,937
<INVESTMENTS-AT-VALUE> 13,848,917
<RECEIVABLES> 701,802
<ASSETS-OTHER> 767,596
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,318,315
<PAYABLE-FOR-SECURITIES> 911,660
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,798
<TOTAL-LIABILITIES> 1,002,458
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,447,787
<SHARES-COMMON-STOCK> 123,104
<SHARES-COMMON-PRIOR> 23,879
<ACCUMULATED-NII-CURRENT> (6,051)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 751,136
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,122,985
<NET-ASSETS> 1,462,140
<DIVIDEND-INCOME> 3,980
<INTEREST-INCOME> 522
<OTHER-INCOME> 0
<EXPENSES-NET> 5,825
<NET-INVESTMENT-INCOME> (1,323)
<REALIZED-GAINS-CURRENT> 61,032
<APPREC-INCREASE-CURRENT> 90,706
<NET-CHANGE-FROM-OPS> 150,415
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 214
<DISTRIBUTIONS-OF-GAINS> 11,184
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100,414
<NUMBER-OF-SHARES-REDEEMED> 2,111
<SHARES-REINVESTED> 922
<NET-CHANGE-IN-ASSETS> 1,216,073
<ACCUMULATED-NII-PRIOR> 10,809
<ACCUMULATED-GAINS-PRIOR> 201,064
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36,538
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 226,580
<AVERAGE-NET-ASSETS> 587,852
<PER-SHARE-NAV-BEGIN> 10.30
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 1.85
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.25)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.88
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from The Salomon Brothers Series Funds Inc.
form N-SAR for the period ended June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 37
<NAME> Asia Growth Fund, Class O
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 12,716,937
<INVESTMENTS-AT-VALUE> 13,848,917
<RECEIVABLES> 701,802
<ASSETS-OTHER> 767,596
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,318,315
<PAYABLE-FOR-SECURITIES> 911,660
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,798
<TOTAL-LIABILITIES> 1,002,458
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,447,787
<SHARES-COMMON-STOCK> 23,870
<SHARES-COMMON-PRIOR> 11,983
<ACCUMULATED-NII-CURRENT> (6,051)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 751,136
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,122,985
<NET-ASSETS> 284,612
<DIVIDEND-INCOME> 1,214
<INTEREST-INCOME> 159
<OTHER-INCOME> 0
<EXPENSES-NET> 885
<NET-INVESTMENT-INCOME> 488
<REALIZED-GAINS-CURRENT> 15,048
<APPREC-INCREASE-CURRENT> 21,281
<NET-CHANGE-FROM-OPS> 36,817
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 478
<DISTRIBUTIONS-OF-GAINS> 4,097
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,762
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 126
<NET-CHANGE-IN-ASSETS> 160,919
<ACCUMULATED-NII-PRIOR> 10,809
<ACCUMULATED-GAINS-PRIOR> 201,064
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36,538
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 226,580
<AVERAGE-NET-ASSETS> 180,442
<PER-SHARE-NAV-BEGIN> 10.32
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 1.85
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.25)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.92
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
