<PAGE>
SEMI-ANNUAL
REPORT [PICTURES]
June 30, 2000
SALOMON BROTHERS ASSET MANAGEMENT
. Asia Growth Fund
. Intermational Equity Fund
SALOMON BROTHERS
. Capital Fund
. Large Cap Growth Fund
. Investors Value Fund
. Balanced Fund
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For almost a century, Salomon Brothers has provided serious investors
with advice and resources to help them reach their financial goals.
Salomon Brothers offers...
Quality Service
Scope of Choice
An Information Advantage
We offer cutting-edge solutions and investment programs delivered through
financial advisors. Our rich tradition and expertise provides access to
innovative ideas and extensive resources.
We wish to extend our sincere thanks for investing with us. Technology,
new innovations and business opportunities have changed the financial
world over the years -- but one constant remains: our commitment to serve
your investment needs.
BRIDGING WALL STREET OPPORTUNITIES TO YOUR FINANCIAL FUTURE
-----------------------------------------------------------
RICH TRADITION
--------------
Bold initiative, determination and market foresight have defined the
Salomon Brothers name for nearly a century.
GLOBAL RESOURCES
----------------
We have access to one of the world's largest financial institutions,
creating a global web of resources comprised of 170,000 employees in over
100 countries.
INVESTMENT EXPERTISE
--------------------
Averaging over 16 years of professional industry experience, our seasoned
portfolio management team consistently demonstrates a disciplined
institutional approach to money management.
PERFORMANCE
-----------
We believe that a true measure of performance extends beyond short-term
time frames to long-term outcomes, quality of management, quality of
relationship and quality of thought.
INFORMATION ADVANTAGE
---------------------
We offer a global information advantage to investors and their advisors -
- providing the benefits of a world of rapid knowledge acquisition.
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Table of Contents
<TABLE>
<S> <C>
A Message From the Chairman.......................................... 2
Salomon Brothers Investment Series
Asia Growth Fund................................................... 5
International Equity Fund.......................................... 10
Small Cap Growth Fund.............................................. 13
Capital Fund....................................................... 15
Large Cap Growth Fund.............................................. 19
Investors Value Fund............................................... 22
Balanced Fund...................................................... 25
Schedules of Investments............................................. 29
Statements of Assets and Liabilities................................. 52
Statements of Operations............................................. 54
Statements of Changes in Net Assets.................................. 56
Notes to Financial Statements........................................ 60
Financial Highlights................................................. 72
Directors and Officers of Salomon Brothers Investment Series......... IBC
</TABLE>
1
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[PHOTO OF HEATH B. MCLENDON]
Chairman
SALOMON BROTHERS INVESTMENT SERIES
A Message From the Chairman
Dear Shareholder:
We are pleased to provide the semi-annual report for the Salomon Brothers
Investment Series -- Asia Growth Fund, Small Cap Fund, Investors Value Fund,
International Equity Growth Fund, Capital Chairman Fund, Large Capitalization
Growth Fund and Balanced Fund (the "Funds" and each a "Fund") for the period
ended June 30, 2000. We hope you find this report to be useful and informative.
Below is a chart showing each Fund's Class A share return for the six-month
period ended June 30, 2000 with and without sales charges.
The Performance of the Salomon Brothers Investment Series
Class A Shares Total Returns for the Six Months Ended June 30, 2000
Without With
Sales Charges/1/ Sales Charges/2/
---------------- ----------------
Asia Growth Fund (8.21)% (13.47)%
International Equity Fund (9.21) (14.42)
Small Cap Growth Fund 20.49 13.57
Capital Fund 17.32 10.58
Large Cap Growth Fund (3.44) (8.98)
Investors Value Fund 9.08 2.82
Balanced Fund 5.16 (0.87)
______________
1 The total return figures assume reinvestment of all dividends and do not
reflect the deduction of sales charges for each Fund's Class A shares.
2 These total return figures assume reinvestment of all dividends and reflect
the deduction of the maximum front-end sales charge for each Fund's Class A
shares of 5.75% for the Asia Growth, International Equity, Small Cap
Growth, Capital, Large Cap Growth, Investors Value and Balanced Funds. Both
columns of data represent past performance, which is not indicative of
future results. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. This share-holder report has been
prepared for the information of shareholders of the Salomon Brothers
Investment Series and is not authorized for use unless preceded or
accompanied by a current prospectus. Other share classes are available. The
prospectus contains information regarding each Fund's sales charges,
expenses, objectives, policies, management and performance. To obtain a
copy of the prospectus, please call your Financial Advisor directly or call
1-800-725-6666. Please read it carefully before you invest or send money.
2
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Market Commentary
As the world welcomed in the new millennium with an uneventful Y2K date change,
many investors wanted to know whether the historic returns posted by many
companies in 1999 could possibly be achieved in 2000.
Several major stock and bond markets hit record highs in 2000, but have since
backed off from their highs. The first half of 2000 was characterized by
increased levels of stock market volatility worldwide, predominantly in the
technology sector. In fact, the tech-laden Nasdaq Composite Index/1/ experienced
four declines of 10% or more. As the divergence between the so-called "New
Economy," represented by the telecommunications, media and technology companies,
versus the more established blue-chip "Old Economy" stocks continues, we have
focused on identifying companies we believe are best-positioned to grow in the
new millennium.
In the first six months of the year, the Federal Reserve Board ("Fed") raised
interest rates three times (February 2, 2000, March 21, 2000, and May 16, 2000)
in an effort to slow the growth of the robust U.S. economy. While rising
interest rates often lead historically to falling stock prices, the economy and
the bond and stock markets appeared to absorb the Fed's rate hikes. While
consumer confidence slipped somewhat so far this year, consumer spending
continues to increase as evidenced by recent economic data. Unemployment remains
near its 30-year low. Despite the possibility of future rate hikes this year by
the Fed, we remain optimistic that the growth of the U.S. economy should
continue for the near term.
After a tumultuous start, the euro has finally begun strengthening and we may
have seen a bottoming out. (The euro is the single currency of the European
Monetary Union that was adopted by Belgium, Germany, Spain, France, Ireland,
Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland on January 1,
1999.) The euro is now trading near parity to the U.S. dollar and we view Europe
positively on investment opportunities and believe that many stocks and bonds of
European companies represent compelling stories.
The Asian markets have shown a wide range of performance in 2000, as several
markets negatively reacted to changes in Fed monetary policy. However, many
Asian companies have and continue to leverage technology in order to streamline
their operations, which may have a positive effect in the years to come.
_______________
1 The Nasdaq Composite Index is a market value-weighted index that measures
all domestic and non-U.S. based securities listed on the NASDAQ stock
market. An investor cannot invest directly in an index.
3
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Bond investors were faced with many challenges in 2000, largely due to the
actions of the Fed and to the U.S. Treasury Department's plan to buyback
approximately $30 billion in long-term debt obligations. This led to an inverted
yield curve,/2/ a unique occurrence whereby bonds with longer maturities have
lower yields than bonds with shorter maturities.
As markets continue to exhibit greater volatility and investment returns revert
back to their historical averages, we believe the advantages of active
management will become more apparent in the months ahead.
On behalf of everyone here at Salomon Brothers Asset Management, we would like
to thank you for your continued confidence in the Salomon Brothers Investment
Series. We look forward to helping you pursue your financial goals in the new
century.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman and President
July 24, 2000
___________
2 The yield curve is a graphical depiction of the relationship between the
yield on bonds of the same credit quality, but different maturities.
4
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[PICTURE APPEARS HERE]
INVESTMENT OBJECTIVE AND STRATEGY
The Salomon Brothers Asia Growth Fund seeks long-term capital appreciation. The
Fund invests at least 65% of total assets in the equity and equity-related
securities of companies located in Asian countries. Areas considered for
investments include, but are not limited to, China, Hong Kong, Indonesia, Korea,
Philippines, Singapore, Taiwan, Malaysia, Thailand and Indian sub-continents. In
seeking to capture high long-term returns with volatility in line with or lower
than that usually experienced in the Asian markets, the Fund will allocate its
assets among countries and industries believed by the portfolio managers to be
most likely to benefit from positive regional economic trends.
The Fund Managers
Managed by an investment team out of the Hong Kong office of Salomon Brothers
Asset Management Asia Pacific,Ltd.
S A L O M O N B R O T H E R S
Asia Growth Fund
PERFORMANCE UPDATE
The Asia Growth Fund's Class A shares, without sales charges, returned a
negative 8.21% for the six months ended June 30, 2000. In comparison, the Morgan
Stanley Capital International All Country Asia Free Ex-Japan Index's ("MSCI AC
Asia Free Ex-Japan Index") total return of a negative 12.93% for the same
period. (The MSCI AC Asia Free (ex-Japan) Index is a market capitalization
weighted index that measures the performance of equities of 12 stock exchanges
in the Asia Pacific region.) Past performance is not indicative of future
results. An investor cannot invest directly in an index.
MARKET REVIEW
In our view, one of the more conspicuous effects of the globalization of
international capital markets has been the increasing influence of the sharp
corrections in the U.S. capital markets, especially in the volatile performance
of the Nasdaq Composite Index/1/ during the period. The year started on an
auspicious note for Asian markets, characterized by aggressive buying in many
major stock markets, which were given a clean bill of health by Y2K experts.
Notwithstanding valuation levels that were at odds with earnings potential,
investors' purchases of the recently coined "TMT" (technology, media and
telecommunications) stocks, appeared to have reached its height in mid-February.
A much higher-than-expected inflation figure in the U.S., however, appeared to
have been one of the catalysts that led to a re-assessment by many investors of
valuation levels and subsequent realizations that hefty premiums were being
demanded for so-called "growth plays." The resulting correction was sharp and
quick. Investors who had until recently been oblivious to the dampening effects
of tighter monetary policy by the U.S. Federal Reserve Board ("Fed") took
profits and channeled money into so-called "Old Economy" value stocks./2/
Singapore and Korea suffered double-digit losses during the reporting period,
with shares of many Korean companies declining largely due to concerns
surrounding massive Investment Trust Company ("ITC") redemptions. Hong Kong and
Taiwanese markets moderately declined during the period. Hong Kong's problems
were compounded by the local dollar's peg to the U.S. dollar and a dramatic, if
not controversial, victory by an opposition leader in the March presidential
elections resulted in a sell-off in the U.S. dollar.
The smaller markets of Southeast Asia continued to be plagued by remnants of
political and financial reform woes from the 1997 crisis and struggled
throughout the period. While valuation levels were undergoing downward
__________
1 The Nasdaq Compostite Index is a market value-weighted index that measures
all domestic and non-U.S. based securities listed on the NASDAQ stock
market. An investor cannot invest directly in an index.
2 Value stocks are shares of companies that are believed to be undervalued but
have potentially good longer-term business prospects.
5
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adjustments, macroeconomic statistics remained favorable. Economic growth,
albeit at a more moderate pace, was evident across most countries while
inflationary pressures remained muted.
PORTFOLIO HIGHLIGHTS/3/
Throughout the first half of 2000, the Asia Growth Fund maintained its emphasis
on individual stock selections. In the absence of strong economic data, we
remained neutral versus the MSCI AC Asia Free Ex-Japan Index in terms of
allocating the Fund's assets, taking a more "bottom-up"/4/ approach in managing
the Fund. In many cases, the Fund's holdings, which differed from those of the
benchmark, generated higher returns versus stocks included in the MSCI AC Asia
Free Ex-Japan.
In Hong Kong, trading company Li & Fung was consistently within the Fund's top
ten holdings throughout the first half of 2000. We believe Li & Fung may be the
top regional sourcing franchise with superb management and long-term strategies
that may prove effective. In our view, this combination has propelled Li & Fung
and led to the creation of consistent high returns for its shareholders. We
believe the company has strong growth potential, has demonstrated adaptability
to changes in technology (i.e., Internet) and its ventures into new
opportunities all contributed to its exceptional share price performance during
the period. In fact, the company's share price rose about 100% since year-end
1999 versus the Hang Seng Index,/5/ which fell 4.8% during the same period.
The Fund's other holdings consisted of various large capitalization stocks with
what we deem are sustainable growth drivers consistent with our stock selections
made in 1999. These holdings include China Mobile (formerly named China
Telecom), a telecommunications company with strong subscriber growth. The Fund's
holding in Samsung Electronics, the leading South Korean company, continues to
be Asia's best Dynamic Random Access Memory ("DRAM") play. The company is an
exporter with limited group risk compared to other chaebols, Korean
conglomerates of many companies clustered around one holding company whose
parent company is usually controlled by one family. Moreover, Samsung has all
the right products: Static Random Access memory ("SRAM"), flash and cell phones,
all of which are currently in high demand.
We believe that Taiwan Semiconductor Manufacturing Company, Asia's leading
foundry, has an outstanding earnings outlook. Indian software company Satyam
Computers has what we deem to be the best combination of growth potential,
reasonable valuations and outstanding management. The company's shift from
reliance on Y2K-related projects to e-business-related revenues has been
seamless. We are pleased to report that all of the above companies have
generated positive contributions in the first half of 2000 for the Fund during a
time when most regional markets declined. Additionally, these companies
____________
3 Past performance is not indicative of future results. Portfolio holdings are
subject to change.
4 Bottom-up investing is a search for outstanding performance of individual
stocks before considering the impact of economic trends.
5 The Hang Seng Index is an aggregate market cap weighted index, which tracks
33 stocks representing 70% of total market capitalization on the stock
exchange of Hong Kong Limited. An investor cannot invest directly in an
index.
6
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were all consistently within the top ten positions of the Fund throughout the
period.
Apart from the Fund's core holdings, other positions included conglomerate Citic
Pacific, which was bought and has been re-rated since its announcement of a
series of telecommunication asset purchases in China. The company's value
enhancing deals clearly illustrate strong backing from its parent company, Citic
Beijing. After several visits to China, we were encouraged by the overall
cyclical recovery of the country's economy and operating improvements by many
Chinese state-owned enterprises ("SOEs"). As such, we increased the Fund's
exposure to Chinese companies in the second quarter. Positions in H-shares
listed in Hong Kong, representing the SOEs, were added. These included one of
the major airline stocks, China Southern. We believe China Southern may be a
direct beneficiary of increased traffic flow in the southern regions trading at
attractive valuations of 0.6 times price to book./6/
Aside from the maintenance of core positions and initiation of new stock
purchases, the Fund also gained from profits on positions such as Datacraft
Asia, a Singapore-based leading networking company that spans different parts of
Asia. This stock was sold when the share price moved up sharply above U.S.
dollar $10, rendering valuation levels too high in our opinion. The Fund's
entire position in Hong Kong-based Giordano, one of the top ten holdings for
most of 1999 was sold. This position was bought as we believed the company was
poised to benefit from the restructuring and anticipated recovery of the
regional retail sector. As a result, the Fund made over five times its
investment in profits. Although we believe Giordano continues to have strong
growth potential, we believe this has already been reflected in the strong
performance of its share price.
From an asset allocation perspective, the decision not to have exposure to the
smaller Southeast Asian markets, namely Thailand, Indonesia and the Philippines
was maintained during the second quarter of 2000. This was done mainly from the
lack of a visible growth story, weak corporate governance and in some cases,
higher political risks.
MARKET OUTLOOK
From a top-down/7/ perspective, we believe markets in North Asia should continue
to be favored over the smaller markets of Southeast Asia. Moreover, in our view,
the markets of Hong Kong, South Korea, Singapore and Taiwan stand to benefit
from improvements in the economic landscape as well as with their focus on
industries with stronger growth potentials. Our positive stance on China-related
counters on the back of the country's strong cyclical recovery and its entry
into the World Trade Organization ("WTO") will also remain.
__________
6 Price-to-book is the difference between the market value of a stock and the
book value of the company.
7 A top-down perspective refers to looking at trends in the general economy and
selecting industries and then companies that should benefit from those
trends.
7
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From a sector perspective, the recently adopted strategy of being overweight in
interest-rate sensitive sectors should continue as we assign a high probability
to a peak in U.S. short-term interest rates. Diversification into interest-rate
sensitive stocks, however, may not preclude the Fund from exposure to technology
companies especially as the year progresses.
We believe it's unlikely that corporate results in the region will disappoint
and as such, earnings of technology companies should confirm longer-term growth
prospects. We think that stronger growth potential still can be found in the
technology sector. We will therefore limit our focus to companies with proven
business models and profitable earnings.
8
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--------------------------------------------------------------------------------
Portfolio Highlights#
--------------------------------------------------------------------------------
Composition of portfolio as of June 30, 2000
[PIE CHART]
Common Stock 96%
Equity Linked Securities 4%
----------------------
Breakdown By Country#
----------------------
Hong Kong 31.2%
---------------------
South Korea 20.2%
---------------------
Taiwan 15.9%
---------------------
Singapore 10.1%
---------------------
India 8.4%
---------------------
Malaysia 6.8%
---------------------
China 3.2%
=====================
Portfolio holdings may vary.
--------------------------------------------------------------------------------
ASIA GROWTH FUND
Average Annual Total Returns for Period Through June 30, 2000
--------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
-------------------------------------------------------------------------
Since Inception (5/6/96) 4.85% 3.37%
3 year (0.76)% (2.71)%
1 year 22.81% 15.72%
-------------------------------------------------------------------------
Class B Shares
-------------------------------------------------------------------------
Since Inception (5/6/96) 4.08% 3.65%
3 year (1.51)% (2.50)%
1 year 21.91% 16.91%
-------------------------------------------------------------------------
Class 2 Shares
-------------------------------------------------------------------------
Since Inception (5/6/96) 4.09% 3.84%
3 year (1.51)% (1.84)%
1 year 21.80% 19.64%
-------------------------------------------------------------------------
Class O Shares
-------------------------------------------------------------------------
Since Inception (5/6/96) 5.09% 5.09%
3 year (0.56)% (0.56)%
1 year 22.98% 22.98%
=========================================================================
See page 28 for all footnotes.
9
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[PICTURE APPEARS HERE]
INVESTMENT OBJECTIVE AND STRATEGY
The International Equity Fund seeks long-term growth of capital by investing in
equity securities of non-U.S. issuers throughout the world. Moreover, the Fund
seeks to achieve its investment objective by investing primarily in equity
securities or common stock of companies that participate in growth industries
and can deliver sustainable above-average growth in earnings over a two- to
three-year time horizon.
Under normal market conditions, the Fund is generally diversified among a number
of different countries by investing at least 65% of its total assets in at least
three countries. Our primary focus is on sustainable growth companies. The
companies in which we invest show strong earnings growth visibility; however, we
tend to seek out those companies that are not selling at an excessive premium to
the market.
The Fund Managers
The Fund is managed by Citibank,N.A., through its Citibank Global Asset
Management ("CGAM") division.
S A L O M O N B R O T H E R S
International Equity Fund
MARKET REVIEW AND PORTFOLIO HIGHLIGHTS
For the six months ended June 30, 2000, the International Equity Fund's Class A
shares, without sales charges, returned a negative 9.21%. In comparison, the
Morgan Stanley Capital International Europe, Australasia, and Far East Index
("MSCI EAFE")1 returned a negative 4.06% for the same period. Past performance
is not indicative of future results.
During the period, both stock and bond markets worldwide have been characterized
by increased levels of volatility. The period began with a sharp rise in the
stock markets by the end of 1999, as many investors correctly anticipated a
smooth "Y2K" transition. However, that euphoria gave way to a sharp downward
move during the end of the period, especially in technology stocks, as inflation
and interest rate worries concerned most investors.
As the period progressed, the prognosis for global economic growth improved.
From many perspectives, the outlook for the global economy is the strongest seen
in more than a decade. The U.S. economy has consistently surpassed forecasts,
while European economic resurgence and Asian recovery have set the stage for
robust earnings gains in many industries. Concerns over accelerating price
increases, however, have resulted in a number of interest rate increases around
the world. Yet, there appears to be few signs of a slowdown in ongoing global
economic growth.
During the period, we continued to look for those companies that represent what
we think are investment opportunities through bottom-up2 evaluation, employing a
disciplined investment approach to identify what are deemed to be solid
companies in established growth sectors of the market. Lastly, we looked to
maintain a relatively low turnover in the Fund's portfolio of approximately 20%.
(Portfolio turnover is the volume of shares traded as a percentage of total
shares listed on an exchange during a period. Please note that there is no
guarantee that the portfolio turnover will continue to be approximately 20% of
the Fund's portfolio.)
Because we generally look to invest with a long-term horizon, we did not alter
the Fund's holdings significantly during the period. Additionally, our original
earnings outlook did not change, which was a key factor in our decision to
maintain the Fund's portfolio. Although no guarantees can be made, we remain
confident that the companies held in the Fund should offer long-term capital
growth potential by delivering sustainable above-average earnings growth.
__________
1 The MSCI EAFE is an unmanaged index of common stocks of companies located in
Europe, Australasia and the Far East. An investor cannot invest directly in
an index.
2 Bottom-up investing is a search for outstanding performance of individual
stocks before considering the impact of economic trends.
10
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MARKET OUTLOOK
We don't believe that there will be a further acceleration in economic growth
worldwide. If our expectations come true, we anticipate that most investors will
focus on identifying those companies that have and continue to demonstrate an
ability to sustain earnings growth solely based on the products and/or services
they offer. Consequently, we intend to maintain the Fund's portfolio until later
on this year, when many companies' earnings reports are released. At that time,
we may make some additional changes to the Fund's holdings if we have to revise
our earnings estimates for 2000 and 2001.
We believe that the International Equity Portfolio may be well-positioned to
take advantage of the expected growth in the markets. Large capitalization
growth stocks, in our opinion, should continue to offer solid performance over
the long term. And while no assurances can be made, we also expect that our
focus on industry leaders in high-growth industries such as telecommunications,
technology, health care and retailing should benefit the Portfolio over the long
term.
11
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Portfolio Highlights#
Composition of portfolio as of
June 30, 2000
[PIE CHART]
Common Stock 100%
----------------------
Breakdown By Country#
----------------------
United Kingdom 26.9%
---------------------------
Japan 24.8%
---------------------------
Netherlands 10.3%
---------------------------
Spain 7.3%
---------------------------
Ireland 5.7%
---------------------------
Italy 5.5%
---------------------------
Finland 4.8%
---------------------------
Canada 4.7%
---------------------------
France 2.7%
---------------------------
Switzerland 2.7%
===========================
Portfolio holdings may vary.
--------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
Cumulative Total Returns for Period Through June 30, 2000
--------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
--------------------------------------------------------------------------------
Since Inception (10/25/99) 13.40% 6.88%
--------------------------------------------------------------------------------
Class B Shares
--------------------------------------------------------------------------------
Since Inception (10/25/99) 12.80% 7.80%
--------------------------------------------------------------------------------
Class 2 Shares
--------------------------------------------------------------------------------
Since Inception (10/25/99) 12.70% 10.58%
--------------------------------------------------------------------------------
Class O Shares
--------------------------------------------------------------------------------
Since Inception (10/25/99) 13.50% 13.50%
================================================================================
See page 28 for all footnotes.
12
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[PICTURE]
INVESTMENT OBJECTIVE AND STRATEGY
The Small Cap Growth Fund seeks long-term growth of capital. The Fund invests
primarily in equity securities of companies with market capitalizations at the
time of purchase similar to that of the companies included in the Russell 2000
Index ("small cap companies"). The Russell 2000 Index includes companies with
market capitalizations below the top 1,000 of stocks of the equity market. Under
normal conditions, the Fund will invest at least 65% of its total assets in
equity securities of small cap companies.
-----------------
THE FUND MANAGERS
-----------------
The Fund is managed by an experienced team of managers.
S A L O M O N B R O T H E R S
Small Cap Growth Fund
PERFORMANCE UPDATE
We are proud to report the Small Cap Growth Fund's ("Fund") Class A shares,
without sales charges returned 20.49% for the six months ended June 30, 2000. In
comparison, the Russell 2000 Index returned 3.04% for the same period./1/
(Please note that past performance is not indicative of future results.)
MARKET OVERVIEW & PORTFOLIO HIGHLIGHTS
The period was marked by an early year surge in technology and biotechnology
stocks, followed by a significant April and May sell-off in shares of many
technology stocks. Small-capitalization stocks outperformed large-capitalization
stocks during the period; the Russell 2000 Growth Index/2/ rose by 1.23% versus
the negative return of 0.43% for the Standard and Poor's 500 Index ("S&P
500"),/3/ while the overall Russell 2000 Index rose by 3.04%. Consumer
cyclicals, technology and media/telecommunication stocks were, in our view, the
main negative factors, while healthcare and energy stocks posted strong positive
returns. The Fund significantly outperformed its benchmark due to stock
selection in technology, communications, healthcare and financials. The Fund was
about evenly weighted in technology, the benchmark's largest sector, during the
first half of the year.
MARKET OUTLOOK
As we enter the second half of 2000, market volatility has continued but we have
seen a broader-based market than the tech-driven one of late 1999 and early
2000. Inflows to small cap mutual funds have slowed from a robust first quarter
pace, but so has the Initial Public Offerings ("IPO") calendar, thereby helping
to avoid excess supply overhang. In our opinion, relative value versus large cap
stocks are still attractive by most historical measures. We remain broadly
diversified across market sectors, which has helped to limit performance
volatility so far in 2000. While it may be sound strategy, diversification does
not assure against market loss.
_________________
1 The Russell 2000 Index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index, which represents approximately 8% of
the total market capitalization of the Russell 3000 Index. An investor
cannot invest directly in an index.
2 The Russell 2000 Growth Index measures the performance of the Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
rates. (A price-to-book ratio is the price of a stock dividend divided by
its net asset value.) An investor cannot invest directly in an index.
3 The S&P 500 is a market capitalization-weighted measure of 500 widely held
common stocks. An investor cannot invest directly in an index.
13
<PAGE>
--------------------------------------------------------------------------------
Portfolio Highlights#
--------------------------------------------------------------------------------
Composition of portfolio as of
June 30, 2000
[PIE CHART]
Common Stock 90%
Convertible Corporate Notes 3%
Short-Term Obligations 70%
----------------------------
Top Holdings
----------------------------
Siebel Systems, Inc.
----------------------------
Network Appliance, Inc.
----------------------------
Digital Microwave Corp.
----------------------------
Insight Enterprises, Inc.
----------------------------
Newport Corp.
----------------------------
OM Group, Inc.
----------------------------
Alpharma, Inc.,
Class A Shares
----------------------------
Integrated Silicon
Solution, Inc.
----------------------------
Advanced Fibre
Communications, Inc.
----------------------------
Sawtek Inc.
============================
Portfolio holdings may vary.
--------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
Average Annual Total Returns for Period Through June 31, 2000
--------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
--------------------------------------------------------------------------------
Since Inception (7/1/98) 48.31% 43.99%
1 year 63.18% 53.82%
--------------------------------------------------------------------------------
Class B Shares
--------------------------------------------------------------------------------
Since Inception (7/1/98) 47.16% 45.80%
1 year 61.98% 56.98%
--------------------------------------------------------------------------------
Class 2 Shares
--------------------------------------------------------------------------------
Since Inception (7/1/98) 47.26% 46.53%
1 year 61.96% 59.28%
--------------------------------------------------------------------------------
Class O Shares
--------------------------------------------------------------------------------
Since Inception (7/1/98) 48.67% 48.67%
1 year 63.59% 63.59%
================================================================================
See page 28 for all footnotes.
14
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[PICTURE APPEARS HERE]
INVESTMENT OBJECTIVE AND STRATEGY
The Capital Fund seeks capital appreciation through investments in securities
which the managers believe have above-average capital appreciation potential.
The Fund seeks to achieve its investment objective through investments primarily
in common stocks or securities convertible into common stocks. These companies
may range in size from established large capitalization companies (over $5
billion in market capitalization) to small capitalization companies (less than
$1 billion in market capitalization) at the beginning of their life cycles. Such
investments may also involve above-average risk. The Fund may invest in
seasoned, established companies, relatively small new companies, as well as new
issues.
THE FUND MANAGERS
[PHOTO OF ROSS S. MARGOLIES] Ross S. Margolies, Managing Director and
Portfolio Manager at Salomon Brothers
Asset Management Inc, has 19 years of
investment industry experience in the
equity, convertible and high yield
markets. Mr. Margolies is primarily
responsible for day-to-day Fund
management.
[PHOTO OF ROBERT M. DONAHUE, Jr.] Robert M. Donahue, Jr., Director and Co-
Portfolio Manager at Salomon Brothers
Asset Management Inc., has 7 years of
investment industry experience. Mr.
Donahue assists in the day-to-day
management of the Fund.
S A L O M O N B R O T H E R S
Capital Fund
PERFORMANCE UPDATE
The Capital Fund's Class A shares without sales charges, returned 17.32% for the
six months ended June 30, 2000. In comparison, the Russell 3000 Index returned
0.95% and the Standard and Poor's 500 Index ("S&P 500") returned a negative
0.43% for the same time period. (The S&P 500 is a market capitalization-weighted
measure of 500 widely-held common stocks. The Russell 3000 Index measures the
performance of the 3,000 largest U.S. companies based on total market
capitalization, which represents approximately 98% of the investable U.S. equity
market.) An investor cannot invest directly in an index. Past performance is not
indicative of future results.
PERFORMANCE OVERVIEW & INVESTMENT STRATEGY
The Capital Fund's investment strategy is known as a broad market strategy. We
attempt to find the best opportunities across the market, wherever they may be.
It is an "all cap" or "multicap" strategy in that we invest in large-, small-and
mid-size companies. It is also known as a "style neutral" or "blend" portfolio
in that we purchase both growth and value stocks. (Value investing consists of
identifying securities of companies that are believed to be undervalued in the
market. Growth investing focuses on the stocks of corporations that are
exhibiting or are expected to exhibit faster-than-average growth within their
industry.) In fact, one of our primary goals is to find out-of-favor value
stocks that can blossom into growth stocks. These can sometimes include some of
our best performers because we buy them when they are inexpensive and hold them
through the entire period of appreciation as the market finally recognizes their
true potential.
Because it owns some stocks from most categories, the Fund has the opportunity
to own some promising securities under most market conditions and our strategy
can result in a unique, diversified portfolio of stocks. We think that these are
two key advantages to our investment strategy./1/
Another aspect of our core investment style is a bottom-up stock picking
strategy. (Bottom-up investing is an asset management style that focuses on the
analysis of individual stocks instead of basing decisions on economics or market
trends.) We focus on understanding a company's business, its strategy, its
competitive position and its industry. We also determine if management is
credible and has the right team to lead the company. Our exhaustive financial
analysis focuses on the company's resources to meet its goals, the consistency
of the numbers to determine their quality, (for instance, are receivables
growing much faster than sales, a sign that current sales may overstate the long
term trend) and is used as a framework for valuation and risk assessment. These
and other factors are the basis of our stock-selection process. If we think that
the risk and reward trade-off for a particular company's stock is favorable, we
will generally invest.
_______________
1 Of course, investors can also lose money in the Fund if our judgement about
the attractiveness, relative value or potential appreciation of a particular
sector or security proves to be incorrect.
15
<PAGE>
As portfolio managers, we have another role in addition to stock picking; we
need to make sure that the individual security selections in the portfolio meet
a set of investment objectives. We use tools such as diversification and
position weighting to determine exactly how much of each security to own in the
portfolio. For instance, our best ideas in the Fund generally get very high
weightings, as much as 5% of the portfolio on occasion. This strategy, known as
high position concentration, can generate above-market returns when executed
properly. (Of course, past performance is not indicative of future results.)
At the same time we always factor in excess risk. A good idea that has a very
high-risk profile will get lower weighting, such as 1% of the portfolio, in
order to diversify risk and dampen portfolio volatility. And while no guarantees
can be made, in this way we can take individual risks on behalf of our
shareholders without creating an overly risky portfolio. Diversification does
not assure against market loss.
MARKET OVERVIEW AND OUTLOOK
Even though it made no headway, the stock market offered something for everyone
during the first half of 2000. Initially the speculative momentum market of 1999
continued the market rally, peaking during the second week of March. The Federal
Reserve Board's ("Fed") continued increases in interest rates then started to be
felt, leading to a violent sell-off, particularly in the volatile NASDAQ/2/
market, through May. At the same time, many oversold "Old Economy" stocks
rallied as money rotated from the Internet and biotech stocks into areas such as
consumer staples. By the end of the half of the reporting period, most of the
market losses recovered so that most broad indices were down modestly.
One way to describe what happened is that "investment gravity" finally took hold
of stocks that previously seemed to continually float skyward. The catalyst was
the seemingly unrelated comments by President Bill Clinton and British Prime
Minister Tony Blair that genomics companies would not reap all of the benefits
of the public research money devoted to their field of science. The sell-off in
biotech stocks spread like a contagion to virtually all high priced growth
stocks. For a relatively brief time, earnings counted and stories were
discounted. By the end of June, the market was once again awarding future
potential a premium to ability.
We are proud to report that the Fund's investment strategy worked exceptionally
well throughout the period. When the market was rising, our broad, diversified
equity exposure allowed us to participate even though much of what we liked was
out of favor. The declines in less speculative stocks provided us with
opportunities as well. For the first time in over two years we were given an
attractive opportunity to start building positions in drug stocks, a sector that
we think should exhibit above-average growth well into the future due to
favorable demographic and technological trends.
Later in the half, during the NASDAQ led market decline, the Fund actually
appreciated as money flowed to companies that could be more easily valued, most
of which had been materially oversold in the previous few months. The
______________
2 National Association of Securities Dealers Automated Quotations ("NASDAQ")
system is a computerized system that provides brokers and dealers with price
quotations for more than 5,000 actively traded over-the-counter stocks.
16
<PAGE>
rotation favored drug stocks as well as companies we previously owned such as
Safeway, Nabisco Group Holdings and Devon Energy while giving us the opportunity
to add to undervalued technology stocks like 3Com and Seagate. Going forward we
expect to continue to hold many of these stocks although there have been tender
offers announced for Nabisco and Seagate. Portfolio holdings are subject to
change.
We continue to see the growth of the Internet as one of the driving forces of
the economy going forward. If you closely examine the Fund's portfolio, you will
see that relatively little of your money is invested in traditional Internet
companies (i.e., the "dot.coms"). We think the long-term risk and reward
proposition in most of these companies to be unattractive, a view we think the
market is starting to embrace. We also think most of these companies do not have
sustainable business models (translation: in our opinion they will always lose
money), while others have valuations that assume they will be the only survivors
in the eventual shakeout. However, you will see a lot of your money invested in
companies that, in our view, stand to benefit from or build the Internet. In the
Fund we own companies such as:
. 3Com (a company that split into two pieces in July; Palm Pilot, the leading
PDA which will offer wireless internet access, and the remaining 3Com
networking business helping individual access the Internet)
. Federated Department Stores (a leader in the "clicks and mortar" e-commerce
strategy and owner of several valuable Internet businesses)
. Verizon Communications (formed from the merger of Bell Atlantic and GTE,
Verizon Communications is the leading U.S. wireless company also offering
telecom services such as local, long distance and high speed Internet
access).
It is our strong belief that over time the leading established companies that
embrace today's new technologies should emerge as the dominant and most
profitable companies in the economy. Their stocks should recognize this over
time. On the other hand, we believe the stock market will continue to lose
patience with those traditional Internet companies that cannot transform
themselves into growth companies with enough profits to support their underlying
stock price.
We expect the Capital Fund to consistently apply its investment strategy in the
future. We will invest in both users and manufacturers of technology when we
believe their risk and reward ratios are favorable. Most of all, we will look
for the best opportunities that we can find, regardless of where they reside in
the market.
17
<PAGE>
--------------------------------------------------------------------------------
Portfolio Highlights
--------------------------------------------------------------------------------
Composition of portfolio as of
June 30, 2000
[PIE CHART]
Common Stock 91%
Convertible Securities 2%
Corporate Bonds 1%
Short-Term Obligations 6%
---------------------------------
Top Stock Holdings
---------------------------------
Safeway Inc
---------------------------------
Nabisco Group Holdings Corp.
---------------------------------
Federated Department Stores, Inc.
---------------------------------
Costco Wholesale Corp.
---------------------------------
Hormel Foods Corp.
---------------------------------
The Pepsi Bottling Group, Inc.
---------------------------------
3Com Corp.
---------------------------------
Merck & Co., Inc.
---------------------------------
Tesoro Petroleum Corp.
---------------------------------
The Bank of New York Co., Inc.
=================================
Portfolio holdings may vary.
--------------------------------------------------------------------------------
CAPITAL FUND
Average Annual Total Returns for Period Through June 30, 2000
--------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
--------------------------------------------------------------------------------
Since Inception (11/1/96) 27.47% 25.43%
3 year 25.49% 23.04%
1 year 27.02% 19.69%
Class B Shares
--------------------------------------------------------------------------------
Since Inception (11/1/96) 26.54% 26.10%
3 year 24.52% 23.88%
1 year 26.08% 21.08%
Class 2 Shares
--------------------------------------------------------------------------------
Since Inception (11/1/96) 26.52% 26.18%
3 year 24.47% 24.06%
1 year 26.11% 23.84%
Class O Shares
--------------------------------------------------------------------------------
10 year 17.58% 17.58%
5 year 28.41% 28.41%
3 year 25.75% 25.75%
1 year 27.34% 27.34%
================================================================================
See page 28 for all footnotes
18
<PAGE>
[PICTURE APPEARS HERE]
PERFORMANCE OBJECTIVE AND STRATEGY
The Large Cap Growth Fund seeks long-term growth of capital by investing in the
equity securities of U.S. large cap issuers that, at the time of purchase, have
market capitalizations within the top 1,000 stocks of publicly traded companies
listed in the United States stock markets.
The Fund's equity securities consist primarily of common stocks. The Fund may
also invest in preferred stocks, warrants and securities convertible into common
stocks. The Fund may also invest up to 15% of its assets in securities of
foreign issuers.
Our investment process seeks to identify quality growth companies. The criteria
we use for evaluating historical performance and ascertaining future prospects
are: earnings growth, earnings consistency, sales growth, return on equity, and
low debt to capitalization. For a company to be considered a candidate for
investment purposes it has to be superior to the S&P 500 in four out of five
criteria.
THE FUND MANAGERS
The Fund is managed by Citibank, N.A., through its Citibank Global Asset
Management (CGAM) division.
S A L O M O N B R O T H E R S
Large Cap Growth Fund
PERFORMANCE UPDATE
The Large Cap Growth Fund's Class A shares, without sales charges returned a
negative 3.44% for the six months ended June 30, 2000. In comparison, the
Standard & Poor's 500 Index ("S&P 500")/1/ returned a negative 0.43% for the
same period. Past performance is not indicative of future results.
MARKET REVIEW & PORTFOLIO HIGHLIGHTS
During the period, we favored companies that we believed would benefit from
strength in manufacturing and a global economic recovery such as industrial
services (oilfield services), producer manufacturing, retail, and technology.
The Fund's overweight position in technology stocks -- specifically holdings in
computer networking (Cisco, Network Appliance), software and services (Oracle,
Adobe Systems), and semiconductors (Linear Technology, Xilinx) -- proved
beneficial.
In general, our emphasis on stocks with good earnings momentum and strong
balance sheets hurt relative returns during the period as the market strongly
favored companies with leveraged balance sheets and high earnings variability.
Examples include our overweight stance in the retail sector (Wal-Mart, Home
Depot), our focus on less cyclical components of the capital goods sector
(Illinois Tool Works) and our focus on financial companies with strong balance
sheets (Fannie Mae and Freddie Mac obligators)./2/ Portfolio holdings are
subject to change.
Moreover, following the trend in the fourth quarter of 1999, market breadth
remained narrow in the first quarter of 2000. The technology sector's gain came
at the expense of all others, as it was the only sector to increase its
percentage weight in the Index. However, in the second quarter there was a
reversal from the first quarter, when 15 of the largest 25 contributors to the
S&P 500 performance were technology or telecom companies. In the second quarter,
the top four contributors to the S&P 500 performance were drug stocks, and 15 of
the largest 25 detractors from the index performance were technology or telecom
stocks.
Furthermore, the market has been experiencing a continued shift out of high
quality stocks into low quality stocks. As of the fourth quarter of 1999,
companies with leveraged balance sheets and high earnings variability were up
17.9%, while the highest quality stocks gained 5.3%/3/. This divergence
continued into the first quarter of 2000, with the lowest quality stocks gaining
31.9% and the highest quality stocks losing 3.2%/3/. Overall, companies with the
most leveraged balance sheets and most volatile earnings were up 28.6%, while
the highest quality stocks lost 1.4% during the first half of 2000/3/.
_________
1 The S&P 500 is a market capitalization-weighted measure of 500 widely held
common stocks. An investor cannot invest directly in an index.
2 Fannie Mae (Federal Mortgage Association) is a publicly owned, government-
sponsored corporation established in 1938 to purchase both government-backed
and conventional mortgages from lenders and securitize them. Freddie Mac
(Federal Home Loan Mortgage Corporation) sells mortgage-backed securities,
issued in minimum denominations of $25,000, that it packages and guarantees.
3 Source: Citibank Global Asset Management (CGAM) division.
19
<PAGE>
MARKET OUTLOOK
Going forward, we anticipate a strong and well-balanced, U.S. economy for the
remainder of 2000. We believe rising corporate profitability, coupled with
technology-driven business opportunities and a healthy financial system, may
provide strong domestic support. Inflation remains contained, and we expect the
core rate to remain between 2% to 2.5%. Job growth is expected to moderate and
labor markets may become more stretched. In addition, we think Gross Domestic
Product ("GDP")/4/ growth should be near 4% during the third quarter of 2000,
characterized by a changing mix of stronger exports and slowing consumer
spending. While we would expect to see slightly stronger growth in the third
quarter than in the second quarter, we do not expect to see a repeat of the
strong second half of 1999 this year.
During the first half of this year, the Federal Reserve Board ("Fed") raised
both the discount and federal funds/5/ target rates 100 basis points,/6/ to 6.0%
and 6.5%, respectively. While we leave open the possibility of another 25 basis
point tightening later this year depending on subsequent economic news, we place
a higher probability on no more tightening.
Our view is that the Fed is done, or nearly done, raising rates for this cycle.
In the coming months, the interest rate increases made by the Fed over the last
year should, in our view, begin to slow the growth of the U.S. economy.
Moreover, as government economic reports begin to reflect this slowdown,
investor fears regarding inflation and higher interest rates should subside.
This in turn should create an attractive environment for U.S. stocks, in which
growth stocks should then regain their leadership position due to strong
fundamentals.
And while no guarantees can be made, we are confident that our focus on
fundamental analysis of individual companies in an effort to uncover
opportunities that are making profits today may benefit the Large Cap Growth
Fund in the long term.
__________
4 The GDP is the market value of the goods and services produced by labor and
property in the United States.
5 The discount rate is the interest rate that the Fed charges member banks for
loans, using government securities as collateral. The federal funds rate is
the interest rate that banks with excess reserves at a Federal Reserve
district bank charge other banks that need overnight loans. The Federal funds
rate, as it is called, often points to the direction of U.S. interest rates.
6 A basis point is 0.01% or one one-hundredth of a percent.
20
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS#
--------------------------------------------------------------------------------
Composition of portfolio as of
June 30,2000
[PIE CHART]
Common Stock 100%
----------------------------
Top Holdings
----------------------------
General Electric Co.
Intel Corp.
----------------------------
Cisco Systems,Inc.
----------------------------
Microsoft Corp.
----------------------------
Pfizer Inc.
----------------------------
International Business
Machines Corp.
----------------------------
American International
Group,Inc.
----------------------------
Wal-Mart Stores,Inc.
----------------------------
Exxon Mobil Corp.
----------------------------
Oracle Corp.
============================
Portfolio holdings may vary.
--------------------------------------------------------------------------------
LARGE CAP GROWTH FUND
Cumulative Total Returns for Period Through June 30, 2000
--------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
--------------------------------------------------------------------------------
Since Inception (10/25/99) 7.95% 1.74%
--------------------------------------------------------------------------------
Class B Shares
--------------------------------------------------------------------------------
Since Inception (10/25/99) 7.35% 2.35%
--------------------------------------------------------------------------------
Class 2 Shares
--------------------------------------------------------------------------------
Since Inception (10/25/99) 7.45% 5.39%
--------------------------------------------------------------------------------
Class O Shares
--------------------------------------------------------------------------------
Since Inception (10/26/99) 8.15% 8.15%
================================================================================
See page 28 for all footnotes.
21
<PAGE>
[PICTURE APPEARS HERE]
INVESTMENT OBJECTIVE AND STRATEGY/1/
The Investors Value Fund's primary investment objective is to seek long-term
growth of capital. Current income is a secondary objective. The Fund invests
primarily in common stocks of large-capitalization stocks representing well-
known companies with good growth potential at reasonable prices.
THE FUND MANAGERS
[PHOTO OF JOHN B. CUNNINGHAM] John B. Cunningham, Director and Portfolio
Manager at Salomon Brothers Asset
Management Inc, has 11 years of financial
industry experience. Mr. Cunningham assists
in the day-to-day management of the Fund.
[PHOTO OF MARK MCALLISTER] Mark McAllister, Director and Co-Portfolio
Manager at Salomon Brothers Asset
Management Inc, has 13 years of investment
industry experience. Mr. McAllister has
been co-portfolio manager of the Fund since
April 2000.
S A L O M O N B R O T H E R S
Investors ValueFund
PERFORMANCE UPDATE
The Investors Value Fund's Class A shares, without sales charges returned 9.08%
for the six-months ended June 30, 2000. In comparison, the Standard & Poor's 500
Index ("S&P 500") returned a negative 0.43% for the same time period. (The S&P
500 is a market capitalization-weighted measure of 500 widely held common
stocks.) An investor cannot invest directly in an index. Past performance is not
indicative of future results.
MARKET REVIEW AND PORTFOLIO HIGHLIGHTS
In the first half of this year, the stock markets experienced increased
volatility. Technology stocks continued to drive the market through early March.
In our view, the momentum behind technology stocks came at the expense of most
other sectors of the market, including consumer staples, financials and
pharmaceuticals. During the period, the Fund added to these out-of-favor
sectors. In mid-March, investors took profits in technology stocks and rotated
into undervalued sectors. Specifically, defensive sectors such as consumer
staples, healthcare and energy all performed well as investors continued to
worry about the Federal Reserve Board's ("Fed") reaction to inflationary
pressures. The Fund benefited from the increase in market breadth.
For the six-month period under review, the significant decline in a number of
large-capitalization stocks held back the performance of the S&P 500. Microsoft,
which represented 4.9% of the S&P 500 at year-end, declined 31.5%, which alone
penalized the S&P 500 by 1.5%. Other notable decliners included notable
companies such as: Lucent, America Online, AT&T, Home Depot, Procter & Gamble
and Qualcomm, all of which fell more than 20%. Including Microsoft, these eight
stocks accounted for about 13% of the S&P 500 at year-end.
FUND HIGHLIGHTS
We are pleased to tell you that the Fund performed quite well in the first six
months, significantly outpacing both its Lipper/2/ large-cap value fund peer
group and the S&P 500. During the first quarter, we continued to trim most of
our technology holdings due to valuation concerns. We redeployed those proceeds
into other sectors of the market that we thought offered much more attractive
valuations. In particular, we added consumer staples, financials and
armaceuticals, all of which rebounded as investors moved assets out of
technology. Since the correction in technology in mid-March, we have been adding
to select technology stocks on weakness in the sector. We plan to
________________
1 The information provided represents the opinion of the manager and is not
intended to be a forecast of future events. There is no assurance that
certain securities will remain in or out of the Fund's portfolio.
2 Lipper Inc. is a major fund tracking organization.
22
<PAGE>
continue increasing our weighting in technology as we see
opportunities to do so.
Our overweight position in consumer staples contributed to the
Fund's outperformance during the period. In particular, Nabisco
Group Holdings, Pepsi Bottling Group, Safeway and Kimberly Clark
all were strong performers. Nabisco Group Holdings was the Fund's
top contributor during the period as a result of the planned sale
of the company.
In other sectors, leading contributors included News Corporation,
Intel, Eli Lilly and Coastal Corp., among others. Laggards
included International Paper, Compuware, Tyson Foods, Federated
Department Stores and UnumProvident. The Fund no longer owns
Compuware and UnumProvident.
MARKET OUTLOOK
Recent economic data suggests that the economy may be slowing,
however, inflationary concerns are likely to keep the Fed on
guard. We expect recent stock market volatility to persist.
Uncertainty over economic growth and prospective actions may
continue to result in market swings. Fortunately, market breadth
remains favorable.
Currently, the Investors Value Fund has overweight positions
versus the S&P 500 in consumer staples, communications, energy
and financials. As a result of the merger between Bell Atlantic
and GTE, the Fund's top position is now Verizon Communications,
the newly combined entity. The Fund is underweight in technology,
capital goods and consumer cyclicals. As mentioned above, we
continue to look for opportunities to add to technology stocks.
Overall, we believe that the Investors Value Fund may be well
positioned for the current market environment in which individual
stock selection plays a more important role than sector momentum.
23
<PAGE>
Portfolio Highlights#
Composition of portfolio as of
June 30,2000
[PIE CHART]
Common Stock 94%
Convertible
Securities 1%
Short-Term
Obligations 5%
---------------------------------------
Top Stock Holdings
---------------------------------------
Nabisco Group Holdings
Corp.
---------------------------------------
The Pepsi Bottling
Group,Inc.
---------------------------------------
National Semiconductor
Corp.
---------------------------------------
Safeway Inc.
SBC Communications Inc.
---------------------------------------
The Bank of New York
Co., Inc.
---------------------------------------
3Com Corp.
---------------------------------------
Pharmacia Corp.
---------------------------------------
Costco Wholesale Corp.
=======================================
Portfolio holdings may vary.
--------------------------------------------------------------------------------
INVESTORS VALUE FUND
Average Annual Total Returns for Period Through June 30, 2000
--------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
--------------------------------------------------------------------------------
Since Inception (1/3/95) 22.99% 21.67%
5 year 21.67% 20.24%
3 year 15.43% 13.17%
1 year 5.61% (0.45)%
--------------------------------------------------------------------------------
Class B Shares
--------------------------------------------------------------------------------
Since Inception (1/3/95) 22.07% 22.00%
5 year 20.74% 20.55%
3 year 14.55% 13.79%
1 year 4.79% 0.54%
--------------------------------------------------------------------------------
Class 2 Shares
--------------------------------------------------------------------------------
Since Inception (1/3/95) 22.09% 21.86%
5 year 20.76% 20.52%
3 year 14.58% 14.19%
1 year 4.81% 2.93%
--------------------------------------------------------------------------------
Class O Shares
--------------------------------------------------------------------------------
10 year 16.45% 16.45%
5 year 21.94% 21.94%
3 year 15.68% 15.68%
1 year 5.84% 5.84%
================================================================================
See page 28 for all footnotes.
24
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
The Balanced Fund, seeks to obtain above average income (compared to a portfolio
invested in equity securities). The Fund's secondary objective is to take
advantage of opportunities for growth of capital and income. The Fund invests in
a broad range of equity and fixed income securities of both U.S. and foreign
issuers. The Fund varies its allocations between equity and fixed income
securities depending on the manager's view of economic and market conditions,
fiscal and monetary policy, and security values. However, under normal market
conditions at least 40% of the Fund's assets are allocated to equity securities.
The Fund's equity investments have been in large-capitalization stocks that are
paying dividends greater than the S&P 500 Index average. With assets allocated
to investment-grade, high-yield and convertible securities, the bond portion of
the Fund's portfolio is distributed across a broader range of fixed income
instruments than most balanced funds. The Fund's strategic approach in the bond
market tends to raise its income potential and the variety of its bond holdings
also provides diversification benefits that the portfolio manager believes could
help to limit its volatility. Diversification does not assure against market
loss.
THE FUND MANAGER
[PHOTO OF GEORGE J. WILLIAMSON] George J. Williamson, Director and Portfolio
Manager at Salomon Brothers Asset Management
Inc, has 40 years of investment industry
experience in the equity markets. Mr.
Williamson is primarily responsible for day-
to-day Fund management.
S A L O M O N B R O T H E R S
Balanced Fund
PERFORMANCE UPDATE
For the six months ended June 30, 2000, the Balanced Fund's ("Fund") Class A
shares, without sales charges, returned 5.16%. In comparison, the Standard and
Poor's 500 Index ("S&P 500") returned a negative 0.43% for the same time period.
(The S&P 500 is a market capitalization-weighted measure of 500 widely held
common stocks.) An investor cannot invest directly in an index. Past performance
is not indicative of future results.
MARKET REVIEW AND HIGHLIGHTS/1/
In the first half of 2000, the common stock sector of the portfolio continued to
emphasize high quality companies in growth industries including communications,
pharmaceutical, energy, consumer brands, and technology. The bond segment of the
Fund represented 50% of total assets including 12% in convertible issues and
about 7% in high-yield bonds in order to achieve added exposure to stocks and to
maintain a yield of roughly 5.1% for the overall portfolio.
As the Federal Reserve Board ("Fed") moves to slow the growth of the economy, we
anticipate moderate growth in the U.S. and continuing improvement in most of the
major overseas countries. Earnings for U.S. companies should be restrained
somewhat during the coming year.
In a period of economic growth, the common stock portion of the portfolio is
being positioned in companies with financial strength and in areas where we
believe product demand will be firm. As of June 30, 2000, the largest holdings
in order of size were:
. Verizon Communications, formed by the merger of Bell Atlantic and GTE, is
one of the world's leading providers of high-growth communications services.
. IBM, creates, develops and manufactures the computer industry's advanced
information technologies, including computer systems, software, networking
systems, storage devices and microelectronics.
. Exxon-Mobil, one of the world's largest oil producers and sellers.
. SBC Communications, a provider of telecommunications services in the United
States and the world, offering multiple communications services and products.
. Avon Products, a manufacturer and marketer of beauty and related products,
which include cosmetics, fragrance and toiletries; jewelry, accessories and
apparel; gift, decorative and home entertainment products.
____________
1 Please keep in mind, sector weightings and portfolio holdings are subject to
change.
25
<PAGE>
. Halliburton, provides a variety of services, equipment, maintenance
and engineering and construction to energy, industrial and
governmental customers.
. Bausch & Lomb, develops, manufactures and markets healthcare
products for the eye in three business segments: vision care,
pharmaceuticals, and surgical.
. American Home Products, involved in discovery, development,
manufacture, distribution and sale of pharmaceuticals, consumer
health care and agricultural products.
26
<PAGE>
--------------------------------------------------------------------------------
Portfolio Highlights#
--------------------------------------------------------------------------------
Composition of portfolio as of
June 30,2000
[PIE CHART]
Common Stock 49%
Corporate Bonds 15%
Convertible Securities 12%
Asset-Backed Securities 3%
U.S. Government
Agencies & Obligations 15%
Short-Term
Obligations 6%
---------------------------------------
Top Stock Holdings
---------------------------------------
International Business
Machines Corp.
---------------------------------------
Exxon Mobil Corp.
---------------------------------------
Avon Products,Inc.
---------------------------------------
SBC Communications Inc.
---------------------------------------
Halliburton Co.
---------------------------------------
Bell Atlantic Corp.
---------------------------------------
Bausch & Lomb Inc.
---------------------------------------
American Home
Products Corp.
---------------------------------------
GTE Corp.
---------------------------------------
BP Amoco PLC
=======================================
Portfolio holdings may vary.
--------------------------------------------------------------------------------
BALANCED FUND
Average Annual Total Returns for Period Through June 30, 2000
--------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
Since Inception (9/11/95) 12.14% 10.77%
3 year 7.83% 5.73%
1 year (0.67)% (6.39)%
--------------------------------------------------------------------------------
Class B Shares
--------------------------------------------------------------------------------
Since Inception (9/11/95) 11.30% 11.02%
3 year 7.02% 6.14%
1 year (1.38)% (5.99)%
--------------------------------------------------------------------------------
Class 2 Shares
--------------------------------------------------------------------------------
Since Inception (9/11/95) 11.31% 11.08%
3 year 6.98% 6.61%
1 year (1.38)% (3.27)%
--------------------------------------------------------------------------------
Class O Shares
--------------------------------------------------------------------------------
Since Inception (9/11/95) 12.52% 12.52%
3 year 8.05% 8.05%
1 year (0.37)% (0.37)%
================================================================================
See page 28 for all footnotes.
27
<PAGE>
FOOTNOTES
* Class A and 2 shares reflect the deduction of the maximum
5.75% and 1.00% sales charges respectively. Class B and 2
shares reflect the maximum contingent deferred sales charge
of 5.00% and 1.00%, respectively. Class O shares have no
initial or contingent deferred sales charge.
# As a % of total investments.
GENERAL PERFORMANCE AND RANKING NOTES
Average annual total returns are based on changes in net asset
value and assume the reinvestment of all dividends, and/or
capital gains distributions in additional shares with and without
the effect of the maximum sales charge (Class A and 2) and the
contingent deferred sales charge (Class B and 2). Class O shares
are only available to existing Class O shareholders. Past
performance does not guarantee future results. Investment return
and principal value fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Returns for certain Funds reflect a voluntary expense cap imposed
by Salomon Brothers Asset Management Inc to limit total Fund
operating expenses. Absent this expense cap, Fund returns would
be lower. Expense caps may be revised or terminated at any time.
28
<PAGE>
Schedules of Investments
June 30, 2000 (unaudited)
Salomon Brothers Asia Growth Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
--------------------------------------------------------------------------------
COMMON STOCK -- 95.8%
China -- 3.2%
1,740,000 China Southern Airlines Co. Ltd. (a)................... $ 415,173
126,000 China Unicom Ltd. (a).................................. 267,508
-----------
682,681
-----------
Hong Kong -- 31.2%
83,000 Asia Satellite Telecommunications Holdings Ltd. ....... 283,754
5,000 Asiainfo Holdings, Inc. (a)............................ 223,438
50,000 ASM Pacific Technology Ltd. ........................... 187,292
44,000 Cheung Kong (Holdings) Ltd. ........................... 486,832
74,000 China Mobile (Hong Kong) Ltd. (a)...................... 652,637
91,000 Citic Pacific Ltd. .................................... 476,287
92,400 Dah Sing Financial Group............................... 372,194
400,000 Denway Motors Ltd. (a)................................. 46,182
382,409 Esprit Holdings Ltd. .................................. 397,356
360,000 Hong Kong Exchanges & Clearing Ltd. (a)................ 487,217
42,800 HSBC Holdings PLC...................................... 488,653
49,600 Hutchison Whampoa Ltd. ................................ 623,555
290,000 Legend Holdings Ltd. .................................. 280,874
134,000 Li & Fung Ltd. ........................................ 670,404
1,700,000 Phoenix Satellite Television Holdings Ltd. (a)......... 235,527
900,000 TCL International Holdings Ltd. (a).................... 329,044
58,000 Television Broadcasts Ltd. ............................ 386,900
-----------
6,628,146
-----------
India -- 8.4%
34,800 Bajaj Auto Ltd. GDR.................................... 318,420
1,700 Infosys Technologies Ltd. (a).......................... 301,325
5,200 SSI Ltd. GDR........................................... 34,840
50,000 State Bank of India GDR................................ 493,750
100,000 Tata Engineering and Locomotive Co. Ltd. GDR........... 272,500
23,500 Videsh Sanchar Nigam Ltd. GDR.......................... 370,125
-----------
1,790,960
-----------
Malaysia -- 6.8%
90,000 AMMB Holdings Berahd................................... 300,789
78,000 Genting Berhad......................................... 287,368
120,000 MAA Holdings Berhad.................................... 315,790
23,000 Malaysian Pacific Industries Berhad.................... 236,053
95,000 Tenaga Nasional Berhad................................. 310,000
-----------
1,450,000
-----------
Singapore -- 10.1%
52,000 Chartered Semiconductor Manufacturing Ltd. (a)......... 454,135
42,120 Datacraft Asia Ltd. ................................... 370,656
34,700 DBS Group Holdings Ltd. ............................... 445,541
31,000 Overseas Union Bank Ltd. .............................. 120,127
158,000 St. Assembly Test Service Ltd. (a)..................... 405,738
35,000 Venture Manufacturing (Singapore) Ltd. ................ 356,275
-----------
2,152,472
-----------
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Asia Growth Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
South Korea -- 20.2%
38,000 Daeduck Electronics Co., Ltd. ........................ $ 385,104
17,010 H&CB.................................................. 398,163
15,009 Hyundai Electronics Industries Co. (a)................ 296,135
41,818 Hyundai Motor Co. Ltd. GDR............................ 269,726
3,200 Korea Telecom Corp.................................... 281,823
13,000 L.G. Chemical Ltd. ................................... 259,994
3,200 L.G. Information & Communication Ltd. ................ 179,942
6,028 Pohang Iron & Steel Co., Ltd. (b)..................... 524,208
4,500 Samsung Electro Mechanics Co., Ltd. .................. 282,101
2,100 Samsung Electronics................................... 694,962
35,000 Shinhan Bank.......................................... 329,589
1,200 SK Telecom Co., Ltd. ................................. 392,816
-----------
4,294,563
-----------
Taiwan -- 15.9%
117,600 Acer Communications & Multimedia Inc. ................ 332,182
124,992 Cathay Life Insurance Co., Ltd. ...................... 288,131
590,000 Chinatrust Commercial Bank............................ 511,461
65,000 Compeq Manufacturing Co., Ltd. ....................... 398,864
56,000 Hon Hai Precision Industry Co., Ltd. ................. 505,454
81,444 President Chain Store Corp. .......................... 304,093
151,897 Taiwan Semiconductor Manufacturing Co. (a)............ 720,034
20,000 VIA Technologies Inc. (a)............................. 308,441
-----------
3,368,660
-----------
TOTAL COMMON STOCK
(Cost -- $17,999,974)................................. 20,367,482
-----------
<CAPTION>
Face
Amount
---------
<C> <S> <C>
EQUITY-LINKED NOTES -- 4.2%
India -- 2.6%
$ 4,000 Satyam Computer Services Ltd., Series B, due 3/31/02
(c).................................................. 540,000
-----------
Singapore -- 1.6%
188,385 Overseas Union Bank, due 1/6/02 (d)................... 346,403
-----------
TOTAL EQUITY-LINKED NOTES
(Cost -- $291,077).................................... 886,403
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $18,291,051*)................................ $21,253,885
===========
</TABLE>
------
(a) Non-income producing security.
(b) Foreign shares.
(c) The current principal amount of these notes is eqivalent to 157,480 shares
of Satyam Computer. Redemption proceeds will be determined at the date of
redemption based on change in the value of the shares of Satyam Computer.
Interest on the notes is equal to the amount of dividends paid on the un-
derlying shares of Satyam Computer.
(d) The current principal amount of these notes is eqivalent to 152,600 shares
of Overseas Union Bank. Redemption proceeds will be determined at the date
of redemption based on change in (1) the value of the shares of Overseas
Union Bank and (2) the exchange rate between the U.S. Dollar and Singapore
Dollar. Interest on the notes is equal to the amount of dividends paid on
the underlying shares of Overseas Union Bank.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this schedule:
GDR -- Global Depository Receipt.
See Notes to Financial Statements.
30
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers International Equity Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
--------------------------------------------------------------------------------
COMMON STOCK -- 100.0%
Canada -- 4.7%
25,600 Bombardier Inc. ......................................... $ 694,985
34,400 CGI Group Inc., Class A Shares........................... 279,500
-----------
974,485
-----------
Finland -- 4.8%
11,000 Nokia Corp., Sponsored ADR............................... 549,313
9,800 Sonera Group............................................. 448,576
-----------
997,889
-----------
France -- 2.7%
7,200 Axa, Sponsored ADR....................................... 572,850
-----------
Germany -- 2.2%
8,200 Adidas - Salomon AG ..................................... 452,765
-----------
Hong Kong -- 2.4%
14,500 Asia Satellite Telecommunications, Sponsored ADR......... 496,625
-----------
Ireland -- 5.7%
24,300 Allied Irish Banks PLC, Sponsored ADR.................... 431,325
15,600 Elan Corp. PLC, Sponsored ADR............................ 755,625
-----------
1,186,950
-----------
Italy -- 5.5%
50,600 Luxottica Group S.p.A., Sponsored ADR.................... 616,687
51,900 Telecom Italia Mobile S.p.A.............................. 532,338
-----------
1,149,025
-----------
Japan -- 24.8%
10,000 Canon, Inc. ............................................. 499,031
43 DDI Corp................................................. 414,536
1,200 Fast Retailing Co. ...................................... 503,568
14,000 Fujitsu Ltd. ............................................ 485,610
2,700 Fujitsu Support and Services Inc. ....................... 267,946
32 Nippon Telegraph & Telephone Corp. ...................... 426,445
29 NTT Data Corp. .......................................... 298,757
2,800 Ryohin Keikaku Co. ...................................... 357,261
2,800 Secom Co., Ltd., Unsponsored ADR......................... 410,189
3,000 Seven-Eleven Japan Co., Ltd. ............................ 251,500
4,500 Sony Corp. .............................................. 421,058
3,000 TDK Corp. ............................................... 432,116
2,500 Trend Micro Inc. ........................................ 413,497
-----------
5,181,514
-----------
Netherlands -- 10.3%
13,400 ASM Lithography Holding N.V. ............................ 591,275
9,329 ING Groep N.V., Sponsored ADR............................ 629,707
10,000 Koninklijke Ahold N.V., Sponsored ADR.................... 293,125
10,000 STMicroelectonics N.V., NY Shares........................ 641,875
-----------
2,155,982
-----------
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers International Equity Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
--------------------------------------------------------------------------------
Spain -- 7.3%
48,200 Banco Santander Central Hispano SA....................... $ 510,559
7,150 Telefonica SA, Sponsored ADR............................. 458,047
99,800 Telepizza SA............................................. 564,442
-----------
1,533,048
-----------
Switzerland -- 2.7%
4,600 ABB Ltd.................................................. 552,334
-----------
United Kingdom -- 26.9%
237,800 Ashtead Group PLC........................................ 340,203
240,400 Avis Europe PLC.......................................... 864,355
39,900 Cobham PLC............................................... 604,042
113,100 Invensys PLC............................................. 424,200
43,500 Johnson Matthey PLC...................................... 609,151
47,600 Lloyds TBS Group PLC..................................... 451,103
41,025 Misys PLC................................................ 340,038
50,600 Provident Financial PLC.................................. 527,793
161,400 Rentokil Initial PLC..................................... 367,124
38,600 Shire Pharmaceuticals Group PLC.......................... 668,510
10,200 Vodafone Airtouch PLC, Sponsored ADR..................... 422,662
-----------
5,619,181
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $20,614,181*)................................... $20,872,648
===========
</TABLE>
------
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depository Receipt.
See Notes to Financial Statements.
32
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Small Cap Growth Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
COMMON STOCK -- 89.8%
Basic Industries -- 4.9%
400,000 AK Steel Holding Corp. ............................. $ 3,200,000
213,500 The Geon Co. ....................................... 3,949,750
175,000 OM Group, Inc. ..................................... 7,700,000
300,000 Steel Dynamics, Inc. (a)............................ 2,718,750
------------
17,568,500
------------
Communications -- 8.6%
105,000 Cox Radio, Inc., Class A Shares (a)................. 2,940,000
250,000 Dobson Communications Corp., Class A Shares (a)..... 4,812,500
200,000 Electric Lightwave, Inc., Class A Shares (a)........ 3,737,500
60,000 Entercom Communications Corp. (a)................... 2,925,000
170,000 ICG Communications, Inc. (a)........................ 3,750,625
50,000 Intermedia Communications, Inc. (a)................. 1,487,500
25,000 On Command Corp. (a)................................ 356,250
50,000 Pac-West Telecomm, Inc. (a)......................... 1,000,000
40,000 Pegasus Communications Corp. (a).................... 1,962,500
Rogers Cantel Mobile Communications Inc., Class B
60,000 Shares (a).......................................... 2,017,500
250,000 Sinclair Broadcast Group, Inc., Class A Shares (a).. 2,750,000
50,000 US Unwired Inc. (a)................................. 650,000
25,000 XM Satellite Radio Holdings Inc. (a)................ 935,938
50,000 Young Broadcasting Inc., Class A Shares (a)......... 1,284,375
------------
30,609,688
------------
Consumer -- 16.0%
378,800 Abercrombie & Fitch Co., Class A Shares (a)......... 4,616,625
82,500 Charles River Associates Inc. (a)................... 1,454,063
80,000 Coca-Cola Bottling Co. Consolidated................. 3,640,000
145,000 Cost Plus, Inc. (a)................................. 4,159,687
56,000 Darden Restaurants, Inc. ........................... 910,000
150,000 DeVry, Inc. (a)..................................... 3,965,625
85,000 FactSet Research Systems Inc. ...................... 2,401,250
200,000 Fossil, Inc. (a).................................... 3,887,500
150,000 Hooper Holmes, Inc. ................................ 1,200,000
115,000 MAXIMUS, Inc. (a)................................... 2,544,375
225,000 Michael Foods, Inc. ................................ 5,512,500
90,000 On Assignment, Inc. (a)............................. 2,745,000
220,000 The Profit Recovery Group International, Inc. (a)... 3,657,500
60,000 QRS Corp. (a)....................................... 1,473,750
196,500 Sun International Hotels Ltd. (a)................... 3,930,000
95,000 Station Casinos, Inc. (a)........................... 2,375,000
75,000 THQ Inc. (a)........................................ 914,063
55,000 Trex Co., Inc. (a).................................. 2,750,000
275,000 Wendy's International, Inc. ........................ 4,898,437
------------
57,035,375
------------
Energy -- 5.0%
103,400 Caminus Corp. (a)................................... 2,533,300
100,000 Frontier Oil Corp. ................................. 800,000
75,000 Paradigm Geophysical Ltd. (a)....................... 450,000
125,000 Pogo Producing Co. ................................. 2,765,625
150,000 SEACOR SMIT Inc. (a)................................ 5,803,125
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Small Cap Growth Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Energy -- 5.0% (continued)
250,000 Tesoro Petroleum Corp. (a).......................... $ 2,531,250
300,000 3TEC Energy Corp. (a)............................... 3,000,000
------------
17,883,300
------------
Financial Services -- 7.1%
225,500 Banknorth Group, Inc. .............................. 3,452,969
129,300 Commerce Bancorp, Inc. ............................. 5,947,800
75,000 Legg Mason, Inc. ................................... 3,750,000
150,000 Mercantile Bankshares Corp. ........................ 4,471,875
150,000 Protective Life Corp. .............................. 3,993,750
140,000 Westamerica Bancorporation.......................... 3,657,500
------------
25,273,894
------------
Healthcare -- 6.9%
110,000 Alpharma, Inc., Class A Shares (a).................. 6,847,500
23,000 ArthroCare Corp. (a)................................ 1,224,750
400,000 Biota Holdings Ltd. (a)............................. 830,952
135,000 Cyberonics, Inc. (a)................................ 1,620,000
22,700 Data Critical Corp. (a)............................. 295,100
Health Management Associates, Inc., Class A Shares
220,000 (a)................................................. 2,873,750
4,950 Invitrogen Corp. (a)................................ 372,255
37,500 Laboratory Corporation of America Holdings (a)...... 2,892,188
80,000 Novoste Corp. (a)................................... 4,880,000
44,600 NPS Pharmaceuticals, Inc. (a)....................... 1,193,050
24,600 ORATEC Interventions, Inc. (a)...................... 821,025
125,000 Quidel Corp. (a).................................... 656,250
------------
24,506,820
------------
Real Estate -- 0.8%
40,000 Cousins Properties, Inc. ........................... 1,540,000
60,000 PS Business Parks, Inc., Class A Shares............. 1,440,000
------------
2,980,000
------------
Technology -- 40.5%
150,000 Advanced Fibre Communications, Inc. (a)............. 6,796,875
100,000 Aeroflex Inc. (a)................................... 4,968,750
100,000 ANTEC Corp. (a)..................................... 4,156,250
32,000 Applied Micro Circuits Corp. (a).................... 3,160,000
113,000 Applied Science and Technology, Inc. (a)............ 2,923,875
247,000 ASM International N.V. (a).......................... 6,545,500
100,000 Celeritek, Inc. (a)................................. 4,081,250
40,000 Commerce One, Inc. (a).............................. 1,815,625
100,000 Commscope, Inc. (a)................................. 4,100,000
270,000 Digital Microwave Corp. (a)......................... 10,293,750
1,800 Exfo Electro-Optical Engineering Inc. (a)........... 78,975
107,000 Inet Technologies, Inc. (a)......................... 5,804,750
131,000 Insight Enterprises, Inc. (a)....................... 7,769,937
180,000 Integrated Silicon Solution, Inc. (a)............... 6,840,000
131,700 Latitude Communications, Inc. (a)................... 1,473,394
5,500 Marvell Technology Group Ltd. (a)................... 313,500
1,100 Netease.com, Inc. ADR (a)........................... 13,338
130,000 Network Appliance, Inc. (a)......................... 10,465,000
1,900 New Focus, Inc. (a)................................. 156,037
72,000 Newport Corp. ...................................... 7,731,000
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Small Cap Growth Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Technology -- 40.5% (continued)
50,000 NHC Communications Inc. (a)........................ $ 389,755
100,000 Organic, Inc. (a).................................. 975,000
150,000 P-Com, Inc. (a).................................... 853,125
42,500 Polycom, Inc. (a).................................. 3,998,984
230,000 Quintus Corp. (a).................................. 4,567,656
190,000 Razorfish, Inc. (a)................................ 3,051,875
117,100 Sawtek Inc. (a).................................... 6,740,569
81,900 Siebel Systems, Inc. (a)........................... 13,395,769
70,000 Silicon Storage Technology, Inc. (a)............... 6,181,875
198,400 Snowball.com, Inc. (a)............................. 967,200
47,750 TranSwitch Corp. (a)............................... 3,685,703
27,200 Ulticom Inc. (a)................................... 653,225
85,000 Valence Technology, Inc. (a)....................... 1,567,187
230,000 Viasystems Group, Inc. (a)......................... 3,723,125
150,000 Viant Corp. (a).................................... 4,443,750
------------
144,682,604
------------
TOTAL COMMON STOCK
(Cost -- $251,177,283)............................. 320,540,181
------------
<CAPTION>
Face
Amount
-----------
<C> <S> <C>
CONVERTIBLE CORPORATE BONDS -- 3.0%
Healthcare -- 3.0%
$ 5,265,000 Invitrogen Corp., 5.500% due 3/1/07 (b)............ 5,587,481
3,500,000 Vertex Pharmaceuticals, 5.000% due 3/14/07 (b)..... 5,018,125
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost -- $8,262,063)............................... 10,605,606
------------
REPURCHASE AGREEMENT -- 7.2%
25,757,000 SBC Warburg Dillon Read Inc., 6.550% due 7/3/00;
Proceeds at maturity -- $25,771,057; (Fully
collateralized by U.S. Treasury Bonds, 7.500% due
11/15/16; Market value -- $26,272,838) (Cost --
$25,757,000)..................................... 25,757,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $285,196,346*)............................ $356,902,787
============
</TABLE>
------
(a) Non-income producing security.
(b) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depository Receipt
See Notes to Financial Statements.
35
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Capital Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
COMMON STOCK -- 91.2%
Basic Industries -- 5.9%
400,000 AK Steel Holding Corp. ............................ $ 3,200,000
250,000 Crown Cork & Seal Co., Inc. ....................... 3,750,000
295,000 The Geon Co. ...................................... 5,457,500
175,000 International Paper Co. ........................... 5,217,188
750,000 LTV Corp. ......................................... 2,156,250
37,000 Olin Corp. ........................................ 610,500
200,000 OM Group, Inc. .................................... 8,800,000
------------
29,191,438
------------
Capital Goods -- 1.1%
1,000,000 Harnischfeger Industries, Inc. (a)................. 340,000
125,000 Ingersoll-Rand Co. ................................ 5,031,250
------------
5,371,250
------------
Communications -- 11.9%
125,000 Bell Atlantic Corp.+ .............................. 6,351,563
250,000 Dobson Communications Corp., Class A Shares (a).... 4,812,500
250,000 Genuity Inc. ...................................... 2,289,063
125,000 GTE Corp.+ ........................................ 7,781,250
250,000 ICG Communications, Inc. (a)....................... 5,515,625
30,700 NTL Inc. (a)....................................... 1,838,163
Rogers Cantel Mobile Communications Inc., Class B
200,000 Shares (a)......................................... 6,725,000
120,000 SBC Communications Inc. ........................... 5,190,000
Sinclair Broadcast Group, Inc., Class A Shares
575,000 (a)................................................ 6,325,000
100,000 UnitedGlobalCom Inc., Class A Shares (a)........... 4,675,000
150,000 WorldCom, Inc. (a)................................. 6,881,250
------------
58,384,414
------------
Consumer Cyclicals -- 11.4%
410,300 Abercrombie & Fitch Co. (a)........................ 5,000,531
450,000 Costco Wholesale Corp. (a)......................... 14,850,000
450,000 Federated Department Stores, Inc. (a).............. 15,187,500
466,286 Fine Host Corp. (a)(b)............................. 4,373,074
273,000 PRIMEDIA Inc. (a).................................. 6,210,750
196,500 Sun International Hotels Ltd. (a).................. 3,930,000
350,000 Wendy's International, Inc. ....................... 6,234,375
------------
55,786,230
------------
Consumer Non-Cyclicals -- 25.1%
150,000 AT&T Corp. - Liberty Media, Class A Shares......... 3,637,500
400,000 Delhaize America, Inc., Class B Shares............. 6,150,000
200,000 The Gillette Co. .................................. 6,987,500
67,700 Hannaford Bros. Co. ............................... 4,865,938
Hearst-Argyle Television, Inc., Class A Shares
175,000 (a)................................................ 3,412,500
800,000 Hormel Foods Corp. ................................ 13,450,000
250,000 John B. Sanfillippo & Son Inc. (a)................. 734,375
300,000 Michael Foods, Inc................................. 7,350,000
734,400 Nabisco Group Holdings Corp. ...................... 19,048,500
150,000 The News Corp. Ltd., ADR........................... 7,125,000
450,000 The Pepsi Bottling Group, Inc. .................... 13,134,375
175,000 PepsiCo, Inc....................................... 7,776,563
200,000 Philip Morris Cos., Inc. .......................... 5,312,500
450,000 Safeway Inc. (a)................................... 20,306,250
450,000 Tyson Foods, Inc., Class A Shares.................. 3,937,500
------------
123,228,501
------------
</TABLE>
See Notes to Financial Statements.
36
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Capital Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Energy -- 8.2%
400,000 3TEC Energy Corp. ................................. $ 4,000,000
106,800 Caminus Corp. (a).................................. 2,616,600
200,000 Conoco Inc., Class B Shares........................ 4,912,500
150,000 Devon Energy Corp. ................................ 8,428,125
250,000 Paradigm Geophysical Ltd. (a)...................... 1,500,000
140,500 R&B Falcon Corp. (a)............................... 3,310,531
250,000 Suncor Energy Inc. ................................ 5,828,125
950,000 Tesoro Petroleum Corp. (a)......................... 9,618,750
------------
40,214,631
------------
Financial Services -- 6.8%
200,000 The Bank of New York Co., Inc. .................... 9,300,000
246,500 Banknorth Group, Inc. ............................. 3,774,531
100,000 Comerica Inc. ..................................... 4,487,500
150,000 FleetBoston Financial Corp. ....................... 5,100,000
225,000 Mercantile Bankshares Corp. ....................... 6,707,813
150,000 Protective Life Corp. ............................. 3,993,750
------------
33,363,594
------------
Healthcare -- 5.8%
Health Management Associates, Inc., Class A Shares
200,000 (a)................................................ 2,612,500
150,000 Merck & Co., Inc. ................................. 11,493,750
175,000 Novartis AG, ADR (a)............................... 7,000,000
46,000 Nycomed Amersham PLC, ADR.......................... 2,254,000
100,000 Schering-Plough Corp. ............................. 5,050,000
------------
28,410,250
------------
Technology -- 15.0%
225,000 3Com Corp. (a)..................................... 12,965,625
100,000 Advanced Micro Devices, Inc. (a)................... 7,725,000
175,000 ASM International N.V. (a)......................... 4,637,500
200,000 Compaq Computer Corp. ............................. 5,112,500
60,000 Comverse Technology, Inc. (a)...................... 5,580,000
166,200 Cypress Semiconductor Corp. (a).................... 7,021,950
200,000 Digital Microwave Corp. (a)........................ 7,625,000
2,500 Exfo Electro-Optical Engineering Inc. (a) ......... 109,688
45,000 International Business Machines Corp. ............. 4,930,313
165,500 Latitude Communications, Inc. (a).................. 1,851,531
7,500 Marvell Technology Group Ltd. ..................... 427,500
1,500 Netease.com Inc. .................................. 18,188
175,000 Organic, Inc. (a).................................. 1,706,250
50,000 Plantronics, Inc. (a).............................. 5,775,000
75,000 Seagate Technology, Inc. (a)....................... 4,125,000
250,000 SpeedFam-IPEC, Inc. (a)............................ 4,546,871
------------
74,157,916
------------
TOTAL COMMON STOCK
(Cost -- $382,081,822)............................. 448,108,224
------------
<CAPTION>
Face
Amount
<C> <S> <C>
-----------
CONVERTIBLE CORPORATE BONDS -- 1.9%
Consumer Cyclicals -- 1.2%
Sunbeam Corp.:
$25,000,000 Zero coupon due 3/25/18 (c)(d)..................... 4,062,500
10,000,000 Zero coupon due 3/25/18 (d)........................ 1,625,000
------------
5,687,500
------------
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Capital Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Energy -- 0.7%
$ 6,000,000 Friede Goldman Halter Inc., 4.500% due 9/15/04..... $ 3,637,500
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost -- $10,402,367).............................. 9,325,000
------------
CORPORATE BONDS -- 1.4%
Capital Goods -- 1.2%
Harnischfeger Industries, Inc.:
9,000,000 8.700% due 6/15/22 (a)(d).......................... 3,465,000
6,000,000 7.250% due 12/15/25 (a)(d)......................... 2,310,000
------------
5,775,000
------------
Consumer Cyclicals -- 0.0%
Breed Technologies, Inc., 9.250% due 4/15/08
2,500,000 (a)(d)............................................. 28,125
------------
Financial Services -- 0.2%
ContiFinancial Corp.:
875,000 7.500% due 3/15/02 (a)(d).......................... 109,375
5,115,000 8.125% due 4/1/08 (d).............................. 639,375
------------
748,750
------------
TOTAL CORPORATE BONDS
(Cost -- $7,735,911)............................... 6,551,875
------------
<CAPTION>
Contracts
<C> <S> <C>
-----------
PURCHASED PUT OPTIONS -- 0.2%
125,000 DoubleClick Inc., Expire 7/22/00, exercise price
$35................................................ 285,156
Inter@ctive Week Internet Index:
25,000 Expire 8/19/00, exercise price $450................ 209,375
5,000 Expire 8/19/00, exercise price $480................ 83,750
10,000 Expire 8/19/00, exercise price $400................ 87,500
S&P 500 Index Option:
10,000 Expire 7/22/00, exercise price $1,400.............. 65,625
10,000 Expire 7/22/00, exercise price $1,425.............. 131,250
------------
TOTAL PURCHASED PUT OPTIONS
(Cost -- $1,291,351)............................... 862,656
------------
<CAPTION>
Face
Amount
<C> <S> <C>
-----------
REPURCHASE AGREEMENT -- 5.3%
$25,892,000 State Street Bank & Trust Co., 6.550% due 7/3/00;
Proceeds at maturity -- $25,906,133;
(Fully collateralized by U.S. Treasury Notes,
12.000% due 8/15/13; Market value -- $25,992,044)
(Cost -- $25,892,000)............................. 25,892,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $427,403,451*)............................ $490,739,755
============
</TABLE>
------
(a) Non-income producing security.
(b) Security valued in accordance with fair valuation procedures.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(d) Security is currently in default.
+ On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depository Receipt.
See Notes to Financial Statements.
38
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Large Cap Growth Fund
<TABLE>
--------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
--------------------------------------------------------------------------------
COMMON STOCK -- 100.0%
Business Services -- 1.6%
1,140 Automatic Data Processing, Inc. ......................... $ 61,061
3,450 Concord EFS, Inc. (a).................................... 89,700
1,600 MarchFirst, Inc. (a)..................................... 29,200
945 Paychex, Inc. ........................................... 39,690
-----------
219,651
-----------
Commercial Services -- 2.1%
3,390 The Interpublic Group of Cos., Inc. ..................... 145,770
1,580 Omnicom Group Inc. ...................................... 140,719
-----------
286,489
-----------
Communications -- 2.6%
2,500 Bell Atlantic Corp.+ .................................... 127,031
3,050 BellSouth Corp. ......................................... 130,006
1,630 QUALCOMM Inc. (a)........................................ 97,800
-----------
354,837
-----------
Computers -- 13.4%
2,770 Dell Computer Corp. (a).................................. 136,596
6,850 Intel Corp. ............................................. 915,759
4,680 International Business Machines Corp. ................... 512,753
2,880 Sun Microsystems, Inc. (a)............................... 261,900
-----------
1,827,008
-----------
Computer Software and Services -- 11.9%
610 Adobe Systems Inc. ...................................... 79,300
3,310 America Online, Inc. (a)................................. 174,603
450 Computer Sciences Corp. (a).............................. 33,609
8,480 Microsoft Corp. (a)...................................... 678,400
790 National Instruments Corp. (a)........................... 34,464
1,170 Network Appliance, Inc. (a).............................. 94,185
4,920 Oracle Corp. (a)......................................... 413,587
880 Yahoo! Inc. (a).......................................... 109,010
-----------
1,617,158
-----------
Consumer Non-Cyclicals -- 1.7%
4,080 The Coca-Cola Co......................................... 234,345
-----------
Drugs and Healthcare -- 10.1%
1,990 Amgen Inc. (a)........................................... 139,798
720 Biogen, Inc. (a)......................................... 46,440
1,240 Eli Lilly & Co. ......................................... 123,845
3,420 Johnson & Johnson........................................ 348,412
12,405 Pfizer Inc. ............................................. 595,440
2,370 Schering-Plough Corp. ................................... 119,685
-----------
1,373,620
-----------
Electronics -- 4.3%
330 Altera Corp. (a)......................................... 33,639
820 American Power Conversion Corp. (a)...................... 33,467
850 Dallas Semiconductor Corp. .............................. 34,637
2,230 Linear Technology Corp. ................................. 142,581
620 Micrel, Inc. (a)......................................... 26,931
</TABLE>
See Notes to Financial Statements.
39
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Large Cap Growth Fund
<TABLE>
--------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
--------------------------------------------------------------------------------
Electronics -- 4.3% (continued)
620 Sanmina Corp. (a)........................................ $ 53,010
630 Tellabs, Inc. (a)........................................ 43,116
2,600 Texas Instruments Inc. .................................. 178,587
430 Xilinx, Inc. (a)......................................... 35,502
-----------
581,470
-----------
Entertainment -- 1.9%
2,140 Time Warner Inc. ........................................ 162,640
2,640 The Walt Disney Co. ..................................... 102,465
-----------
265,105
-----------
Finance -- 7.1%
3,180 American Express Co. .................................... 165,758
2,310 The Bank of New York Co., Inc. .......................... 107,415
2,010 Fannie Mae............................................... 104,897
1,370 Freddie Mac.............................................. 55,485
6,650 MBNA Corp. .............................................. 180,381
820 Merrill Lynch & Co., Inc. ............................... 94,300
2,270 Morgan Stanley Dean Witter & Co. ........................ 188,977
1,160 Northern Trust Corp. .................................... 75,473
-----------
972,686
-----------
Industrial Manufacturing and Processing -- 9.8%
710 Emerson Electric Co. .................................... 42,866
18,970 General Electric Co. .................................... 1,005,410
1,450 Genuine Parts Co. ....................................... 29,000
1,970 Illinois Tool Works Inc. ................................ 112,290
3,070 Tyco International Ltd. ................................. 145,441
-----------
1,335,007
-----------
Insurance -- 4.7%
3,760 American International Group, Inc. ...................... 441,800
1,885 Marsh & McLennan Cos., Inc. ............................. 196,865
-----------
638,665
-----------
Oil and Gas -- 4.3%
1,860 Diamond Offshore Drilling, Inc. ......................... 65,332
2,610 ENSCO International Inc. ................................ 93,471
5,540 Exxon Mobil Corp. ....................................... 434,890
-----------
593,693
-----------
Retail -- 8.0%
2,310 Bed Bath & Beyond Inc. (a)............................... 83,738
2,600 The Gap, Inc. ........................................... 81,250
3,280 The Home Depot, Inc. .................................... 163,795
1,700 Intimate Brands, Inc. ................................... 33,575
2,390 Kohl's Corp. (a)......................................... 132,944
1,500 The Limited, Inc. ....................................... 32,437
1,200 Lowe's Cos., Inc. ....................................... 49,275
7,640 Wal-Mart Stores, Inc. ................................... 440,255
2,440 Walgreen Co. ............................................ 78,537
-----------
1,095,806
-----------
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Large Cap Growth Fund
<TABLE>
--------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
--------------------------------------------------------------------------------
Technology -- 10.7%
11,250 Cisco Systems, Inc. (a).................................. $ 715,078
350 Comverse Technology, Inc. (a)............................ 32,550
4,280 EMC Corp. (a)............................................ 329,292
1,330 Hewlett-Packard Co. ..................................... 166,084
895 Lexmark International Group, Inc. (a).................... 60,189
4,130 Motorola, Inc. .......................................... 120,028
610 Symbol Technologies, Inc. ............................... 32,940
-----------
1,456,161
-----------
Telecommunications -- 5.8%
4,600 Nortel Networks Corp. ................................... 313,950
6,130 SBC Communications Inc. ................................. 265,123
4,630 WorldCom, Inc. (a)....................................... 212,401
-----------
791,474
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $12,513,523*)................................... $13,643,175
===========
</TABLE>
------
(a) Non-income producing security.
+ On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
41
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Investors Value Fund
<TABLE>
--------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
--------------------------------------------------------------------------------
COMMON STOCK -- 94.4%
Basic Industries -- 2.6%
375,000 Alcoa, Inc. ........................................ $ 10,875,000
370,000 International Paper Co. ............................ 11,030,625
------------
21,905,625
------------
Capital Goods -- 2.5%
395,000 Honeywell International Inc. ....................... 13,306,563
200,000 Ingersoll-Rand Co. ................................. 8,050,000
------------
21,356,563
------------
Communication Services -- 9.2%
150,000 ALLTEL Corp. ....................................... 9,290,625
285,000 Bell Atlantic Corp.+ ............................... 14,481,563
48,000 General Motors Corp., Class H Shares................ 4,212,000
240,000 GTE Corp.+ ......................................... 14,940,000
425,000 SBC Communications Inc. ............................ 18,381,250
347,500 WorldCom, Inc. (a).................................. 15,941,562
------------
77,247,000
------------
Consumer Cyclicals -- 4.9%
500,000 Costco Wholesale Corp. ............................. 16,500,000
367,000 Federated Department Stores, Inc. (a)............... 12,386,250
215,000 Target Corp. ....................................... 12,470,000
------------
41,356,250
------------
Consumer Non-Cyclicals -- 20.0%
340,000 AT&T Corp. - Liberty Media, Class A Shares.......... 8,245,000
100,000 Albertson's, Inc. .................................. 3,325,000
527,200 Coca-Cola Enterprises Inc. ......................... 8,599,950
297,000 Delhaize America, Inc., Class B Shares.............. 4,566,375
210,000 Kimberly-Clark Corp. ............................... 12,048,750
200,000 McDonald's Corp. ................................... 6,587,500
847,300 Nabisco Group Holdings Corp. ....................... 21,976,844
300,000 The News Corp. Ltd. ADR............................. 14,250,000
655,000 The Pepsi Bottling Group, Inc. ..................... 19,117,812
225,000 PepsiCo, Inc. ...................................... 9,998,438
535,000 Philip Morris Cos. Inc. ............................ 14,210,937
375,000 R.J. Reynolds Tobacco Holdings, Inc. ............... 10,476,563
552,700 Ralston Purina Group................................ 11,019,456
410,000 Safeway Inc. (a).................................... 18,501,250
643,500 Tyson Foods, Inc., Class A Shares................... 5,630,625
------------
168,554,500
------------
Energy -- 7.2%
150,000 Amerada Hess Corp. ................................. 9,262,500
252,000 Burlington Resources Inc. .......................... 9,639,000
475,000 Conoco Inc., Class A Shares......................... 10,450,000
205,000 Royal Dutch Petroleum Co. ADR....................... 12,620,313
185,000 Total Fina SA ADR................................... 14,210,312
166,600 USX - Marathon Group................................ 4,175,412
------------
60,357,537
------------
</TABLE>
See Notes to Financial Statements.
42
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Investors Value Fund
<TABLE>
--------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
--------------------------------------------------------------------------------
Financial Services -- 16.1%
144,000 American Express Co. ................................ $ 7,506,000
115,000 American General Corp. .............................. 7,015,000
365,000 Associates First Captial Corp. ...................... 8,144,063
395,000 The Bank of New York Co., Inc. ...................... 18,367,500
285,000 The Chase Manhattan Corp. ........................... 13,127,813
180,000 Comerica Inc. ....................................... 8,077,500
332,367 FleetBoston Financial Group, Inc. ................... 11,300,478
180,000 Freddie Mac.......................................... 7,290,000
385,000 Household International, Inc. ....................... 16,001,562
390,000 MBNA Corp. .......................................... 10,578,750
150,000 Morgan Stanley Dean Witter & Co. .................... 12,487,500
182,500 U.S. Bancorp. ....................................... 3,513,125
405,000 Washington Mutual, Inc. ............................. 11,694,375
------------
135,103,666
------------
Healthcare -- 9.0%
220,000 Abbott Laboratories.................................. 9,803,750
185,000 American Home Products Corp. ........................ 10,868,750
75,000 Eli Lilly & Co. ..................................... 7,490,625
200,000 Merck & Co., Inc. ................................... 15,325,000
225,000 Novartis AG, ADR (a)................................. 9,000,000
343,910 Pharmacia Corp. ..................................... 17,775,848
110,000 Schering-Plough Corp. ............................... 5,555,000
------------
75,818,973
------------
Real Estate Investment Trust -- 0.5%
150,000 Equity Office Properties Trust....................... 4,134,375
------------
Technology -- 18.4%
311,500 3Com Corp. (a)....................................... 17,950,187
130,000 Alcatel SA ADR....................................... 8,645,000
90,000 Applied Materials, Inc. (a).......................... 8,156,250
610,000 Compaq Computer Corp. ............................... 15,593,125
185,000 Computer Associates International, Inc. ............. 9,469,688
17,000 Corning Inc. ........................................ 4,587,893
90,000 Hewlett-Packard Co. ................................. 11,238,750
75,000 Intel Corp. ......................................... 10,026,563
170,000 International Business Machines Corp. ............... 18,625,625
109,720 Micron Technology, Inc. (a).......................... 9,662,218
150,000 Motorola, Inc. ...................................... 4,359,375
335,000 National Semiconductor Corp. (a)..................... 19,011,250
165,000 Seagate Technology, Inc. (a)......................... 9,075,000
130,000 Tellabs, Inc. (a).................................... 8,896,875
------------
155,297,799
------------
Transportation -- 1.8%
280,000 Canadian National Railway Co. ....................... 8,172,500
270,000 Canadian Pacific Ltd. ............................... 7,070,625
------------
15,243,125
------------
Utilities -- 2.2%
125,100 The Coastal Corp. ................................... 7,615,462
260,000 The Williams Cos., Inc. ............................. 10,838,750
------------
18,454,212
------------
TOTAL COMMON STOCK
(Cost -- $615,317,439)............................... 794,829,625
------------
</TABLE>
See Notes to Financial Statements.
43
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Investors Value Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 0.7%
NTL Inc., Sub. Notes:
$ 1,750,000 7.000% due 12/15/08................................ $ 2,859,062
3,950,000 5.750% due 12/15/09 (b)............................ 3,155,062
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost -- $5,700,000)............................... 6,014,124
------------
REPURCHASE AGREEMENT -- 4.9%
41,202,000 SBC Warburg Dillion Read Inc., 6.550% due 7/3/00;
Proceeds at maturity -- $41,224,489; Fully
collateralized by U.S. Treasury Notes, 6.500% due
8/31/01; Market value -- $42,027,000) (Cost --
$41,202,000)..................................... 41,202,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $662,219,439*)............................ $842,045,749
============
</TABLE>
------
(a) Non-income producing security.
(b) Security is exempt from registration under rule 144A of the securities Act
of 1933. The security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
+ On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depository Receipt.
See Notes to Financial Statements.
44
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Balanced Fund
<TABLE>
--------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
--------------------------------------------------------------------------------
COMMON STOCK -- 48.9%
Basic Industries -- 0.8%
218,600 USEC Inc. ........................................... $ 1,011,025
------------
Capital Goods -- 1.6%
20,726 Cooper Industries, Inc. (a).......................... 674,890
36,000 Pitney Bowes Inc. ................................... 1,440,000
------------
2,114,890
------------
Communications -- 5.3%
20,000 AT&T Corp. .......................................... 632,500
40,000 Bell Atlantic Corp. (a)+............................. 2,032,500
28,000 GTE Corp.+ .......................................... 1,743,000
59,100 SBC Communications Inc. (a).......................... 2,556,075
------------
6,964,075
------------
Consumer Cyclicals -- 2.9%
19,500 Eastman Kodak Co. ................................... 1,160,250
27,428 Fine Host Corp. (b)++ ............................... 257,234
6,000 J.C. Penney Co., Inc. ............................... 110,625
33,150 The May Department Stores Co. ....................... 795,600
48,000 Sears, Roebuck & Co. ................................ 1,566,000
------------
3,889,709
------------
Consumer Non-Cyclicals -- 5.7%
6,000 Anheuser-Busch Cos., Inc. ........................... 448,125
70,000 Avon Products, Inc. (a).............................. 3,115,000
13,000 The Coca-Cola Co. ................................... 746,688
50,000 Delhaize America, Inc., Class B Shares............... 768,750
10,000 H.J. Heinz Co. ...................................... 437,500
40,000 Hormel Foods Corp. .................................. 672,500
6,000 McDonald's Corp. .................................... 197,625
8,000 PepsiCo, Inc. ....................................... 355,500
45,000 Ralston Purina Group................................. 897,187
------------
7,638,875
------------
Energy -- 10.1%
25,000 Amerada Hess Corp. (a)............................... 1,543,750
30,436 BP Amoco PLC......................................... 1,721,536
41,482 Exxon Mobil Corp. ................................... 3,256,337
50,000 Halliburton Co. ..................................... 2,359,375
16,000 Royal Dutch Petroleum Co.-NY Shares.................. 985,000
20,000 Schlumberger Ltd. ................................... 1,492,500
60,000 Suncor Energy Inc. .................................. 1,398,750
12,000 Texaco Inc. ......................................... 639,000
------------
13,396,248
------------
Financial Services -- 2.8%
30,000 The Allstate Corp. .................................. 667,500
9,000 Bank of America Corp. ............................... 387,000
18,000 The Chubb Corp. ..................................... 1,107,000
20,000 First Union Corp. ................................... 496,250
30,000 FleetBoston Financial Corp. ......................... 1,020,000
------------
3,677,750
------------
Healthcare -- 6.1%
30,000 American Home Products Corp. (a)..................... 1,762,500
26,000 Bausch & Lomb Inc. .................................. 2,011,750
</TABLE>
See Notes to Financial Statements.
45
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Balanced Fund
<TABLE>
--------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
--------------------------------------------------------------------------------
Healthcare -- 6.1% (continued)
11,800 Johnson & Johnson.................................... $ 1,202,125
8,000 Merck & Co., Inc. ................................... 613,000
30,000 Pfizer Inc. ......................................... 1,440,000
21,900 Pharmacia Corp. ..................................... 1,131,956
------------
8,161,331
------------
Real Estate Investment Trust -- 7.2%
67,500 Arden Realty, Inc. .................................. 1,586,250
35,000 Bedford Property Investors, Inc. .................... 649,688
55,000 Brandywine Realty Trust.............................. 1,051,875
45,000 Duke-Weeks Realty Corp. ............................. 1,006,875
65,000 Glenborough Realty Trust Inc. ....................... 1,133,438
15,250 JDN Realty Corp. .................................... 155,359
75,000 Mid-Atlantic Realty Trust............................ 750,000
84,000 New Plan Excel Realty Trust.......................... 1,092,000
18,000 Prentiss Properties Trust............................ 432,000
35,000 Reckson Associates Realty Corp. ..................... 831,250
28,000 Sun Communities, Inc. ............................... 936,250
------------
9,624,985
------------
Technology -- 2.8%
31,000 International Business Machines Corp. (a)............ 3,396,438
15,000 Xerox Corp. ......................................... 311,250
------------
3,707,688
------------
Transportation -- 2.0%
40,000 Canadian National Railway Co. ....................... 1,167,500
30,000 Union Pacific Corp. ................................. 1,115,625
6,200 United Parcel Services, Inc., Class B Shares......... 365,800
------------
2,648,925
------------
Utilities -- 1.6%
40,000 Edison International................................. 820,000
45,000 Reliant Energy, Inc. ................................ 1,330,312
------------
2,150,312
------------
TOTAL COMMON STOCK
(Cost -- $62,082,554)................................ 64,985,813
------------
CONVERTIBLE PREFERRED STOCK -- 3.4%
Basic Industries -- 0.5%
10,000 International Paper Capital Trust, 5.250%............ 376,250
1,800 LTV Corp., 8.250% (c)................................ 76,050
3,200 LTV Corp., Series A, 8.250%.......................... 135,200
------------
587,500
------------
Communications -- 0.5%
12,500 ICG Funding LLC, 6.750%.............................. 651,563
------------
Consumer Cyclicals -- 0.5%
15,000 Wendy's Financing Series, 5.000%..................... 675,000
------------
Energy -- 1.5%
25,000 Kerr-McGee Corp., 5.500%............................. 1,243,750
25,000 Tesoro Petroleum Corp., 7.250%....................... 271,875
10,000 Tosco Financing Trust, 5.750%........................ 477,500
------------
1,993,125
------------
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Balanced Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Shares Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Transportation -- 0.4%
12,500 Canadian National Railway Co., 5.250%............... $ 562,499
TCR Holding Corp. (b):
321 Class B Shares...................................... 3
177 Class C Shares...................................... 2
466 Class D Shares...................................... 5
964 Class E Shares...................................... 9
------------
562,518
------------
TOTAL CONVERTIBLE PREFERRED STOCK
(Cost -- $4,387,621)................................ 4,469,706
------------
<CAPTION>
Rights
----------
<C> <S> <C>
RIGHTS -- 0.0%
Real Estate Investment Trust -- 0.0%
70,000 Excel Realty Trust, Inc., Expire 5/1/08............. 0
65,000 Glenborough Realty Trust Inc., Expire 7/20/08....... 0
------------
TOTAL RIGHTS
(Cost -- $0)........................................ 0
------------
<CAPTION>
Face
Amount
----------
<C> <S> <C>
CORPORATE BONDS -- 14.5%
Basic Industries -- 1.6%
$ 200,000 Berry Plastics Corp., 12.250% due 4/15/04........... 190,750
125,000 Breed Technologies Inc., 9.250% due 4/15/08 (b)(d).. 1,406
250,000 Federal-Mogul Co., 7.500% due 1/15/09............... 171,562
125,000 Hexcel Corp., 9.750% due 1/15/09.................... 111,875
125,000 Indesco International Inc., 9.750% due 4/15/08...... 46,875
125,000 P&L Coal Holdings Corp., 9.625% due 5/15/08......... 116,563
200,000 Radnor Holdings Inc., 10.000% due 12/1/03........... 180,000
1,000,000 Raytheon Co., 6.150% due 11/1/08.................... 888,750
400,000 USX Corp., 7.200% due 2/15/04....................... 393,500
------------
2,101,281
------------
Capital Goods -- 0.1%
125,000 Jordan Industries Inc., 10.375% due 8/1/07.......... 115,000
------------
Consumer Cyclicals -- 0.9%
115,000 Cole National Group Inc., 8.625% due 8/15/07........ 76,475
100,000 Collins & Aikman Floor Coverings Inc., Series B,
10.000% due 1/15/07................................ 97,750
125,000 Daimlerchrysler NA Holding Corp., 7.750% due
5/27/03............................................ 125,938
250,000 HMH Properties, 7.875% due 8/1/08................... 225,625
50,000 Revlon Consumer Products, 8.625% due 2/1/08......... 25,500
675,000 Wal-Mart Stores, 7.550% due 2/15/30................. 691,875
------------
1,243,163
------------
Consumer Non-Cyclicals -- 1.9%
100,000 American Safety Razor Co., 9.875% due 8/1/05........ 96,500
250,000 B&G Foods Inc., 9.625% due 8/1/07................... 176,250
250,000 Delta Beverage Group Inc., 9.750% due 12/15/03...... 237,187
800,000 Fremont General Corp., 7.700% due 3/17/04........... 340,000
125,000 French Fragrances Inc., 10.375% due 5/15/07......... 120,625
125,000 Harrah's Operating Co., Inc., 7.875% due 12/15/05... 117,813
130,000 Hines Horticulture, Inc., 11.750% due 10/15/05...... 130,650
250,000 Home Interiors & Gifts Inc., 10.125% due 6/1/08..... 143,750
</TABLE>
See Notes to Financial Statements.
47
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Balanced Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Consumer Non-Cyclicals -- 1.9% (continued)
$ 250,000 North Atlantic Trading Co., 11.000% due 6/15/04..... $ 226,875
250,000 Park Place Entertainment Corp., 7.875% due
12/15/05........................................... 235,625
125,000 Simmons Co., Series B, 10.250% due 3/15/09.......... 111,563
650,000 Spieker Properties, Inc., 7.250% due 5/1/09......... 606,125
------------
2,542,963
------------
Energy -- 0.5%
200,000 Benton Oil & Gas Co., 11.625% due 5/1/03............ 129,000
150,000 Clark R&M Inc., 8.875% due 11/15/07................. 96,750
425,000 Union Oil Co. of California, 7.350% due 6/15/09..... 413,313
------------
639,063
------------
Financial/Leasing -- 3.0%
ContiFinancial Corp.:
125,000 7.500% due 3/15/02.................................. 15,625
125,000 8.125% due 4/1/08................................... 15,625
1,000,000 Countrywide Home Loan Corp., 6.250% due 4/15/09..... 876,250
325,000 DVI Inc., 9.875% due 2/1/04......................... 297,375
700,000 Morgan Stanley Dean Witter & Co., 7.750% due
6/15/05............................................ 704,375
250,000 Motors & Gears, Inc., 10.750% due 11/15/06.......... 241,875
1,075,000 PaineWebber Group Inc., 7.625% due 12/1/09.......... 1,017,219
850,000 Sears Roebuck Acceptance Corp., 7.000% due 6/15/07.. 803,250
------------
3,971,594
------------
Healthcare -- 0.1%
100,000 Fresensius Medical Care Capital Trust I, 9.000% due
12/1/06............................................ 95,250
------------
Housing Related -- 0.2%
250,000 CB Richard Ellis Services., 8.875% due 6/1/06....... 213,750
------------
Manufacturing -- 0.5%
250,000 Axiohm Transaction Solution, Inc., 9.750% due
10/1/07 (b)(d)..................................... 51,875
250,000 High Voltage Engineering Inc., 10.500% due 8/15/04.. 173,750
250,000 Navistar International Corp., 8.000% due 2/1/08..... 230,625
250,000 Polymer Group, Inc., 9.000% due 7/1/07.............. 213,750
------------
670,000
------------
Media -- 3.6%
1,725,000 A.H. Belo Corp., 7.250% due 9/15/27................. 1,418,813
200,000 Adelphia Communications, 10.500% due 7/15/04........ 201,000
150,000 Century Communications, zero coupon due 1/15/08..... 62,250
200,000 CSC Holdings, Inc., 10.500% due 5/15/16............. 213,500
250,000 Diamond Cable Communications PLC, (zero coupon until
12/15/00, 11.750% thereafter) due 12/15/05......... 238,438
250,000 FrontierVision Holdings, 11.000% due 10/15/06....... 253,750
850,000 GTE Corp., 6.940% due 4/15/28+...................... 753,313
250,000 Hollinger International Publishing, 9.250% due
3/15/07............................................ 247,500
125,000 ICG Holdings Inc., (zero coupon until 9/15/00,
13.500% thereafter) due 9/15/05.................... 121,563
125,000 Intermedia Communication Inc., 8.600% due 6/1/08.... 116,250
250,000 Metronet Communications, (zero coupon until 6/15/03,
9.950% thereafter) due 6/15/08..................... 203,750
400,000 NTL Inc., Series B, (zero coupon until 2/1/01,
11.500% thereafter) due 2/15/06.................... 371,000
250,000 Rogers Communications, Inc., 8.875% due 7/15/07..... 246,250
400,000 Sprint Capital Corp., 5.700% due 11/15/03........... 379,500
------------
4,826,877
------------
Services and Other -- 1.1%
250,000 Allied Waste Industries, Inc., 7.875% due 1/1/09.... 214,375
750,000 Cendant Corp., 7.750% due 12/1/03................... 724,688
</TABLE>
See Notes to Financial Statements.
48
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Balanced Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Services and Other -- 1.1% (continued)
$ 250,000 Loomis Fargo & Co., 10.000% due 1/15/04............. $ 241,250
250,000 Pierce Leahy Corp., 11.125% due 7/15/06............. 259,375
125,000 Safety-Kleen Corp., 9.250% due 6/1/08............... 10,625
------------
1,450,313
------------
Telecommunication and Utilities -- 0.7%
250,000 Calpine Corp., 8.750% due 7/15/07................... 244,063
750,000 Duke Energy Corp., Series D, 7.375% due 3/1/10...... 738,750
------------
982,813
------------
Transportation -- 0.3%
250,000 Enterprise Shipholding Inc., 8.875% due 5/1/08...... 141,250
200,000 Holt Group, 9.750% due 1/15/06...................... 20,000
150,000 Teekay Shipping Corp., 8.320% due 2/1/08............ 138,750
265,000 TFM (zero coupon until 6/15/02, 11.750% thereafter)
due 6/15/09........................................ 182,188
------------
482,188
------------
TOTAL CORPORATE BONDS
(Cost -- $22,536,555)............................... 19,334,255
------------
CONVERTIBLE CORPORATE BONDS -- 8.5%
Consumer Cyclicals -- 0.5%
750,000 Costco Wholesale Corp., zero coupon due 8/19/17..... 617,813
------------
Consumer Non-Cyclicals -- 0.9%
Interpublic Group Co. Inc.:
250,000 1.870% due 6/1/06 (c)............................... 242,500
250,000 1.870% due 6/1/06................................... 242,500
2,000,000 Network Associates Inc., zero coupon due 2/13/18.... 712,500
------------
1,197,500
------------
Data Technology/Information Services -- 2.1%
750,000 Cypress Semiconductor Corp., 4.000% due 2/1/05...... 870,937
750,000 Integrated Process Equipment, 6.250% due 9/15/04
(c)................................................ 593,438
1,000,000 Quantum Corp., 7.000% due 8/1/04.................... 790,630
500,000 Redback Networks Inc., 5.000% due 4/1/07 (c)........ 567,500
------------
2,822,505
------------
Energy -- 1.5%
600,000 Diamond Offshore Drilling, 3.750% due 2/15/07....... 625,500
1,000,000 Friede Goldman Halter, 4.500% due 9/15/04........... 606,250
400,000 Kerr-McGee Corp., 7.500% due 5/15/14................ 385,500
500,000 Pogo Producing Co., 5.500% due 6/15/06.............. 419,375
------------
2,036,625
------------
Financial Services -- 0.6%
750,000 Credit Suisse First Boston Corp., 1.000% due
4/7/05............................................. 761,250
------------
Healthcare -- 0.9%
400,000 HEALTHSOUTH Corp., 3.250% due 4/1/03 (c)............ 316,000
500,000 Invitrogen Corp., 5.500% due 3/1/07 (c)............. 530,625
750,000 Roche Holdings Inc., zero coupon due 5/16/12 (c).... 349,687
------------
1,196,312
------------
Manufacturing -- 0.2%
Mark IV Industries:
200,000 4.750% due 11/1/04 (c).............................. 185,750
150,000 4.750% due 11/1/04.................................. 139,312
------------
325,062
------------
</TABLE>
See Notes to Financial Statements.
49
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Balanced Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Media and Telecommunications -- 1.3%
$ 500,000 DSC Communications Corp., 7.000% due 8/1/04......... $ 571,875
700,000 Juniper Networks Inc., 4.750% due 3/15/07........... 777,000
500,000 NTL Inc., 5.750% due 12/15/09 (c)................... 399,375
------------
1,748,250
------------
Technology -- 0.5%
1,000,000 Solectron Corp., zero coupon due 5/8/20............. 635,000
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost -- $11,207,074)............................... 11,340,317
------------
U.S. GOVERNMENT AGENCIES AND OBLIGATIONS -- 14.9%
U.S. Treasury Notes:
1,500,000 6.500% due 2/28/02.................................. 1,500,465
1,200,000 5.750% due 8/15/03.................................. 1,179,744
2,100,000 6.625% due 2/15/27 (a).............................. 2,227,302
Federal Home Loan Mortgage Corporation (FHLMC):
1,522,000 6.250% due 7/15/04.................................. 1,482,047
589,187 8.000% due 7/1/20................................... 598,573
202,862 6.500% due 3/1/26................................... 191,640
2,500,000 6.500% due 8/13/27 (e)(f)........................... 2,360,150
197,940 Gold, 6.500% due 3/1/26............................. 186,990
286,818 Gold, 6.500% due 5/1/26............................. 270,951
Federal National Mortgage Association (FNMA):
22,733 6.500% due 10/1/10.................................. 21,930
150,106 6.500% due 10/1/11.................................. 144,804
391,650 6.500% due 4/1/13................................... 377,818
225,538 6.500% due 5/1/13................................... 217,572
432,807 6.500% due 7/1/13................................... 417,520
684,902 9.000% due 1/1/24................................... 705,017
58,442 7.000% due 9/1/25................................... 56,433
121,943 6.500% due 12/1/25.................................. 115,007
170,922 7.000% due 3/1/26................................... 165,046
349,294 6.500% due 6/1/26................................... 329,426
252,382 7.000% due 3/1/27................................... 243,705
70,805 7.000% due 11/1/28.................................. 68,370
535,588 7.000% due 2/1/29................................... 517,174
44,130 7.000% due 3/1/29................................... 42,599
888,861 7.000% due 4/1/29................................... 858,026
2,340,000 6.000% due 9/1/30 (e)(f)............................ 2,140,351
3,355,000 8.000% due 11/1/30 (e)(f)........................... 3,368,621
------------
TOTAL U.S. GOVERNMENT AGENCIES AND OBLIGATIONS
(Cost -- $20,240,410)............................... 19,787,281
------------
ASSET-BACKED SECURITIES -- 3.4%
Financial/Leasing -- 3.4%
864,893 Contimortgage Home Equity Loan Trust, Series 1998-2,
Class A3, 6.130% due 3/15/13....................... 860,525
739,156 Green Tree Financial Corp., Series 1997-6, Class A8,
7.070% due 1/15/29................................. 698,503
1,100,000 LB Commercial Conduit Mortgage Trust, Series 1998-
C1, Class A2, 6.780% due 4/15/09................... 1,053,520
1,100,000 NationsBank Credit Card Master Trust, Series 1995-I,
Class A, 6.450% due 4/15/03........................ 1,099,406
825,000 Soundview Home Equity Loan Trust, Series 2000-1,
Class A1F, 8.640% due 5/25/30...................... 832,239
------------
TOTAL ASSET-BACKED SECURITIES
(Cost -- $4,602,085)................................ 4,544,193
------------
</TABLE>
See Notes to Financial Statements.
50
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Balanced Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 6.4%
$8,533,000 SBC Warburg Dillon Read Inc., 6.550% due 7/3/00;
Proceeds at maturity -- $8,537,658; (Fully
collateralized by U.S. Treasury Bonds, 7.250% due
8/15/22; Market value -- $8,703,680) (Cost --
$8,533,000)....................................... $ 8,533,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $133,589,299*)............................. $132,994,565
============
</TABLE>
------
(a) All or part of the security is segregated as collateral for mortgage dollar
rolls.
(b) Non-income producing security.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(d) Security is in default.
(e) Mortgage dollar roll.
(f) Security is issued on a to-be-announced ("TBA") basis.
++ Security valued in accordance with fair valuation procedures .
+ On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depository Receipt.
See Notes to Financial Statements.
51
<PAGE>
Statements of Assets and Liabilities
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Asia International
Growth Equity
Fund Fund
-------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at cost............................... $18,291,051 $20,614,181
=========== ===========
Investments, at value.............................. $21,253,885 $20,872,648
Foreign currency, at value ++...................... -- 141
Cash............................................... 263,224 4,776,346
Receivable for securities and options sold......... 296,187 --
Receivable for Fund shares sold.................... 10,894 44,862
Dividends and interest receivable.................. 30,354 31,328
Receivable for open forward foreign currency
contracts......................................... 16,013 --
Receivable from manager............................ 50,991 --
Deferred organization costs........................ 19,043 --
Other assets....................................... -- --
----------- -----------
Total Assets....................................... 21,940,591 25,725,325
----------- -----------
LIABILITIES:
Payable for Fund shares purchased.................. 46,418 31,719
Service and distribution fees payable.............. 12,429 11,186
Administration fees payable........................ 1,963 2,344
Management fees payable............................ -- 1,790
Payable for securities and options purchased....... 657,458 --
Payable for open forward foreign currency
contracts......................................... 6,415 --
Dividends payable.................................. -- --
Payable for foreign currency, at value ++.......... 84,268 --
Accrued expenses................................... 20,539 61,102
Other liabilities.................................. 11,059 --
----------- -----------
Total Liabilities.................................. 840,549 108,141
----------- -----------
Total Net Assets.................................... $21,100,042 $25,617,184
=========== ===========
NET ASSETS:
Par value of shares of capital stock............... $ 1,842 $ 2,265
Capital paid in excess of par value................ 20,464,572 25,581,476
Undistributed (overdistributed) net investment
income............................................ -- --
Accumulated net investment loss.................... (154,038) (84,204)
Accumulated net realized gain (loss) from security
transactions, options and foreign currencies...... (2,185,472) (140,954)
Net unrealized appreciation (depreciation) of
investments, options and foreign currencies....... 2,973,138 258,601
----------- -----------
Total Net Assets................................... $21,100,042 $25,617,184
=========== ===========
Shares Outstanding:
Class A............................................. 571,915 1,103,717
=========== ===========
Class B............................................. 809,400 525,062
=========== ===========
Class 2............................................. 354,075 531,076
=========== ===========
Class O............................................. 106,359 105,265
=========== ===========
Net Asset Value:
Class A Shares
Net asset value*................................... $11.63 $11.34
=========== ===========
Maximum offering price per share (based on maximum
sales charge of 5.75%)............................ $12.34 $12.03
=========== ===========
Class B Shares
Net asset value and offering price per share*...... $11.35 $11.28
=========== ===========
Class 2 Shares
Net asset value*................................... $11.34 $11.27
=========== ===========
Maximum offering price per share (based on maximum
sales charge of 1.00%)............................ $11.45 $11.38
=========== ===========
Class O Shares
Net asset value, offering price and redemption
price per share................................... $11.72 $11.35
=========== ===========
</TABLE>
++Foreign currency at cost for the Asia Growth and International Equity Funds
is $(71,022) and $142, respectively.
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See Notes to Financial Statements.
52
<PAGE>
<TABLE>
<CAPTION>
Small Cap Investors
Growth Capital Large Cap Value Balanced
Fund Fund Growth Fund Fund Fund
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$285,196,346 $427,403,451 $12,513,523 $662,219,439 $133,589,299
============ ============ =========== ============ ============
$356,902,787 $490,739,755 $13,643,175 $842,045,749 $132,994,565
-- -- -- -- --
692 333 471,199 128 752
15,278,056 894,802 148,847 -- --
165,712 4,995,758 30,688 4,756,982 50,226
159,391 461,788 6,299 1,791,460 1,011,939
-- -- -- -- --
-- -- 14,667 -- --
-- -- -- -- 3,778
-- 4,255 -- -- --
------------ ------------ ----------- ------------ ------------
372,506,638 497,096,691 14,314,875 848,594,319 134,061,260
------------ ------------ ----------- ------------ ------------
2,572,435 191,430 20,000 383,311 438,835
173,075 155,476 8,599 92,404 87,298
31,112 -- 1,142 -- 11,036
234,059 270,345 -- 1,148,988 21,941
8,023,658 3,804,336 -- 1,283,100 7,842,358
-- -- -- -- --
-- 572,948 -- 2,349,991 356,697
-- -- -- -- --
131,003 118,184 36,675 179,022 154,505
190,123 -- -- -- 4,002
------------ ------------ ----------- ------------ ------------
11,355,465 5,112,719 66,416 5,436,816 8,916,672
------------ ------------ ----------- ------------ ------------
$361,151,173 $491,983,972 $14,248,459 $843,157,503 $125,144,588
============ ============ =========== ============ ============
$ 19,876 $ 17,822 $ 1,328 $ 39,134,469 $ 9,682
198,107,912 377,653,916 13,908,533 544,287,864 115,785,018
-- (161,429) -- 1,542,839 292,308
(1,237,562) -- (67,025) -- --
92,554,506 51,137,359 (724,029) 78,366,021 9,652,314
71,706,441 63,336,304 1,129,652 179,826,310 (594,734)
------------ ------------ ----------- ------------ ------------
$361,151,173 $491,983,972 $14,248,459 $843,157,503 $125,144,588
============ ============ =========== ============ ============
10,695,071 2,210,579 215,346 2,475,406 2,049,810
============ ============ =========== ============ ============
8,169,961 4,683,328 700,694 3,662,749 6,224,815
============ ============ =========== ============ ============
982,359 2,174,149 238,340 937,715 1,294,008
============ ============ =========== ============ ============
28,237 8,753,651 173,199 32,058,599 113,216
============ ============ =========== ============ ============
$18.32 $27.72 $10.77 $21.60 $12.96
============ ============ =========== ============ ============
$19.44 $29.41 $11.43 $22.92 $13.75
============ ============ =========== ============ ============
$17.99 $27.19 $10.71 $21.30 $12.91
============ ============ =========== ============ ============
$18.02 $27.23 $10.72 $21.33 $12.94
============ ============ =========== ============ ============
$18.20 $27.51 $10.83 $21.55 $13.07
============ ============ =========== ============ ============
$18.42 $27.89 $10.79 $21.57 $13.04
============ ============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
53
<PAGE>
Statements of Operations
For the Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Asia International
Growth Equity
Fund Fund
---------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends...................................... $ 170,572 $ 108,375
Interest....................................... -- 36,251
Less:Foreign withholding tax................... (13,994) (11,811)
Interest expense............................... (6,223) --
----------- -----------
Total Investment Income........................ 150,355 132,815
----------- -----------
EXPENSES:
Management fees (Note 2)....................... 92,440 74,464
Distribution and service fees (Note 2)......... 81,933 57,213
Shareholder and system servicing fees.......... 43,134 20,400
Audit and legal................................ 37,686 10,000
Custody........................................ 25,575 17,150
Registration fees.............................. 19,525 27,750
Amortization of deferred organization costs.... 11,217 --
Shareholder communications..................... 9,100 18,000
Administration fees (Note 2)................... 5,778 4,137
Directors' fees................................ 1,456 1,500
Other.......................................... 3,932 1,750
----------- -----------
Total Expenses................................. 331,776 232,364
Less: Management fee waivers and expense
reimbursements (Note 2).......................... (135,447) (51,044)
----------- -----------
Net Expenses................................... 196,329 181,320
----------- -----------
Net Investment Income (Loss).................... (45,974) (48,505)
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, OPTIONS AND FOREIGN CURRENCIES
(NOTES 1 AND 4):
Realized Gain (Loss) From:
Security transactions.......................... 2,532,883 (75,495)
Options written................................ -- --
Options purchased.............................. -- --
Foreign currency transactions.................. (108,064) (35,699)
----------- -----------
Net Realized Gain (Loss)....................... 2,424,819 (111,194)
----------- -----------
Change in Net Unrealized Appreciation
(Depreciation) of:
Security transactions.......................... (4,314,910) (1,403,372)
Options purchased.............................. -- --
Foreign currency transactions.................. 92,771 159
----------- -----------
Change in Net Unrealized Appreciation
(Depreciation)................................ (4,222,139) (1,403,213)
----------- -----------
Net Gain (Loss) on Investments, Options and
Foreign Currencies............................. (1,797,320) (1,514,407)
----------- -----------
Increase (Decrease) in Net Assets From
Operations..................................... $(1,843,294) $(1,562,912)
=========== ===========
</TABLE>
See Notes to Financial Statements.
54
<PAGE>
<TABLE>
<CAPTION>
Small Cap Large Cap Investors
Growth Capital Growth Value Balanced
Fund Fund Fund Fund Fund
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 584,873 $ 2,338,382 $ 46,380 $ 6,221,273 $ 1,284,453
1,075,566 1,106,074 13,313 1,498,979 2,233,173
-- (7,120) -- (63,418) (10,964)
-- -- -- -- --
------------ ----------- --------- ------------ -----------
1,660,439 3,437,336 59,693 7,656,834 3,506,662
------------ ----------- --------- ------------ -----------
1,374,293 1,500,561 49,215 2,195,814 375,573
1,014,922 729,776 47,974 525,395 561,836
202,286 140,954 11,648 259,532 141,612
24,957 37,943 4,962 51,883 28,574
15,137 13,218 13,292 18,200 5,970
50,643 61,487 21,294 15,576 20,442
-- -- -- -- 9,535
115,706 42,435 13,195 52,416 43,680
85,893 -- 3,281 -- 34,143
1,456 35,252 445 42,185 2,002
12,708 34,442 673 28,359 15,345
------------ ----------- --------- ------------ -----------
2,898,001 2,596,068 165,979 3,189,360 1,238,712
-- -- (39,261) -- (198,874)
------------ ----------- --------- ------------ -----------
2,898,001 2,596,068 126,718 3,189,360 1,039,838
------------ ----------- --------- ------------ -----------
(1,237,562) 841,268 (67,025) 4,467,474 2,466,824
------------ ----------- --------- ------------ -----------
93,483,525 51,657,322 (715,775) 78,154,223 9,667,164
(323,955) 558,467 -- (858,383) --
330,951 (181,651) -- 1,385,062 --
-- -- -- -- --
------------ ----------- --------- ------------ -----------
93,490,521 52,034,138 (715,775) 78,680,902 9,667,164
------------ ----------- --------- ------------ -----------
(29,935,825) 12,102,143 330,957 (14,376,547) (5,975,035)
-- (352,708) -- 1,723,389 --
-- -- -- -- --
------------ ----------- --------- ------------ -----------
(29,935,825) 11,749,435 330,957 (12,653,158) (5,975,035)
------------ ----------- --------- ------------ -----------
63,554,696 63,783,573 (384,818) 66,027,744 3,692,129
------------ ----------- --------- ------------ -----------
$ 62,317,134 $64,624,841 $(451,843) $ 70,495,218 $ 6,158,953
============ =========== ========= ============ ===========
</TABLE>
See Notes to Financial Statements.
55
<PAGE>
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Asia International
Growth Equity
Fund Fund
------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)...................... $ (45,974) $ (48,505)
Net realized gain (loss).......................... 2,424,819 (111,194)
Change in net unrealized appreciation
(depreciation)................................... (4,222,139) (1,403,213)
----------- -----------
Increase (Decrease) in Net Assets From
Operations....................................... (1,843,294) (1,562,912)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1):
Net investment income............................. -- --
Net realized gains................................ -- --
----------- -----------
Decrease in Net Assets From Distributions to
Shareholders..................................... -- --
----------- -----------
FUND SHARE TRANSACTIONS (NOTE 3):
Net proceeds from sale of shares.................. 10,351,515 20,123,438
Net asset value of shares issued for reinvestment
of dividends..................................... -- --
Cost of shares reacquired......................... (10,744,354) (3,047,321)
----------- -----------
Increase (Decrease) in Net Assets From Fund Share
Transactions..................................... (392,839) 17,076,117
----------- -----------
Increase (Decrease) in Net Assets.................. (2,236,133) 15,513,205
NET ASSETS:
Beginning of period............................... 23,336,175 10,103,979
----------- -----------
End of period*.................................... $21,100,042 $25,617,184
=========== ===========
* Includes undistributed (overdistributed)
net investment income of: ....................... -- --
=========== ===========
* Includes accumulated net investment loss of:..... $(154,038) $(84,204)
=========== ===========
</TABLE>
See Notes to Financial Statements.
56
<PAGE>
<TABLE>
<CAPTION>
Small Cap Large Cap Investors
Growth Capital Growth Value Balanced
Fund Fund Fund Fund Fund
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ (1,237,562) $ 841,268 $ (67,025) $ 4,467,474 $ 2,466,824
93,490,521 52,034,138 (715,775) 78,680,902 9,667,164
(29,935,825) 11,749,435 330,957 (12,653,158) (5,975,035)
------------ ------------ ----------- ------------ ------------
62,317,134 64,624,841 (451,843) 70,495,218 6,158,953
------------ ------------ ----------- ------------ ------------
-- (1,002,697) -- (4,404,896) (2,354,188)
(43,479,226) (26,844,676) (33,254) (32,999,250) (2,459,041)
------------ ------------ ----------- ------------ ------------
(43,479,226) (27,847,373) (33,254) (37,404,146) (4,813,229)
------------ ------------ ----------- ------------ ------------
139,741,866 126,895,013 4,794,517 58,560,087 2,831,997
40,448,870 24,744,869 25,624 27,518,512 3,720,070
(144,070,182) (46,063,809) (1,551,009) (70,719,560) (38,285,384)
------------ ------------ ----------- ------------ ------------
36,120,554 105,576,073 3,269,132 15,359,039 (31,733,317)
------------ ------------ ----------- ------------ ------------
54,958,462 142,353,541 2,784,035 48,450,111 (30,387,593)
306,192,711 349,630,431 11,464,424 794,707,392 155,532,181
------------ ------------ ----------- ------------ ------------
$361,151,173 $491,983,972 $14,248,459 $843,157,503 $125,144,588
============ ============ =========== ============ ============
-- $(161,429) -- $1,542,839 $292,308
============ ============ =========== ============ ============
$(1,237,562) -- $(67,025) -- --
============ ============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
57
<PAGE>
Statements of Changes in Net Assets
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Asia International
Growth Equity
Fund Fund(a)
--------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)....................... $ (71,025) $ (23,047)
Net realized gain (loss)........................... 5,127,645 (52,565)
Increase (decrease) in net unrealized
appreciation...................................... 6,484,841 1,661,814
----------- -----------
Increase in Net Assets From Operations............. 11,541,461 1,586,202
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1):
Net investment income.............................. -- --
Net realized gains................................. -- --
----------- -----------
Decrease in Net Assets From Distributions to
Shareholders...................................... -- --
----------- -----------
FUND SHARE TRANSACTIONS (NOTE 3):
Net proceeds from sale of shares................... 10,011,999 8,572,752
Net asset value of shares issued in connection with
the transfer of the
Smith Barney Special Equities Fund's net assets
(Note 7).......................................... -- --
Net asset value of shares issued for reinvestment
of dividends...................................... -- --
Cost of shares reacquired.......................... (11,502,640) (54,975)
----------- -----------
Increase (Decrease) in Net Assets From Fund Share
Transactions...................................... (1,490,641) 8,517,777
----------- -----------
Increase (Decrease) in Net Assets................... 10,050,820 10,103,979
NET ASSETS:
Beginning of year.................................. 13,285,355 --
----------- -----------
End of year*....................................... $23,336,175 $10,103,979
=========== ===========
* Includes undistributed net investment income of:.. -- --
=========== ===========
</TABLE>
------
(a) For the period from October 25, 1999 (commencement of operations) to Decem-
ber 31, 1999.
See Notes to Financial Statements.
58
<PAGE>
<TABLE>
<CAPTION>
Small Cap Large Cap Investors
Growth Capital Growth Value Balanced
Fund Fund Fund(a) Fund Fund
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ (1,030,544) $ 1,823,833 $ (9,856) $ 8,333,288 $ 5,945,392
59,817,958 52,670,243 31,908 116,593,621 5,686,848
11,271,260 5,860,636 798,695 (36,442,188) (6,394,670)
------------ ------------- ----------- ------------- ------------
70,058,674 60,354,712 820,747 88,484,721 5,237,570
------------ ------------- ----------- ------------- ------------
-- (1,849,337) -- (6,828,571) (5,885,312)
(15,769,257) (31,567,292) -- (130,292,981) (3,078,669)
------------ ------------- ----------- ------------- ------------
(15,769,257) (33,416,629) -- (137,121,552) (8,963,981)
------------ ------------- ----------- ------------- ------------
60,948,260 160,442,564 10,678,278 165,971,086 22,079,863
240,911,211 -- -- -- --
14,807,084 30,557,033 -- 107,998,294 7,468,826
(73,356,791) (103,368,446) (34,601) (225,363,002) (73,529,930)
------------ ------------- ----------- ------------- ------------
243,309,764 87,631,151 10,643,677 48,606,378 (43,981,241)
------------ ------------- ----------- ------------- ------------
297,599,181 114,569,234 11,464,424 (30,453) (47,707,652)
8,593,530 235,061,197 -- 794,737,845 203,239,833
------------ ------------- ----------- ------------- ------------
$306,192,711 $ 349,630,431 $11,464,424 $ 794,707,392 $155,532,181
============ ============= =========== ============= ============
-- -- -- $1,480,261 $179,672
============ ============= =========== ============= ============
</TABLE>
See Notes to Financial Statements.
59
<PAGE>
Notes to Financial Statements
(unaudited)
1. Organization and Significant Accounting Policies
The Salomon Brothers Investment Series ("Investment Series") consists of cer-
tain portfolios of the Salomon Brothers Series Funds Inc ("Series Fund"), the
Salomon Brothers Investors Value Fund Inc ("Investors Value Fund"), formerly
known as Salomon Brothers Investors Fund Inc, and the Salomon Brothers Capital
Fund Inc ("Capital Fund").
Salomon Brothers Asia Growth Fund ("Asia Growth Fund"), Salomon Brothers Inter-
national Equity Fund ("International Equity Fund"), Salomon Brothers Small Cap
Growth Fund ("Small Cap Growth Fund"), Salomon Brothers Large Cap Growth Fund
("Large Cap Growth Fund") and Salomon Brothers Balanced Fund ("Balanced Fund"),
formerly known as Salomon Brothers Total Return Fund, are separate investment
portfolios of the Series Fund, an open-end management investment company, in-
corporated in Maryland on April 17, 1990. The Series Funds consist of these
portfolios and seven other separate investment portfolios: Salomon Brothers
High Yield Bond Fund, Salomon Brothers Strategic Bond Fund, Salomon Brothers
National Intermediate Municipal Fund, Salomon Brothers U.S. Government Income
Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon Brothers
Cash Management Fund and Salomon Brothers Institutional Money Market Fund. The
financial statements and financial highlights for the other portfolios are pre-
sented in separate shareholder reports.
The Investors Value Fund is a diversified open-end management investment com-
pany incorporated in Maryland on April 2, 1958 and the Capital Fund is a non-
diversified open-end management investment company incorporated in Maryland on
August 23, 1976.
The Investment Series operates under a multiple class pricing structure, with
each portfolio of the Investment Series (individually a "Fund") offering Class
A, Class B, Class 2 and Class O shares, each with their own expense structure.
Each Fund has a specific investment objective:
<TABLE>
<CAPTION>
Fund: Objective
<S> <C>
Asia Growth Fund........ To seek long-term capital appreciation.
International Equity To seek long-term capital growth.
Fund...................
Small Cap Growth Fund... To obtain long-term growth of capital.
Capital Fund............ To seek capital appreciation through investments primarily
in common stock or securities convertible into common stocks,
which are believed to have above average price appreciation potential.
Large Cap Growth Fund... To seek long-term growth of capital.
Investors Value Fund.... To seek long-term growth of capital. Secondarily to seek current income.
Balanced Fund........... To obtain above average income (compared to a portfolio entirely
invested in equity securities). Secondarily to take advantage of
opportunities for growth of capital and income.
</TABLE>
Costs incurred in connection with certain Fund's organization, which were
payable to Salomon Brothers Asset Management Inc ("SBAM"), have been deferred
and are being amortized by such Funds over a 60 month period from the date the
Fund commenced investment operations. A summary of those expenditures that
remain as of June 30, 2000 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Expiration of Amortization Amount
--------------------------------------------------------------------------------
<S> <C> <C>
Asia Growth Fund............................. May 2001 $19,043
Balanced Fund................................ September 2000 $ 3,778
</TABLE>
The following is a summary of significant accounting policies followed by the
Funds in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles ("GAAP"). The
preparation of financial statements in accordance with GAAP requires management
to make estimates of certain reported amounts in the financial statements.
Actual amounts could differ from those estimates.
60
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
(a) Investment Valuation. Portfolio securities listed or traded on national
securities exchanges, or reported on the NASDAQ national market system, are
valued at the last sale price, or if there have been no sales on that day, at
the mean of the current bid and asked price which represents the current value
of the security. Over-the-counter securities are valued at the mean of the
current bid and asked price. Debt securities are valued by using either market
quotations or independent pricing services which use prices provided by market-
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Publicly traded
sovereign bonds are typically traded internationally on the over-the-counter
market and are valued at the mean of the last current bid and asked price as of
the close of business of that market. Short-term securities with less than 60
days remaining to maturity when acquired by a Fund are valued at amortized cost
which approximates market value. If a Fund acquires such securities with more
than 60 days remaining to maturity, they are valued at current market value,
until the 60th day prior to maturity, and are then valued on an amortized cost
basis.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging market countries, and the extent of
foreign investment in domestic companies may be subject to limitation in other
emerging market countries. Foreign ownership limitations also may be imposed by
the charters of individual companies in emerging market countries to prevent,
among other things, violation of foreign investment limitations. As a result,
an additional class of shares (identified as "Foreign Shares" in the portfolio
of Investments) may be created and offered for investment by such companies.
The "local" and "foreign" shares' market values may differ.
Foreign securities quoted in a foreign currency are translated into U.S.
dollars using exchange rates at approximately 2:30 p.m. Eastern time (and at
approximately 12:30 p.m. for the Asia Growth Fund), or at such other rates as
SBAM may determine to be appropriate in computing net asset value.
Securities for which reliable quotations or prices from pricing services are
not readily available (as may be the case for securities of limited
marketability) and all other assets are valued at their respective fair value
as determined in good faith by, or under procedures established by, the Board
of Directors.
(b) Futures Contracts. Certain Funds may enter into futures contracts, which
involves paying or receiving variation margin, which will be recorded as
unrealized gain or loss until the contract is closed. When the contract is
closed, a realized gain or loss is recognized. Outstanding contracts may
involve elements of market risk in excess of amounts reported in the financial
statements.
(c) Option Contracts. When a Fund writes or purchases a call or a put option,
an amount equal to the premium received or paid by the Fund is recorded as a
liability or asset, the value of which is marked-to-market daily to reflect the
current market value of the option. When the option expires, the Fund realizes
a gain or loss equal to the amount of the premium received or paid. When the
Fund enters into a closing transaction by purchasing or selling an offsetting
option, it realizes a gain or loss without regard to any unrealized gain or
loss on the underlying security. When a written call option is exercised, the
Fund realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received. When
a written put option is exercised, the amount of the premium received reduces
the cost of the security that the Fund purchased upon exercise of the option.
(d) Mortgage Rolls. The Balanced Fund may enter into mortgage "dollar rolls"
in which the Fund sells mortgage-backed securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. The Fund is
compensated by a fee paid by the counterparty. Dollar rolls are accounted for
as financing arrangements; the fee is accrued into interest income ratably over
the term of the dollar roll and any gain or loss on the roll is deferred until
disposition of the rolled security. The average monthly balance of dollar rolls
outstanding during the six months ended June 30, 2000 was approximately
$7,834,000, for the Balanced Fund.
61
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
(e) Repurchase Agreements. When entering into repurchase agreements, it is
each Fund's policy that the Fund take possession, through its custodian, of the
underlying collateral and monitor the collateral's value at the time the
agreement is entered into and on a daily basis during the term of the
repurchase agreement to ensure that it equals or exceeds the repurchase price.
In the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.
(f) Reverse Repurchase Agreements. Certain Funds may enter into reverse
repurchase agreements in which a Fund sells portfolio securities and agrees to
repurchase them from the buyer at a particular date and price. Whenever a Fund
enters into a reverse repurchase agreement, the custodian delivers liquid
assets in an amount at least equal to the repurchase price marked-to-market
daily (including accrued interest), and subsequently monitors the account to
ensure that such equivalent value is maintained. A Fund pays interest on
amounts obtained pursuant to reverse repurchase agreements. Reverse repurchase
agreements are considered to be borrowings by a Fund. The Funds did not enter
into any transactions in reverse repurchase agreements during the six months
ended June 30, 2000.
(g) Foreign Currency Translation. The accounting records of each Fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the prevailing rates of exchange each day. Purchases and sales of
securities, income receipts and expense payments are translated into U.S.
dollars at the prevailing exchange rate on the respective dates of the
transactions. Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions and
the difference between the amount of net investment income accrued and the U.S.
dollar amount actually received. The effect of changes in foreign currency
exchange rates on investments in securities are not segregated in the
Statements of Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or loss
on investments.
(h) Forward Foreign Currency Contracts. Certain Funds may enter into forward
foreign currency contracts. A forward foreign currency contract is an agreement
between two parties to buy and sell a currency at a set price on a future date.
The contract is marked-to-market daily and the change in value is recorded by
the Fund as an unrealized gain or loss. When a forward foreign currency
contract is extinguished, through either delivery or offset by entering into
another forward foreign currency contract, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time it
was opened and the value of the contract at the time it was extinguished or
offset.
At June 30, 2000, the Asia Growth Fund had the following open forward currency
contracts:
<TABLE>
<CAPTION>
Settlement Local Market Unrealized
Asia Growth Fund Date Currency Value Gain (Loss)
------------------ ---------- ------------- ----------- -----------
To Sell:
<S> <C> <C> <C> <C>
Hong Kong Dollar 10/26/00 20,028,750 $ 2,571,223 $(1,194)
South Korean Won 8/3/00 2,701,980,000 2,403,487 15,908
Singapore Dollar 7/31/00 2,450,485 1,422,587 (5,221)
New Taiwan Dollar 8/3/00 51,023,350 1,656,605 105
-------
$ 9,598
=======
</TABLE>
(i) Loan Participations. The Balanced Fund may invest in fixed and floating
rate loans arranged through private negotiations between a foreign sovereign
entity and one or more financial institutions ("lender").
In connection with purchasing loan participations, the Fund generally will
have no right to enforce compliance by the borrower with the terms of the loan
agreement relating to the loan, nor any rights of set-off against the borrower,
and the Fund may not benefit directly from any collateral supporting the loan
in which it has purchased the participation. As a result, the Fund will assume
the credit risk of both the borrower and the lender that is selling the partic-
ipation. In the event of the insolvency of the lender selling the participa-
tion, the Fund may be treated as a general creditor of the lender and may not
benefit from any set-off between the lender and the borrower.
62
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
(j) Federal Income Taxes. Each Fund has complied with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
distributed all of its income, including any net realized gains, to
shareholders. Therefore, no Federal income tax or excise tax provision is
required for such Funds.
(k) Dividends and Distributions to Shareholders. Dividends from net investment
income for the Balanced Fund are declared each business day to shareholders of
record that day, and are paid on the last business day of the month. Dividends
from net investment income for the Asia Growth Fund, Small Cap Growth Fund and
the Capital Fund are declared on an annual basis. Dividends from net investment
income for the Investors Value Fund are declared on a quarterly basis.
Distributions of net realized gains to shareholders of each Fund, if any, are
declared at least annually. Dividends and distributions to shareholders of each
Fund are recorded on the ex-dividend date and are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles due primarily to differences in the treatment of foreign currency
gains/losses, deferral of wash sales, and post-October losses incurred by each
Fund. Permanent book/tax differences are reclassified within the capital
accounts based on their federal income tax basis treatment; temporary
differences do not require reclassifications.
(l) Class Accounting. Investment income, common expenses and gain (loss) on
investments are allocated to the various classes of a Fund on the basis of
daily net assets of each class. Distribution and shareholder servicing fees
relating to a specific class are charged directly to that class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
(m) Expenses. Direct expenses are charged to the Funds that incurred them, and
general expenses of the Investment Series are allocated to the Funds based on
each Fund's relative net assets.
(n) Other. Investment transactions are recorded as of the trade date. Dividend
income is recorded on the ex-dividend date (except for the Asia Growth Fund,
where certain dividends may be recorded as soon as the Fund is informed of such
dividends). Interest income, including the accretion of discounts or
amortization of premiums, is recognized when earned. Gains or losses on sales
of securities are calculated for financial accounting and Federal income tax
purposes on the identified cost basis. Net investment income (other than
service and distribution fees), unrealized and realized gains or losses are
allocated daily to each class of shares based upon the relative proportion of
each class's net assets to the Fund's total net assets.
2. Management Fee and Other Agreements
Each Fund retains SBAM, a wholly owned subsidiary of Salomon Smith Barney Hold-
ings, Inc. ("SSBH"), to act as investment manager of each Fund, subject to the
supervision by the Board of Directors of each Fund. SBAM furnishes the Invest-
ment 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
Capital Fund and Investors Value Fund) is payable monthly and is based on the
following annual percentages of each Fund's average daily net assets: 0.90% for
the International Equity Fund, 0.80% for the Asia Growth Fund and Small Cap
Growth Fund, 0.55% for the Balanced Fund and 0.75% for the Large Cap Growth
Fund. The management fee for the Capital Fund is payable monthly and is based
on the following annual percentages of the Fund's average daily net assets:
first $100 million-1%; next $100 million-0.75%; next $200 million-0.625%; ex-
cess over $400 million-0.50%. SBAM Ltd., an affiliate of SBAM, provides certain
advisory and administrative services for the benefit of Asia Growth Fund. SBAM
Ltd. is compensated by SBAM at no additional expense to the Asia Growth Fund.
SBAM has retained Salomon Brothers Asia Pacific Ltd. ("SBAM AP"), an affiliate
of SBAM, to act as sub-advisor to the Asia Growth Fund. SBAM AP is compensated
by SBAM at no additional expense to the Asia Growth Fund. SBAM has retained
Citibank, N.A., ("Citibank") as sub-adviser to the International Equity Fund
and the Large Cap Growth Fund.
63
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
The Investors Value Fund pays SBAM a base fee subject to an increase or de-
crease depending on the extent, if any, to which the investment performance of
the Investors Value Fund exceeds or is exceeded by the investment record of the
Standard & Poor's 500 Index of Composite Stocks ("S&P 500 Index"). The base fee
is paid quarterly based on the following annual rates:
<TABLE>
<CAPTION>
Average Daily Net Assets Annual Fee Rate
-------------------------------------------------------------------------------
<S> <C>
First $350 million............................................. 0.650%
Next $150 million.............................................. 0.550%
Next $250 million.............................................. 0.525%
Next $250 million.............................................. 0.500%
Over $1 billion................................................ 0.450%
</TABLE>
The performance adjustment is paid quarterly based on a rolling one year peri-
od. A performance adjustment will only be made after the investment performance
of the Investors Value Fund exceeds or is exceeded by the investment record of
the S&P 500 Index by at least one percentage point. For each percentage point
by which the investment performance of the Investors Value Fund exceeds or is
exceeded by the investment record of the S&P 500 Index, the base fee will be
adjusted upward or downward by 0.01% (annualized). The maximum annual adjust-
ment is 0.10% which would occur if the Investors Value Fund's performance ex-
ceeds or is exceeded by the S&P 500 Index by ten or more percentage points. For
the rolling six months periods ended March 31 and June 30, 2000, the S&P 500
Index exceeded the Investors Value Fund's performance by approximately 3.75%
and 2.46%, respectively. As a result, base management fees were decreased, in
aggregate, by $124,836 for the six months ended June 30, 2000.
For the six months ended June 30, 2000, SBAM waived management fees of $92,440,
$51,044, $39,261 and $198,874, for the Asia Growth Fund, International Equity
Fund, Large Cap Growth Fund and Balanced Fund, respectively, and voluntarily
absorbed expenses of $43,007 for the Asia Growth Fund.
SBAM also acts as administrator for each of the Funds. SBAM has delegated its
responsibilities as administrator to SSB Citi Fund Management LLC ("SSBC"), an
affiliate of SBAM, pursuant to a Sub-Administration Agreement between SBAM and
SSBC.
Each Fund has an agreement with CFBDS, Inc. to distribute its shares pursuant
to a multiple pricing system. Each class (except for Class O) of each Fund is
authorized pursuant to a services and distribution plan applicable to that
class of shares ("Class A Plan," the "Class B Plan," and the "Class 2 Plan,"
collectively, the "Plans") adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("1940 Act"), to pay the distributor an annual
service fee with respect to Class A, Class B, and Class 2 shares of the appli-
cable Funds at the rate of 0.25% of the value of the average daily net assets
of the respective class. The distributor is paid an annual distribution fee
with respect to Class B and Class 2 shares of each Fund at a rate of 0.75% of
the value of the average net assets of the respective class. Class O shares are
not subject to a service and distribution plan fee.
For the six months ended June 30, 2000, total service and distribution plan
fees were as follows:
<TABLE>
<CAPTION>
Class A Class B Class 2
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Asia Growth Fund.................................... $ 8,988 $ 51,373 $ 21,572
International Equity Fund........................... 6,501 27,700 23,012
Small Cap Growth Fund............................... 233,783 698,772 82,367
Capital Fund........................................ 51,099 490,215 188,462
Large Cap Growth Fund............................... 2,822 35,349 9,803
Investors Value Fund................................ 49,647 384,125 91,623
Balanced Fund....................................... 37,928 432,079 91,829
</TABLE>
64
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
SSB received $1,248,586 as its portion of the front-end sales charge on sales
of Class A and Class 2 shares of the Funds during the six months ended June 30,
2000. In addition, contingent deferred sales charges of $1,058,126 were paid to
SSB in connection with redemptions of certain Class B and Class 2 shares of the
Funds during the six months ended June 30, 2000.
Brokerage commissions of $1,194 and $3,222 were paid by the Capital Fund and
Investors Value Fund, respectively, to SSB.
3. Capital Stock
At June 30, 2000, the Series Funds had 10,000,000,000 shares of authorized cap-
ital stock, par value $0.001 per share. The Investors Value Fund had 50,000,000
shares of authorized capital stock, par value $1.00 per share. The Capital Fund
had 25,000,000 shares of authorized capital stock, par value $0.001 per share.
At June 30, 2000, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class 2 Class O
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asia Growth Fund............. $ 7,472,360 $ 8,723,022 $ 3,425,136 $ 845,896
International Equity Fund.... 12,620,988 5,906,557 5,996,796 1,059,400
Small Cap Growth Fund........ 97,213,651 84,432,903 15,958,653 522,581
Capital Fund................. 55,475,868 114,174,255 54,569,171 153,452,444
Large Cap Growth Fund........ 2,255,384 7,418,948 2,502,354 1,733,175
Investors Value Fund......... 49,468,948 77,409,233 19,554,778 436,989,374
Balanced Fund................ 21,943,679 76,566,813 16,565,221 718,987
</TABLE>
65
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
Transactions in Fund shares for the periods indicated were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares
---------------------------------------------------- --------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, 2000 December 31, 1999 June 30, 2000 December 31, 1999
------------------------- ------------------------- ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asia Growth Fund
Shares sold..... 693,787 $ 8,380,240 820,575 $ 6,496,399 106,390 $ 1,347,384 248,887 $ 2,263,544
Shares issued as
reinvestment... -- -- -- -- -- -- -- --
Shares
redeemed....... (683,006) (8,415,207) (933,537) (7,350,231) (155,771) (1,912,687) (208,794) (1,808,793)
---------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
Net increase
(decrease)..... 10,781 $ (34,967) (112,962) $ (853,832) (49,381) $ (565,303) 40,093 $ 454,751
========== ============= ========== ============= ========== ============ ========== ============
International
Equity Fund++
Shares sold..... 1,082,417 $ 12,475,340 206,248 $ 2,188,694 268,912 $ 3,217,534 311,181 $ 3,331,375
Shares issued as
reinvestment... -- -- -- -- -- -- -- --
Shares
redeemed....... (181,857) (2,006,141) (3,091) (34,984) (53,620) (621,849) (1,411) (16,452)
---------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
Net increase.... 900,560 $ 10,469,199 203,157 $ 2,153,710 215,292 $ 2,595,685 309,770 $ 3,314,923
========== ============= ========== ============= ========== ============ ========== ============
Small Cap Growth
Fund
Shares sold..... 7,060,325 $ 127,954,509 3,555,893 $ 51,019,503 493,494 $ 9,172,611 524,385 $ 7,351,719
Shares issued as
reinvestment... 1,184,041 21,644,271 526,908 8,114,385 931,767 16,753,045 393,936 5,995,706
Shares
redeemed....... (7,257,374) (132,194,929) (4,086,563) (59,269,935) (576,821) (10,301,454) (903,160) (12,735,817)
---------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
Net increase
(decrease)..... 986,992 $ 17,403,851 (3,762) $ (136,047) 848,440 $ 15,624,202 15,161 $ 611,608
========== ============= ========== ============= ========== ============ ========== ============
Capital Fund
Shares sold..... 1,638,681 $ 44,051,154 2,967,781 $ 72,928,143 1,619,550 $ 42,449,209 2,285,827 $ 54,969,564
Shares issued as
reinvestment... 85,533 2,304,624 94,159 2,307,965 211,273 5,579,491 234,097 5,627,409
Shares
redeemed....... (692,567) (18,634,313) (2,381,429) (58,529,687) (352,212) (9,079,942) (300,374) (7,193,379)
---------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
Net increase
(decrease)..... 1,031,647 $ 27,721,465 680,511 $ 16,706,421 1,478,611 $ 38,948,758 2,219,550 $ 53,403,594
========== ============= ========== ============= ========== ============ ========== ============
Large Cap Growth
Fund**
Shares sold..... 126,315 $ 1,359,601 185,594 $ 1,886,240 177,525 $ 1,889,103 559,621 $ 5,918,430
Shares issued as
reinvestment... 438 4,617 -- -- 1,497 15,706 -- --
Shares
redeemed....... (96,612) (990,175) (389) (4,223) (37,376) (396,917) (573) (6,199)
---------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
Net increase.... 30,141 $ 374,043 185,205 $ 1,882,017 141,646 $ 1,507,892 559,048 $ 5,912,231
========== ============= ========== ============= ========== ============ ========== ============
Investors Value
Fund
Shares sold..... 2,066,784 $ 44,060,104 5,354,430 $ 123,724,267 228,687 $ 4,664,616 1,026,823 $ 22,981,206
Shares issued as
reinvestment... 81,740 1,725,243 224,846 4,752,407 131,984 2,749,614 563,323 11,763,229
Shares
redeemed....... (1,258,800) (26,594,453) (6,305,947) (145,389,814) (699,272) (14,069,067) (1,026,065) (22,477,257)
---------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
Net increase
(decrease)..... 889,724 $ 19,190,894 (726,671) $ (16,913,140) (338,601) $ (6,654,837) 564,081 $ 12,267,178
========== ============= ========== ============= ========== ============ ========== ============
Balanced Fund
Shares sold..... 73,943 $ 943,429 399,441 $ 5,355,740 99,935 $ 1,281,743 953,569 $ 12,729,518
Shares issued as
reinvestment... 68,971 886,455 143,632 1,891,102 179,594 2,301,155 342,656 4,494,019
Shares
redeemed....... (855,827) (10,978,781) (1,705,708) (22,625,269) (1,705,789) (21,695,335) (2,884,560) (37,918,767)
---------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
Net decrease.... (712,913) $ (9,148,897) (1,162,635) $ (15,378,427) (1,426,260) $(18,112,437) (1,588,335) $(20,695,230)
========== ============= ========== ============= ========== ============ ========== ============
</TABLE>
* Effective September 14, 1998, Class C shares of each Fund were redesignated
as Class 2 shares.
++ Inception date for Class A, Class B, Class 2 and Class O shares is October
25, 1999.
** Inception date for Class A, Class B, and Class 2 shares is October 25,
1999. Inception date for Class O shares is October 26, 1999.
66
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
<TABLE>
<CAPTION>
Class 2 Shares* Class O Shares
---------------------------------------------- --------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, 2000 December 31, 1999 June 30, 2000 December 31, 1999
---------------------- ---------------------- ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
--------- ----------- -------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
46,013 $ 584,179 147,895 $ 1,200,786 3,196 $ 39,711 5,260 $ 51,271
-- -- -- -- -- -- -- --
(32,682) (392,258) (164,067) (1,326,680) (2,097) (24,201) (106,929) (1,016,937)
--------- ----------- -------- ------------ ---------- ------------ ---------- ------------
13,331 $ 191,921 (16,172) $ (125,894) 1,099 $ 15,510 (101,669) $ (965,666)
========= =========== ======== ============ ========== ============ ========== ============
371,275 $ 4,373,103 196,159 $ 2,041,831 4,899 $ 57,461 101,012 $ 1,010,852
-- -- -- -- -- -- -- --
(36,061) (411,462) (297) (3,539) (646) (7,869) -- --
--------- ----------- -------- ------------ ---------- ------------ ---------- ------------
335,214 $ 3,961,641 195,862 $ 2,038,292 4,253 $ 49,592 101,012 $ 1,010,852
========= =========== ======== ============ ========== ============ ========== ============
121,154 $ 2,177,199 197,644 $ 2,531,764 22,385 $ 437,547 3,013 $ 45,274
111,803 2,014,685 45,657 695,814 2,008 36,869 76 1,179
(88,865) (1,573,799) (93,401) (1,289,080) -- -- (5,000) (61,959)
--------- ----------- -------- ------------ ---------- ------------ ---------- ------------
144,092 $ 2,618,085 149,900 $ 1,938,498 24,393 $ 474,416 (1,911) $ (15,506)
========= =========== ======== ============ ========== ============ ========== ============
1,186,314 $31,222,184 730,331 $ 17,642,431 348,689 $ 9,172,466 610,678 $ 14,902,426
80,336 2,124,103 73,155 1,761,747 543,284 14,736,651 845,836 20,859,912
(89,708) (2,326,140) (87,015) (2,073,040) (604,695) (16,023,414) (1,472,035) (35,572,340)
--------- ----------- -------- ------------ ---------- ------------ ---------- ------------
1,176,942 $31,020,147 716,471 $ 17,331,138 287,278 $ 7,885,703 (15,521) $ 189,998
========= =========== ======== ============ ========== ============ ========== ============
142,467 $ 1,526,984 112,907 $ 1,158,608 1,799 $ 18,829 171,394 $ 1,715,000
499 5,240 -- -- 6 61 -- --
(15,229) (163,917) (2,304) (24,179) -- -- -- --
--------- ----------- -------- ------------ ---------- ------------ ---------- ------------
127,737 $ 1,368,307 110,603 $ 1,134,429 1,805 $ 18,890 171,394 $ 1,715,000
========= =========== ======== ============ ========== ============ ========== ============
159,018 $ 3,256,553 255,985 $ 5,813,731 1,273,150 $ 6,578,813 559,610 $ 13,451,882
32,825 684,634 126,655 2,649,796 99,037 22,359,022 4,176,379 88,832,862
(128,004) (2,607,940) (316,659) (6,892,616) (1,326,973) (27,448,100) (2,240,548) (50,603,315)
--------- ----------- -------- ------------ ---------- ------------ ---------- ------------
63,839 $ 1,333,247 65,981 $ 1,570,911 45,214 $ 1,489,735 2,495,441 $ 51,681,429
========= =========== ======== ============ ========== ============ ========== ============
45,225 $ 578,193 292,789 $ 3,937,309 2,205 $ 28,632 4,263 $ 57,296
37,499 481,613 76,114 1,000,856 3,931 50,847 6,257 82,849
(432,574) (5,530,793) (971,905) (12,812,858) (6,313) (80,475) (12,693) (173,036)
--------- ----------- -------- ------------ ---------- ------------ ---------- ------------
(349,850) $(4,470,987) (603,002) $ (7,874,693) (177) $ (996) (2,173) $ (32,891)
========= =========== ======== ============ ========== ============ ========== ============
</TABLE>
67
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
At June 30, 2000, Salomon Brothers Holding Co., Inc. owned approximately the
following percentages of total shares outstanding of the following Funds:
<TABLE>
<S> <C>
Asia Growth Fund............................................................ 27%
Balanced Fund............................................................... 5%
International Equity Fund................................................... 4%
Large Cap Growth Fund....................................................... 13%
</TABLE>
4. Investments
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Asia Growth Fund..................................... $ 21,177,625 $ 21,432,765
============ ============
International Equity Fund............................ $ 14,152,937 $ 130,903
============ ============
Small Cap Growth Fund................................ $242,659,311 $243,394,260
============ ============
Capital Fund......................................... $257,565,429 $181,653,895
============ ============
Large Cap Growth Fund................................ $ 9,051,827 $ 5,945,275
============ ============
Investors Value Fund................................. $260,018,747 $264,445,516
============ ============
Balanced Fund:
U.S. Government Securities.......................... $ 1,491,270 $ 4,598,727
Other Investments................................... 23,392,537 62,721,604
------------ ------------
$ 24,883,807 $ 67,320,331
============ ============
</TABLE>
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
<CAPTION>
Net
Gross Gross Unrealized
Unrealized Unrealized Appreciation
Appreciation Depreciation (Depreciation)
------------ ------------ --------------
<S> <C> <C> <C>
Asia Growth Fund...................... $ 4,457,041 $ (1,494,207) $ 2,962,834
International Equity Fund............. 2,134,023 (1,875,556) 258,467
Small Cap Growth Fund................. 92,305,787 (20,599,346) 71,706,441
Capital Fund.......................... 96,242,496 (32,906,192) 63,336,304
Large Cap Growth Fund................. 1,796,784 (667,132) 1,129,652
Investors Value Fund.................. 214,182,672 (34,356,362) 179,826,310
Balanced Fund......................... 12,908,286 (13,503,020) (594,734)
</TABLE>
68
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
Written call options transactions for the Small Cap Growth Fund that occurred
during the six months ended June 30, 2000 were as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received (Paid)
--------- ---------------
<S> <C> <C>
Options written, outstanding at December 31, 1999... 1,010 $419,036
Options written during the six months ended June 30,
2000............................................... -- --
Options terminated in closing purchase
transactions....................................... (725) (190,884)
Options expired..................................... (25) (4,300)
Options exercised................................... (260) (223,852)
----- --------
Options written, outstanding at June 30, 2000....... -- $ 0
===== ========
</TABLE>
The following written put option transactions for the Capital Fund which oc-
curred during the six months ended June 30, 2000:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received (Paid)
--------- ---------------
<S> <C> <C>
Options written, outstanding at December 31, 1999... -- $ 0
Options written during the six months ended June 30,
2000............................................... 250 999,217
Options terminated in closing purchase
transactions....................................... (250) (999,217)
---- ---------
Options written, outstanding at June 30, 2000....... -- $ 0
==== =========
</TABLE>
In addition, the written call option transactions for the Investors Value Fund
which occurred during the six months ended June 30, 2000 were as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received (Paid)
--------- ---------------
<S> <C> <C>
Options written, outstanding at December 31, 1999... 4,556 $ 2,433,389
Options written during the six months ended June 30,
2000............................................... -- --
Options exercised................................... (1,100) (910,919)
Options terminated in closing purchase
transactions....................................... (3,456) (1,522,470)
------ -----------
Options written, outstanding at June 30, 2000....... -- $ 0
====== ===========
</TABLE>
69
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
5. Portfolio Investment Risks
Credit and Market Risk. Funds that invest in high yield and emerging market
instruments are subject to certain credit and market risks. The yields of high
yield and emerging market debt obligations reflect, among other things,
perceived credit risk. The Funds' investment in securities rated below
investment grade typically involve risks not associated with higher rated
securities including, among others, greater risk of timely and ultimate payment
of interest and principal, greater market price volatility and less liquid
secondary market trading. The consequences of political, social, economic or
diplomatic changes may have disruptive effects on the market prices of
investments held by the Funds. The Funds' investment in non-dollar denominated
securities may also result in foreign currency losses caused by devaluations
and exchange rate fluctuations.
Financial Instruments with Off-Balance Sheet Risk. Certain Funds enter into
forward foreign currency contracts ("forward contracts") to facilitate
settlement of foreign currency denominated portfolio transactions or to manage
foreign currency exposure associated with foreign currency denominated
securities. Forward contracts involve elements of market risk in excess of the
amounts reflected in the Statements of Assets and Liabilities. The Funds bear
the risk of an unfavorable change in the foreign exchange rate underlying the
forward contract. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities markets
and the possibility of political or economic instability.
Funds that enter into mortgage dollar rolls are subject to the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a mortgage dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the dollar roll may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities.
Consistent with their objective to seek high current income, certain Funds may
invest in instruments whose values and interest rates may be linked to foreign
currencies, interest rates, indices or some other financial indicator. The
value at maturity or interest rates for these instruments will increase or
decrease according to the change in the indicator to which it is indexed. These
securities are generally more volatile in nature and the risk of loss of
principal is greater.
A risk in writing a call option is that the Fund may forego the opportunity of
profit if the market price of the underlying security increases and the option
is exercised. The risk in writing a put option is that the Fund may incur a
loss if the market price of the underlying security decreases and the option is
exercised. In addition, there is the risk that the Fund may not be able to
enter into a closing transaction because of an illiquid secondary market.
In connection with purchasing participations, the Fund generally will have no
right to enforce compliance by the borrower, and the Fund may not benefit
directly from any collateral supporting the loan in which it has purchased the
participation. As a result, the Fund will assume the credit risk of both the
borrower and the lender that is selling the participation. In the event of the
insolvency of the lender selling the participation, the Fund may be treated as
a general creditor of the lender and may not benefit from any set-off between
the lender and the borrower.
70
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
6. Tax Information
At December 31, 1999, the Asia Growth Fund had, for Federal income tax
purposes, a capital loss carry forward of approximately $4,701,000 available to
offset future capital gains through December 31, 2006. To the extent that these
carry forward losses are used to offset capital gains, it is probable that any
gains so offset will not be distributed.
The character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. At December 31, 1999, reclassifications were made to the
capital accounts of the Asia Growth Fund, International Equity Fund, Large Cap
Growth Fund, Investors Value Fund and Balanced Fund to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. A portion of overdistributed net investment income
amounting to $131,850 and $2,948 was reclassified to paid-in capital for the
Asia Growth Fund and Large Cap Growth Fund, respectively. In addition, a
portion of accumulated net investment loss and accumulated net realized gain
amounting to $10,153 and $154,985 was reclassified to paid-in capital for the
International Equity Fund and Small Cap Growth Fund, respectively. Net
investment income, net realized gains and net assets were not affected by these
changes.
7. Transfer of Net Assets
On July 16, 1999, the Small Cap Growth Fund acquired the assets and certain li-
abilities of the Smith Barney Special Equities Fund Portfolio ("Special Equi-
ties Fund") pursuant to a plan of reorganization approved by Special Equities
Fund shareholders on May 28, 1999. Total shares issued by the Small Cap Growth
Fund and the total net assets of the Special Equities Fund and Small Cap Growth
Fund on the date of the transfer were as follows.
<TABLE>
<CAPTION>
Total Net Total Net
Shares Issued Assets of Assets of
by the the Special the Small
Small Cap Equities Cap Growth
Acquired Fund Growth Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Special Equities Fund.................... 16,980,004 $240,911,211 $13,358,236
</TABLE>
The total net assets of the Special Equities Fund before acquisition included
appreciation of $88,789,026. Total net assets of the Small Cap Growth Fund im-
mediately after the transfer were $254,269,447. The transaction was structured
to qualify as a tax-free reorganization under the Internal Revenue Code of
1986, as amended.
71
<PAGE>
Financial Highlights
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Asia Growth Fund
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Class A Shares
------------------------------------------------
2000(1) 1999 1998 1997 1996(2)
-------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $12.67 $6.50 $7.48 $10.32 $10.00
------ ------- ------ ------ ------
Income (Loss) From
Operations:
Net investment income
(3).................... 0.02 -- 0.10 0.03 0.05
Net realized and
unrealized gain
(loss)................. (1.06) 6.17 (1.08) (2.59) 0.47
------ ------- ------ ------ ------
Total Income (Loss) From
Operations.............. (1.04) 6.17 (0.98) (2.56) 0.52
------ ------- ------ ------ ------
Less Distributions From:
Net investment income... -- -- -- (0.03) (0.05)
Net realized gains...... -- -- -- (0.25) (0.15)
------ ------- ------ ------ ------
Total Distributions...... -- -- -- (0.28) (0.20)
------ ------- ------ ------ ------
Net Asset Value, End of
Period.................. $11.63 $12.67 $6.50 $7.48 $10.32
====== ======= ====== ====== ======
Total Return (4)......... (8.2)%++ 94.9%++ (13.1)% (25.6)% 5.2%++
Net Assets, End of Period
(000s).................. $6,651 $7,108 $4,385 $6,491 $3,693
Ratios to Average Net
Assets:
Expenses................ 1.24%+ 1.24% 1.24% 1.24% 1.24%+
Net investment income
(loss)................. 0.28%+ (0.01)% 1.48% 0.27% 0.90%+
Portfolio Turnover Rate.. 95% 248% 436% 294% 119%
Before applicable waiver
of management fee,
expenses absorbed by SBAM
and credits earned on
custodian cash balances,
net investment loss per
share and expense ratios
would have been:
Net investment loss per
share (3).............. $(0.15) $(0.12) $(0.07) $(0.23) $(0.18)
Expense ratio........... 2.41%+ 2.62% 3.79% 3.81% 5.50%+
Asia Growth Fund
-----------------------------------------------------------------------------
<CAPTION>
Class B Shares
-------------------------------------
2000(1) 1999 1998 1997 1996(2)
-------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $12.41 $6.42 $7.44 $10.31 $10.00
------ ------- ------ ------ ------
Income (Loss) From
Operations:
Net investment income
(loss) (3)............. (0.05) (0.06) 0.05 (0.05) 0.01
Net realized and
unrealized gain
(loss)................. (1.01) 6.05 (1.07) (2.57) 0.46
------ ------- ------ ------ ------
Total Income (Loss) From
Operations.............. (1.06) 5.99 (1.02) (2.62) 0.47
------ ------- ------ ------ ------
Less Distributions From:
Net investment income... -- -- -- -- (0.01)
Net realized gains...... -- -- -- (0.25) (0.15)
------ ------- ------ ------ ------
Total Distributions...... -- -- -- (0.25) (0.16)
------ ------- ------ ------ ------
Net Asset Value, End of
Period.................. $11.35 $12.41 $6.42 $7.44 $10.31
====== ======= ====== ====== ======
Total Return (4)......... (8.5)%++ 93.3% (13.7)% (26.1)% 4.7%++
Net Assets, End of Period
(000s).................. $9,185 $10,658 $5,256 $5,738 $3,163
Ratios to Average Net
Assets:
Expenses................ 1.99%+ 1.99% 1.99% 1.99% 1.99%+
Net investment income
(loss)................. (0.85)%+ (0.74)% 0.77% (0.48)% 0.20%+
Portfolio Turnover Rate.. 95% 248% 436% 294% 119%
Before applicable waiver
of management fee,
expenses absorbed by SBAM
and credits earned on
custodian cash balances,
net investment loss per
share and expense ratios
would have been:
Net investment loss per
share (3).............. $(0.19) $(0.12) $(0.11) $(0.30) $(0.23)
Expense ratio........... 3.17%+ 3.39% 4.55% 4.56% 6.25%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from May 6, 1996 (inception date) to December 31, 1996.
(3) Per share amounts have been calculated using the average shares method.
(4) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
72
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Asia Growth Fund
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
Class 2 Shares
------------------------------------
2000(1) 1999 1998(2) 1997 1996(3)
------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $12.41 $ 6.42 $ 7.44 $10.30 $10.00
------ ------ ------ ------ ------
Income (Loss) From
Operations:
Net investment income
(loss) (4)............. (0.04) (0.06) 0.05 (0.05) 0.01
Net realized and
unrealized gain
(loss)................. (1.03) 6.05 (1.07) (2.56) 0.45
------ ------ ------ ------ ------
Total Income (Loss) From
Operations.............. (1.07) 5.99 (1.02) (2.61) 0.46
------ ------ ------ ------ ------
Less Distributions From:
Net investment income... -- -- -- -- (0.01)
Net realized gains...... -- -- -- (0.25) (0.15)
------ ------ ------ ------ ------
Total Distributions...... -- -- -- (0.25) (0.16)
------ ------ ------ ------ ------
Net Asset Value, End of
Period.................. $11.34 $12.41 $ 6.42 $ 7.44 $10.30
====== ====== ====== ====== ======
Total Return (5)......... (8.6)%++ 93.3% (13.7)% (26.0)% 4.6%++
Net Assets, End of Period
(000s).................. $4,017 $4,227 $2,291 $1,643 $246
Ratios to Average Net
Assets:
Expenses................ 1.99%+ 1.99% 1.99% 1.99% 2.00%+
Net investment income
(loss)................. (0.65)%+ (0.76)% 0.80% (0.47)% 0.08%+
Portfolio Turnover Rate.. 95% 248% 436% 294% 119%
Before applicable waiver
of management fee,
expenses absorbed by SBAM
and credits earned on
custodian cash balances,
net investment loss per
share and expense ratios
would have been:
Net investment loss per
share (4).............. $(0.19) $(0.11) $(0.11) $(0.30) $(0.20)
Expense ratio........... 3.17%+ 3.37% 4.55% 4.56% 6.26%+
Asia Growth Fund
----------------------------------------------------------------------------
<CAPTION>
Class O Shares
------------------------------------
2000(1) 1999 1998 1997 1996(3)
------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $12.76 $ 6.54 $ 7.50 $10.32 $10.00
------ ------ ------ ------ ------
Income (Loss) From
Operations:
Net investment income
(4).................... 0.02 0.02 0.12 0.05 0.07
Net realized and
unrealized gain
(loss)................. (1.06) 6.20 (1.08) (2.59) 0.46
------ ------ ------ ------ ------
Total Income (Loss) From
Operations.............. (1.04) 6.22 (0.96) (2.54) 0.53
------ ------ ------ ------ ------
Less Distributions From:
Net investment income... -- -- -- (0.03) (0.06)
Net realized gains...... -- -- -- (0.25) (0.15)
------ ------ ------ ------ ------
Total Distributions...... -- -- -- (0.28) (0.21)
------ ------ ------ ------ ------
Net Asset Value, End of
Period.................. $11.72 $12.76 $ 6.54 $ 7.50 $10.32
====== ====== ====== ====== ======
Total Return (5)......... (8.2)%++ 95.1% (12.8)% (25.3)% 5.3%++
Net Assets, End of Period
(000s).................. $1,247 $1,343 $1,354 $412 $124
Ratios to Average Net
Assets:
Expenses................ 0.99%+ 0.97% 0.99% 0.99% 0.99%+
Net investment income... 0.26%+ 0.23% 1.90% 0.51% 1.21%+
Portfolio Turnover Rate.. 95% 248% 436% 294% 119%
Before applicable waiver
of management fee,
expenses absorbed by SBAM
and credits earned on
custodian cash balances,
net investment loss per
share and expense ratios
would have been:
Net investment loss per
share (4).............. $(0.14) $(0.11) $(0.04) $(0.20) $(0.18)
Expense ratio........... 2.16%+ 2.32% 3.55% 3.56% 5.25%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) On September 14, 1998, Class C shares were renamed Class 2 shares.
(3) For the period from May 6, 1996 (inception date) to December 31, 1996.
(4) Per share amounts have been calculated using the average shares method.
(5) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
73
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
International Equity Fund
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Class A Shares Class B Shares
<S> <C> <C> <C> <C>
---------------- ----------------
<CAPTION>
2000(1) 1999(2) 2000(1) 1999(2)
<S> <C> <C> <C> <C>
---------------- ----------------
Net Asset Value, Beginning of Period... $12.49 $10.00 $12.47 $10.00
------- ------ ------ ------
Income (Loss) From Operations:
Net investment loss (3)............... (0.01) (0.03) (0.05) (0.04)
Net realized and unrealized gain
(loss)............................... (1.14) 2.52 (1.14) 2.51
------- ------ ------ ------
Total Income (Loss) From Operations.... (1.15) 2.49 (1.19) 2.47
------- ------ ------ ------
Less Distributions From:
Net investment income................. -- -- -- --
Net realized gains.................... -- -- -- --
------- ------ ------ ------
Total Distributions.................... -- -- -- --
------- ------ ------ ------
Net Asset Value, End of Period......... $11.34 $12.49 $11.28 $12.47
======= ====== ====== ======
Total Return (4)++..................... (9.2)% 24.9% (9.5)% 24.7%
Net Assets, End of Period (000s)....... $12,517 $2,538 $5,922 $3,863
Ratios to Average Net Assets+:
Expenses.............................. 1.75% 1.75% 2.50% 2.50%
Net investment loss................... (0.12)% (1.39)% (0.93)% (2.30)%
Portfolio Turnover Rate................ 1% 1% 1% 1%
Before applicable waiver of management
fee and expenses absorbed by SBAM, net
investment loss per share and expense
ratios would have been:
Net investment loss per share (3)..... $(0.03) $(0.08) $(0.08) $(0.09)
Expense ratio+........................ 2.37% 4.36% 3.12% 5.11%
International Equity Fund
------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares Class O Shares
<S> <C> <C> <C> <C>
---------------- ----------------
<CAPTION>
2000(1) 1999(2) 2000(1) 1999(2)
<S> <C> <C> <C> <C>
---------------- ----------------
Net Asset Value, Beginning of Period... $12.46 $10.00 $12.49 $10.00
------- ------ ------ ------
Income (Loss) From Operations:
Net investment loss (3)............... (0.04) (0.04) (0.00)* (0.02)
Net realized and unrealized gain
(loss)............................... (1.15) 2.50 (1.14) 2.51
------- ------ ------ ------
Total Income (Loss) From Operations.... (1.19) 2.46 (1.14) 2.49
------- ------ ------ ------
Less Distributions From:
Net investment income................. -- -- -- --
Net realized gains.................... -- -- -- --
------- ------ ------ ------
Total Distributions.................... -- -- -- --
------- ------ ------ ------
Net Asset Value, End of Period......... $11.27 $12.46 $11.35 $12.49
======= ====== ====== ======
Total Return (4)++..................... (9.6)% 24.6% (9.1)% 24.9%
Net Assets, End of Period (000s)....... $5,983 $2,441 $1,195 $1,262
Ratios to Average Net Assets:
Expenses.............................. 2.50% 2.50% 1.50% 1.50%
Net investment loss................... (0.85)% (2.13)% (0.02)% (0.83)%
Portfolio Turnover Rate................ 1% 1% 1% 1%
Before applicable waiver of management
fee and expenses absorbed by SBAM, net
investment loss per share and expense
ratios would have been:
Net investment loss per share (3)..... $(0.07) $(0.09) $(0.03) $(0.07)
Expense ratio+........................ 3.12% 5.09% 2.12% 4.05%
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from October 25, 1999 (inception date) to December 31, 1999.
(3) Per share amounts have been calculated using the average shares method.
(4) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
* Amount represents less than $0.01.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
74
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Small Cap Growth Fund
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Class A Shares
--------------------------------
2000(1) 1999 1998(2)
--------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $17.23 $11.59 $10.00
-------- -------- ------
Income (Loss) From Operations:
Net investment loss (3)................ (0.03) (0.07) (0.02)
Net realized and unrealized gain....... 3.55 6.63 1.61
-------- -------- ------
Total Income From Operations............ 3.52 6.56 1.59
-------- -------- ------
Less Distributions From:
Net investment income.................. -- -- --
Net realized gains..................... (2.43) (0.92) --
-------- -------- ------
Total Distributions..................... (2.43) (0.92) --
-------- -------- ------
Net Asset Value, End of Period.......... $18.32 $17.23 $11.59
======== ======== ======
Total Return (4)........................ 20.5%++ 57.5% 15.9%++
Net Assets, End of Period (000s)........ $195,985 $167,281 $3,205
Ratios to Average Net Assets:
Expenses............................... 1.35%+ 1.37% 1.50%+
Net investment loss.................... (0.38)%+ (0.52)% (0.51)%+
Portfolio Turnover Rate................. 78% 142% 96%
Before applicable waiver of management
fee, expenses absorbed by SBAM and
credits earned on custodian cash
balances, net investment loss per share
and expense ratios would have been:
Net investment loss per share (3)...... N/A $(0.08) $(0.06)
Expense ratio.......................... N/A 1.40% 2.30%+
Small Cap Growth Fund
------------------------------------------------------------------------------
<CAPTION>
Class B Shares
--------------------------------
2000(1) 1999 1998(2)
--------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $17.01 $11.55 $10.00
-------- -------- ------
Income (Loss) From Operations:
Net investment loss (3)................ (0.10) (0.17) (0.06)
Net realized and unrealized gain....... 3.51 6.55 1.61
-------- -------- ------
Total Income From Operations............ 3.41 6.38 1.55
-------- -------- ------
Less Distributions From:
Net investment income.................. -- -- --
Net realized gains..................... (2.43) (0.92) --
-------- -------- ------
Total Distributions..................... (2.43) (0.92) --
-------- -------- ------
Net Asset Value, End of Period.......... $17.99 $17.01 $11.55
======== ======== ======
Total Return (4)........................ 20.1%++ 56.2% 15.5%++
Net Assets, End of Period (000s)........ $146,942 $124,560 $3,850
Ratios to Average Net Assets:
Expenses............................... 2.10%+ 2.12% 2.25%+
Net investment loss.................... (1.13)%+ (1.23)% (1.21)%+
Portfolio Turnover Rate................. 78% 142% 96%
Before applicable waiver of management
fee, expenses absorbed by SBAM and
credits earned on custodian cash
balances, net investment loss per share
and expense ratios would have been:
Net investment loss per share (3)...... N/A $(0.17) $(0.10)
Expense ratio.......................... N/A 2.15% 3.05%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from July 1, 1998 (inception date) to December 31, 1998.
(3) Per share amounts have been calculated using the average shares method.
(4) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
75
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Small Cap Growth Fund
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares
-----------------------------
2000(1) 1999 1998(2)(3)
-----------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period......... $17.04 $11.56 $10.00
------- ------- ------
Income (Loss) From Operations:
Net investment loss (4)..................... (0.10) (0.17) (0.06)
Net realized and unrealized gain............ 3.51 6.57 1.62
------- ------- ------
Total Income From Operations................. 3.41 6.40 1.56
------- ------- ------
Less Distributions From:
Net investment income....................... -- -- --
Net realized gains.......................... (2.43) (0.92) --
------- ------- ------
Total Distributions.......................... (2.43) (0.92) --
------- ------- ------
Net Asset Value, End of Period............... $18.02 $17.04 $11.56
======= ======= ======
Total Return (5)............................. 20.0%++ 56.3% 15.6%++
Net Assets, End of Period (000s)............. $17,704 $14,285 $1,471
Ratios to Average Net Assets:
Expenses.................................... 2.10%+ 2.14% 2.25%+
Net investment loss......................... (1.13)%+ (1.22)% (1.35)%+
Portfolio Turnover Rate...................... 78% 142% 96%
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 loss per share (4)........... N/A $(0.17) $(0.10)
Expense ratio............................... N/A 2.18% 3.05%+
Small Cap Growth Fund
------------------------------------------------------------------------------
<CAPTION>
Class O Shares
-----------------------------
2000(1) 1999 1998(2)
-----------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 17.29 $ 11.60 $10.00
------- ------- ------
Income (Loss) From Operations:
Net investment loss (4)..................... (0.02) (0.06) (0.01)
Net realized and unrealized gain............ 3.58 6.67 1.61
------- ------- ------
Total Income From Operations................. 3.56 6.61 1.60
------- ------- ------
Less Distributions From:
Net investment income....................... -- -- --
Net realized gains.......................... (2.43) (0.92) --
------- ------- ------
Total Distributions.......................... (2.43) (0.92) --
------- ------- ------
Net Asset Value, End of Period............... $18.42 $17.29 $11.60
======= ======= ======
Total Return (5)............................. 20.7%++ 57.9% 16.0%++
Net Assets, End of Period (000s)............. $ 520 $ 67 $ 67
Ratios to Average Net Assets:
Expenses.................................... 1.14%+ 1.24% 1.25%+
Net investment loss......................... (0.24)%+ (0.49)% (0.18)%+
Portfolio Turnover Rate...................... 78% 142% 96%
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 loss per share (4)........... N/A $(0.06) $(0.05)
Expense ratio............................... N/A 1.27% 2.05%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from July 1, 1998 (inception date) to December 31, 1998.
(3) On September 14, 1998, Class C shares were renamed Class 2 shares.
(4) Per share amounts have been calculated using the average shares method.
(5) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
76
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Capital Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Class A Shares
--------------------------------------------
2001(1) 1999 1998 1997 1996(2)
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $25.29 $22.92 $21.15 $19.88 $21.98
------- ------- ------- ------ ------
Income From Operations:
Net investment income........ 0.05* 0.15* 0.14 -- 0.01*
Net realized and unrealized
gain........................ 4.27 4.99 4.64 5.10 1.54
------- ------- ------- ------ ------
Total Income From Operations.. 4.32 5.14 4.78 5.10 1.55
------- ------- ------- ------ ------
Less Distributions From:
Net investment income........ (0.07) (0.18) (0.18) -- (0.15)
Net realized gains........... (1.82) (2.59) (2.83) (3.83) (3.50)
------- ------- ------- ------ ------
Total Distributions........... (1.89) (2.77) (3.01) (3.83) (3.65)
------- ------- ------- ------ ------
Net Asset Value, End of
Period....................... $27.72 $25.29 $22.92 $21.15 $19.88
======= ======= ======= ====== ======
Total Return (3).............. 17.3%++ 23.1% 23.7% 26.4% 7.7%++
Net Assets, End of Period
(000s)....................... $61,283 $29,814 $11,425 $5,589 $344
Ratios to Average Net Assets:
Expenses..................... 1.17%+ 1.27% 1.34% 1.46% 1.88%+
Net investment income
(loss)...................... 0.52%+ 0.61% 0.81% (0.10)% 0.18%+
Portfolio Turnover Rate....... 47% 126% 141% 159% 191%
</TABLE>
Capital Fund
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Class B Shares
------------------------------------------
2000(1) 1999 1998 1997 1996(2)
------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $24.86 $22.63 $21.01 $19.90 $21.98
-------- ------- ------- ------ ------
Income (Loss) From
Operations:
Net investment income
(loss).................... (0.02)* (0.04)* 0.09 (0.07) (0.02)*
Net realized and unrealized
gain...................... 4.17 4.92 4.45 5.01 1.56
-------- ------- ------- ------ ------
Total Income From
Operations................. 4.15 4.88 4.54 4.94 1.54
-------- ------- ------- ------ ------
Less Distributions From:
Net investment income...... -- (0.06) (0.09) -- (0.12)
Net realized gains......... (1.82) (2.59) (2.83) (3.83) (3.50)
-------- ------- ------- ------ ------
Total Distributions......... (1.82) (2.65) (2.92) (3.83) (3.62)
-------- ------- ------- ------ ------
Net Asset Value, End of
Period..................... $27.19 $24.86 $22.63 $21.01 $19.90
======== ======= ======= ====== ======
Total Return (3)............ 16.9%++ 22.2% 22.6% 25.6% 7.6%++
Net Assets, End of Period
(000s)..................... $127,339 $79,678 $22,294 $3,820 $219
Ratios to Average Net
Assets:
Expenses................... 1.93%+ 2.02% 2.09% 2.20% 2.73%+
Net investment income
(loss).................... (0.23)%+ (0.16)% 0.17% (0.94)% (0.66)%+
Portfolio Turnover Rate..... 47% 126% 141% 159% 191%
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from November 1, 1996 (inception date) to December 31, 1996.
(3) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
77
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Capital Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares
--------------------------------------------
2000(1) 1999 1998(2) 1997 1996(3)
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $24.90 $22.69 $21.02 $19.91 $21.98
------- ------- ------ ------ ------
Income (Loss) From
Operations:
Net investment income
(loss)..................... (0.02)* (0.04)* 0.07 (0.06) (0.02)*
Net realized and unrealized
gain....................... 4.17 4.91 4.47 5.00 1.57
------- ------- ------ ------ ------
Total Income From
Operations.................. 4.15 4.87 4.54 4.94 1.55
------- ------- ------ ------ ------
Less Distributions From:
Net investment income....... -- (0.07) (0.04) (3.83) (0.12)
Net realized gains.......... (1.82) (2.59) (2.83) -- (3.50)
------- ------- ------ ------ ------
Total Distributions.......... (1.82) (2.66) (2.87) (3.83) (3.62)
------- ------- ------ ------ ------
Net Asset Value, End of
Period...................... $27.23 $24.90 $22.69 $21.02 $19.91
======= ======= ====== ====== ======
Total Return (4)............. 16.9%++ 22.2% 22.6% 25.6% 7.7%++
Net Assets, End of Period
(000s)...................... $59,201 $24,830 $6,369 $2,385 $130
Ratios to Average Net Assets:
Expenses.................... 1.92%+ 2.02% 2.09% 2.21% 2.45%+
Net investment income
(loss)..................... (0.23)%+ (0.18)% 0.09% (0.91)% (0.50)%+
Portfolio Turnover Rate...... 47% 126% 141% 159% 191%
</TABLE>
Capital Fund
<TABLE>
---------------------------------------------------------------------------------------
<CAPTION>
Class O Shares
------------------------------------------------------
2000(1) 1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $25.43 $22.99 $21.23 $19.88 $18.67 $15.62
-------- -------- -------- -------- -------- --------
Income From Operations:
Net investment income.. 0.10* 0.22* 0.21 0.05 0.13* 0.14
Net realized and
unrealized gain ...... 4.28 5.00 4.62 5.13 5.70 5.27
-------- -------- -------- -------- -------- --------
Total Income From
Operations............. 4.38 5.22 4.83 5.18 5.83 5.41
-------- -------- -------- -------- -------- --------
Less Distributions From:
Net investment income.. (0.10) (0.19) (0.24) -- (0.15) (0.14)
Net realized gains..... (1.82) (2.59) (2.83) (3.83) (4.47) (2.22)
-------- -------- -------- -------- -------- --------
Total Distributions..... (1.92) (2.78) (3.07) (3.83) (4.62) (2.36)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $27.89 $25.43 $22.99 $21.23 $19.88 $18.67
======== ======== ======== ======== ======== ========
Total Return (4)........ 17.5%++ 23.4% 23.8% 26.8% 33.3% 34.9%
Net Assets, End of
Period (000s).......... $244,161 $215,308 $194,973 $175,470 $135,943 $102,429
Ratios to Average Net
Assets:
Expenses............... 0.93%+ 1.01% 1.08% 1.22% 1.38% 1.36%
Net investment income.. 0.78%+ 0.91% 0.96% 0.26% 0.67% 0.74%
Portfolio Turnover
Rate................... 47% 126% 141% 159% 191% 217%
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) On September 14, 1998, Class C shares were renamed Class 2 shares.
(3) For the period from November 1, 1996 (inception date) to December 31, 1996.
(4) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
78
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Large Cap Growth Fund
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Class A Shares Class B Shares
----------------- -----------------
2000(1) 1999(2) 2000(1) 1999(2)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $11.18 $10.00 $11.17 $10.00
------ ------ ------ ------
Income (Loss) From Operations:
Net investment loss (4)............... (0.03) (0.01) (0.07) (0.02)
Net realized and unrealized gain
(loss)............................... (0.36) 1.19 (0.37) 1.19
------ ------ ------ ------
Total Income (Loss) From Operations.... (0.39) 1.18 (0.44) 1.17
------ ------ ------ ------
Less Distributions From:
Net realized gains.................... (0.02) -- (0.02) --
------ ------ ------ ------
Total Distributions.................... (0.02) -- (0.02) --
------ ------ ------ ------
Net Asset Value, End of Period......... $10.77 $11.18 $10.71 $11.17
====== ====== ====== ======
Total Return (5)++..................... (3.4)% 11.8% (3.9)% 11.7%
Net Assets, End of Period (000s)....... $2,318 $2,070 $7,506 $6,243
Ratios to Average Net Assets+:
Expenses.............................. 1.45% 1.44% 2.20% 2.21%
Net investment loss................... (0.54)% (0.37)% (1.29)% (1.17)%
Portfolio Turnover Rate................ 47% 10% 47% 10%
Before applicable waiver of management
fee and expenses absorbed by SBAM, net
investment loss per share and expense
ratios would have been:
Net investment loss per share (4)..... $(0.06) $(0.07) $(0.10) $(0.08)
Expense ratio+........................ 2.05% 4.02% 2.80% 4.73%
Large Cap Growth Fund
------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares Class O Shares
----------------- -----------------
2000(1) 1999(2) 2000(1) 1999(3)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $11.16 $10.00 $11.18 $10.00
------ ------ ------ ------
Income (Loss) From Operations:
Net investment loss (4)............... (0.07) (0.02) (0.02) (0.00)*
Net realized and unrealized gain
(loss)............................... (0.35) 1.18 (0.35) 1.18
------ ------ ------ ------
Total Income (Loss) From Operations.... (0.42) 1.16 (0.37) 1.18
------ ------ ------ ------
Less Distributions From:
Net realized gains.................... (0.02) -- (0.02) --
------ ------ ------ ------
Total Distributions.................... (0.02) -- (0.02) --
------ ------ ------ ------
Net Asset Value, End of Period......... $10.72 $11.16 $10.79 $11.18
====== ====== ====== ======
Total Return (5)++..................... (3.7)% 11.6% (3.3)% 11.8%
Net Assets, End of Period (000s)....... $2,556 $1,234 $1,868 $1,917
Ratios to Average Net Assets+:
Expenses.............................. 2.20% 2.19% 1.20% 1.21%
Net investment loss................... (1.31)% (1.14)% (0.28)% (0.11)%
Portfolio Turnover Rate................ 47% 10% 47% 10%
Before applicable waiver of management
fee and expenses absorbed by SBAM, net
investment loss per share and expense
ratios would have been:
Net investment loss per share (4)..... $(0.10) $(0.08) $(0.04) $(0.07)
Expense ratio+........................ 2.79% 4.71% 1.80% 3.88%
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from October 25, 1999 (inception date) to December 31, 1999.
(3) For the period from October 26, 1999 (inception date) to December 31, 1999.
(4) Per share amounts have been calculated using the average shares method.
(5) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
* Amount represents less than $0.01 per share.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
79
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Investors Value Fund
<TABLE>
----------------------------------------------------------------------------------
<CAPTION>
Class A Shares
=====================================================
<CAPTION>
2000(1) 1999 1998 1997 1996 1995(2)
<S> <C> <C> <C> <C> <C> <C>
=====================================================
Net Asset Value,
Beginning of Period.... $20.70 $22.04 $21.11 $18.89 $16.62 $13.61
------- ------- ------- ------- ------- ------
Income From Operations:
Net investment income
(3)................... 0.10 0.21 0.19 0.16 0.19 0.19
Net realized and
unrealized gain....... 1.76 2.29 2.91 4.64 4.63 4.55
------- ------- ------- ------- ------- ------
Total Income From
Operations............. 1.86 2.50 3.10 4.80 4.82 4.74
------- ------- ------- ------- ------- ------
Less Distributions From:
Net investment income.. (0.09) (0.13) (0.17) (0.21) (0.22) (0.23)
Net realized gains..... (0.87) (3.71) (2.00) (2.37) (2.33) (1.50)
------- ------- ------- ------- ------- ------
Total Distributions..... (0.96) (3.84) (2.17) (2.58) (2.55) (1.73)
------- ------- ------- ------- ------- ------
Net Asset Value, End of
Period................. $21.60 $20.70 $22.04 $21.11 $18.89 $16.62
======= ======= ======= ======= ======= ======
Total Return (4)........ 9.1%++ 11.5% 15.2% 26.2% 30.3% 35.3%++
Net Assets, End of
Period (000s).......... $53,479 $32,817 $50,953 $57,105 $10,905 $441
Ratios to Average Net
Assets:
Expenses............... 0.95%+ 0.87% 0.88% 0.95% 1.06% 0.94%+
Net investment income
...................... 1.01%+ 0.90% 0.87% 0.86% 0.94% 1.41%+
Portfolio Turnover
Rate................... 34% 66% 74% 62% 58% 86%
<CAPTION>
Class B Shares
<S> <C> <C> <C> <C> <C> <C>
=====================================================
<CAPTION>
2001(1) 1999 1998 1997 1996 1995(2)
<S> <C> <C> <C> <C> <C> <C>
=====================================================
Net Asset Value,
Beginning of Period.... $20.43 $21.87 $21.00 $18.86 $16.61 $13.61
------- ------- ------- ------- ------- ------
Income From Operations:
Net investment income
(3)................... 0.02 0.04 0.05 0.04 0.08 0.10
Net realized and
unrealized gain....... 1.74 2.26 2.85 4.58 4.60 4.54
------- ------- ------- ------- ------- ------
Total Income From
Operations............. 1.76 2.30 2.90 4.62 4.68 4.64
------- ------- ------- ------- ------- ------
Less Distributions From:
Net investment income.. (0.02) (0.03) (0.03) (0.11) (0.10) (0.14)
Net realized gains..... (0.87) (3.71) (2.00) (2.37) (2.33) (1.50)
------- ------- ------- ------- ------- ------
Total Distributions..... (0.89) (3.74) (2.03) (2.48) (2.43) (1.64)
------- ------- ------- ------- ------- ------
Net Asset Value, End of
Period................. $21.30 $20.43 $21.87 $21.00 $18.86 $16.61
======= ======= ======= ======= ======= ======
Total Return (4)........ 8.7%++ 10.6% 14.3% 25.3% 29.2% 34.5%++
Net Assets, End of
Period (000s).......... $78,005 $81,759 $75,189 $49,786 $9,433 $716
Ratios to Average Net
Assets:
Expenses............... 1.69%+ 1.61% 1.63% 1.70% 1.82% 1.71%+
Net investment income
...................... 0.24%+ 0.16% 0.18% 0.12% 0.21% 0.63%+
Portfolio Turnover
Rate................... 34% 66% 74% 62% 58% 86%
</TABLE>
Investors Value Fund
--------------------------------------------------------------------------------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from January 3, 1995 (inception date) to December 31, 1995.
(3) Per share amounts have been calculated using the average shares method.
(4) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
80
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Investors Value Fund
<TABLE>
-----------------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares
---------------------------------------------------------
2000(1) 1999 1998(2) 1997 1996 1995(3)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $20.46 $21.88 $21.01 $18.86 $16.61 $13.61
-------- -------- -------- -------- -------- --------
Income From Operations:
Net investment income.. 0.03* 0.03* 0.05 0.04 0.07 0.09
Net realized and
unrealized gain....... 1.73 2.30 2.84 4.59 4.60 4.55
-------- -------- -------- -------- -------- --------
Total Income From
Operations............. 1.76 2.33 2.89 4.63 4.67 4.64
-------- -------- -------- -------- -------- --------
Less Distributions From:
Net investment income.. (0.02) (0.04) (0.02) (0.11) (0.09) (0.14)
Net realized gains..... (0.87) (3.71) (2.00) (2.37) (2.33) (1.50)
-------- -------- -------- -------- -------- --------
Total Distributions..... (0.89) (3.75) (2.02) (2.48) (2.42) (1.64)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $21.33 $20.46 $21.88 $21.01 $18.86 $16.61
======== ======== ======== ======== ======== ========
Total Return (4)........ 8.7%++ 10.7% 14.3% 25.2% 29.3% 34.5%++
Net Assets, End of
Period (000s).......... $20,001 $17,883 $17,680 $11,701 $1,959 $306
Ratios to Average Net
Assets:
Expenses............... 1.70%+ 1.61% 1.63% 1.70% 1.80% 1.68%+
Net investment income.. 0.25%+ 0.15% 0.18% 0.13% 0.23% 0.66%+
Portfolio Turnover
Rate................... 34% 66% 74% 62% 58% 86%
Investors Value Fund
-----------------------------------------------------------------------------------------
<CAPTION>
Class O Shares
---------------------------------------------------------
2000(1) 1999 1998 1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $20.69 $22.05 $21.13 $18.90 $16.61 $13.63
-------- -------- -------- -------- -------- --------
Income From Operations:
Net investment income.. 0.13* 0.26* 0.25 0.24 0.25 0.27
Net realized and
unrealized gain....... 1.75 2.31 2.90 4.60 4.62 4.48
-------- -------- -------- -------- -------- --------
Total Income From
Operations............. 1.88 2.57 3.15 4.84 4.87 4.75
-------- -------- -------- -------- -------- --------
Less Distributions From:
Net investment income.. (0.13) (0.22) (0.23) (0.24) (0.25) (0.27)
Net realized gains..... (0.87) (3.71) (2.00) (2.37) (2.33) (1.50)
-------- -------- -------- -------- -------- --------
Total Distributions..... (1.00) (3.93) (2.23) (2.61) (2.58) (1.77)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $21.57 $20.69 $22.05 $21.13 $18.90 $16.61
======== ======== ======== ======== ======== ========
Total Return (4)........ 9.2%++ 11.7% 15.4% 26.5% 30.6% 35.4%
Net Assets, End of
Period (000s).......... $691,672 $662,248 $650,916 $608,401 $518,361 $428,950
Ratios to Average Net
Assets:
Expenses............... 0.69%+ 0.63% 0.63% 0.69% 0.76% 0.69%
Net investment income.. 1.23%+ 1.16% 1.15% 1.15% 1.36% 1.67%
Portfolio Turnover
Rate................... 34% 66% 74% 62% 58% 86%
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) On September 14, 1998, Class C shares were renamed Class 2 shares.
(3) For the period from January 3, 1995 (inception date) to December 31, 1995.
(4) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
81
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31. except where noted:
Balanced Fund
<TABLE>
-----------------------------------------------------------------------------------
<CAPTION>
Class A Shares
------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $12.81 $13.11 $13.13 $11.82 $10.55 $10.00
------- ------- -------- ------- ------- ------
Income (Loss) From
Operations:
Net investment income
(3)................... 0.27 0.50 0.56 0.55 0.54 0.15
Net realized and
unrealized gain
(loss)................ 0.38 (0.08) 0.26 1.65 1.35 0.52
------- ------- -------- ------- ------- ------
Total Income From
Operations............. 0.65 0.42 0.82 2.20 1.89 0.67
------- ------- -------- ------- ------- ------
Less Distributions From:
Net investment income.. (0.25) (0.50) (0.55) (0.53) (0.52) (0.11)
Net realized gains..... (0.25) (0.22) (0.29) (0.36) (0.10) (0.01)
------- ------- -------- ------- ------- ------
Total Distributions..... (0.50) (0.72) (0.84) (0.89) (0.62) (0.12)
------- ------- -------- ------- ------- ------
Net Asset Value, End of
Period................. $12.96 $12.81 $13.11 $13.13 $11.82 $10.55
======= ======= ======== ======= ======= ======
Total Return (4)........ 5.2%++ 3.2% 6.4% 19.1% 18.3% 6.7%++
Net Assets, End of
Period (000s).......... $26,571 $35,386 $51,443 $53,024 $21,109 $3,658
Ratios to Average Net
Assets:
Expenses............... 0.95%+ 0.95% 0.85% 0.77% 0.75% 0.74%+
Net investment income.. 4.19%+ 3.79% 4.17% 4.29% 4.81% 4.82%+
Portfolio Turnover
Rate................... 18% 34% 63% 70% 76% 16%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share (3)......... $0.29 $0.47 $0.51 $0.49 $0.44 $0.13
Expense ratio.......... 1.24%+ 1.17% 1.17% 1.24% 1.61% 1.45%+
Balanced Fund
-----------------------------------------------------------------------------------
<CAPTION>
Class B Shares
------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $12.76 $13.08 $13.12 $11.82 $10.54 $10.00
------- ------- -------- ------- ------- ------
Income (Loss) From
Operations:
Net investment income
(3)................... 0.22 0.40 0.45 0.45 0.45 0.13
Net realized and
unrealized gain
(loss)................ 0.39 (0.08) 0.26 1.65 1.35 0.51
------- ------- -------- ------- ------- ------
Total Income From
Operations............. 0.61 0.32 0.71 2.10 1.80 0.64
------- ------- -------- ------- ------- ------
Less Distributions From:
Net investment income.. (0.21) (0.42) (0.46) (0.44) (0.42) (0.09)
Net realized gains..... (0.25) (0.22) (0.29) (0.36) (0.10) (0.01)
------- ------- -------- ------- ------- ------
Total Distributions..... (0.46) (0.64) (0.75) (0.80) (0.52) (0.10)
------- ------- -------- ------- ------- ------
Net Asset Value, End of
Period................. $12.91 $12.76 $13.08 $13.12 $11.82 $10.54
======= ======= ======== ======= ======= ======
Total Return (4)........ 4.8%++ 2.4% 5.5% 18.2% 17.4% 6.4%++
Net Assets, End of
Period (000s).......... $80,355 $97,656 $120,816 $87,549 $28,043 $5,378
Ratios to Average Net
Assets:
Expenses............... 1.70%+ 1.70% 1.60% 1.52% 1.50% 1.49%+
Net investment income.. 3.43%+ 3.03% 3.41% 3.54% 4.06% 4.06%+
Portfolio Turnover
Rate................... 18% 34% 63% 70% 76% 16%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share (3)......... $0.24 $0.37 $0.41 $0.39 $0.36 $0.11
Expense ratio.......... 1.99%+ 1.92% 1.92% 1.99% 2.36% 2.19%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from September 11, 1995 (inception date) to December 31,
1995.
(3) Per share amounts have been calculated using the average shares method.
(4) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
82
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Balanced Fund
<TABLE>
---------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares
--------------------------------------------
2000(1) 1999 1998(2) 1997 1996 1995(3)
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $12.79 $13.11 $13.15 $11.85 $10.56 $10.00
------- ------- ------- ------- ------ ------
Income (Loss) From
Operations:
Net investment income
(4)................... 0.22 0.41 0.45 0.45 0.46 0.14
Net realized and
unrealized gain
(loss)................ 0.39 (0.09) 0.26 1.65 1.35 0.51
------- ------- ------- ------- ------ ------
Total Income From
Operations............. 0.61 0.32 0.71 2.10 1.81 0.65
------- ------- ------- ------- ------ ------
Less Distributions From:
Net investment income.. (0.21) (0.42) (0.46) (0.44) (0.42) (0.08)
Net realized gains..... (0.25) (0.22) (0.29) (0.36) (0.10) (0.01)
------- ------- ------- ------- ------ ------
Total Distributions..... (0.46) (0.64) (0.75) (0.80) (0.52) (0.09)
------- ------- ------- ------- ------ ------
Net Asset Value, End of
Period................. $12.94 $12.79 $13.11 $13.15 $11.85 $10.56
======= ======= ======= ======= ====== ======
Total Return (5)........ 4.8%++ 2.4% 5.5% 18.1% 17.5% 6.5%++
Net Assets, End of
Period (000s).......... $16,743 $21,030 $29,458 $21,085 $3,445 $445
Ratios to Average Net
Assets:
Expenses............... 1.70%+ 1.70% 1.60% 1.52% 1.50% 1.51%+
Net investment income.. 3.44%+ 3.04% 3.41% 3.52% 4.07% 4.26%+
Portfolio Turnover
Rate................... 18% 34% 63% 70% 76% 16%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share (4)......... $0.24 $0.38 $0.41 $0.39 $0.36 $0.11
Expense ratio.......... 1.99%+ 1.92% 1.92% 1.99% 2.36% 2.22%+
Balanced Fund
---------------------------------------------------------------------------------
<CAPTION>
Class O Shares
--------------------------------------------
2000(1) 1999 1998 1997 1996 1995(3)
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $12.88 $13.18 $13.20 $11.88 $10.57 $10.00
------- ------- ------- ------- ------ ------
Income (Loss) From
Operations:
Net investment income
(4) .................. 0.29 0.54 0.59 0.59 0.57 0.17
Net realized and
unrealized gain
(loss)................ 0.39 (0.09) 0.26 1.65 1.39 0.52
------- ------- ------- ------- ------ ------
Total Income From
Operations............. 0.68 0.45 0.85 2.24 1.96 0.69
------- ------- ------- ------- ------ ------
Less Distributions From:
Net investment income.. (0.27) (0.53) (0.58) (0.56) (0.55) (0.11)
Net realized gains..... (0.25) (0.22) (0.29) (0.36) (0.10) (0.01)
------- ------- ------- ------- ------ ------
Total Distributions..... (0.52) (0.75) (0.87) (0.92) (0.65) (0.12)
------- ------- ------- ------- ------ ------
Net Asset Value, End of
Period................. $13.04 $12.88 $13.18 $13.20 $11.88 $10.57
======= ======= ======= ======= ====== ======
Total Return (5)........ 5.3%++ 3.4% 6.6% 19.3% 19.0% 6.9%++
Net Assets, End of
Period (000s).......... $1,476 $1,460 $1,523 $1,227 $213 $4,494
Ratios to Average Net
Assets:
Expenses............... 0.70%+ 0.70% 0.60% 0.52% 0.50% 0.51%+
Net investment income.. 4.44%+ 4.00% 4.41% 4.60% 5.13% 5.30%+
Portfolio Turnover
Rate................... 18% 34% 63% 70% 76% 16%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share (4)......... $0.31 $0.51 $0.55 $0.53 $0.47 $0.15
Expense ratio.......... 0.99%+ 0.92% 0.92% 1.00% 1.36% 1.22%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) On September 14, 1998, Class C shares were renamed Class 2 shares.
(3) For the period from September 11, 1995 (inception date) to December 31,
1995.
(4) Per share amounts have been calculated using the average shares method.
(5) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
83
<PAGE>
(This page intentionally left blank.)
<PAGE>
Salomon Brothers Investment Series
Investment Manager
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
Custodians
PNC Bank, National Association
200 Stevens Drive
Suite 440
Lester, Pennsylvania 19113
Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
18th Floor
Brooklyn, New York 11245
Dividend Disbursing and Transfer Agent
PFPC Global Fund Services
P.O. Box 9764
Providence, Rhode Island 02940-9764
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
Directors
Charles F. Barber
Consultant; formerly Chairman; ASARCO Inc.
Andrew L. Breech*,***
President, Dealer Operating Control Service Inc.
Carol L. Colman
Consultant, Colman Consulting
Daniel P. Cronin**
Vice President-General Counsel,
Pfizer International Inc.
William R. Dill*, ***
Consultant; formerly President, Boston Architectural
Center; formerly President, Anna Maria College
Heath B. McLendon
Chairman and President, Managing Director,
Salomon Smith Barney Inc.; President and Director,
SSB Citi Fund Management LLC and Travelers
Investment Adviser, Inc.
Clifford M. Kirtland, Jr.*, ***
Member of the Advisory Committee, Nero-Moseley
Partners; formerly Director, Oxford Industries, Inc., Shaw
Industries Inc., Graphic Industries, Inc. and CSX Corp.;
formerly Chairman, Cox Communications, Inc.
Robert W. Lawless*, ***
President and Chief Executive Officer, University of
Tulsa; formerly President and Chief Executive Officer,
Texas Tech University and Tech University Health
Sciences Center
Louis P. Mattis*, ***
Consultant; formerly Chairman and President, Sterling
Winthrop Inc.
Thomas F. Schlafly*, ***
Of counsel to Blackwell Sanders Peper Martin LLP (law
firm), President, The Saint Louis Brewery, Inc.
Officers
Heath B. McLendon
Chairman and President
Lewis E. Daidone
Executive Vice President
and Treasurer
Robert E. Amodeo**
Executive Vice President
James E. Craige**
Executive Vice President
John B. Cunningham*
Executive Vice President
Thomas K. Flanagan**
Executive Vice President
Roger Lavan**
Executive Vice President
Ross S. Margolies***
Executive Vice President
Maureen O'Callaghan**
Executive Vice President
David J. Scott**
Executive Vice President
Beth A. Semmel**
Executive Vice President
Peter J. Wilby**
Executive Vice President
George J. Williamson**
Executive Vice President
Thomas A. Croak**
Vice President
Robert Donahue***
Vice President
Nancy A. Noyes**
Vice President
Anthony Pace
Controller
Christina T. Sydor
Secretary
_______________________
* Salomon Brothers Investors Value Fund Inc only
** Salomon Brothers Series Funds Inc only
*** Salomon Brothers Capital Fund Inc only
<PAGE>
====================
Salomon Brothers
====================
Asset Management
Seven World Trade Center . New York, New York 10048
<PAGE>
SEMI-
ANNUAL
REPORT [PHOTOS]
June 30, 2000
SALOMON BROTHERS
------------------
ASSET MANAGEMENT
[_] HIGH YIELD BOND FUND
[_] STRATEGIC BOND FUND
SALOMON BROTHERS
------------------------------------- [_] NATIONAL INTERMEDIATE
MUNICIPAL FUND
[_] U.S. GOVERNMENT INCOME FUND
<PAGE>
For almost a century, Salomon Brothers has provided serious investors with
advice and resources to help them reach their financial goals.
Salomon Brothers offers...
Quality Service
Scope of Choice
An Information Advantage
We offer cutting-edge solutions and investment programs delivered through
financial advisors. Our rich tradition and expertise provides access to
innovative ideas and extensive resources.
We wish to extend our sincere thanks for investing with us. Technology, new
innovations and business opportunities have changed the financial world
over the years--but one constant remains: our commitment to serve your
investment needs.
BRIDGING WALL STREET OPPORTUNITIES
--------------------------------------------------------------------------------
TO YOUR FINANCIAL FUTURE
Rich Tradition
--------------
Bold initiative, determination and market foresight have defined the
Salomon Brothers name for nearly a century.
Global Resources
----------------
We have access to one of the world's largest financial institutions,
creating a global web of resources comprised of 170,000 employees in over
100 countries.
Investment Expertise
--------------------
Averaging over 16 years of professional industry experience, our seasoned
portfolio management team consistently demonstrates a disciplined
institutional approach to money management.
Performance
-----------
We believe that a true measure of performance extends beyond short-term
time frames to long-term outcomes, quality of management, quality of
relationship and quality of thought.
Information Advantage
---------------------
We offer a global information advantage to investors and their advisors --
providing the benefits of a world of rapid knowledge acquisition.
<PAGE>
Table of Contents
<TABLE>
<S> <C>
A Message From the Chairman................................................. 2
The Salomon Brothers Investment Series
High Yield Bond Fund .................................................... 5
Strategic Bond Fund ..................................................... 8
National Intermediate Municipal Fund .................................... 12
U.S. Government Income Fund ............................................. 15
Schedules of Investments ................................................... 19
Statements of Assets and Liabilities ....................................... 37
Statements of Operations ................................................... 38
Statements of Changes in Net Assets ........................................ 39
Statements of Cash Flows ................................................... 41
Notes to Financial Statements .............................................. 42
Financial Highlights ....................................................... 51
Directors and Officers of The Salomon Brothers Investment Series............ IBC
</TABLE>
1
<PAGE>
[PHOTO OF HEATH B. MCLENDON] SALOMON BROTHERS INVESTMENT SERIES
Chairman A Message From the Chairman
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual
report for The Salomon Brothers Investment
Series -- High Yield Bond Fund, Strategic
Bond Fund, National Intermediate Municipal
Fund and U.S. Government Income Fund (the
"Funds" and each a "Fund") for the period
ended June 30, 2000. We hope you find this
report useful and informative.
Below is a chart showing each Fund's Class
A share return for the six months ended
June 30, 2000 with and without sales
charges.
THE PERFORMANCE OF THE FUNDS
Class A Shares Total Return for the Six
Months Ended June 30, 2000:
<TABLE>
<CAPTION>
Without With
Sales Charges/1/ Sales Charges/2/
------------- -------------
<S> <C> <C>
High Yield Bond Fund (0.58)% (5.28)%
Strategic Bond Fund 0.87 (3.93)
National Intermediate
Municipal Fund 2.70 (2.21)
U.S. Government Income Fund 3.24 (1.66)
</TABLE>
_________________
1 These total return figures assume reinvestment of all dividends and do not
reflect the deduction of a sales charge for each Fund's Class A shares.
2 These total return figures assume reinvestment of all dividends and reflect
the deduction of the maximum front-end sales charge for each Fund's Class A
shares up to 4.75%.
In addition, both columns of data represent past performance, which is not
indicative of future results. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. This shareholder report has been
prepared for the information of shareholders of the Funds and is not authorized
for use unless preceded or accompanied by a current prospectus. The prospectus
contains information regarding each Fund's sales charges, expenses, objectives,
policies, management and performance. Please read it carefully before you invest
or send money. Call your financial advisor or 1-800-725-6666 to obtain a copy of
the prospectus.
2
<PAGE>
MARKET COMMENTARY
As the world welcomed in the new millennium with an uneventful Y2K date change,
many investors wanted to know whether the historic returns posted by many
companies in 1999 could possibly be achieved in 2000.
Several major stock and bond markets hit record highs in 2000, but have since
backed off from their highs. The first half of 2000 was characterized by
increased levels of stock market volatility worldwide, predominantly in the
technology sector. In fact, the tech-laden Nasdaq Composite Index/3/ experienced
four declines of 10% or more. The period was marked by the divergence between
the so-called "New Economy," represented by the telecommunications, media and
technology companies, versus the more established blue-chip "Old Economy"
companies.
In the first six months of the year, the Federal Reserve Board ("Fed") raised
interest rates three times (on February 2, 2000, March 21, 2000 and May 16,
2000) in an effort to slow the growth of the robust U.S. economy. While rising
interest rates often lead historically to falling stock prices, the economy and
the bond and stock markets appeared to absorb the Fed's rate hikes. While
consumer confidence slipped somewhat so far this year, consumer spending
continues to increase as evidenced by recent economic data. Unemployment remains
near its 30-year low and, despite the possibility of future rate hikes this year
by the Fed, we remain optimistic that the growth of the U.S. economy should
continue for the near-term.
Bond investors faced many challenges in 2000, largely due to the actions of the
Fed and to the U.S. Treasury Department's plan to buy back approximately $30
billion in long-term debt obligations. This led to an inverted yield curve,/4/ a
unique occurrence whereby bonds with longer maturities have lower yields than
bonds with shorter maturities.
In our opinion, the lessons of the past can and should be used to better
understand the challenges and opportunities of the future. Salomon Brothers
Asset Management represents a history of asset management experience. We also
believe that expertise is achieved through the intelligent application of
knowledge and experience. Our portfolio managers have managed portfolios across
markets and cycles.
______________
3 The Nasdaq Composite Index is a market value-weighted index that measures all
domestic and non-U.S. based securities listed on the NASDAQ stock market. An
investor cannot invest directly in an index.
4 The yield curve is a graphical depiction of the relationship between the
yield on bonds of the same credit quality, but different maturities.
3
<PAGE>
Whatever your investment objective may be, we believe that following a
disciplined investment plan is of paramount importance in these uncertain times.
We encourage you to work closely with your financial professional to map out an
investment plan that fits in with your objectives -- be it retirement, estate
planning or educational needs.
When you invest with Salomon Brothers Asset Management, you can do so with the
confidence that your interests come first, your investment success is paramount,
and that the ultimate in resources is being committed to your financial future.
Thank you for investing with us.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman and President
July 21, 2000
4
<PAGE>
[PICTURE]
INVESTMENT OBJECTIVE AND STRATEGY
The Salomon Brothers High Yield Bond Fund seeks to maximize current income by
investing primarily in a diversified portfolio of high-yield bonds rated in
medium or lower categories. As a secondary objective, the Fund seeks capital
appreciation.
Under normal market conditions, the Fund invests at least 65% of its assets in
securities rated Baa or lower by Moody's Investors Services, Inc., or BBB or
lower by Standard & Poor's Ratings Service. (Moody's and Standard & Poor's are
two major credit reporting and bond rating agencies.) A key component of the
Fund' s overall strategy is to determine the optimal asset allocation between
domestic high-yield bonds and international U.S. dollar-denominated Brady bonds
and lower-rated sovereign debt.
--------------------------------------------------------------------------------
THE FUND MANAGER
--------------------------------------------------------------------------------
[PHOTO OF PETER J. WILBY] Peter J.Wilby, CFA, Managing Director and Senior
Portfolio Manager at Salomon Brothers Asset
Management Inc, has 17 years of investment
industry experience principally in the high-
yield and emerging debt markets. Mr.Wilby is
primarily responsible for the day-to-day
management of the High Yield Bond Fund.
S A L O M O N B R O T H E R S
High Yield Bond Fund
PERFORMANCE UPDATE
During the six months ended June 30, 2000, the Salomon Brothers High Yield Bond
Fund's Class A shares, without sales charges, posted a negative return of 0.58%.
In comparison, the Salomon Smith Barney High Yield Market Index returned a
negative 1.42% for the same time period. (The Salomon Smith Barney High Yield
Market Index covers a significant portion of the below-investment-grade U.S.
corporate bond market. Keep in mind, an investor cannot invest directly in an
index.) Performance was hurt by overweightings in capital goods and services and
by underweightings in telecommunications and utilities. However, during the
period, the Fund responded to market conditions by increasing its positions in
energy and telecommunications and reducing its positions in steel/metals and
capital goods.
MARKET OVERVIEW
For the six months ended June 30, 2000, the Salomon Smith Barney High Yield
Market Index returned a negative 1.42%. Interest rate and inflation concerns
were serious issues for the high-yield bond market throughout the period.
As the Federal Reserve Board ("Fed") hiked interest rates by 25 basis points1 in
February and the tech-laden Nasdaq Composite Index/2/ turned in a relatively
strong performance early in calendar year 2000, a string of mutual fund outflows
ensued as many investors left the interest rate-sensitive fixed-income markets
for the strong equity markets. As the U.S. stock markets became more volatile in
March and April and the Fed announced a 50 basis point interest rate increase
with a tightening bias on May 16, 2000, mutual fund outflows intensified as
investors focused on the potential for further interest rate increases.
Investors also increasingly considered the possibility of a cyclical downturn in
the near term, which would exacerbate already high default rates.
As a result, mutual fund outflows for the period totalled $5.9 billion. In June,
however, benign economic data and a more passive Fed mitigated interest rate
concerns while the high absolute yields available in the high-yield bond market
attracted investors from the volatile equity markets. As a result, the
high-yield bond market saw in June its first month of positive mutual fund flows
in 2000 and the Salomon Smith Barney High Yield Market Index returned 2.25% for
the month.
______________
1 A basis point is 0.01% or one one-hundredth of a percent
2 The Nasdaq Composite Index is a market value-weighted index that measures all
domestic and non-U.S. based securities listed on the NASDAQ. An investor
cannot invest directly in an index.
5
<PAGE>
For the six months ended June 30, 2000, the top performing sectors in the
high-yield market included telecommunications, energy, technology, utilities and
gaming. Telecommunications performance was driven by explosive industry growth,
continued mergers and acquisitions and equity investment activity. High product
prices supported positive performance in energy. Technology's performance
benefited from good fourth quarter results and the popularity of the sector in
the equity markets early in the period. Utilities and gaming, which are
generally composed of higher rated issuers, benefited from investors' preference
for higher-quality issues.
The most significant underperforming sectors consisted of automotive,
steel/metals, capital goods, leisure/lodging, supermarkets/drugstores and
services/other. Automotive was adversely affected by weakness in the parts
aftermarket. Steel/metal's performance was hurt by product price weakness.
Additionally, automotive, steel/metals and capital goods were negatively
impacted by increased cyclical concerns. Leisure/lodging was adversely affected
by operating difficulties at several issuers resulting from overcapacity in the
theatre operator sector. Supermarkets/drugstores performance was adversely
affected by difficulties at Rite Aid and Pathmark.
In terms of credit quality, BB issues outperformed B issues, which in turn
outperformed CCC issues as investors continued to favor the greater liquidity
and higher credit quality offered by BB issues. BB, B and CCC issues returned
0.28%, negative 2.01% and negative 3.92%, respectively, for the period, as
represented by the Salomon Smith Barney High Yield Market Index. Past
performance is not indicative of future results.
The Fund benefited from an overweighting in gaming. It was also helped by
underweightings in leisure/lodging and supermarkets/drugstores.
MARKET OUTLOOK
On June 30, 2000, the high-yield bond market, as measured by the Salomon Smith
Barney High Yield Market Index, yielded 12.52%, up from 11.41% at year-end 1999.
The excess yield over U.S. Treasuries was 6.40%, up from 5.00% at 1999 year-end.
We believe that these levels represent attractive long-term value. (Please note,
past performance is not indicative of future results. Additionally, index
returns do not represent the Fund's yield.)
Going forward, we expect the high-yield bond market to continue to experience
volatility over the course of the year primarily as a result of several
technical factors, including:
. mutual fund flows;
. increased concerns about default rates;
. reduced secondary market liquidity; and
. continuing cyclical concerns.
In light of these conditions, we are pursuing a more defensive investment
strategy geared to overweighting BB credits and aggressively pursuing selective
opportunities in undervalued B and CCC credits.
6
<PAGE>
--------------------------------------------------------------------------------
Portfolio Highlights#
--------------------------------------------------------------------------------
Composition of portfolio as of
June 30, 2000
[PIE CHART]
<TABLE>
<S> <C>
Corporate Bonds 65%
Sovereign Bonds 24%
Loan Participations 5%
Convertible Bonds 2%
Other Assets 4%
</TABLE>
------------------------------
Top Five Industries
------------------------------
Consumer Non-Cyclicals
------------------------------
Basic Industries
------------------------------
Media & Cable
------------------------------
Consumer Cyclicals
------------------------------
Telecommunications
==============================
Each of the sectors represents various industries. Media includes cable,
publishing and printing. Consumer Non-Cyclicals includes consumer products, food
products, bottling, gaming, healthcare, supermarkets/drugstores, tobacco.
Telecommunications includes networks, cellular & PCS services, competitive local
exchange carriers. Basic Industries includes chemicals, containers/packaging,
paper and forest products, steel/metal. Consumer Cyclicals includes
retail,property and discount products.
Portfolio holdings may vary.
--------------------------------------------------------------------------------
SALOMON BROTHERS HIGH YEILD BONDS FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Average Annual Total Returns for the Period Through June 30, 2000
--------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
--------------------------------------------------------------------------------
Since Inception (2/22/95) 9.03% 8.04%
5 year 7.97% 6.93%
3 year 1.34% (0.30)%
1 year 2.37% (2.54)%
-------------------------------------------------------------------------------
Class B Shares
-------------------------------------------------------------------------------
Since Inception (2/22/95) 8.22% 8.10%
5 year 7.17% 6.91%
3 year 0.61% (0.15)%
1 year 1.58% (2.99)%
-------------------------------------------------------------------------------
Class 2 Shares
-------------------------------------------------------------------------------
Since Inception (2/22/95) 8.29% 8.09%
5 year 7.24% 7.02%
3 year 0.72% 0.38%
1 year 1.91% (0.03)%
-------------------------------------------------------------------------------
Class O Shares
-------------------------------------------------------------------------------
Since Inception (2/22/95) 9.27% 9.27%
5 year 8.21% 8.21%
3 year 1.59% 1.59%
1 year 2.67% 2.67%
===============================================================================v
See page 18 for all footnotes.
7
<PAGE>
[PICTURE]
INVESTMENT OBJECTIVE AND STRATEGY
The Salomon Brothers Strategic Bond Fund seeks a high level of current income.
The Fund seeks to achieve its objective by investing in a globally diverse
portfolio of fixed-income securities. As a secondary objective, the Fund seeks
capital appreciation. Assets of the Fund may be deployed among various sectors
of the global bond markets, depending on portfolio managers' analysis of current
economic and market conditions and the relative risks and opportunities
presented in various market segments.
S A L O M O N B R O T H E R S
Strategic Bond Fund
PERFORMANCE UPDATE AND MARKET REVIEW
For the six months ended June 30, 2000, the Salomon Brothers Strategic Bond
Fund's Class A shares without sales charges returned 0.87%. This compares to a
3.92% return for the Salomon Smith Barney Broad Investment-Grade ("BIG") Bond
Index and a 3.99% return of the Lehman Brothers Aggregate Bond Index for the
same period. (The Salomon Smith Barney BIG Bond Index includes institutionally
traded U.S. Treasury Bonds, government-sponsored bonds (U.S. agency and
supranational), mortgage-backed securities and corporate securities. The Lehman
Brothers Aggregate Bond Index is a broad measure of the performance of taxable
bonds in the U.S. market, with maturities of at least one year.) Keep in mind,
an investor cannot invest directly in an index and that past performance is not
indicative of future results.
Emerging Market Debt returned 8.10% for the period as measured by the J.P.
Morgan Emerging Markets Bond Index Plus ("EMBI+")1. Rising oil prices and rising
interest rates were the predominant fundamental factors impacting returns during
the year. Individual country returns were dominated by Russia, which gained
49.78%, as per its weighting in the EMBI+. Overall market performance was good
with many countries generating positive returns although no countries generated
returns approaching Russia's.
____________________
1 The EMBI+ is a total return index that tracks the traded market for U.S.
dollar-denominated Brady and other similar sovereign restructured bonds
traded in the emerging market. An investor cannot invest directly in an
index.
--------------------------------------------------------------------------------
THE FUND MANAGERS
--------------------------------------------------------------------------------
[PHOTO OF PETER J. WILBY, CFA] Peter J.Wilby, CFA, Managing Director and
Senior Portfolio Manager at Salomon Brothers
Asset Management Inc, has 17 years of
investment industry experience principally
in the high-yield and emerging debt markets.
Mr. Wilby is primarily responsible for day-
to-day fund management of the U.S. high-
yield and foreign sovereign bond portions of
the Fund.
[PHOTO OF DAVID J. SCOTT] David J.Scott, Director and Portfolio
Manager at Salomon Brothers Asset Management
LTD, has 17 years of investment industry
experience. SBAM LTD provides certain
advisory services to Salomon Brothers Asset
Management Inc relating to currency
transactions and investments in non-dollar-
denominated securities.
[PHOTO OF ROGER LAVAN] Roger Lavan, Director and Portfolio Manager
at Salomon Brothers Asset Management Inc,
has 15 years of investment industry
experience in fixed-income markets. Mr.
Lavan is primarily responsible for day-to-
day management of the investment-grade debt
portion of the Fund.
8
<PAGE>
The performance of emerging debt markets was particularly strong in light of the
difficult fixed income environment. The Federal Reserve Board ("Fed") raised
interest rates three times during the period, moving the federal funds rate/2/
from 5.50% to 6.50%. This aggressive stance by the Fed was an attempt to slow
the rate of U.S. economic growth and keep inflation under control. The
aggressive Fed activity and widening spreads led to sub-par returns in most
fixed income asset classes other than emerging markets debt.
The high-yield bond market returned a negative 1.42% for the period, as reported
by the Salomon Smith Barney High Yield Market Index ("SSB Index")/3/. As the Fed
hiked interest rates by 25 basis points/4/ in February and the tech-laden Nasdaq
Composite Index/5/ turned in a relatively strong performance early in calendar
year 2000, a string of mutual fund outflows ensued as investors fled the
interest rate-sensitive fixed-income markets for the strong equity markets. As
the U.S. equity markets became more volatile in March and April and the Fed
announced a 50 basis point interest rate increase with a tightening bias in May,
mutual fund outflows intensified as investors focused on the potential for
further interest rate increases. Investors also increasingly considered the
possibility of a cyclical downturn in the near term, which would exacerbate
already high default rates. As a result, mutual fund outflows for the period
totalled $5.9 billion. In June, however, benign economic data and a more passive
Fed mitigated interest rate concerns while the high absolute yields available in
the high-yield market attracted investors from the volatile equity markets.
For the six months ended June 30, 2000, the top performing sectors in the
high-yield market included telecommunications, energy, technology, utilities and
gaming. Telecommunications performance was driven by explosive industry growth,
continued mergers and acquisitions and equity investment activity. High product
prices supported positive performance in energy. Technology's performance
benefited from good fourth quarter results and the popularity of the sector in
the equity markets early in the period. Utilities and gaming, which are
generally composed of higher rated issuers, benefited from investors' preference
for higher quality issues.
The most significant underperforming sectors consisted of automotive,
steel/metals, capital goods, leisure/lodging, supermarkets/drugstores and
services/other. Automotive was adversely affected by weakness in the parts
aftermarket. Steel/metal's performance was hurt by product price weakness.
Additionally, automotive, steel/metals and capital goods were negatively
impacted by increased cyclical concerns. Leisure/lodging was adversely affected
by operating difficulties at several issuers resulting from overcapacity in the
theatre operator sector. Supermarkets/drugstores performance was adversely
affected by difficulties at Rite Aid and Pathmark.
__________
2 The federal funds rate is the interest rate that banks with excess reserves
at a Federal Reserve district bank charge other banks that need overnight
loans. The fed funds rate, as it is called, often points to the direction of
U.S. interest rates.
3 The SSB Index is a broad-based unmanaged index of high-yield securities.
4 A basis point is 0.01% or one one-hundredth of a percent.
5 The Nasdaq Composite Index is a market value-weighted index that measures all
domestic and non-U.S. based securities listed on the NASDAQ. An investor
cannot invest directly in an index.
9
<PAGE>
MARKET OUTLOOK
While inflation has edged higher this year, the most recent price data has not
aggravated the picture and there is a reasonable chance that if demand is
cooling, an important source of potential wage and price pressures would be
contained. Thus, with a lot of tightening under its belt, and some tentative
signs that it's having an effect while inflation is still reasonably low, the
Fed can maintain that a pause may be warranted. Whatever their immediate
intentions, officials likely still see the risks toward higher inflation. The
slowing signs are too tentative, especially in the labor markets. We therefore
anticipate at least a quarter-point of further tightening will be forthcoming
this year, pushing the federal funds rate to 6.75% or higher.
10
<PAGE>
-------------------------------------------------------------------------------
Portfolio Highlights#
-------------------------------------------------------------------------------
Composition of portfolio as of June 30, 2000
[PIE CHART]
<TABLE>
<S> <C>
Corporate & Convertible Bonds 32%
Sovereign Bonds 15%
U.S. Government Agencies & Obligations 30%
Short-Term Obligations 11%
Collateralized Mortgage Obligations 9%
Loan Participations, Preferred Stock & Warrants 3%
</TABLE>
Portfolio holdings may vary.
--------------------------------------------------------------------------------
SALOMON BROTHERS STRATEGIC BOND FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Average Annual Total Returns for the Period Through June 30, 2000
--------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
--------------------------------------------------------------------------------
Since Inception (2/22/95) 8.99% 8.00%
5 year 7.99% 6.95%
3 year 4.14% 2.48%
1 year 5.84% 0.79%
--------------------------------------------------------------------------------
Class B Shares
--------------------------------------------------------------------------------
Since Inception (2/22/95) 8.15% 8.02%
5 year 7.16% 6.89%
3 year 3.35% 2.53%
1 year 5.16% 0.30%
--------------------------------------------------------------------------------
Class 2 Shares
--------------------------------------------------------------------------------
Since Inception (2/22/95) 8.23% 8.03%
5 year 7.25% 7.03%
3 year 3.48% 3.13%
1 year 5.36% 3.33%
--------------------------------------------------------------------------------
Class O Shares
--------------------------------------------------------------------------------
Since Inception (2/22/95) 9.24% 9.24%
5 year 8.24% 8.24%
3 year 4.39% 4.39%
1 year 6.15% 6.15%
--------------------------------------------------------------------------------
See page 18 for all footnotes.
11
<PAGE>
[PICTURE]
INVESTMENT OBJECTIVE AND STRATEGY
The Salomon Brothers National Intermediate Municipal Fund seeks to achieve a
high level of income which is exempt from regular federal income taxes. Under
normal circumstances, at least 80% of the Fund's net assets will be invested in
municipal obligations, the interest on which is exempt from regular federal
income tax. Please note that all or a portion of the Fund's income may be
subject to the federal alternative minimum tax.
THE FUND MANAGERS
[PHOTO OF ROBERT E. AMODEO]
Robert E. Amodeo, CFA Director and Co-Portfolio Manager at Salomon Brothers
Asset Management Inc, has 13 years of investment industry experience. Mr. Amodeo
shares responsibility for day-to-day Fund management.
[PHOTO OF THOMAS A. CROAK]
Thomas A. Croak, Vice President and Co-Portfolio Manager at Salomon Brothers
Asset Management Inc, has 16 years of investment industry experience. Mr. Croak
shares responsibility for day-to-day Fund management.
S A L O M O N B R O T H E R S
National Intermediate Municipal Fund
PERFORMANCE UPDATE
For the six months ended June 30, 2000, the National Intermediate Municipal
Fund's Class A shares, without sales charges, had a total return of 2.70%. In
comparison, the Lehman Brothers 1-10 Year Municipal Bond Index ("Lehman
Index")/1/ returned 3.05% for the same time period. Past performance is not
indicative of future results.
MARKET REVIEW AND PORTFOLIO HIGHLIGHTS
During the past six months in the municipal bond market, we have seen a
precipitous drop in the amount of supply that has come to the market. Overall,
supply is down about 30% as of June 30, 2000. This decline in supply is due
primarily to the drop in refunding activity. (Refunding refers to replacing
existing bond issues through the sale of new bond issues, usually to lower the
interest rate being paid.) With the rise in interest rates over the past year
and a half in the municipal bond sector, it has been increasingly difficult for
issuers to get a present value savings great enough to warrant replacing
existing debt with new debt. In fact, at the end of June, refunding activity was
down 70% year-to-date, while new project funding was virtually unchanged.
We do not expect refunding activity to pick up in the near-term as we think
current levels of interest rates would not allow for a rally of refund activity.
In terms of overall supply, we estimate that $175 billion should come to the
market in 2000.
In terms of demand, there are three primary investors in the municipal market:
the retail investor, the institutional investor (mainly property and casualty
insurance companies) and the mutual fund industry. Mutual funds have been
experiencing negative cash flows for quite some time; however, over the past
month or so, we have seen those cash outflows moderate to some extent. Property
and casualty insurance companies have begun to reallocate some assets toward
municipal securities after experiencing a challenging past year. We view this
trend as positive for overall demand. Retail investors, noticeably absent during
1998, drove demand in the municipal sector during 1999, and we believe will
continue to do so as long as interest rates remain stable.
___________
1 The Lehman Index is a broad-based, total-return index comprised of bonds which
are all investment-grade, fixed-rate securities with maturities between one
and ten years. An investor cannot invest directly in an index.
12
<PAGE>
Our philosophy of focusing on long-term fundamentals, rigorous credit analysis
and sector selection remains the foundation for how we manage the Fund. Our
investment strategy is somewhat neutral based on recent volatility in the
municipal market. During the first quarter of 2000, we saw strong demand for
municipals and resulting lower interest rates. Performance of the municipal bond
market was relatively strong, outpacing most other fixed-income asset classes.
Through April and May, however, the sector experienced some difficulties which
began to turn around yet again in June. We believe these wild fluctuations in
interest rates warranted our neutral stance, although we have moved the Fund
long versus our benchmark over the last two months.
We plan to remain long relative to our benchmark in anticipation of the "July
effect." January and July correspond to the fiscal year end in many
municipalities, freeing funds for reinvestment. Typically, this excess cash is
derived from coupon payments, maturities, redemptions, calls, etc. A concern is
that these assets may be reallocated to other sectors, specifically the stock
markets. However, in our view, this newly available cash will likely be
reinvested into the municipal market as turbulence in the stock market has
caused investor concerns to rise. This effect should bode well for the technical
aspect of municipals. With demand outpacing supply and ample cash sitting on the
sidelines, we believe municipal securities may fare favorably in the coming
months.
We remain invested in higher-quality securities due to narrow credit spreads.
With the reduction in municipals supply, credit spreads have narrowed as more
investor dollars chase yield.
In the Fund, we have overweighted transportation, education and housing as we
believe these sectors should fare well given the strong domestic economy.
MARKET OUTLOOK
We expect the domestic economy may pull back from the torrid pace of the first
half of the year; however, our optimism is not without some trepidation. We
remain concerned about inflation levels and rising commodity prices. While we
have seen economic data indicating a moderating economy, we also note that
inflation is not declining as quickly as the economic data shows.
Overall, we think the U.S. economy should remain stable this year as low
unemployment and strong consumer confidence will likely support demand for
goods. Furthermore, we believe the Fed may engineer a good balance between
strong economic growth and an "acceptable" rate of inflation.
13
<PAGE>
--------------------------------------------------------------------------------
Portfolio Highlights #
--------------------------------------------------------------------------------
Credit Quality Breakdown as of
June 30, 2000
[PIE CHART]
<TABLE>
<S> <C>
AAA 44%
AA 21%
A 21%
BBB 11%
</TABLE>
Cash equivalents represent 3% of the Fund's total investments.
-------------------------------------------------------------------------------
Composition of portfolio as
of June 30, 2000#
-------------------------------------------------------------------------------
New York 24%
-------------------------------------------------------------------------------
Indiana 13%
-------------------------------------------------------------------------------
Illinois 11%
-------------------------------------------------------------------------------
Texas 7%
-------------------------------------------------------------------------------
California 7%
-------------------------------------------------------------------------------
Virginia 7%
-------------------------------------------------------------------------------
Massachusetts 4%
-------------------------------------------------------------------------------
Florida 4%
-------------------------------------------------------------------------------
New Jersey 3%
-------------------------------------------------------------------------------
Ohio 3%
-------------------------------------------------------------------------------
Louisiana 3%
-------------------------------------------------------------------------------
Mississippi 3%
-------------------------------------------------------------------------------
Hawaii 2%
-------------------------------------------------------------------------------
Iowa 2%
-------------------------------------------------------------------------------
Maine 2%
-------------------------------------------------------------------------------
Maryland 2%
-------------------------------------------------------------------------------
North Dakota 2%
-------------------------------------------------------------------------------
Utah 1%
===============================================================================
Portfolio holdings may vary.
-----------------------------------------------------------------------------
SALOMON BROTHERS NATIONAL INTERMEDIATE MUNICIPAL FUND
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Average Annual Total Returns for the Period Through June 30, 2000
-----------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charge*
-----------------------------------------------------------------------------
Since Inception (2/22/95) 5.23% 4.27%
5 year 4.92% 3.90%
3 year 4.02% 2.34%
1 year 3.40% (1.47)%
-----------------------------------------------------------------------------
Class B Shares
-----------------------------------------------------------------------------
Since Inception (2/22/95) 4.35% 4.20%
5 year 4.11% 3.76%
3 year 3.25% 2.33%
1 year 2.59% (2.34)%
-----------------------------------------------------------------------------
Class 2 Shares
-----------------------------------------------------------------------------
Since Inception (2/22/95) 4.41% 4.22%
5 year 4.17% 3.96%
3 year 3.32% 2.99%
1 year 2.78% 0.81%
-----------------------------------------------------------------------------
Class O Shares
-----------------------------------------------------------------------------
Since Inception (2/22/95) 5.41% 5.41%
5 year 5.16% 5.16%
3 year 4.30% 4.30%
1 year 3.65% 3.65%
-----------------------------------------------------------------------------
See page 18 for all footnotes.
14
<PAGE>
[PICTURE]
INVESTMENT OBJECTIVE AND STRATEGY
The Salomon Brothers U.S. Government Income Fund seeks to obtain a high level of
current income. Under normal conditions the Fund invests 100% of its net assets
in debt obligations and mortgage-backed securities issued by or guaranteed by
the U.S. government, its agencies or instrumentalities. The Fund expects to
maintain an average duration1 of two to four years.
----------------
THE FUND MANAGER
----------------
[PHOTO OF
Roger Lavan] Roger Lavan, Director and Portfolio Manager at Salomon
Brothers Asset Management Inc, has 15 years of investment
industry experience in the fixed-income markets. Mr.Lavan is
responsible for day-to-day Fund management.
S A L O M O N B R O T H E R S
U.S. Government Income Fund
PERFORMANCE UPDATE
The U.S. Government Income Fund's Class A shares, without sales charges,
returned 3.24% for the six months ended June 30, 2000. In comparison, the
Salomon Smith Barney 1-5 Year Treasury Bond Index returned 3.13% for the same
time period. (The Salomon Smith Barney 1-5 Year Treasury Bond Index is a broad
measure of the performance of short-term U.S. Treasury securities.) Keep in
mind, an investor cannot invest directly in an index and that past performance
is not indicative of future results.
MARKET REVIEW
A number of investment strategies worked well for the Fund during the period.
During the last half of 1999, the Fund's 80% allocation to agency
mortgage-backed securities proved beneficial as mortgages significantly
outperformed U.S. Treasuries in the fourth quarter of 1999. In addition, we
became concerned in early September that the level of interest rates was too low
given the strength of the U.S. economy and stock market.
The Fund's interest rate sensitivity was reduced by allocating a relatively
small portion of the Fund to higher-yielding prepayment sensitive Collateralized
Mortgage Obligations ("CMOs")/2/. These securities performed exceptionally as
interest rates on the 10-Year U.S. Treasury bond rose 100 basis points/3/. from
early September 1999 to mid-January 2000.
In 2000, a barbell yield curve/4/ strategy enhanced the fund's performance. At
the start of 2000, we felt that the economy was too strong and that the Fed
would need to continue to tighten monetary policy. Because inflation was
relatively benign, our view was the short end of the yield curve would bare the
brunt of the tightening moves, leading to a flat to inverted U.S. Treasury yield
curve. We implemented a barbell yield curve strategy where the Fund held a
combination of very short and long maturities and avoided the 2-5 year part of
the yield curve. This strategy proved to be beneficial as there was a dramatic
inversion in the yield curve with the 30-year bond ending the first quarter 64
basis point lower in yield than the 2-year Treasury bond. The Fund was fortunate
as the barbell yield curve strategy offset the poor performance that mortgage
pass-throughs had relative to U.S. Treasuries during the first quarter of the
year.
--------------
1 Duration is a rough measure of a Fund's sensitivity to interest rates.
2 CMOs are mortgage-backed bonds that separate mortgage pools into different
maturity classes.
3 A basis point is 0.01% or one one-hundredth of a percent.
4 A barbell approach is to invest equal amounts in short-term bonds and
longer-term bonds. It is designed to provide liquidity in the short-term
while keeping with representation in long-term, higher yielding bonds.
15
<PAGE>
While inflation has edged higher so far this year, the most
recent price data has not aggravated and there is a
reasonable chance that if demand is cooling, an important
source of potential wage and price pressures would be
contained. Thus, with a good deal of tightening under its
belt, and some tentative signs that it's having an effect
while inflation is still reasonably low, the Fed can
maintain that a pause may be warranted. Whatever their
immediate intentions, Fed officials still recognize the
risks are tilted towards higher inflation as opposed to
slower growth. The slowing signs are too tentative,
especially in the labor markets. We, therefore, anticipate
at least a quarter-point of further Fed tightening will be
forthcoming this year, pushing the federal funds rate to
6.75% or higher. (The federal funds rate is the interest
rate that banks with excess reserves at a Federal Reserve
district bank charge other banks that need overnight loans.
The Fed Funds rate, as it is called, often points to the
direction of U.S. interest rates.)
MARKET OUTLOOK
In our view, the bond market should perform well over the
near term as the Fed comes to an end of its tightening
campaign. We look for the yield curve to disinvert somewhat
and government bonds to provide returns in the 6% to 9%
return range over the next year. As the economy moderates
and the Fed becomes less active or perhaps inactive, we will
look to overweight the two to five year area of the curve
and extend the duration/interest rate sensitivity of the
Fund.
16
<PAGE>
-------------------------
Portfolio Highlights#
-------------------------
Composition of portfolio as of
June 30, 2000
U.S. Treasury Notes 7%
U.S. Government Agencies 73%
Short-Term Obligations 20%
Portfolio holdings may vary.
--------------------------------------------------------------------------------
SALOMON BROTHERS U.S. GOVERNMENT INCOME FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Average Annual Total Returns for the Period Through June 30, 2000
--------------------------------------------------------------------------------
Class A Shares Without Sales Charges With Sales Charges*
--------------------------------------------------------------------------------
Since Inception (2/22/95) 6.20% 5.23%
5 year 5.71% 4.68%
3 year 5.79% 4.09%
1 year 5.39% 0.34%
--------------------------------------------------------------------------------
Class B Shares
--------------------------------------------------------------------------------
Since Inception (2/22/95) 5.42% 5.28%
5 year 6.00% 6.00%
3 year 5.05% 4.15%
1 year 4.67% (0.30)%
--------------------------------------------------------------------------------
Class 2 Shares
--------------------------------------------------------------------------------
Since Inception (2/22/95) 5.48% 5.29%
5 year 5.00% 4.80%
3 year 5.16% 4.81%
1 year 4.98% 2.94%
--------------------------------------------------------------------------------
Class O Shares
--------------------------------------------------------------------------------
Since Inception (2/22/95) 6.49% 6.49%
5 year 4.94% 4.62%
3 year 6.15% 6.15%
1 year 5.75% 5.75%
================================================================================
See page 18 for all footnotes.
17
<PAGE>
FOOTNOTES
* Class A and 2 shares reflect the
deduction of the maximum 4.75% and 1.00%
sales charges, respectively. Class B and
2 shares reflect the maximum contingent
deferred sales charge of 5.00% and 1.00%,
respectively. Class O shares have no
initial or contingent deferred sales
charge.
# As a % of total investments.
GENERAL PERFORMANCE AND RANKING NOTES
Average annual total returns are based on
changes in net asset value and assume the
reinvestment of all dividends, and/or
capital gains distributions in additional
shares with and without the effect of the
maximum sales charge (Class A and 2) and the
contingent deferred sales charge (Class B
and 2). Class O shares are only available to
existing Class O shareholders. Past
performance does not guarantee future
results. Investment return and principal
value fluctuate so that an investor's
shares, when redeemed, may be worth more or
less than their original cost. Returns for
certain Funds reflect a voluntary expense
cap imposed by Salomon Brothers Asset
Management Inc to limit total Fund operating
expenses. Absent this expense cap, Fund
returns would be lower. Expense caps may be
revised or terminated at any time.
18
<PAGE>
Schedules of Investments
June 30, 2000 (unaudited)
Salomon Brothers High Yield Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
CORPORATE BONDS -- 64.7%
Basic Industries -- 8.0%
$ 1,500,000 AEI Resource Holdings Inc., 10.500% due 12/15/05... $ 307,500
Asia Pulp & Paper International Finance Co.,
500,000 11.750% due 10/1/05................................ 353,750
Asia Pulp & Paper Mauritius Ltd., 12.000% due
3,000,000 12/29/49........................................... 1,507,500
2,500,000 Avecia Group PLC, 11.000% due 7/1/09............... 2,462,500
3,250,000 Berry Plastics Corp., 12.250% due 4/15/04.......... 3,099,688
Borden Chemicals and Plastics Ltd., 9.500% due
3,000,000 5/15/05............................................ 2,715,000
1,000,000 Doman Industries Ltd., 12.000% due 7/1/04.......... 1,005,000
4,000,000 Gentek Inc., 11.000% due 8/1/09.................... 4,070,000
1,500,000 Georgia Gulf Corp., 10.375% due 11/1/07............ 1,567,500
2,000,000 Glencore Nickel Property Ltd., 9.000% due 12/1/14.. 1,670,000
2,500,000 Holt Group, 9.750% due 1/15/06..................... 250,000
Jordan Industries Inc., (Zero coupon until 4/1/02,
2,010,483 11.750% thereafter), due 4/1/09.................... 1,296,762
1,000,000 LTV Corp., 11.750% due 11/15/09.................... 845,000
Lyondell Chemical Co.:
2,000,000 9.875% due 5/1/07.................................. 1,980,000
1,500,000 10.875% due 5/1/09................................. 1,496,250
Murrin Murrin Holdings Property Ltd., 9.375% due
3,000,000 8/31/07............................................ 2,610,000
2,500,000 Owens-Illinois P.C.I., Inc., 7.850% due 5/15/04.... 2,375,000
2,525,000 P.C.I. Chemicals Canada Inc., 9.250% due 10/15/07.. 1,578,125
1,500,000 P&L Coal Holdings Corp., 9.625% due 5/15/08........ 1,398,750
3,000,000 Pindo Deli Fin Mauritius, 10.750% due 10/1/07...... 1,807,500
PT Polytama International Finance, 11.250% due
2,176,598 6/15/07 (a)(b)..................................... 114,271
3,500,000 Radnor Holdings Corp., 10.000% due 12/1/03......... 3,150,000
Republic Technologies/RTI Capital Corp., 13.750%
4,000,000 due 7/15/09........................................ 725,000
------------
38,385,096
------------
Consumer Cyclicals -- 7.9%
2,500,000 Advance Stores Co. Inc., 10.250% due 4/15/08....... 2,075,000
2,500,000 AmeriKing Inc., 10.750% due 12/1/06................ 2,115,625
5,000,000 Aztar Corp., 8.875% due 5/15/07.................... 4,737,500
3,250,000 B&G Foods Inc., 9.625% due 8/1/07.................. 2,291,250
625,000 Cole National Group, 9.875% due 12/31/06........... 459,375
Collins & Aikman Floor Coverings Inc., 10.000% due
5,000,000 1/15/07............................................ 4,887,500
2,500,000 Derby Cycle Corp., 10.000% due 5/15/08............. 1,012,500
3,500,000 Finlay Fine Jewelry Corp., 8.375% due 5/1/08....... 3,132,500
5,000,000 HMH Properties, Inc., 8.450% due 12/1/08........... 4,656,250
2,500,000 Leslie's Poolmart Inc., 10.375% due 7/15/04........ 1,875,000
1,000,000 Levi Strauss & Co., 7.000% due 11/1/06............. 765,000
3,500,000 Mattress Discounters Co., 12.625% due 7/15/07...... 3,202,500
2,000,000 Pillowtex Corp., 9.000% due 12/15/07............... 700,000
Tjiwi Kimia International Finance Co. B.V., 10.000%
5,000,000 due 8/1/04......................................... 3,287,500
Vlasic Foods International Inc., 10.250% due
1,250,000 7/1/09............................................. 443,750
2,500,000 WestPoint Stevens, Inc., 7.875% due 6/15/05........ 2,100,000
------------
37,741,250
------------
Consumer Non-Cyclicals -- 8.6%
Circus Circus Enterprise, (Mandalay Resort Group),
1,500,000 9.250% due 12/1/05................................. 1,455,000
2,500,000 Columbia/HCA Healthcare Co., 6.910% due 6/15/05.... 2,287,500
1,479,000 Flooring America Inc., 9.250% due 10/15/07......... 850,425
750,000 French Fragrances Inc., 10.375% due 5/15/07........ 708,750
2,000,000 Harrah's Operating Co., Inc., 7.875% due 12/15/05.. 1,885,000
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers High Yield Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Consumer Non-Cyclicals -- 8.6% (continued)
$ 1,000,000 Home Interiors & Gifts Inc., 10.125% due 6/1/08.... $ 575,000
2,500,000 Horseshoe Gaming LLC, 9.375% due 6/15/07........... 2,475,000
4,000,000 Imperial Holly Corp., 9.750% due 12/15/07.......... 785,000
2,000,000 Iowa Select Farms, L.P., 10.750% due 12/1/05 (c)... 587,500
Jafra Cosmetics International, Inc., 11.750% due
3,500,000 5/1/08............................................. 3,377,500
2,500,000 MGM Grand Inc., 9.750% due 6/1/07.................. 2,556,250
Nebco Evans Holding Corp., (Zero coupon until
7,000,000 7/15/02, 12.375% thereafter), due 7/15/07 (b)(d)... 8,750
4,000,000 North Atlantic Trading Co., 11.000% due 6/15/04.... 3,630,000
Park Place Entertainment Corp.:
3,500,000 7.875% due 12/15/05................................ 3,298,750
1,500,000 9.375% due 2/15/07 (c)............................. 1,503,750
Premier International Foods Corp., 12.000% due
3,250,000 9/1/09 (c)......................................... 2,925,000
2,482,000 Pueblo Xtra International Inc., 9.500% due 8/1/03.. 1,154,130
350,000 Revlon Consumer Products Corp., 8.625% due 2/1/08.. 178,500
2,500,000 Sun International Hotels Ltd., 9.000% due 3/15/07.. 2,325,000
Tenet Healthcare Corp.:
1,500,000 8.000% due 1/15/05................................. 1,447,500
1,000,000 9.250% due 9/1/10 (c).............................. 1,012,500
Triarc Consumer Products Group LLC, 10.250% due
3,500,000 2/15/09............................................ 3,403,750
2,874,000 Waterford Gaming LLC, 9.500% due 3/15/10 (c)....... 2,773,410
------------
41,203,965
------------
Energy -- 5.3%
1,500,000 Belco Oil & Gas Corp., 10.500% due 4/1/06.......... 1,516,875
3,000,000 Benton Oil & Gas Co., 11.625% due 5/1/03........... 1,935,000
3,585,000 Canadian Forest Oil Ltd., 8.750% due 9/15/07....... 3,387,825
Clark Refining & Marketing Inc., 8.875% due
1,500,000 11/15/07........................................... 967,500
Companhia Energetica de Sao Paulo, 9.125% due
3,000,000 6/26/07 (e)........................................ 2,925,000
5,000,000 Costilla Energy, Inc., 10.250% due 10/1/06 (b)(d).. 2,250,000
500,000 Key Energy Services Inc., 14.000% due 1/15/09...... 565,000
5,000,000 Lomak Petroleum Inc., 8.750% due 1/15/07........... 4,325,000
2,000,000 Northern Offshore Asia, 10.000% due 5/15/05........ 1,250,000
2,250,000 Pioneer Natural Resource Co., 9.625% due 4/1/10.... 2,325,938
3,500,000 United Refining Co., 10.750% due 6/15/07........... 2,100,000
2,000,000 Vintage Petroleum Inc., 9.750% due 6/30/09......... 2,045,000
------------
25,593,138
------------
Finance Services -- 2.7%
3,210,025 Airplanes Pass-Through Trust, 10.875% due 3/15/19.. 2,607,792
ContiFinancial Corp.:
2,250,000 7.500% due 3/15/02 (b)(d).......................... 281,250
7,000,000 8.375% due 8/15/03 (b)(d).......................... 875,000
8,750,000 8.125% due 4/01/08 (b)(d).......................... 1,093,750
1,500,000 DVI Inc., 9.875% due 2/1/04........................ 1,372,500
3,500,000 Metris Cos. Inc., 10.125% due 7/15/06.............. 3,342,500
Morgan Stanley Aircraft Finance, Series 1A, Class
3,000,000 D1, 8.700% due 3/15/23............................. 2,400,000
1,250,000 Nationwide Credit Inc., 10.250% due 1/15/08........ 881,250
------------
12,854,042
------------
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers High Yield Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Housing Related -- 1.9%
American Architecture Products Corp., 11.750% due
$ 1,000,000 12/1/07............................................ $ 175,000
2,000,000 American Standard Inc., 7.375% due 2/1/08.......... 1,820,000
5,000,000 Blount Inc., 13.000% due 8/1/09.................... 5,125,000
2,000,000 Nortek Inc., 9.875% due 3/1/04..................... 1,910,000
------------
9,030,000
------------
Manufacturing -- 5.6%
3,125,000 Anchor Advanced Products Inc., 11.750% due 4/1/04.. 2,109,375
4,000,000 Breed Technologies, Inc., 9.250% due 4/15/08....... 45,000
Federal-Mogul Corp.:
2,500,000 7.375% due 1/15/06................................. 1,818,750
2,000,000 7.500% due 1/15/09................................. 1,372,500
3,250,000 Foamex L.P., 9.875% due 6/15/07.................... 2,490,312
High Voltage Engineering Corp., 10.500% due
3,750,000 8/15/04............................................ 2,606,250
1,298,000 Hines Horticulture Inc., 11.750% due 10/15/05...... 1,304,490
5,000,000 Indesco International Inc., 9.750% due 4/15/08..... 1,875,000
International Utility Structures Inc., 10.750% due
875,000 2/1/08............................................. 721,875
3,750,000 JH Heafner Co., 10.000% due 5/15/08................ 2,756,250
1,250,000 Lear Corp., 8.110% due 5/15/09..................... 1,140,625
1,000,000 Oxford Automotive Inc., 10.125% due 6/15/07........ 875,000
2,500,000 Sequa Corp., 9.000% due 8/1/09..................... 2,412,500
Stellex Industries Inc., 9.500% due 11/1/07
3,500,000 (b)(d)............................................. 350,000
1,500,000 Tenneco Automotive Inc., 11.625% due 10/15/09...... 1,342,500
1,500,000 Williams Scotsman Inc., 9.875% due 6/1/07.......... 1,372,500
2,240,000 Winsloew Furniture, Inc., 12.750% due 8/15/07...... 2,072,000
------------
26,664,927
------------
Media & Cable -- 7.9%
Adelphia Communications Corp.:
2,000,000 10.500% due 7/15/04................................ 2,010,000
1,750,000 9.875% due 3/1/07.................................. 1,684,375
Avalon Cable Holdings, (Zero coupon until 12/1/03,
5,000,000 11.875% thereafter), due 12/1/08................... 3,262,500
Charter Communications Holdings LLC, (Zero coupon
5,000,000 until 4/1/04, 9.920% thereafter), due 4/1/11....... 2,850,000
Citadel Broadcasting Co.:
2,000,000 10.250% due 7/1/07................................. 2,032,500
1,000,000 9.250% due 11/15/08................................ 975,000
5,000,000 CSC Holdings, Inc., 10.500% due 5/15/16............ 5,337,500
Diamond Cable Communications PLC, (Zero coupon
2,000,000 until 12/15/00, 11.750% thereafter), due 12/15/05.. 1,907,500
Hollinger International Publishing Inc.:
1,000,000 9.250% due 2/1/06.................................. 991,250
4,000,000 9.250% due 3/15/07................................. 3,960,000
NTL Inc., (Zero coupon until 2/1/01, 11.500%
3,000,000 thereafter), due 2/15/06........................... 2,782,500
1,949,000 Sun Media Corp., 9.500% due 2/15/07................ 1,900,275
Telewest Communications PLC:
Zero coupon until 10/1/00, (11.000% thereafter),
3,250,000 due 10/1/07........................................ 3,095,625
Zero coupon until 4/15/04, (9.250% thereafter), due
1,875,000 4/15/09............................................ 1,017,188
United International Holdings, (Zero coupon until
6,000,000 2/15/03, 10.750% thereafter), due 2/15/08.......... 4,230,000
------------
38,036,213
------------
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers High Yield Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Services & Others -- 5.6%
$ 2,250,000 Advanstar Communications Inc., 9.250% due 5/1/08... $ 2,171,250
3,250,000 Allied Waste Industries, Inc., 10.000% due 8/1/09.. 2,730,000
2,500,000 Aqua Chemical Inc., 11.250% due 7/1/08............. 1,418,750
3,750,000 Avis Rent A Car, Inc., 11.000% due 5/1/09.......... 3,928,125
Axiohm Transaction Solutions Inc., 9.750% due
5,000,000 10/1/07 (b)(d)..................................... 1,037,500
2,500,000 COMFORCE Operating Inc., 12.000% due 12/1/07....... 1,262,500
Crown Castle International Corp., 10.750% due
1,250,000 8/1/11............................................. 1,273,438
3,200,000 Dyncorp Inc., 9.500% due 3/1/07.................... 2,448,000
3,000,000 Employee Solutions, Inc., 10.000% due 10/15/04..... 600,000
3,250,000 Federal Data Corp., 10.125% due 8/1/05............. 2,254,688
2,000,000 Intertek Finance, 10.250% due 11/1/06.............. 1,650,000
3,000,000 Loomis Fargo & Co., 10.000% due 1/15/04............ 2,895,000
3,000,000 Pierce Leahy Corp., 11.125% due 7/15/06............ 3,112,500
4,000,000 Safety-Kleen Services, 9.250% due 6/1/08 (b)(d).... 340,000
------------
27,121,751
------------
Technology -- 0.5%
2,165,000 Polaroid Corp., 11.500% due 2/15/06................ 2,262,425
------------
Telecommunications -- 7.4%
815,000 Centennial Cellular Corp., 10.750% due 12/15/08.... 795,644
Covad Communications Group Inc., 12.000% due
3,000,000 2/15/10 (c)........................................ 2,355,000
Global Crossing Holding Ltd.:
1,550,000 9.125% due 11/15/06................................ 1,491,875
1,000,000 9.500% due 11/15/09................................ 970,000
ICG Holdings Inc.:
Zero coupon until 9/15/00, (13.500% thereafter),
2,500,000 due 9/15/05........................................ 2,431,250
Zero coupon until 5/1/01, (12.500% thereafter), due
2,250,000 5/1/06............................................. 1,873,125
Intermedia Communications Inc., (Zero coupon until
3,000,000 5/15/01, 12.500% thereafter), due 9/15/06.......... 2,737,500
Leap Wireless International Inc., 12.500% due
1,250,000 4/15/10............................................ 1,106,250
Level 3 Communications Inc.:
1,000,000 11.000% due 3/15/08 (c)............................ 995,000
1,500,000 9.125% due 5/1/08.................................. 1,353,750
Nextel Communications Inc., (Zero coupon until
10,000,000 10/31/02, 9.750% thereafter), due 10/31/07......... 7,475,000
1,000,000 NEXTLINK Communications Inc., 10.750% due 6/1/09... 990,000
2,500,000 Orange PLC, 9.000% due 6/1/09...................... 2,562,500
Price Communications Wireless, Inc., 9.125% due
2,500,000 12/15/06........................................... 2,537,500
1,750,000 PSINet Inc., 11.500% due 11/1/08................... 1,653,750
Ubiquitel Operating Co., (Zero coupon until
2,500,000 4/15/05, 14.000% thereafter), due 4/15/10 (c)...... 1,459,375
3,250,000 World Access, Inc., 13.250% due 1/15/08............ 2,925,000
------------
35,712,519
------------
Transportation -- 2.8%
2,350,000 Northwest Airlines Inc., 7.625% due 3/15/05........ 2,079,750
2,500,000 Stena AB, 8.750% due 6/15/07....................... 2,193,750
1,000,000 Teekay Shipping Corp., 8.320% due 2/1/08........... 925,000
TFM S.A. de C.V., (Zero coupon until 6/15/02,
6,500,000 11.750% thereafter), due 6/15/09................... 4,468,750
4,071,660 Viacao Aerea Riograndens, 9.600% due 2/10/05....... 3,542,344
------------
13,209,594
------------
Utilities -- 0.5%
2,500,000 Azurix Corp., 10.750% due 2/15/10 (c).............. 2,418,750
------------
TOTAL CORPORATE BONDS
(Cost -- $391,362,012)............................. 310,233,670
------------
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers High Yield Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
CONVERTIBLE BONDS -- 1.9%
Consumer Non-Cyclical -- 1.1%
$32,500,000 Sunbeam Corp., zero coupon due 3/25/18 (c)......... $ 5,281,250
------------
Media & Telecommunication -- 0.8%
5,000,000 Quantum Corp., 7.000% due 8/1/04................... 3,953,149
------------
TOTAL CONVERTIBLE BONDS
(Cost -- $13,019,454).............................. 9,234,399
------------
SOVEREIGN BONDS -- 24.0%
Argentina -- 4.6%
Republic of Argentina:
4,500,000 11.595% due 4/10/05 (e)............................ 4,230,000
6,000,000 11.375% due 3/15/10................................ 5,475,000
13,030,000 12.000% due 2/1/20................................. 11,955,025
400,000 9.750% due 9/19/27................................. 312,000
------------
21,972,025
------------
Brazil -- 4.5%
Federal Republic of Brazil:
515,958 C Bond, 8.000% due 4/15/14......................... 374,392
7,250,000 DCB, Series L, 7.000% due 4/15/12 (e).............. 5,355,937
12,000,000 FLIRB, Series L, 5.000% due 4/15/09 (e)............ 9,285,000
7,512,107 MYDFA, 6.813% due 9/15/07 (e)...................... 6,422,851
------------
21,438,180
------------
Bulgaria -- 2.3%
Republic of Bulgaria:
3,500,000 Discount Bond, 7.063% due 7/28/24 (e).............. 2,765,000
11,000,000 FLIRB, Series A, 2.750% due 7/28/12 (e)............ 8,112,500
------------
10,877,500
------------
Columbia -- 2.6%
Republic of Columbia:
4,400,000 13.580% due 8/13/05................................ 4,136,000
2,500,000 9.750% due 4/23/09................................. 1,968,750
7,400,000 11.750% due 2/25/20................................ 6,206,750
------------
12,311,500
------------
Croatia -- 0.1%
Republic of Croatia, Series B, 7.063% due 7/31/06
384,826 (e)................................................ 363,660
------------
Ecuador -- 0.4%
5,600,000 Republic of Ecuador, Par Bond, due 2/28/25 (b)(d).. 1,904,000
------------
Ivory Coast -- 0.9%
Republic of Ivory Coast, FLIRB, due 3/29/18
28,350,000 (b)(d)............................................. 4,536,000
------------
Mexico -- 0.3%
1,500,000 United Mexican States, 11.375% due 9/15/16......... 1,719,000
------------
Russia -- 3.0%
Russia, Federation:
1,725,000 11.750% due 6/10/03 (c)............................ 1,603,172
12,235,000 11.750% due 6/10/03................................ 11,370,903
1,900,000 10.000% due 6/26/07................................ 1,470,125
------------
14,444,200
------------
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers High Yield Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Venezuela -- 5.3%
Republic of Venezuela:
$15,234,000 13.625% due 8/15/18......................... $ 14,167,620
17,000 9.250% due 9/15/27.......................... 11,216
FLIRB:
10,499,895 Series A, 7.438% due 3/31/07 (e)............ 8,609,914
3,166,635 Series B, 7.438% due 3/31/07 (e)............ 2,596,641
------------
25,385,391
------------
TOTAL SOVEREIGN BONDS
(Cost -- $109,519,990)...................... 114,951,456
------------
LOAN PARTICIPATIONS (f) -- 5.1%
Jamaica, Tranche B, 7.563% due 11/15/04
1,031,250 (Chase Manhattan Bank)(e)................... 899,766
Kingdom of Morocco, Tranche A, 7.750% due
5,000,285 1/1/09 (J.P. Morgan Securities) (e)......... 4,500,256
The People's Democratic Republic of Algeria:
Tranche 1, 7.188% due 9/4/06 (Chase
2,902,273 Manhattan Bank) (e)......................... 2,390,747
Tranche 3, 7.188% due 3/4/10 (Chase
8,150,000 Manhattan Bank) (e)......................... 6,336,625
Russia, Principal Loan, due 12/15/20 (J.P.
33,000,000 Morgan Securities) (b)(d)................... 10,147,500
------------
TOTAL LOAN PARTICIPATIONS
(Cost -- $22,105,521)....................... 24,274,894
------------
Shares
------
COMMON STOCK -- 0.0%
10,212 World Access, Inc. (Cost -- $181,931)....... 112,970
------------
PREFERRED STOCK -- 0.7%
California Federal Capital, Series A,
80,000 9.125%...................................... 1,695,000
1,597 Rural Cellular Corp. ....................... 1,521,142
TCR Holding Corp. (d):
9,787 Class B Shares.............................. 98
5,383 Class C Shares.............................. 54
14,191 Class D Shares.............................. 142
29,362 Class E Shares.............................. 294
------------
TOTAL PREFERRED STOCK
(Cost -- $3,598,091)........................ 3,216,730
------------
Warrants
--------
WARRANTS (d) -- 0.0%
900 Cygnal Technologies Corp., (Exercise price
of $0.01 per share expiring 8/31/02, each
warrant exercisable for one share of common
stock)..................................... --
4,000 Glasstech Inc., Expire 6/30/04.............. 2,000
4,000 Republic Technologies/RIT Capital Corp.,
Expire 7/15/09.............................. 400
2,000 rights Terex Stock Appreciation, Expire 5/15/02.... 28,250
2,240 Winsloew Furniture, Inc., Expire 1/1/01..... 33,600
------------
TOTAL WARRANTS
(Cost -- $199,154).......................... 64,250
------------
SUB-TOTAL INVESTMENTS.......................
(Cost--$539,986,153)........................ 462,088,369
------------
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers High Yield Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.6%
$17,133,000 SBC Warburg Dillon Read Inc., 6.550% due 7/3/00;
Proceeds at maturity -- $17,142,352; (Fully
collateralized by U.S. Treasury Notes, 8.875% due
8/15/17; Market value -- $17,476,045) (Cost --
$17,133,000)..................................... $ 17,133,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $557,119,153*)............................ $479,221,369
============
</TABLE>
------
(a) Payment-in-kind security for which all or part of the interest earned may
be paid in additional bonds.
(b) Security is currently in default.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(d) Non-income producing securities.
(e) Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
(f) Participation interest was aquired through the financial institutions indi-
cated parenthetically.
* Aggregate cost for Federal income tax purchase is substantially the same.
Abbreviations used in this schedule:
-----------------------------------
C Bond -- Capitalization Bond.
DCB-- Debt Conversion Bond.
FLIRB-- Front-Loaded Interest Reduction Bonds.
FRB-- Floating Rate Bond.
See Notes to Financial Statements.
25
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Stategic Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
CORPORATE BONDS -- 31.9%
Basic Industries -- 3.9%
$ 500,000 Avecia Group PLC, 11.000% due 7/1/09............... $ 492,500
250,000 Berry Plastics Corp., 12.250% due 4/15/04.......... 238,438
500,000 Gentek Inc., 11.000% due 8/1/09.................... 508,750
500,000 Holt Group, 9.750% due 1/15/06..................... 50,000
1,000,000 Hylsa S.A. de C.V., 9.250% due 9/15/07............. 928,836
402,096 Jordan Industries Inc., (Zero coupon until 4/1/02,
11.750% thereafter), due 4/1/09................... 259,352
125,000 LTV Corp., 11.750% due 11/15/09.................... 105,625
250,000 Lyondell Chemical Co., 10.875% due 5/1/09.......... 249,375
250,000 Murrin Murrin Holdings Property, 9.375% due
8/31/07........................................... 217,500
125,000 P&L Coal Holdings Corp., 9.625% due 5/15/08........ 116,563
250,000 Radnor Holdings Corp., 10.000% due 12/1/03......... 225,000
300,000 Raytheon Co., 6.150% due 11/1/08................... 266,625
235,000 Repap New Brunswick, 10.625% due 4/15/05........... 207,975
500,000 Republic Technologies/RTI Capital Corp., 13.750%
due 7/15/09....................................... 90,625
500,000 USX Corp., 7.200% due 2/15/04...................... 491,875
------------
4,449,039
------------
Consumer Cyclicals -- 2.3%
500,000 Advance Stores Co. Inc., 10.250% due 4/15/08....... 415,000
500,000 AmeriKing Inc., 10.750% due 12/1/06................ 423,125
250,000 Cole National Group, Inc., 8.625% due 8/15/07...... 166,250
250,000 Collins & Aikman Floor Coverings Inc., 10.000% due
1/15/07........................................... 244,375
200,000 Derby Cycle Corp., 10.000% due 5/15/08............. 81,000
350,000 HMH Properties Inc., 7.875% due 8/1/08............. 315,875
500,000 Mattress Discounters Co., 12.625% due 7/15/07...... 457,500
375,000 Pillowtex Corp., 9.000% due 12/15/07............... 131,250
200,000 Vlasic Foods International Inc., 10.250% due
7/1/09............................................ 71,000
250,000 WestPoint Stevens, Inc., 7.875% due 6/15/05........ 210,000
250,000 Worldtex Inc., 9.625% due 12/15/07................. 95,000
------------
2,610,375
------------
Consumer Non-Cyclicals -- 5.3%
250,000 Columbia/HCA Healthcare Co., 6.910% due 6/15/05.... 228,750
500,000 DaimlerChrysler North America Holding Corp., 7.750%
due 5/27/03....................................... 503,750
250,000 Delta Beverage Group Inc., 9.750% due 12/15/03..... 237,188
370,000 Flooring America Inc., 9.250% due 10/15/07......... 212,750
250,000 French Fragrances Inc., 10.375% due 5/15/07........ 241,250
250,000 Harrah's Operating Co. Inc., 7.875% due 12/15/05... 235,625
375,000 Home Interiors & Gifts Inc., 10.125% due 6/1/08.... 215,625
375,000 Horseshoe Gaming LLC, 9.375% due 6/15/07........... 371,250
375,000 Imperial Holly Corp., 9.750% due 12/15/07.......... 73,594
500,000 Iowa Select Farms, L.P., 10.750% due 12/1/05 (a)... 146,875
400,000 Kroger Co., 7.650% due 4/15/07..................... 392,000
250,000 Majestic Star Corp., 10.875% due 7/1/06............ 205,000
125,000 MGM Grand Inc., 9.750% due 6/1/07.................. 127,813
150,000 Mohegan Tribal Gaming Corp., 8.750% due 1/1/09..... 143,250
375,000 Nebco Evans Holding Corp., (Zero coupon until
7/15/02, 12.375% thereafter), due 7/15/07 (b)(c).. 469
250,000 North Atlantic Trading, 11.000% due 6/15/04........ 226,875
250,000 Park Place Entertainment Inc., 7.875% due
12/15/05.......................................... 235,625
375,000 Premier International Foods Corp., 12.000% due
9/1/09 (a)........................................ 337,500
190,000 Pueblo Xtra International Inc., 9.500% due 8/1/03.. 88,350
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Strategic Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Consumer Non-Cyclicals -- 5.3% (continued)
Revlon Consumer Products Corp.:
$ 125,000 9.000% due 11/1/06................................. $ 90,625
25,000 8.625% due 2/1/08.................................. 12,750
250,000 Simmons Co., 10.250% due 3/15/09................... 223,125
300,000 Sun International Hotel Inc., 8.625% due 12/15/07.. 273,000
250,000 Tenet Healthcare Corp., 9.250% due 9/1/10 (a)...... 253,125
500,000 United Industries Corp., 9.875% due 4/1/09......... 277,500
350,000 Wal-Mart Stores Inc., 7.550% due 2/15/30........... 358,750
340,000 Waterford Gaming LLC, 9.500% due 3/15/10 (a)....... 328,100
------------
6,040,514
------------
Energy -- 2.1%
250,000 Belco Oil & Gas Corp., 10.500% due 4/1/06.......... 252,813
200,000 Benton Oil & Gas Co., 11.625% due 5/1/03........... 129,000
500,000 Continental Resources, 10.250% due 8/1/08.......... 448,750
500,000 Costilla Energy Inc., 10.250% due 10/1/06 (b)(c)... 225,000
250,000 Frontier Oil Corp., 9.125% due 2/15/06............. 222,500
Plains Resources Inc.:
250,000 10.250% due 3/15/06................................ 253,125
250,000 10.250% due 3/15/06 (a)............................ 253,125
250,000 R&B Falcon Corp., 9.500% due 12/15/08.............. 252,500
300,000 Union Oil Co. of California, 7.350% due 6/15/09.... 291,750
------------
2,328,563
------------
Financial Services -- 3.6%
493,850 Airplanes Pass Through Trust, 10.875% due 3/15/19.. 401,199
450,000 Bank of America Corp., 7.875% due 5/16/05.......... 455,625
250,000 CB Richard Ellis Services Inc., 8.875% due 6/1/06.. 213,750
ContiFinancial Corp.:
250,000 7.500% due 3/15/02 (b)(c).......................... 31,250
500,000 8.375% due 8/15/03 (b)(c).......................... 62,500
125,000 8.125% due 4/1/08 (b)(c)........................... 15,625
600,000 Countrywide Home Loan Corp., 6.250% due 4/15/09.... 525,750
500,000 DVI, Inc., 9.875% due 2/1/04....................... 457,500
250,000 Forest City Enterprises, 8.500% due 3/15/08........ 227,500
500,000 Metris Cos. Inc., 10.125% due 7/15/06.............. 477,500
500,000 Morgan Stanley Dean Witter & Co., 7.750% due
6/15/05........................................... 503,125
500,000 PaineWebber Group, 6.450% due 12/1/03.............. 477,500
200,000 Spieker Properties, Inc., 7.250% due 5/1/09........ 186,500
------------
4,035,324
------------
Housing Related -- 0.8%
500,000 Blount Inc., 13.000% due 8/1/09.................... 512,500
375,000 Nortek, Inc., 9.875% due 3/1/04.................... 358,125
------------
870,625
------------
Manufacturing -- 2.8%
500,000 Breed Technologies, Inc., 9.250% due 4/15/08
(b)(c)............................................ 5,625
375,000 Federal-Mogul Co., 7.375% due 1/15/06.............. 272,813
500,000 Foamex L.P., 9.875% due 6/15/07.................... 383,125
250,000 Hexcel Corp., 9.750% due 1/15/09................... 223,750
225,000 Hines Horticulture, Inc., 11.750% due 10/15/05..... 226,125
250,000 Indesco International Inc., 9.750% due 4/15/08..... 93,750
375,000 JL French Auto Casting Corp., 11.500% due 6/1/09... 343,125
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Strategic Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Manufacturing -- 2.8% (continued)
$ 250,000 Key Plastics, Inc., 10.250% due 3/15/07 (b)(c)..... $ 21,250
500,000 Moll Industries, Inc., 10.500% due 7/1/08.......... 90,000
335,000 Motors & Gears, Inc., 10.750% due 11/15/06......... 324,113
250,000 Neenah Corp., 11.125% due 5/1/07................... 185,000
325,000 Polymer Group Inc., 8.750% due 3/1/08.............. 271,375
250,000 Sequa Corp., 9.000% due 8/1/09..................... 241,250
250,000 Stellex Industries Inc., 9.500% due 11/1/07
(b)(c)............................................ 25,000
250,000 Tenneco Automotive Inc., 11.625% due 10/15/09...... 223,750
250,000 Winsloew Furniture, Inc., 12.750% due 8/15/07...... 231,250
------------
3,161,301
------------
Media & Cable -- 4.2%
Adelphia Communications Corp.:
17,091 9.500% due 2/15/04 (d)............................. 16,578
150,000 10.500% due 7/15/04................................ 150,750
250,000 7.875% due 5/1/09.................................. 211,875
500,000 AMFM Inc., 9.250% due 7/1/07....................... 512,500
750,000 Avalon Cable Holdings, (Zero coupon until 12/1/03,
11.875% thereafter), due 12/1/08.................. 489,375
Century Communications:
500,000 8.375% due 12/15/07................................ 446,250
500,000 Zero coupon due 1/15/08............................ 207,500
Charter Communications Holdings LLC:
250,000 8.625% due 4/1/09.................................. 220,938
750,000 Zero coupon until 4/1/04, (9.920% thereafter), due
4/1/11............................................ 427,500
250,000 Diamond Cable Co., (Zero coupon until 12/15/00,
11.750% thereafter), due 12/15/05................. 238,438
275,000 Hollinger International Publishing Inc., 9.250% due
2/1/06............................................ 272,594
325,000 NTL Inc., (Zero coupon until 2/1/01, 11.500%
thereafter), due 2/1/06........................... 301,438
500,000 Sprint Capital Corp., 5.700% due 11/15/03.......... 474,375
450,000 Telewest Communications PLC, (Zero coupon until
10/1/00, 11.000% thereafter), due 10/1/07......... 428,625
525,000 United International Holdings, (Zero coupon until
2/15/03, 10.750% thereafter), due 2/15/08......... 370,125
------------
4,768,861
------------
Services/Other -- 2.7%
375,000 Allied Waste North America, Inc., 7.875% due
1/1/09............................................ 321,563
375,000 Avis Rent-A-Car, Inc., 11.000% due 5/1/09.......... 392,813
300,000 Axiohm Transaction Solutions Inc., 9.750% due
10/1/07 (b)(c).................................... 62,250
500,000 Cendant Corp., 7.750% due 12/1/03.................. 483,125
250,000 Dyncorp Inc., 9.500% due 3/1/07.................... 191,250
200,000 Integrated Electric Services, 9.375% due 2/1/09.... 163,000
250,000 Iron Mountain Inc., 10.125% due 10/1/06............ 251,250
500,000 Loomis Fargo & Co., 10.000% due 1/15/04............ 482,500
250,000 Mail-Well Corp., 8.750% due 12/15/08............... 211,250
250,000 Pierce Leahy Co., 8.125% due 5/15/08............... 221,250
250,000 Primark Corp., 9.250% due 12/15/08................. 276,250
500,000 Safety-Kleen Corp., 9.250% due 5/15/09 (b)(c)...... 12,500
------------
3,069,001
------------
Technology -- 0.2%
250,000 Polaroid Corp., 11.500% due 2/15/06................ 261,250
------------
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Strategic Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Telecommunications -- 2.8%
$ 250,000 Covad Communications, 12.000% due 2/15/10 (a)...... $ 196,250
500,000 Energis PLC, 9.750% due 6/15/09.................... 492,500
350,000 ICG Holdings Inc., (Zero coupon until 9/15/00,
13.500% thereafter), due 9/15/05.................. 340,375
Intermedia Communications Inc.:
250,000 8.600% due 6/1/08.................................. 232,500
350,000 Zero coupon until 3/1/04, (12.250% thereafter), due
3/1/09............................................ 212,625
200,000 Leap Wireless Inc., 12.500% due 4/15/10............ 177,000
Nextel Communications Inc.:
400,000 Zero coupon until 10/31/02, (9.750% thereafter),
due 10/31/07...................................... 299,000
600,000 Zero coupon until 2/15/03, (9.950% thereafter), due
2/15/08........................................... 442,500
250,000 Orange PLC, 9.000% due 6/1/09...................... 256,250
375,000 Price Communications Wireless, Inc., 11.750% due
7/15/07........................................... 405,000
125,000 PSINet Inc., 11.500% due 11/1/08................... 118,125
------------
3,172,125
------------
Transportation -- 0.7%
250,000 Enterprise Shipholding Inc., 8.875% due 5/1/08..... 141,250
250,000 Northwest Airlines Inc., 7.625% due 3/15/05........ 221,250
265,000 TFM S.A. de C.V., (Zero coupon until 6/15/02,
11.750% thereafter), due 6/15/09.................. 182,188
339,305 Viacao Aerea Riograndens, 9.600% due 2/10/05....... 295,195
------------
839,883
------------
Utilities -- 0.5%
350,000 Azurix Corp., 10.750% due 2/15/10 (a).............. 338,625
250,000 GTE Corp., 6.940% due 4/15/28 (e).................. 221,563
------------
560,188
------------
TOTAL CORPORATE BONDS
(Cost -- $43,921,827).............................. 36,167,049
------------
CONVERTIBLE CORPORATE BONDS -- 0.4%
Media & Telecommunications -- 0.4%
500,000 Quantum Corp., 7.000% due 8/1/04 (Cost --
$414,054)........................................ 395,315
------------
SOVEREIGN BONDS -- 14.6%
Argentina -- 2.2%
Republic of Argentina:
700,000 11.750% due 4/7/09................................. 652,225
1,346,000 11.750 due 6/15/15................................. 1,221,495
650,000 11.375% due 1/30/17................................ 583,538
------------
2,457,258
------------
Brazil -- 3.0%
Federal Republic of Brazil:
1,201,000 14.500% due 10/15/09............................... 1,272,159
3,004,644 C Bond, 8.000% due 4/15/14......................... 2,180,245
------------
3,452,404
------------
Bulgaria -- 0.7%
Republic of Bulgaria:
600,000 FLIRB, Series A, 2.750% due 7/28/12 (f)............ 442,500
500,000 IAB, 7.0625% due 7/28/11 (f)....................... 396,875
------------
839,375
------------
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Strategic Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Columbia -- 0.6%
Republic of Columbia:
$ 650,000 10.875% due 3/9/04................................. $ 607,750
150,000 9.750% due 4/23/09................................. 133,500
------------
741,250
------------
Croatia -- 0.6%
697,762 Republic of Croatia, Series B, 7.063% due 7/31/06
(f)............................................... 659,385
------------
Ecuador -- 0.4%
1,300,000 Republic of Ecuador, Par Bond, due 2/28/25 (b)(c).. 442,000
------------
Ivory Coast -- 0.3%
1,950,000 Ivory Coast, FLIRB, due 3/29/18 (b)(c)............. 312,000
------------
Mexico -- 1.1%
1,125,000 United Mexican States, 11.375% due 9/15/16......... 1,289,250
------------
Panama -- 0.8%
Republic of Panama:
500,000 8.875% due 9/30/27................................. 421,875
550,000 IRB, 4.250% due 7/17/14 (f)........................ 440,688
------------
862,563
------------
Peru -- 0.4%
625,000 Republic of Peru, PDI, 4.500% due 3/7/17 (f)....... 417,969
------------
Philippines -- 0.4%
300,000 Bangko Sentral Philippines, 8.600% due 6/15/27..... 213,750
350,000 Republic of Philippines, 9.875% due 1/15/19........ 287,000
------------
500,750
------------
Russia -- 1.7%
Russia:
2,300,000 IAN, due 12/15/15 (b)(c)........................... 714,438
1,375,000 Ministry of Finance, 12.750% due 6/24/28........... 1,194,531
------------
1,908,969
------------
Venezuela -- 2.4%
Republic of Venezuela:
1,850,000 13.625% due 8/15/18................................ 1,720,500
1,166,655 FLIRB, Series B, 7.4375% due 3/31/07 (f)........... 956,657
------------
2,677,157
------------
TOTAL SOVEREIGN BONDS
(Cost -- $16,860,667).............................. 16,560,330
------------
LOAN PARTICIPATIONS (g) -- 2.5%
762,854 Kingdom of Morocco, Tranche A, 7.750% due 1/1/09
(Chase Manhattan Bank & J.P. Morgan Securities)
(f)............................................... 686,569
1,125,000 The People's Democratic Republic of Algeria,
Tranche 3, 7.188% due 3/4/10 (Chase Manhattan
Bank) (f)......................................... 874,688
4,000,000 Russia, Principal Loan, due 12/15/20 (J.P. Morgan
Securities & SBC Warburg Dillon Read) (b)(c)...... 1,230,000
------------
TOTAL LOAN PARTICIPATIONS
(Cost -- $2,407,011)............................... 2,791,257
------------
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Strategic Bond Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 29.9%
U.S. Treasury Notes:
$ 1,500,000 6.500% due 3/31/02................................. $ 1,500,930
5,000,000 5.875% due 11/15/04 (i)............................ 4,925,100
500,000 6.125% due 8/15/29................................. 505,750
5,500,000 6.250% due 5/15/30 (i)............................. 5,775,000
Federal Home Loan Mortgage Corporation (FHLMC):
89,930 10.000% due 5/15/20................................ 93,632
1,575 1,156.500% due 6/15/21 -- Interest Only............ 47,246
9,097 Gold, 6.000% due 10/1/10........................... 8,628
276,168 Gold, 7.000% due 7/1/11............................ 271,420
Federal National Mortgage Association (FNMA):
1,150,000 6.500%, 30 year (TBA) (h).......................... 1,083,875
7,500,000 7.000%, 30 year (TBA) (h).......................... 7,237,500
2,000,000 8.000%, 30 year (TBA) (h).......................... 2,008,120
373,859 7.394% due 8/17/03 (f)............................. 373,041
9,829 13.000% due 11/15/15............................... 11,319
40,429 10.400% due 4/25/19................................ 42,626
3,372,721 0.576% due 3/17/20 -- Interest Only (f)............ 71,670
5,770,204 8.000% due 11/17/22 -- Interest Only............... 999,382
64,627 6.500% due 2/1/26.................................. 60,951
707,535 6.500% due 3/1/26.................................. 667,290
9,058,683 7.500 due 3/18/27 -- Interest Only................. 1,965,417
8,002,936 8.000% due 7/18/27 -- Interest Only................ 1,410,742
20,000,000 8.000% due 8/18/27 -- Interest Only................ 3,640,410
5,261,155 1.663% due 2/25/35 -- Interest Only (f)............ 355,272
8,385,597 0.522% due 10/17/36 -- Interest Only (f)........... 189,484
11,267,957 1.03707% due 6/25/38 -- Interest Only (f).......... 619,738
------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(Cost -- $33,316,177).............................. 33,864,543
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 9.6%
2,000,000 Commercial Mortgage Asset Trust, Series 1999-C1,
Class C, 7.350% due 8/17/13....................... 1,885,625
1,000,000 ContiMortgage Home Equity Loan Trust, Series 1999-
3, Class B, 7.000% due 7/25/30.................... 639,844
DLJ Commercial Mortgage Corp.:
10,789,386 Series 1998-CF2, Class S, 1.06593% due 11/12/31 --
Interest Only (f)................................ 519,239
11,622,574 Series 1998-CG1, Class S, 0.69995% due 5/10/23 --
Interest Only (f)................................ 450,375
290,418 First Union Residential Securitization, Series
1998-A, Class B2, 7.000% due 8/25/28.............. 256,476
1,284,166 GE Capital Mortgage Services Inc., Series 1998-15,
Class B1, 6.750% due 11/25/28..................... 1,155,148
1,016,341 Green Tree Financial, Series 1997-6, Class A8,
7.070% due 1/15/29................................ 960,442
1,250,000 LB Commercial Conduit Mortgage Trust, Series 1998-
C1, Class A2, 6.780% due 4/15/09.................. 1,197,183
1,204,862 Mid-State Trust, Series 6, Class A1, 7.340% due
7/1/35............................................ 1,161,185
PNC Mortgage Securities:
391,002 Series 1998-4, Class 3B3, 6.750% due 5/25/28....... 331,008
561,721 Series 1998-4, Class CB3, 6.840% due 5/25/28 (f)... 482,905
937,735 Series 1998-5, Class CB2, 6.770% due 3/25/29 (f)... 821,690
509,840 Series 1998-5, Class CB3, 6.740% due 7/25/28 (f)... 433,524
736,235 Series 1998-5, Class DB3, 6.910% due 4/25/29 (f)... 611,535
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost -- $11,892,309).............................. 10,906,179
------------
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Strategic Bond Fund
-------------------------------------------------------------------------------
Shares Security Value
-------------------------------------------------------------------------------
PREFERRED STOCK (b) -- 0.0%
Financial/Leasing -- 0.0%
TCR Holding Corp.:
841 Class B Shares..................................... $ 8
462 Class C Shares..................................... 5
1,218 Class D Shares..................................... 12
2,521 Class E Shares..................................... 25
------------
TOTAL PREFERRED STOCK
(Cost -- $300)..................................... 50
------------
WARRANTS (b) -- 0.0%
400 Cygnal Technologies Corp. (Exercise price of $0.01
per share expiring 8/31/02, each warrant
exercisable for one share of common stock)........ --
500 Republic Technologies/ RTI Capital Corp., Expire
7/15/09........................................... 50
250 Winsloew Furniture, Inc., Expire 1/1/01............ 3,750
------------
TOTAL WARRANTS
(Cost -- $41,064).................................. 3,800
------------
SUB-TOTAL INVESTMENTS
(Cost -- $108,853,409)............................. 100,688,523
------------
Face
Amount
------
REPURCHASE AGREEMENT -- 11.1%
$12,529,000 SBC Warburg Dillon Read Inc., 6.550% due 7/3/00;
Proceeds at maturity -- $12,535,839; (Fully
collateralized by U.S. Treasury Notes, 10.625% due
8/15/15; Market value -- $12,780,788) (Cost --
$12,529,000)..................................... 12,529,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $121,382,409*)............................ $113,217,523
============
------
(a) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(b) Non-income producing security.
(c) Security is currently in default.
(d) Payment-in-kind security for which all or part of the interest earned may
be paid in additional bonds.
(e) On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
(f) Interest rate shown reflects current rate on instrument with variable rate
or step coupon rates.
(g) Participation interests were acquired through the financial institutions
indicated.
(h) Mortgage dollar roll.
(i) All or part of the security is segregated as collateral for mortgage dollar
rolls.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this schedule:
------------------------------------
C Bond -- Capitalization Bond.
FLIRB-- Floating Rate Interest Reduction Bond.
IAB-- Interest in Arrears Bond.
IAN-- Interest in Arrears Note.
IRB-- Interest Reduction Bond.
PDI-- Past Due Interest.
TBA-- To Be Announced.
See Notes to Financial Statements.
32
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers National Intermediate Municipal Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
LONG-TERM INVESTMENTS -- 97.3%
California -- 7.4%
$285,000 Los Angeles, CA Harbor Department Revenue, Series B,
AMBAC-Insured, 6.000% due 8/1/03...................... $ 297,093
250,000 Oakland, CA Port Revenue, Series G, MBIA-Insured,
6.000% due 11/1/05.................................... 266,985
250,000 Sacramento County, CA Sanitation District Financing
Authority Revenue, Series A, 5.250% due 12/1/12....... 256,473
-----------
820,551
-----------
Florida -- 3.9%
175,000 Florida Housing Finance Agency Refunding, Single-Family
Mortgage, Series A, 6.150% due 7/1/06................. 182,235
250,000 Miami-Dade County, FL Aviation Revenue (Miami
International Airport), Series A, FGIC-Insured,
5.550% due 10/1/13.................................... 252,725
-----------
434,960
-----------
Hawaii -- 2.2%
250,000 Hawaii State Department of Budget & Finance, Special
Purpose Revenue, 5.600% due 7/1/06.................... 248,468
-----------
Illinois -- 11.1%
250,000 Chicago, IL O'Hare International Airport Revenue,
Series B, AMBAC-Insured, 5.000% due 1/1/02............ 251,003
300,000 Chicago, IL Water Reclamation District Refunding GO,
5.900% due 12/1/06.................................... 316,338
250,000 Cook County, IL Refunding GO, Series A, MBIA-Insured,
5.625% due 11/15/16................................... 251,338
400,000 Illinois Student Assistance Commission Student Loan
Revenue, Series M, 6.400% due 3/1/04.................. 414,560
-----------
1,233,239
-----------
Indiana -- 13.2%
500,000 Indiana Health Facilities Financing Authority Hospital
Revenue Refunding (Hancock Memorial Hospital
Health Services), 5.800% due 8/15/06.................. 489,050
300,000 Indiana Secondary Market for Educational Loans Revenue,
Series C, AMBAC-Insured, 5.550% due 12/1/05........... 305,883
650,000 Indiana Transportation Finance Authority Airport
Facilities Lease Revenue, Series A, 6.250% due
11/1/03............................................... 673,823
-----------
1,468,756
-----------
Iowa -- 2.3%
250,000 Iowa Finance Authority Single-Family Revenue (Mortgage-
Backed Program), Series A, 6.000% due 7/1/13.......... 252,945
-----------
Louisiana -- 3.3%
350,000 Louisiana Public Facilities Authority Student Loan
Revenue, Series A-2, 6.750% due 9/1/06................ 367,003
-----------
Maine -- 2.3%
250,000 Maine State Housing Authority Mortgage Purchase
Revenue, Series A, 5.950% due 11/15/11................ 256,333
-----------
Maryland -- 1.5%
165,000 Maryland State Health & Higher Educational Facilities
Authority Revenue (University of Maryland Medical
System), 6.000% due 7/1/05............................ 164,144
-----------
Massachusetts -- 3.7%
400,000 Massachusetts State Health & Educational Facilities
Authority Revenue (Dana Farber Cancer Project), Series
G-1, 6.500% due 12/1/05............................... 415,660
-----------
Mississippi -- 2.8%
305,000 Mississippi Higher Education, Series C, 6.050% due
9/1/07................................................ 307,040
-----------
New Jersey -- 2.7%
280,000 Passaic Valley, NJ Sewer Systems, Series D, AMBAC-
Insured, 5.750% ETM 12/1/07........................... 295,000
-----------
New York -- 23.8%
New York City, NY GO, Series D:
320,000 6.500% due 2/1/02...................................... 328,557
130,000 6.500% ETM 2/1/02...................................... 133,791
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers National Intermediate Municipal Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
New York -- 23.8% (continued)
$250,000 New York State Dormitory Authority Lease Revenue (State
University Dormitory Facilities), Series A,
6.000% due 7/1/14..................................... $ 261,548
New York State Dormitory Authority Revenue:
700,000 College and University Educational Loan, MBIA-Insured,
5.600% due 7/1/06..................................... 719,726
400,000 State University of New York, Series X, 6.625% ETM
7/1/04................................................ 427,948
500,000 New York State Mortgage Agency Revenue Homeowner
Mortgage, Series 46, 5.900% due 10/1/06............... 511,364
250,000 Niagara, NY Frontier Authority Airport Revenue (Buffalo
Niagara International Airport), Series A, MBIA-
Insured, 5.500% due 4/1/09............................ 256,258
-----------
2,639,192
-----------
North Dakota -- 2.3%
250,000 North Dakota State Housing Finance Agency Revenue
Refunding Housing Finance Program, Series A,
6.100% due 7/1/13..................................... 254,984
-----------
Ohio -- 3.4%
250,000 Cleveland, OH Airport Systems Revenue, Series A, FSA-
Insured, 5.500% due 1/1/08............................ 255,387
130,000 Miami County, OH Hospital Facilities Refunding &
Improvement Revenue (Upper Valley Medical Center),
5.600% due 5/15/02.................................... 129,731
-----------
385,118
-----------
Texas -- 4.8%
500,000 Austin, TX Airport System Revenue, Series A, MBIA-
Insured, 6.500% due 11/15/05.......................... 534,444
-----------
Virginia -- 6.6%
250,000 Greater Richmond Convention Center Authority, VA Hotel
Tax Revenue (Convention Center Expansion Project),
6.000% due 6/15/13.................................... 262,309
500,000 Pocahontas Parkway Association, VA Toll Road Revenue,
Series A, 5.000% due 8/15/06.......................... 472,200
-----------
734,509
-----------
TOTAL LONG-TERM INVESTMENTS
(Cost -- $10,647,044).................................. 10,812,346
-----------
Texas -- 1.8%
200,000 Sabine River Authority, TX PCR (Texas Utilities
Electric Co.), VRDD, 4.650% due 4/1/30................ 200,000
-----------
SHORT-TERM INVESTMENTS -- 2.7%
Utah -- 0.9%
100,000 Carbon County, UT PCR Refunding (PacifiCorp Projects),
VRDD, 4.550% due 11/1/24.............................. 100,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost -- $300,000)..................................... 300,000
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $10,947,044*)................................. $11,112,346
===========
</TABLE>
------
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this schedule:
-----------------------------------
AMBAC -- Insured as to principal and interest by the American Municipal Bond
Assurance Corporation.
ETM -- Escrowed to Maturity.
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.
PCR -- Pollution Control Revenue.
VRDD -- Variable Rate Daily Demand. Date shown is maturity date.
See Notes to Financial Statements.
34
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers U.S. Government Income Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
U.S. TREASURY NOTES -- 6.8%
$2,000,000 U.S. Treasury Notes, 6.500% due 2/15/10 (a) (Cost --
$2,077,380)........................................ $ 2,066,200
-----------
U.S. GOVERNMENT AGENCIES -- 73.2%
500,000 Federal Home Loan Bank, 5.800% due 9/2/08............ 458,450
Federal Home Loan Mortgage Corporation (FHLMC):
8,747 11.750% due 1/1/11................................... 9,762
3,459 11.750% due 1/1/14................................... 3,860
24,251 11.750% due 7/1/15................................... 27,063
408,222 8.000% due 7/1/20.................................... 414,725
419,906 10.000% due 9/1/20................................... 448,380
146,629 7.000% due 4/15/21................................... 145,391
750,000 8.500% due 3/15/24................................... 775,545
170,788 Gold, 7.500% due 5/1/07.............................. 170,520
17,323 Gold, 6.000% due 7/1/10.............................. 16,429
92,523 Gold, 7.000% due 5/1/11.............................. 90,932
638,258 Gold, 7.000% due 7/1/11.............................. 627,285
157,460 Gold, 7.000% due 8/1/11.............................. 154,753
85,351 Gold, 8.250% due 4/1/17.............................. 86,525
145,161 Gold, 8.000% due 12/1/19............................. 146,068
3,186,800 Gold, 6.000% due 10/1/28............................. 2,921,882
489,361 Gold, 6.000% due 7/1/29.............................. 448,681
Federal National Mortgage Association (FNMA):
480,672 6.784% due 1/17/03................................... 478,268
96,642 6.500% due 12/1/03................................... 94,165
13,454 14.500% due 11/15/14................................. 15,573
39,964 12.500% due 9/20/15.................................. 45,659
39,317 13.000% due 11/15/15................................. 45,275
233,524 12.000% due 1/1/16................................... 261,692
15,447 12.000% due 1/15/16.................................. 17,300
157,649 12.500% due 1/15/16.................................. 179,124
10,783 11.500% due 9/1/19................................... 11,888
84,291 10.500% due 8/1/20................................... 91,271
160,481 8.500% due 11/1/23................................... 163,490
28,935 9.000% due 8/1/26.................................... 29,785
2,000,000 7.500 due 3/18/27 -- Interest Only................... 433,930
2,667,645 8.000% due 7/18/27 -- Interest Only.................. 470,247
6,414,515 8.000% due 8/18/27 -- Interest Only.................. 1,167,576
539,631 6.604% due 12/28/28 (b).............................. 504,723
472,011 6.000% due 2/1/29.................................... 432,036
406,121 6.000% due 3/1/29.................................... 371,726
734,082 6.500% due 4/1/29.................................... 692,328
1,565,878 6.000% due 6/1/29.................................... 1,433,264
332,444 6.500% due 6/1/29.................................... 313,537
95,642 6.500% due 7/1/29.................................... 90,202
980,906 6.500% due 8/1/29.................................... 925,112
25,148 6.500% due 10/1/29................................... 23,718
1,561,687 6.500% due 11/1/29................................... 1,472,857
1,765,600 6.500% due 12/1/29................................... 1,665,172
2,000,000 7.500% due 12/1/29(TBA) (c).......................... 1,970,620
800,000 6.527% due 5/25/30................................... 746,000
500,000 6.000% due 9/1/30 (TBA) (c).......................... 457,340
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers U.S. Government Income Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Face
Amount Security Value
<C> <S> <C>
-------------------------------------------------------------------------------
Government National Mortgage Association (GNMA):
$ 111,174 8.500% due 1/15/18................................... $ 113,988
715,848 9.000% due 12/1/19................................... 732,398
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost -- $22,813,636)................................ 22,396,515
-----------
SUB-TOTAL INVESTMENTS
(Cost -- $24,891,016)................................ 24,462,715
-----------
REPURCHASE AGREEMENT (d) -- 20.0%
6,131,000 J.P. Morgan Securities, 6.400% due 7/3/00; Proceeds
at maturity -- $6,134,270; (Fully collateralized by
U.S. Treasury Bonds, 8.875% due 2/15/19; Market
value -- $6,253,607) (Cost -- $6,131,000)........... 6,131,000
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $31,022,016*)............................... $30,593,715
===========
</TABLE>
------
(a) All or a portion of the security is segregated as collateral for reverse
repurchase agreements.
(b) Interest rate shown reflects current rate on instrument with variable rate
or step coupon rate.
(c) Mortgage dollar roll.
(d) All or a portion of the security is segregated as collateral for mortgage
dollar rolls.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
TBA -- To be announced.
See Notes to Financial Statements.
36
<PAGE>
Statements of Assets and Liabilities
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
National U.S.
High Yield Strategic Intermediate Government
Bond Fund Bond Fund Municipal Fund Income Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at cost... $539,986,153 $108,853,409 $10,947,044 $24,891,016
============ ============ =========== ===========
Investments, at value.. $462,088,369 $100,688,523 $11,112,346 $24,462,715
Repurchase agreements,
at value and cost..... 17,133,000 12,529,000 -- 6,131,000
Cash................... 785 380 21,951 399
Interest receivable.... 12,263,433 1,963,412 184,188 261,295
Receivable for Fund
shares sold........... 815,180 201,126 5,020 2,423
Receivable for
securities sold....... 1,164,018 -- -- --
Receivable for open
forward foreign
currency contracts
(Note 1).............. -- 124,194 -- --
Receivable from
manager............... -- -- 108,188 91,506
Other assets........... -- -- 7,907 --
------------ ------------ ----------- -----------
Total Assets........... 493,464,785 115,506,635 11,439,600 30,949,338
------------ ------------ ----------- -----------
LIABILITIES:
Dividends and interest
payable............... 4,499,153 707,082 40,627 112,442
Payable for securities
purchased............. 2,029,868 10,780,303 -- 2,423,000
Payable for Fund shares
purchased............. 942,050 162,243 49,077 145,412
Service and
distribution fees
payable............... 302,694 70,710 5,657 15,287
Management fees
payable............... 300,182 109,471 -- --
Administration fees
payable............... 42,180 8,933 1,061 2,235
Payable for open
forward foreign
currency contracts
(Note 1).............. -- 116,841 -- --
Payable for open
reverse repurchase
agreement (Note 1).... -- -- -- 2,117,500
Accrued expenses....... 254,022 66,481 33,249 37,891
------------ ------------ ----------- -----------
Total Liabilities...... 8,370,149 12,022,064 129,671 4,853,767
------------ ------------ ----------- -----------
Total Net Assets........ $485,094,636 $103,484,571 $11,309,929 $26,095,571
============ ============ =========== ===========
NET ASSETS:
Par value of shares of
capital stock......... $ 54,483 $ 10,910 $ 1,114 $ 2,641
Capital paid in excess
of par value.......... 641,553,798 117,894,560 11,257,683 27,095,903
Undistributed
(overdistributed) net
investment income..... (3,558,310) (698,521) (53,959) 74,042
Accumulated net
realized loss on
security transactions,
options
and foreign
currencies............ (75,057,551) (5,568,391) (60,211) (648,714)
Net unrealized
appreciation
(depreciation) of
investments and
foreign currencies.... (77,897,784) (8,153,987) 165,302 (428,301)
------------ ------------ ----------- -----------
Total Net Assets....... $485,094,636 $103,484,571 $11,309,929 $26,095,571
============ ============ =========== ===========
Shares Outstanding:
Class A................ 12,829,423 1,726,831 333,177 655,249
============ ============ =========== ===========
Class B................ 31,691,979 6,985,161 428,905 1,441,205
============ ============ =========== ===========
Class 2................ 8,452,136 2,137,100 220,584 413,590
============ ============ =========== ===========
Class O................ 1,509,020 61,193 131,065 131,317
============ ============ =========== ===========
Net Asset Value:
Class A Shares
Net asset value*....... $ 8.89 $ 9.47 $ 10.18 $ 9.86
============ ============ =========== ===========
Maximum offering price
per share (based on
maximum sales charge
of 4.75%)............. $ 9.33 $ 9.94 $ 10.69 $ 10.35
============ ============ =========== ===========
Class B Shares
Net asset value and
offering price per
share*................ $ 8.90 $ 9.48 $ 10.13 $ 9.88
============ ============ =========== ===========
Class 2 Shares
Net asset value*....... $ 8.93 $ 9.52 $ 10.16 $ 9.91
============ ============ =========== ===========
Maximum offering price
per share (based on
maximum sales charge
of 1.00%)............. $ 9.02 $ 9.62 $ 10.26 $ 10.01
============ ============ =========== ===========
Class O Shares
Net asset value,
offering price and
redemption price per
share................. $ 8.89 $ 9.46 $ 10.18 $ 9.88
============ ============ =========== ===========
</TABLE>
------
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See Notes to Financial Statements.
37
<PAGE>
Statements of Operations
For the Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
National U.S.
High Yield Strategic Intermediate Government
Bond Fund Bond Fund Municipal Fund Income Fund
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest............... $ 31,896,222 $ 5,927,582 $ 350,542 $1,134,244
Dividends.............. 136,846 -- -- --
Less: Interest expense
(Note 1).............. -- -- -- (17,075)
------------ ----------- --------- ----------
Total Investment
Income................ 32,033,068 5,927,582 350,542 1,117,169
------------ ----------- --------- ----------
EXPENSES:
Service and
distribution fees
(Note 2).............. 1,917,627 442,134 34,083 96,858
Management fees (Note
2).................... 1,901,367 403,621 32,134 83,415
Shareholder
communications........ 136,624 28,421 7,500 15,912
Shareholder and system
servicing fees........ 133,084 67,275 31,664 29,040
Administration fees
(Note 2).............. 126,758 26,908 3,213 6,951
Audit and legal........ 70,805 24,893 31,000 29,395
Custody................ 28,751 16,380 501 2,535
Registration fees...... 20,943 18,681 11,999 15,652
Directors' fees........ 5,021 1,456 400 746
Amortization of
deferred organization
costs (Note 1)........ 4,270 4,293 3,391 3,514
Other.................. 16,756 14,293 4,395 6,959
------------ ----------- --------- ----------
Total Expenses......... 4,362,006 1,048,355 160,280 290,977
Less: Management fee
waiver and expense
reimbursement (Note
2).................... -- (73,442) (94,064) (110,833)
------------ ----------- --------- ----------
Net Expenses........... 4,362,006 974,913 66,216 180,144
------------ ----------- --------- ----------
Net Investment Income... 27,671,062 4,952,669 284,326 937,025
------------ ----------- --------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS, OPTIONS AND
FOREIGN CURRENCIES
(NOTES 1 AND 3):
Realized Loss From:
Security transactions
(excluding short-term
securities)........... (463,379) (143,352) (15,107) (273,609)
Option purchased....... (511,800) (72,700) -- --
Foreign currency
transactions.......... -- (535,114) -- --
------------ ----------- --------- ----------
Net Realized Loss...... (975,179) (751,166) (15,107) (273,609)
------------ ----------- --------- ----------
Change in Net
Unrealized Appreciation
(Depreciation) of
Investments
and Foreign Currencies:
Beginning of period.... (46,384,482) (4,665,255) 119,003 (594,314)
End of period.......... (77,897,784) (8,153,987) 165,302 (428,301)
------------ ----------- --------- ----------
Change in Net
Unrealized
Appreciation
(Depreciation)........ (31,513,302) (3,488,732) 46,299 166,013
------------ ----------- --------- ----------
Net Gain (Loss) on
Investments, Options
and Foreign
Currencies............. (32,488,481) (4,239,898) 31,192 (107,596)
------------ ----------- --------- ----------
Increase (Decrease) in
Net Assets From
Operations............. $ (4,817,419) $ 712,771 $ 315,518 $ 829,429
============ =========== ========= ==========
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
National U.S.
High Yield Strategic Intermediate Government
Bond Fund Bond Fund Municipal Fund Income Fund
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.. $ 27,671,062 $ 4,952,669 $ 284,326 $ 937,025
Net realized loss...... (975,179) (751,166) (15,107) (273,609)
Change in net
unrealized
appreciation
(depreciation)........ (31,513,302) (3,488,732) 46,299 166,013
------------ ------------ ----------- -----------
Increase (Decrease) in
Net Assets From
Operations............ (4,817,419) 712,771 315,518 829,429
------------ ------------ ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income.. (27,672,709) (4,341,951) (284,254) (756,788)
------------ ------------ ----------- -----------
Decrease in Net Assets
From Distributions to
Shareholders.......... (27,672,709) (4,341,951) (284,254) (756,788)
------------ ------------ ----------- -----------
FUND SHARE TRANSACTIONS
(NOTE 6):
Net proceeds from sale
of shares............. 186,210,491 7,855,545 3,652,663 23,382,317
Net asset value of
shares issued for
reinvestment of
dividends............. 10,895,608 2,104,372 155,447 403,885
Cost of shares
reacquired............ (214,985,574) (14,157,618) (5,803,924) (28,288,417)
------------ ------------ ----------- -----------
Decrease in Net Assets
From Fund Share
Transactions.......... (17,879,475) (4,197,701) (1,995,814) (4,502,215)
------------ ------------ ----------- -----------
Decrease in Net Assets.. (50,369,603) (7,826,881) (1,964,550) (4,429,574)
NET ASSETS:
Beginning of period.... 535,464,239 111,311,452 13,274,479 30,525,145
------------ ------------ ----------- -----------
End of period*......... $485,094,636 $103,484,571 $11,309,929 $26,095,571
============ ============ =========== ===========
* Includes undistributed
(overdistributed) net
investment income
of:................... $(3,558,310) $(698,521) $(53,959) $74,042
============ ============ =========== ===========
</TABLE>
See Notes to Financial Statements.
39
<PAGE>
Statements of Changes in Net Assets
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
National U.S.
High Yield Strategic Intermediate Government
Bond Fund Bond Fund Municipal Fund Income Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.. $ 56,185,187 $ 9,806,045 $ 665,812 $ 1,562,269
Net realized loss...... (39,684,862) (3,147,402) (8,467) (331,384)
Change in net
unrealized
appreciation
(depreciation)........ 18,634,076 (1,822,047) (658,457) (930,757)
------------ ------------ ----------- -----------
Increase (Decrease) in
Net Assets From
Operations............ 35,134,401 4,836,596 (1,112) 300,128
------------ ------------ ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income.. (58,416,164) (9,316,441) (688,412) (1,660,133)
------------ ------------ ----------- -----------
Decrease in Net Assets
From Distributions to
Shareholders.......... (58,416,164) (9,316,441) (688,412) (1,660,133)
------------ ------------ ----------- -----------
FUND SHARE TRANSACTIONS
(NOTE 6):
Net proceeds from sale
of shares............. 166,676,663 29,422,232 6,446,621 17,986,689
Net asset value of
shares issued for
reinvestment of
dividends............. 22,079,579 4,198,990 334,848 856,868
Cost of shares
reacquired............ (198,934,208) (35,577,531) (8,626,054) (17,062,095)
------------ ------------ ----------- -----------
Increase (Decrease) in
Net Assets From Fund
Share Transactions.... (10,177,966) (1,956,309) (1,844,585) 1,781,462
------------ ------------ ----------- -----------
Increase (Decrease) in
Net Assets............. (33,459,729) (6,436,154) (2,534,109) 421,457
NET ASSETS:
Beginning of year...... 568,923,968 117,747,606 15,808,588 30,103,688
------------ ------------ ----------- -----------
End of year*........... $535,464,239 $111,311,452 $13,274,479 $30,525,145
============ ============ =========== ===========
* Includes
overdistributed net
investment income of:.. $(3,044,863) $(701,425) $(54,031) $(106,195)
============ ============ =========== ===========
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
Statements of Cash Flows
For the Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
U.S.
Strategic Government
Bond Fund Income Fund
-------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net purchase/sales of short-term portfolio
investments...................................... $ 2,022,771 $ (2,947,000)
Purchases of long-term portfolio investments...... (69,599,231) (7,855,039)
Proceeds from disposition of long-term portfolio
investments and principal paydowns............... 71,733,842 12,964,583
------------ ------------
4,157,382 2,162,544
Net investment income............................. 4,952,669 937,025
Net amortization of premium/discount on
investments...................................... (807,755) 2,091
Capitalized income on payment in kind securities.. (51,124) --
Amortization of organization expenses............. 4,293 3,514
Net change on receivables/payables related to
operations....................................... 808,998 10,401
------------ ------------
Net Cash Flows Provided By Operating Activities... 9,064,463 3,115,575
------------ ------------
Cash Flows Used by Financing Activities:
Proceeds from reverse repurchase agreement........ -- 2,117,500
Decrease in dollar roll transactions.............. (143,094) (13,438)
Proceeds from shares sold......................... 7,772,121 23,459,530
Proceeds from reinvestment of dividends........... 2,104,372 403,885
Payments on shares redeemed....................... (14,421,825) (28,303,741)
Cash dividends paid............................... (4,372,853) (779,520)
------------ ------------
Net Cash Flows Used by Financing Activities....... (9,061,279) (3,115,784)
------------ ------------
Net Increase (Decrease) in Cash.................... 3,184 (209)
Cash (Payable to Bank), Beginning of Period........ (2,804) 608
------------ ------------
Cash, End of Period................................ $ 380 $ 399
============ ============
</TABLE>
See Notes to Financial Statements.
41
<PAGE>
Notes to Financial Statements
(unaudited)
1. Organization and Significant Accounting Policies
The Salomon Brothers Investment Series ("Investment Series") consists of cer-
tain portfolios of the Salomon Brothers Series Funds Inc ("Series Fund"), the
Salomon Brothers Investors Value Fund Inc, and the Salomon Brothers Capital
Fund Inc.
Salomon Brothers High Yield Bond Fund ("High Yield Bond Fund), Salomon Brothers
Strategic Bond Fund ("Strategic Bond Fund"), Salomon Brothers National Interme-
diate Municipal Fund ("National Intermediate Municipal Fund") and Salomon
Brothers U.S. Government Income Fund ("U.S. Government Income Fund"), are sepa-
rate investment portfolios of the Series Fund, an open-end management invest-
ment company, incorporated in Maryland on April 17, 1990. The Series Fund con-
sists of these portfolios and eight other separate investment portfolios: Salo-
mon Brothers Asia Growth Fund, Salomon Brothers International Equity Fund, Sal-
omon Brothers Small Cap Growth Fund, Salomon Brothers Large Cap Growth Fund,
Salomon Brothers Balanced Fund, Salomon Brothers New York Municipal Money Mar-
ket Fund, Salomon Brothers Cash Management Fund and Salomon Brothers Institu-
tional Money Market Fund. The financial statements and financial highlights for
the other portfolios are presented in separate shareholder reports.
The Investment Series operates under a multiple class pricing structure, with
each portfolio of the Investment Series (individually a "Fund") offering Class
A, Class B, Class 2 and Class O shares, each with their own expense structure.
Each Fund has a specific investment objective:
<TABLE>
<CAPTION>
Fund: Objective:
<S> <C>
High Yield Bond Fund....... To maximize current income.
Strategic Bond Fund........ To seek a high level of current income.
National Intermediate To seek a high level of current income
Municipal Fund............ which is exempt from regular Federal income taxes.
U.S. Government Income
Fund...................... To seek a high level of current income.
</TABLE>
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. At June 30, 2000, all of the organization
expenditures were fully amortized.
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 are valued at amortized cost
which approximates market value. If a Fund acquires such securities with more
than 60 days remaining to maturity, they are valued at current market value,
until the 60th day prior to maturity, and are then valued on an amortized cost
basis.
Foreign securities quoted in a foreign currency are translated into U.S.
dollars using exchange rates at approximately 2:30 p.m. Eastern time, or at
such other rates as SBAM may determine to be appropriate in computing net asset
value.
42
<PAGE>
Notes to Financial Statements
(unaudited) (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 High Yield Bond Fund, Strategic Bond Fund and
National Intermediate Municipal 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 is recognized. Outstanding contracts may
involve elements of market risk in excess of amounts reported in the financial
statements.
(c) Option Contracts. When a Fund writes or purchases a call or a put option,
an amount equal to the premium received or paid by the Fund is recorded as a
liability or asset, the value of which is marked-to-market daily to reflect the
current market value of the option. When the option expires, the Fund realizes
a gain or loss equal to the amount of the premium received or paid. When the
Fund enters into a closing transaction by purchasing or selling an offsetting
option, it realizes a gain or loss without regard to any unrealized gain or
loss on the underlying security. When a written call option is exercised, the
Fund realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received. When
a written put option is exercised, the amount of the premium received reduces
the cost of the security that the Fund purchased upon exercise of the option.
(d) Mortgage Rolls. The Strategic Bond Fund and U.S. Government Income 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 monthly balance of dollar rolls outstanding during the
six months ended June 30, 2000 was approximately $7,172,890, and $2,089,856 for
the 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 equals or exceeds the repurchase price.
In the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.
(f) Reverse Repurchase Agreements. Certain Funds may enter into reverse
repurchase agreements in which a Fund sells portfolio securities and agrees to
repurchase them from the buyer at a particular date and price. Whenever a Fund
enters into a reverse repurchase agreement, the custodian delivers liquid
assets in an amount at least equal to the repurchase price marked-to-market
daily (including accrued interest), and subsequently monitors the account to
ensure that such equivalent value is maintained. A Fund pays interest on
amounts obtained pursuant to reverse repurchase agreements. Reverse repurchase
agreements are considered to be borrowings by a Fund. Transactions in reverse
repurchase agreements for the Funds during the six months ended June 30, 2000
were as follows:
<TABLE>
<CAPTION>
Average Weighted Maximum
Daily Average Amount
Fund Balance Interest Rate Outstanding
--------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Income Fund.................. $785,021 4.30% $3,146,250
</TABLE>
Interest rates on reverse repurchase agreements ranged from 1.60% to 6.00%,
during the period for U.S. Government Income Fund. Interest expense on reverse
repurchase agreements totaled $17,075 for U.S. Government Income Fund.
At June 30, 2000, the U.S. Government Income Fund had the following open re-
verse repurchase agreement:
<TABLE>
<CAPTION>
Face
Amount Security Value
------------------------------------------------------------------------------------------
<S> <C> <C>
$2,000,000 UBS Warburg Dillon Read Inc., dated 6/30/00 bearing 5.300% to be
repurchased at $2,118,435 on 7/3/00, collateralized by U.S.
Treasury Notes, 6.500% due 2/15/10................................. $2,066,200
</TABLE>
43
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
(g) Foreign Currency Translation. The accounting records of each Fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities of the Strategic Bond Fund denominated in a foreign currency are
translated into U.S. dollars at the prevailing rates of exchange each day.
Purchases and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the respective
dates of the transactions. Net realized gains and losses on foreign currency
transactions represent net gains and losses from sales and maturities of
forward currency contracts, disposition of foreign currencies, currency gains
and losses realized between the trade and settlement dates on securities
transactions and the difference between the amount of net investment income
accrued and the U.S. dollar amount actually received. The effect of changes in
foreign currency exchange rates on investments in securities are not segregated
in the Statements of Operations from the effects of changes in market prices of
those securities, but are included with the unrealized loss on investments.
(h) Forward Foreign Currency Contracts. The High Yield Bond Fund and Strategic
Bond 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.
At June 30, 2000, the Strategic Bond Fund had open forward currency contracts
as described below:
<TABLE>
<CAPTION>
Strategic Bond Settlement Local Market Unrealized
Fund Date Currency Value Gain (Loss)
---------------- ---------- ----------- ---------- -----------
To Buy:
<S> <C> <C> <C> <C>
British Pound 7/28/00 102,393 $ 155,101 $ 19
Canadian Dollar 7/28/00 600,000 405,243 (1,041)
Canadian Dollar 7/28/00 421,115 284,423 1,416
Euro 7/28/00 104,755 100,608 6,354
Euro 7/28/00 1,619,348 1,555,238 66,410
Greek Drachma 7/28/00 230,127,875 654,008 29,560
Japanese Yen 7/28/00 67,085,682 637,579 16,416
Swedish Krona 7/28/00 1,906,740 217,895 1,760
--------
120,894
--------
To Sell:
British Pound 7/28/00 102,350 155,036 (1,705)
Canadian Dollar 7/28/00 560,000 378,227 638
Canadian Dollar 7/28/00 290,000 195,867 636
Canadian Dollar 7/28/00 171,114 115,572 (273)
Euro 7/28/00 437,318 419,212 (13,414)
Euro 7/28/00 539,740 518,372 (8,372)
Euro 7/28/00 160,000 153,666 (8,354)
Greek Drachma 7/28/00 230,127,879 654,008 (37,868)
Japanese Yen 7/28/00 9,641,600 91,633 985
Japanese Yen 7/28/00 57,444,082 545,946 (14,991)
Polish Zloty 7/28/00 1,842,240 419,123 (2,704)
Polish Zloty 7/28/00 562,882 128,060 (3,666)
Swedish Krona 7/28/00 1,906,740 217,895 (7,832)
--------
(96,920)
--------
</TABLE>
44
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
Cross Currency Forwards*
<TABLE>
<CAPTION>
Unrealized
Market Value Gain (Loss)
Settlement ------------------------ -----------
Date Polish Zloty Euro
---------- ------------ -----
<S> <C> <C> <C> <C>
To Buy:
Polish Zloty vs. Euro 7/28/00 $547,183 $563,804 $(16,621)
--------
Net Unrealized Gain on Open Forward
Foreign & Cross Currency Contracts $ 7,353
========
* Local Currency on Cross Currency Forwards
<CAPTION>
Buy Sell
------------ --------
<S> <C> <C> <C> <C>
Buy Polish Zloty vs. Euro 2,405,121 587,045
</TABLE>
(i) Loan Participations. The High Yield Bond Fund and the Strategic Bond 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, 2000 were $24,274,894 and
$2,791,257, respectively.
(j) Federal Income Taxes. Each Fund has complied with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
distributed all of its income, including any net realized gains, to
shareholders. Therefore, no Federal income tax or excise tax provision is
required for such Funds.
(k) Dividends and Distributions to Shareholders. Dividends from net investment
income on the shares of each of the Funds are declared each business day to
shareholders of record that day, and are paid on the last business day of the
month.
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 GAAP due primarily to differences
in the treatment of foreign currency gains/losses, deferral of wash sales, and
post-October losses incurred by each Fund. Permanent book/tax differences are
reclassified within the capital accounts based on their federal income tax
basis treatment; temporary differences do not require reclassifications.
(l) Class Accounting. Investment income, common expenses and gain (loss) on
investments are allocated to the various classes of a Fund on the basis of
daily net assets of each class. Distribution and shareholder servicing fees
relating to a specific class are charged directly to that class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
(m) Expenses. Direct expenses are charged to the Fund that incurred them, and
general expenses of the Investment Series are allocated to the Funds based on
each Fund's relative net assets.
(n) Other. Investment transactions are recorded as of the trade date. Dividend
income is recorded on the ex-dividend date. 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), 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.
(o) Cash Flow Information. Statement of Financial Accounting Standards Number
102 generally exempts entities such as the Funds from reporting a Statement of
Cash Flows. However, the amount and nature of certain activities entered into
by the Strategic Bond Fund and U.S. Government Income Fund may be considered
financing arrangements, which may require the presentation of a Statement of
Cash Flows. General investing and operating activities of the Funds are
reported in the Statement of Changes in Net Assets and additional information
on cash receipts and cash payments are presented in the
45
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
Statement of Cash Flows. Accounting practices that do not affect reporting
activities on a cash basis include carrying investments at value and amortizing
discounts or premiums on debt obligations.
2. Management Fee and Other Agreements
Each Fund retains SBAM, a wholly owned subsidiary of Salomon Brothers Holding
Co., Inc., which in turn is wholly owned by Salomon Smith Barney Holdings, Inc.
("SSBH"), which, in turn, is a subsidiary of Citigroup Inc., to act as invest-
ment 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 cer-
tain services and facilities required for conducting the business of the In-
vestment Series and pays the compensation of its officers. The management fee
for these services for each Fund is payable monthly and is based on the follow-
ing annual percentages of each Fund's average daily net assets: 0.75% for the
High Yield Bond Fund and Strategic Bond Fund, 0.50% for the National Intermedi-
ate Municipal Fund and 0.60% for the U.S. Government Income Fund. SBAM Ltd., an
affiliate of SBAM, provides certain advisory services to SBAM for the benefit
of the Strategic Bond Fund. SBAM Ltd. is compensated by SBAM at no additional
expense to the Strategic Bond Fund.
For the six months ended June 30, 2000, SBAM waived management fees of $73,442,
$32,134 and $83,415 for the Strategic Bond Fund, National Intermediate Munici-
pal Fund and U.S. Government Income Fund, respectively, and voluntarily ab-
sorbed expenses of $61,930 and $27,418 for the National Intermediate Municipal
Fund and U.S. Government Income Fund, respectively.
SBAM also acts as administrator for each of the Funds. SBAM has delegated its
responsibilities as administrator to SSB Citi Fund Management LLC ("SSBC"), an
affiliate of SBAM, pursuant to a Sub-Administration Agreement between SBAM and
SSBC.
Each Fund has an agreement with CFBDS, Inc. to distribute its shares pursuant
to a multiple pricing system. Each class (except for Class O) of each Fund is
authorized pursuant to a services and distribution plan applicable to that
class of shares ("Class A Plan," the "Class B Plan," and the "Class 2 Plan,"
collectively, the "Plans") adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("1940 Act"), to pay the distributor an annual
service fee with respect to Class A, Class B, and Class 2 shares of the appli-
cable Funds at a rate of 0.25% of the value of the average daily net assets of
the respective class. The distributor is paid an annual distribution fee with
respect to Class B shares of each Fund at a rate of 0.75% of the value of the
average daily net assets of the respective class. The distributor is also paid
an annual distribution fee with respect to Class 2 shares of each Fund at a
rate of 0.50% of the value of the average daily net assets of the respective
class. Class O shares are not subject to a service or distribution plan fee.
For the six months ended June 30, 2000, total service and distribution plan
fees were as follows:
<TABLE>
<CAPTION>
Class A Class B Class 2
-------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Bond Fund.............................. $150,359 $1,475,288 $291,980
Strategic Bond Fund............................... 21,979 338,855 81,300
National Intermediate Municipal Fund.............. 5,255 20,498 8,330
U.S. Government Income Fund....................... 6,933 71,952 17,973
</TABLE>
Salomon Smith Barney Inc. ("SSB") received $411,937 as its portion of the sales
charge on sales of Class A and Class 2 shares of the Funds during the six
months ended June 30, 2000. In addition, contingent deferred sales charges of
$1,081,894 were paid to SSB in connection with redemptions of certain Class B
and Class 2 shares of the Funds during the six months ended June 30, 2000.
46
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
3. Investments
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
High Yield Bond Fund................................. $182,154,651 $218,879,126
============ ============
Strategic Bond Fund:
U.S. Government Securities.......................... $ 16,785,750 $ 3,912,169
Other Investments................................... 53,297,080 66,176,205
------------ ------------
$ 70,082,830 $ 70,088,374
============ ============
National Intermediate Municipal Fund................. $ 2,412,630 $ 5,416,917
============ ============
U.S. Government Income Fund.......................... $ 7,855,039 $ 12,837,349
============ ============
</TABLE>
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
<CAPTION>
Net
Gross Gross Unrealized
Unrealized Unrealized Appreciation
Appreciation Depreciation (Depreciation)
------------ ------------ --------------
<S> <C> <C> <C>
High Yield Bond Fund................ $15,057,914 $(92,955,698) $(77,897,784)
Strategic Bond Fund................. 1,796,205 (9,961,091) (8,164,886)
National Intermediate Municipal
Fund............................... 210,821 (45,519) 165,302
U.S. Government Income Fund......... 236,299 (664,600) (428,301)
</TABLE>
4. Portfolio Investment Risks
Credit and Market Risk. Funds that invest in high yield and emerging market
instruments are subject to certain credit and market risks. The yields of high
yield and emerging market debt obligations reflect, among other things,
perceived credit risk. The Funds' investment in securities rated below
investment grade typically involve risks not associated with higher rated
securities including, among others, greater risk of timely and ultimate payment
of interest and principal, greater market price volatility and less liquid
secondary market trading. The consequences of political, social, economic or
diplomatic changes may have disruptive effects on the market prices of
investments held by the Funds. The Funds' investment in non-dollar denominated
securities may also result in foreign currency losses caused by devaluations
and exchange rate fluctuations.
Financial Instruments with Off-Balance Sheet Risk. Certain Funds enter into
forward foreign currency contracts ("forward contracts") to facilitate
settlement of foreign currency denominated portfolio transactions or to manage
foreign currency exposure associated with foreign currency denominated
securities. Forward contracts involve elements of market risk in excess of the
amounts reflected in the Statements of Assets and Liabilities. The Funds bear
the risk of an unfavorable change in the foreign exchange rate underlying the
forward contract. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
47
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities markets
and the possibility of political or economic instability.
Funds that enter into mortgage dollar rolls are subject to the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a mortgage dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the dollar roll may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities.
Consistent with their objective to seek high current income, certain Funds may
invest in instruments whose values and interest rates may be linked to foreign
currencies, interest rates, indices or some other financial indicator. The
value at maturity or interest rates for these instruments will increase or
decrease according to the change in the indicator to which it is indexed. These
securities are generally more volatile in nature and the risk of loss of
principal is greater.
A risk in writing a call option is that the Fund may forego the opportunity of
profit if the market price of the underlying security increases and the option
is exercised. The risk in writing a put option is that the Fund may incur a
loss if the market price of the underlying security decreases and the option is
exercised. In addition, there is the risk that the Fund may not be able to
enter into a closing transaction because of an illiquid secondary market.
In connection with purchasing loan 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.
5. Tax Information
At December 31, 1999, the High Yield Bond Fund, Strategic Bond Fund, National
Intermediate Municipal Fund and U.S. Government Income Fund had net capital
loss carry-forwards available to offset future capital gains as follows:
<TABLE>
<CAPTION>
National U.S.
Intermediate Government
Year of High Yield Strategic Municipal Income
Expiration Bond Fund Bond Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2005............................. -- -- $ 3,000 --
2006............................. $20,063,000 $ 97,000 34,000 --
2007............................. 52,009,000 5,093,000 7,000 $30,000
----------- ---------- ------- -------
$72,072,000 $5,190,000 $44,000 $30,000
=========== ========== ======= =======
</TABLE>
The character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. At December 31, 1999, reclassifications were made to the
capital accounts of the Strategic Bond Fund and the U.S. Government Income Fund
to reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets were not affected by this change.
48
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
6. Capital Stock
At June 30, 2000, the Series Funds had 10,000,000,000 shares of authorized cap-
ital stock, par value $0.001 per share.
At June 30, 2000, total paid-in-capital amounted to the following for each
Fund:
<TABLE>
<CAPTION>
Class A Class B Class 2 Class O
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
High Yield Bond Fund....... $155,307,540 $371,410,185 $100,162,474 $14,728,082
Strategic Bond Fund........ 18,420,743 75,067,268 23,744,431 673,028
National Intermediate
Municipal Fund............ 3,537,140 4,449,587 2,322,930 949,140
U.S. Government Income
Fund...................... 6,753,990 14,911,867 4,299,874 1,132,813
</TABLE>
Transactions in Fund shares for the periods indicated were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
-------------------------- ------------------------
Shares Amount Shares Amount
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
High Yield Bond Fund
Class A
Shares sold............. 16,301,225 $ 148,415,105 7,527,657 $ 71,597,250
Shares issued on
reinvestment........... 336,989 3,087,004 660,164 6,350,433
Shares reacquired....... (17,053,295) (155,022,150) (9,682,595) (91,932,314)
----------- ------------- ---------- ------------
Net Decrease............ (415,081) $ (3,520,041) (1,494,774) $(13,984,631)
=========== ============= ========== ============
Class B
Shares sold............. 2,383,871 $ 21,788,007 6,383,699 $ 61,553,859
Shares issued on
reinvestment........... 563,535 5,171,279 1,107,772 10,650,217
Shares reacquired....... (4,138,238) (37,880,549) (7,821,057) (74,869,479)
----------- ------------- ---------- ------------
Net Decrease............ (1,190,832) $ (10,921,263) (329,586) $ (2,665,403)
=========== ============= ========== ============
Class 2
Shares sold............. 1,124,652 $ 10,247,943 2,538,622 $ 24,581,029
Shares issued on
reinvestment........... 200,871 1,846,946 395,710 3,803,346
Shares reacquired....... (1,774,165) (16,314,535) (2,815,036) (26,986,592)
----------- ------------- ---------- ------------
Net Increase
(Decrease)............. (448,642) $ (4,219,646) 119,296 $ 1,397,783
=========== ============= ========== ============
Class O
Shares sold............. 631,644 $ 5,759,436 931,913 $ 8,944,525
Shares issued on
reinvestment........... 86,276 790,379 132,553 1,275,583
Shares reacquired....... (636,180) (5,768,340) (540,329) (5,145,823)
----------- ------------- ---------- ------------
Net Increase............ 81,740 $ 781,475 524,137 $ 5,074,285
=========== ============= ========== ============
Strategic Bond Fund
Class A
Shares sold............. 134,109 $ 1,285,843 717,729 $ 7,102,019
Shares issued on
reinvestment........... 42,380 410,657 107,171 1,048,568
Shares reacquired....... (343,242) (3,299,886) (1,090,797) (10,667,368)
----------- ------------- ---------- ------------
Net Decrease............ (166,753) $ (1,603,386) (265,897) $ (2,516,781)
=========== ============= ========== ============
Class B
Shares sold............. 559,300 $ 5,404,434 1,805,183 $ 17,789,421
Shares issued on
reinvestment........... 116,876 1,131,038 211,962 2,073,291
Shares reacquired....... (756,853) (7,327,741) (1,626,669) (15,902,964)
----------- ------------- ---------- ------------
Net Increase
(Decrease)............. (80,677) $ (792,269) 390,476 $ 3,959,748
=========== ============= ========== ============
Class 2
Shares sold............. 117,067 $ 1,139,628 449,804 $ 4,437,717
Shares issued on
reinvestment........... 55,899 543,208 106,879 1,043,564
Shares reacquired....... (359,470) (3,490,991) (917,115) (8,992,399)
----------- ------------- ---------- ------------
Net Decrease............ (186,504) $ (1,808,155) (360,432) $ (3,511,118)
=========== ============= ========== ============
Class O
Shares sold............. 2,684 $ 25,640 9,791 $ 93,075
Shares issued on
reinvestment........... 2,015 19,469 3,437 33,567
Shares reacquired....... (4,135) (39,000) (1,544) (14,800)
----------- ------------- ---------- ------------
Net Increase............ 564 $ 6,109 11,684 $ 111,842
=========== ============= ========== ============
</TABLE>
49
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
----------------------- ---------------------
Shares Amount Shares Amount
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
National Intermediate
Municipal Fund
Class A
Shares sold.................. 254,854 $ 2,555,492 268,058 $ 2,836,778
Shares issued on
reinvestment................ 7,583 76,617 14,368 149,190
Shares reacquired............ (368,518) (3,727,587) (83,003) (857,848)
---------- ----------- -------- -----------
Net Increase (Decrease)...... (106,081) $(1,095,478) 199,423 $ 2,128,120
========== =========== ======== ===========
Class B
Shares sold.................. 88,796 $ 892,684 208,229 $ 2,158,130
Shares issued on
reinvestment................ 3,756 37,757 4,874 50,347
Shares reacquired............ (67,988) (685,336) (70,117) (727,565)
---------- ----------- -------- -----------
Net Increase................. 24,564 $ 245,105 142,986 $ 1,480,912
========== =========== ======== ===========
Class 2
Shares sold.................. 19,125 $ 193,002 129,309 $ 1,347,114
Shares issued on
reinvestment................ 3,643 36,710 7,041 72,907
Shares reacquired............ (17,710) (179,053) (137,489) (1,416,831)
---------- ----------- -------- -----------
Net Increase (Decrease)...... 5,058 $ 50,659 (1,139) $ 3,190
========== =========== ======== ===========
Class O
Shares sold.................. 1,133 $ 11,485 9,954 $ 104,599
Shares issued on
reinvestment................ 432 4,363 6,001 62,404
Shares reacquired............ (121,134) (1,211,948) (539,679) (5,623,810)
---------- ----------- -------- -----------
Net Decrease................. (119,569) $(1,196,100) (523,724) $(5,456,807)
========== =========== ======== ===========
U.S. Government Income Fund
Class A
Shares sold.................. 2,167,047 $21,323,202 514,105 $ 5,148,415
Shares issued on
reinvestment................ 8,743 85,933 22,541 225,335
Shares reacquired............ (2,107,019) (20,730,019) (606,035) (6,029,123)
---------- ----------- -------- -----------
Net Increase (Decrease)...... 68,771 $ 679,116 (69,389) $ (655,373)
========== =========== ======== ===========
Class B
Shares sold.................. 189,135 $ 1,864,551 912,987 $ 9,173,186
Shares issued on
reinvestment................ 22,906 225,287 45,912 458,194
Shares reacquired............ (406,454) (3,998,064) (812,174) (8,149,980)
---------- ----------- -------- -----------
Net Increase (Decrease)...... (194,413) $(1,908,226) 146,725 $ 1,481,400
========== =========== ======== ===========
Class 2
Shares sold.................. 16,824 $ 166,018 349,784 $ 3,530,709
Shares issued on
reinvestment................ 8,560 84,350 15,794 157,640
Shares reacquired............ (154,437) (1,521,782) (281,660) (2,844,702)
---------- ----------- -------- -----------
Net Increase (Decrease)...... (129,053) $(1,271,414) 83,918 $ 843,647
========== =========== ======== ===========
Class O
Shares sold.................. 2,904 $ 28,546 13,145 $ 134,379
Shares issued on
reinvestment................ 846 8,315 1,572 15,699
Shares reacquired............ (207,062) (2,038,552) (3,828) (38,290)
---------- ----------- -------- -----------
Net Increase (Decrease)...... (203,312) $(2,001,691) 10,889 $ 111,788
========== =========== ======== ===========
</TABLE>
At June 30, 2000, Salomon Brothers Holding Co. Inc. owned approximately the
following percentages of total shares outstanding of the following Funds:
<TABLE>
<S> <C>
National Intermediate Municipal Fund........................................ 9%
U.S. Government Income Fund................................................. 6%
</TABLE>
50
<PAGE>
Financial Highlights
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
High Yield Bond Fund
<TABLE>
------------------------------------------------------------------------------------------
<CAPTION>
Class A Shares
-------------------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $9.48 $9.89 $11.74 $11.54 $10.53 $10.00
-------- -------- -------- -------- -------- -------
Income (Loss) From
Operations:
Net investment income
...................... 0.52* 1.01* 1.05 1.06 1.10 0.92
Net realized and
unrealized gain
(loss)................ (0.58) (0.36) (1.84) 0.38 1.11 0.67
-------- -------- -------- -------- -------- -------
Total Income (Loss) From
Operations............. (0.06) 0.65 (0.79) 1.44 2.21 1.59
-------- -------- -------- -------- -------- -------
Less Distributions From:
Net investment income.. (0.53) (1.06) (1.06) (1.05) (1.10) (0.91)
Net realized gains..... -- -- -- (0.19) (0.10) (0.15)
-------- -------- -------- -------- -------- -------
Total Distributions..... (0.53) (1.06) (1.06) (1.24) (1.20) (1.06)
-------- -------- -------- -------- -------- -------
Net Asset Value, End of
Period................. $8.89 $9.48 $9.89 $11.74 $11.54 $10.53
======== ======== ======== ======== ======== =======
Total Return(3)......... (0.6)%++ 7.0% (7.1)% 13.0% 21.9% 16.6%++
Net Assets, End of
Period (000s).......... $114,056 $125,568 $145,730 $169,721 $ 65,935 $10,789
Ratios to Average Net
Assets:
Expenses............... 1.22%+ 1.27% 1.24% 1.24% 1.24% 1.24%+
Net investment
income................ 11.46%+ 10.46% 9.58% 8.66% 9.38% 10.58%+
Portfolio Turnover
Rate................... 36% 65% 66% 79% 85% 109%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. NA $1.01* $1.04 $1.04 $1.09 $0.87
Expense ratio.......... NA 1.29% 1.32% 1.34% 1.50% 1.80%+
High Yield Bond Fund
------------------------------------------------------------------------------------------
<CAPTION>
Class B Shares
-------------------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $9.48 $9.87 $11.71 $11.53 $10.53 $10.00
-------- -------- -------- -------- -------- -------
Income (Loss) From
Operations:
Net investment income
...................... 0.49* 0.94* 0.97 0.98 1.02 0.85
Net realized and
unrealized gain
(loss)................ (0.58) (0.36) (1.84) 0.37 1.11 0.68
-------- -------- -------- -------- -------- -------
Total Income (Loss) From
Operations............. (0.09) 0.58 (0.87) 1.35 2.13 1.53
-------- -------- -------- -------- -------- -------
Less Distributions From:
Net investment income.. (0.49) (0.97) (0.97) (0.98) (1.03) (0.85)
Net realized gains..... -- -- -- (0.19) (0.10) (0.15)
-------- -------- -------- -------- -------- -------
Total Distributions..... (0.49) (0.97) (0.97) (1.17) (1.13) (1.00)
-------- -------- -------- -------- -------- -------
Net Asset Value, End of
Period................. $8.90 $9.48 $9.87 $11.71 $11.53 $10.53
======== ======== ======== ======== ======== =======
Total Return(3)......... (1.0)%++ 6.3% (7.8)% 12.2% 21.2% 15.7%++
Net Assets, End of
Period (000s).......... $282,160 $311,832 $327,661 $329,672 $106,797 $10,108
Ratios to Average Net
Assets:
Expenses............... 1.97%+ 2.02% 1.99% 1.99% 1.99% 1.96%+
Net investment income.. 10.70%+ 9.74% 8.87% 7.90% 8.49% 9.53%+
Portfolio Turnover
Rate................... 36% 65% 66% 79% 85% 109%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. NA $0.94* $0.96 $0.97 $1.01 $0.80
Expense ratio.......... NA 2.03% 2.07% 2.09% 2.24% 2.51%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from February 22, 1995 (inception date) to December 31,
1995.
(3) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
* Per share amounts have been calculated using average shares method.
++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
51
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
High Yield Bond Fund
<TABLE>
-------------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares
--------------------------------------------------------
2000(1) 1999 1998(2) 1997 1996 1995(3)
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $9.50 $9.86 $11.70 $11.52 $10.53 $10.00
------- ------- ------- ------- -------
Income (Loss) From
Operations:
Net investment income
....................... 0.50* 0.96* 0.97 0.99 1.02 0.85
Net realized and
unrealized gain
(loss)................. (0.58) (0.35) (1.84) 0.36 1.10 0.68
------- ------- ------- ------- ------- ------
Total Income (Loss) From
Operations.............. (0.08) 0.61 (0.87) 1.35 2.12 1.53
------- ------- ------- ------- ------- ------
Less Distributions From:
Net investment income... (0.49) (0.97) (0.97) (0.98) (1.03) (0.85)
Net realized gains...... -- -- -- (0.19) (0.10) (0.15)
------- ------- ------- ------- ------- ------
Total Distributions...... (0.49) (0.97) (0.97) (1.17) (1.13) (1.00)
------- ------- ------- ------- ------- ------
Net Asset Value, End of
Period.................. $8.93 $9.50 $9.86 $11.70 $11.52 $10.53
======= ======= ======= ======= ======= ======
Total Return(4).......... (0.9)%++ 6.6% (7.8)% 12.2% 21.1% 15.8%++
Net Assets, End of Period
(000s).................. $75,462 $84,527 $86,596 $76,042 $13,773 $1,274
Ratios to Average Net
Assets:
Expenses................ 1.72%+ 1.79% 1.99% 1.99% 1.99% 1.98%+
Net investment income... 10.97%+ 9.95% 8.89% 7.87% 8.43% 9.61%+
Portfolio Turnover Rate.. 36% 65% 66% 79% 85% 109%
Before applicable waiver
of management fee,
expenses absorbed by SBAM
and credits earned on
custodian cash balances,
net investment income per
share and expense ratios
would have been:
Net investment income
per share.............. NA $0.96* $0.96 $0.98 $1.01 $0.80
Expense ratio........... NA 1.81% 2.07% 2.08% 2.24% 2.54%+
High Yield Bond Fund
-------------------------------------------------------------------------------------
<CAPTION>
Class O Shares
--------------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(3)
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $9.48 $9.89 $11.75 $11.53 $10.54 $10.00
------- ------- ------- ------- ------- ------
Income (Loss) From
Operations:
Net investment income .. 0.55* 1.04* 1.09 1.08 1.16 0.95
Net realized and
unrealized gain
(loss)................. (0.59) (0.36) (1.86) 0.40 1.05 0.67
------- ------- ------- ------- ------- ------
Total Income (Loss) From
Operations.............. (0.04) 0.68 (0.77) 1.48 2.21 1.62
------- ------- ------- ------- ------- ------
Less Distributions From:
Net investment income... (0.55) (1.09) (1.09) (1.07) (1.12) (0.93)
Net realized gains...... -- -- -- (0.19) (0.10) (0.15)
------- ------- ------- ------- ------- ------
Total Distributions...... (0.55) (1.09) (1.09) (1.26) (1.22) (1.08)
------- ------- ------- ------- ------- ------
Net Asset Value, End of
Period.................. $8.89 $9.48 $9.89 $11.75 $11.53 $10.54
======= ======= ======= ======= ======= ======
Total Return(4).......... (0.4)%++ 7.3% (6.9)% 13.4% 22.0% 16.8%++
Net Assets, End of Period
(000s).................. $13,417 $13,537 $ 8,936 $ 2,386 $ 393 $7,854
Ratios to Average Net
Assets:
Expenses................ 0.97%+ 1.02% 1.01% 0.99% 0.99% 1.00%+
Net investment income... 11.06%+ 10.76% 10.85% 8.93% 10.64% 10.59%+
Portfolio Turnover Rate.. 36% 65% 66% 79% 85% 109%
Before applicable waiver
of management fee,
expenses absorbed by SBAM
and credits earned on
custodian cash balances,
net investment income per
share and expense ratios
would have been:
Net investment income
per share.............. NA $1.04* $1.08 $1.07 $1.13 $0.90
Expense ratio........... NA 1.03% 1.09% 1.09% 1.24% 1.55%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) On September 14, 1998, Class C shares were renamed Class 2 shares.
(3) For the period from February 22, 1995 (inception date) to December 31,
1995.
(4) Total return is calculated assuming a $1,000 investment of the first day of
each period reported, reinvestment of all dividends at the net asset value
on the ex-dividend date, and a sale at net asset value on the last day of
each period. Initial sales charge or contingent deferred sales charge is
not reflected in the calculation of total return.
* Per share amounts have been calculated using average shares method.
++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
52
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Strategic Bond Fund
<TABLE>
----------------------------------------------------------------------------------
<CAPTION>
Class A Shares
------------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $9.81 $10.19 $10.94 $10.83 $10.53 $10.00
------- ------- ------- ------- ------- ------
Income (Loss) From
Operations:
Net investment income.. 0.50* 0.88* 0.76 0.76* 0.87* 0.84
Net realized and
unrealized gain
(loss)................ (0.42) (0.41) (0.65) 0.41 0.55 0.78
------- ------- ------- ------- ------- ------
Total Income From
Operations............. 0.15 0.47 0.11 1.17 1.42 1.62
------- ------- ------- ------- ------- ------
Less Distributions From:
Net investment income.. (0.42) (0.85) (0.85) (0.89) (0.94) (0.85)
In excess of net
investment income..... -- -- -- -- (0.01) --
Net realized gains..... -- -- (0.01) (0.17) (0.17) (0.24)
------- ------- ------- ------- ------- ------
Total Distributions..... (0.42) (0.85) (0.86) (1.06) (1.12) (1.09)
------- ------- ------- ------- ------- ------
Net Asset Value, End of
Period................. $9.47 $9.81 $10.19 $10.94 $10.83 $10.53
======= ======= ======= ======= ======= ======
Total Return(3)......... 0.9%++ 5.0% 1.1% 11.2% 14.1% 16.8%++
Net Assets, End of
Period (000s).......... $16,359 $18,571 $21,995 $17,150 $8,345 $513
Ratios to Average Net
Assets:
Expenses............... 1.24%+ 1.24% 1.24% 1.24% 1.24% 1.23%+
Net investment income.. 10.22%+ 8.94% 7.11% 6.99% 8.09% 9.51%+
Portfolio Turnover
Rate................... 67% 114% 109% 184% 122% 161%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $0.49* $0.86* $0.74 $0.73* $0.79* $0.76
Expense ratio.......... 1.38%+ 1.44% 3.79% 3.81% 5.50% 2.11%+
Strategic Bond Fund
----------------------------------------------------------------------------------
<CAPTION>
Class B Shares
------------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $9.81 $10.18 $10.93 $10.82 $10.53 $10.00
------- ------- ------- ------- ------- ------
Income (Loss) From
Operations:
Net investment income.. 0.45* 0.81* 0.69 0.67* 0.79* 0.76
Net realized and
unrealized gain
(loss)................ (0.40) (0.41) (0.66) 0.41 0.53 0.79
------- ------- ------- ------- ------- ------
Total Income From
Operations............. 0.05 0.40 0.03 1.08 1.32 1.55
------- ------- ------- ------- ------- ------
Less Distributions From:
Net investment income.. (0.38) (0.77) (0.77) (0.80) (0.85) (0.78)
In excess of net
investment income..... -- -- -- -- (0.01) --
Net realized gains..... -- -- (0.01) (0.17) (0.17) (0.24)
------- ------- ------- ------- ------- ------
Total Distributions..... (0.38) (0.77) (0.78) (0.97) (1.03) (1.02)
------- ------- ------- ------- ------- ------
Net Asset Value, End of
Period................. $9.48 $9.81 $10.18 $10.93 $10.82 $10.53
======= ======= ======= ======= ======= ======
Total Return(3)......... 0.6%++ 4.2% 0.3% 10.4% 13.0% 16.1%++
Net Assets, End of
Period (000s).......... $66,200 $69,289 $67,928 $47,921 $14,291 $1,879
Ratios to Average Net
Assets:
Expenses............... 1.99%+ 1.99% 1.99% 1.99% 1.98% 1.97%+
Net investment income.. 9.44%+ 8.20% 6.37% 6.12% 7.34% 8.75%+
Portfolio Turnover
Rate................... 67% 114% 109% 184% 122% 161%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $0.45* $0.79* $0.67 $0.64* $0.71* $0.69
Expense ratio.......... 2.13%+ 2.19% 2.18% 2.28% 2.73% 2.85%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from February 22, 1995 (inception date) to December 31,
1995.
(3) 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. Initial sales charge or contingent deferred sales charge is not re-
flected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
53
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Strategic Bond Fund
<TABLE>
---------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares
-----------------------------------------------------
2000(1) 1999 1998(2) 1997 1996 1995(3)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $9.84 $10.18 $10.94 $10.82 $10.53 $10.00
------- ------- ------- ------- ------ ------
Income (Loss) From
Operations:
Net investment income.. 0.47* 0.83* 0.69 0.66* 0.78* 0.77
Net realized and
unrealized gain
(loss)................ (0.41) (0.40) (0.67) 0.43 0.54 0.78
------- ------- ------- ------- ------ ------
Total Income From
Operations............. 0.06 0.43 0.02 1.09 1.32 1.55
------- ------- ------- ------- ------ ------
Less Distributions From:
Net investment income.. (0.38) (0.77) (0.77) (0.80) (0.85) (0.78)
In excess of net
investment income..... -- -- -- -- (0.01) --
Net realized gains..... -- -- (0.01) (0.17) (0.17) (0.24)
------- ------- ------- ------- ------ ------
Total Distributions..... (0.38) (0.77) (0.78) (0.97) (1.03) (1.02)
------- ------- ------- ------- ------ ------
Net Asset Value, End of
Period................. $9.52 $9.84 $10.18 $10.94 $10.82 $10.53
======= ======= ======= ======= ====== ======
Total Return(4)......... 0.7%++ 4.5% 0.2% 10.5% 13.1% 16.1%++
Net Assets, End of
Period (000s).......... $20,347 $22,857 $27,327 $20,220 $4,575 $411
Ratios to Average Net
Assets:
Expenses............... 1.74%+ 1.76% 1.99% 1.99% 1.98% 1.99%+
Net investment income.. 9.72%+ 8.43% 6.37% 6.09% 7.26% 8.77%+
Portfolio Turnover
Rate................... 67% 114% 109% 184% 122% 161%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $0.46* $0.81* $0.67 $0.63* $0.70* $0.70
Expense ratio.......... 1.88%+ 1.96% 2.18% 2.28% 2.72% 2.87%+
Strategic Bond Fund
---------------------------------------------------------------------------------
<CAPTION>
Class O Shares
-----------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(3)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $9.80 $10.18 $10.93 $10.82 $10.53 $10.00
------- ------- ------- ------- ------ ------
Income (Loss) From
Operations:
Net investment income.. 0.51* 0.91* 0.77 0.78* 0.92* 0.87
Net realized and
unrealized gain
(loss)................ (0.41) (0.41) (0.63) 0.41 0.51 0.77
------- ------- ------- ------- ------ ------
Total Income From
Operations............. 0.10 0.50 0.14 1.19 1.43 1.64
------- ------- ------- ------- ------ ------
Less Distributions From:
Net investment income.. (0.44) (0.88) (0.88) (0.91) (0.96) (0.87)
In excess of net
investment income..... -- -- -- -- (0.01) --
Net realized gains..... -- -- (0.01) (0.17) (0.17) (0.24)
------- ------- ------- ------- ------ ------
Total Distributions..... (0.44) (0.88) (0.89) (1.08) (1.14) (1.11)
------- ------- ------- ------- ------ ------
Net Asset Value, End of
Period................. $9.46 $9.80 $10.18 $10.93 $10.82 $10.53
======= ======= ======= ======= ====== ======
Total Return(4)......... 1.0%++ 5.3% 1.3% 11.5% 14.2% 17.0%++
Net Assets, End of
Period (000s).......... $579 $594 $498 $649 $3,817 $9,763
Ratios to Average Net
Assets:
Expenses............... 0.99%+ 0.99% 0.99% 0.96% 1.00% 0.99%+
Net investment income.. 10.44%+ 9.30% 7.37% 7.22% 8.65% 9.74%+
Portfolio Turnover
Rate................... 67% 114% 109% 184% 122% 161%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $0.50* $0.89* $0.75 $0.75* $0.84* $0.79
Expense ratio.......... 1.13%+ 1.19% 1.18% 1.25% 1.74% 1.87%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) On September 14, 1998, Class C shares were renamed Class 2 shares.
(3) For the period from February 22, 1995 (inception date) to December 31,
1995.
(4) 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. Initial sales charge or contingent deferred sales charge is not re-
flected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
54
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
National Intermediate Municipal Fund
<TABLE>
--------------------------------------------------------------------------------
<CAPTION>
Class A Shares
--------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
--------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $10.15 $10.61 $10.62 $10.35 $10.43 $10.00
------ ------ ------ ------ ------ ------
Income (Loss) From
Operations:
Net investment income... 0.24* 0.48* 0.47 0.48 0.48 0.40
Net realized and
unrealized gain
(loss)................. 0.03 (0.46) -- 0.28 (0.06) 0.46
------ ------ ------ ------ ------ ------
Total Income From
Operations.............. 0.27 0.02 0.47 0.76 0.42 0.86
------ ------ ------ ------ ------ ------
Less Distributions From:
Net investment income... (0.24) (0.48) (0.48) (0.48) (0.48) (0.40)
Net realized gains...... -- -- -- (0.01) (0.02) (0.03)
------ ------ ------ ------ ------ ------
Total Distributions...... (0.24) (0.48) (0.48) (0.49) (0.50) (0.43)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period.................. $10.18 $10.15 $10.61 $10.62 $10.35 $10.43
====== ====== ====== ====== ====== ======
Total Return(3).......... 2.7%++ 0.2% 4.5% 7.5% 4.2% 8.7%++
Net Assets, End of Period
(000s).................. $3,391 $4,460 $2,545 $1,063 $696 $569
Ratios to Average Net
Assets:
Expenses................ 0.75%+ 0.63% 0.75% 0.75% 0.75% 0.75%+
Net investment income... 4.68%+ 4.44% 4.28% 4.53% 4.62% 4.63%+
Portfolio Turnover Rate
........................ 20% 4% 8% 1% 19% 29%
Before applicable waiver
of management fee,
expenses absorbed by SBAM
and credits earned on
custodian cash balances,
net investment income per
share and expense ratios
would have been:
Net investment income
per share ............. $0.16* $0.33* $0.37 $0.36 $0.35 $0.32
Expense ratio........... 2.21%+ 2.06% 1.67% 1.82% 2.02% 1.71%+
National Intermediate Municipal Fund
--------------------------------------------------------------------------------
<CAPTION>
Class B Shares
---------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.11 $10.57 $10.59 $10.33 $10.42 $10.00
------ ------ ------ ------ ------ ------
Income (Loss) From
Operations:
Net investment income.. 0.20* 0.38* 0.39 0.40 0.40 0.34
Net realized and
unrealized gain
(loss)................ 0.02 (0.43) -- 0.28 (0.06) 0.45
------ ------ ------ ------ ------ ------
Total Income (Loss) From
Operations............. 0.22 (0.05) 0.39 0.68 0.34 0.79
------ ------ ------ ------ ------ ------
Less Distributions From:
Net investment income.. (0.20) (0.41) (0.41) (0.40) (0.41) (0.34)
In excess of net
investment income..... -- -- -- (0.01) -- --
Net realized gains..... -- -- -- (0.01) (0.02) (0.03)
------ ------ ------ ------ ------ ------
Total Distributions..... (0.20) (0.41) (0.41) (0.42) (0.43) (0.37)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $10.13 $10.11 $10.57 $10.59 $10.33 $10.42
====== ====== ====== ====== ====== ======
Total Return(3)......... 2.3%++ (0.5)% 3.7% 6.7% 3.4% 8.0%++
Net Assets, End of
Period (000s).......... $4,344 $4,087 $2,763 $1,295 $702 $432
Ratios to Average Net
Assets:
Expenses............... 1.50%+ 1.35% 1.50% 1.50% 1.50% 1.50%+
Net investment income.. 4.01%+ 3.70% 3.54% 3.75% 3.88% 3.85%+
Portfolio Turnover
Rate................... 20% 4% 8% 1% 19% 29%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $0.13* $0.23* $0.29 $0.28 $0.27 $0.25
Expense ratio.......... 2.98%+ 2.78% 2.42% 2.57% 2.77% 2.45%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from February 22, 1995 (inception date) to December 31,
1995.
(3) 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. Initial sales charge or contingent deferred sales charge is not re-
flected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
55
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
National Intermediate Municipal Fund
<TABLE>
---------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares
-----------------------------------------------------
2000(1) 1999 1998(2) 1997 1996 1995(3)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.13 $10.57 $10.59 $ 10.33 $10.42 $10.00
------ ------ ------ ------- ------ ------
Income (Loss) From
Operations:
Net investment income.. 0.21* 0.41* 0.39 0.40 0.40 0.34
Net realized and
unrealized gain
(loss)................ 0.02 (0.44) -- 0.28 (0.06) 0.45
------ ------ ------ ------- ------ ------
Total Income (Loss) From
Operations............. 0.23 (0.03) 0.39 0.68 0.34 0.79
------ ------ ------ ------- ------ ------
Less Distributions From:
Net investment income.. (0.20) (0.41) (0.41) (0.40) (0.41) (0.34)
In excess of net
investment income..... -- -- -- (0.01) -- --
Net realized gains..... -- -- -- (0.01) (0.02) (0.03)
------ ------ ------ ------- ------ ------
Total Distributions..... (0.20) (0.41) (0.41) (0.42) (0.43) (0.37)
------ ------ ------ ------- ------ ------
Net Asset Value, End of
Period................. $10.16 $10.13 $10.57 $ 10.59 $10.33 $10.42
====== ====== ====== ======= ====== ======
Total Return(4)......... 2.3%++ (0.3)% 3.7% 6.7% 3.4% 8.0%++
Net Assets, End of
Period (000s).......... $2,241 $2,183 $2,291 $514 $468 $271
Ratios to Average Net
Assets:
Expenses............... 1.25%+ 1.16% 1.50% 1.50% 1.50% 1.50%+
Net investment income.. 4.25%+ 3.91% 3.51% 3.81% 3.88% 3.85%+
Portfolio Turnover
Rate................... 20% 4% 8% 1% 19% 29%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $0.14* $0.26* $0.29 $0.28 $0.27 $0.25
Expense ratio.......... 2.73%+ 2.60% 2.42% 2.57% 2.77% 2.46%+
National Intermediate Municipal Fund
---------------------------------------------------------------------------------
<CAPTION>
Class O Shares
-----------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(3)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.15 $10.60 $10.61 $ 10.34 $10.43 $10.00
------ ------ ------ ------- ------ ------
Income (Loss) From
Operations:
Net investment income.. 0.26* 0.49* 0.48 0.50 0.50 0.42
Net realized and
unrealized gain
(loss)................ 0.02 (0.44) 0.01 0.28 (0.07) 0.46
------ ------ ------ ------- ------ ------
Total Income From
Operations............. 0.28 0.05 0.49 0.78 0.43 0.88
------ ------ ------ ------- ------ ------
Less Distributions From:
Net investment income.. (0.25) (0.50) (0.50) (0.50) (0.50) (0.42)
Net realized gains..... -- -- -- (0.01) (0.02) (0.03)
------ ------ ------ ------- ------ ------
Total Distributions..... (0.25) (0.50) (0.50) (0.51) (0.52) (0.45)
------ ------ ------ ------- ------ ------
Net Asset Value, End of
Period................. $10.18 $10.15 $10.60 $ 10.61 $10.34 $10.43
====== ====== ====== ======= ====== ======
Total Return(4)......... 2.8%++ 0.5% 4.8% 7.8% 4.3% 9.0%++
Net Assets, End of
Period (000s).......... $1,334 $2,544 $8,211 $11,286 $9,786 $9,675
Ratios to Average Net
Assets:
Expenses............... 0.50%+ 0.41% 0.50% 0.50% 0.50% 0.50%+
Net investment income.. 4.94%+ 4.75% 4.58% 4.79% 4.88% 4.86%+
Portfolio Turnover
Rate................... 20% 4% 8% 1% 19% 29%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $0.18* $0.34* $0.38 $0.39 $0.37 $0.34
Expense ratio.......... 1.95%+ 1.86% 1.42% 1.57% 1.77% 1.46%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) On September 14, 1998, Class C Shares were renamed Class 2 Shares.
(3) For the period from February 22, 1995 (inception date) to December 31,
1995.
(4) 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. Initial sales charge or contingent deferred sales charge is not re-
flected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
56
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
U.S. Government Income Fund
<TABLE>
--------------------------------------------------------------------------------
<CAPTION>
Class A Shares
----------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $9.84 $10.28 $10.20 $10.07 $10.32 $10.00
------- ------- ------- ------ ------ ------
Income (Loss) From
Operations:
Net investment income.. 0.35* 0.54* 0.55 0.58 0.54 0.49
Net realized and
unrealized gain
(loss)................ (0.04) (0.39) 0.21 0.19 (0.19) 0.43
------- ------- ------- ------ ------ ------
Total Income From
Operations............. 0.31 0.15 0.76 0.77 0.35 0.92
------- ------- ------- ------ ------ ------
Less Distributions From:
Net investment income.. (0.29) (0.59) (0.57) (0.54) (0.54) (0.49)
In excess of net
investment income..... -- -- (0.11) (0.10) (0.06) (0.10)
Net realized gains..... -- -- -- -- -- (0.01)
------- ------- ------- ------ ------ ------
Total Distributions..... (0.29) (0.59) (0.68) (0.64) (0.60) (0.60)
------- ------- ------- ------ ------ ------
Net Asset Value, End of
Period................. $9.86 $9.84 $10.28 $10.20 $10.07 $10.32
======= ======= ======= ====== ====== ======
Total Return(3)......... 3.2%++ 1.5% 7.6% 7.9% 3.6% 9.5%++
Net Assets, End of
Period (000s).......... $6,464 $5,771 $6,744 $1,320 $1,188 $278
Ratios to Average Net
Assets:
Expenses............... 0.85%+ 0.85% 0.85% 0.85% 0.84% 0.85%+
Net investment income.. 7.18%+ 5.34% 4.98% 5.77% 5.22% 5.67%+
Portfolio Turnover
Rate................... 30% 96% 173% 261% 365% 230%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $0.31* $0.45* $0.47 $0.47 $0.38 $0.40
Expense ratio.......... 1.64%+ 1.67% 1.63% 2.02% 2.21% 1.90%+
U.S. Government Income Fund
--------------------------------------------------------------------------------
<CAPTION>
Class B Shares
----------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $9.85 $10.29 $10.20 $10.06 $10.32 $10.00
------- ------- ------- ------ ------ ------
Income (Loss) From
Operations:
Net investment income.. 0.32* 0.49* 0.48 0.51 0.46 0.43
Net realized and
unrealized gain
(loss)................ (0.04) (0.42) 0.21 0.19 (0.20) 0.43
------- ------- ------- ------ ------ ------
Total Income From
Operations............. 0.28 0.07 0.69 0.70 0.26 0.86
------- ------- ------- ------ ------ ------
Less Distributions From:
Net investment income.. (0.25) (0.51) (0.49) (0.46) (0.46) (0.43)
In excess of net
investment income..... -- -- (0.11) (0.10) (0.06) (0.10)
Net realized gains..... -- -- -- -- -- (0.01)
------- ------- ------- ------ ------ ------
Total Distributions..... (0.25) (0.51) (0.60) (0.56) (0.52) (0.54)
------- ------- ------- ------ ------ ------
Net Asset Value, End of
Period................. $9.88 $9.85 $10.29 $10.20 $10.06 $10.32
======= ======= ======= ====== ====== ======
Total Return(3)......... 2.9%++ 0.7% 6.9% 7.2% 2.7% 8.8%++
Net Assets, End of
Period (000s).......... $14,238 $16,109 $15,315 $2,531 $1,266 $572
Ratios to Average Net
Assets:
Expenses............... 1.60%+ 1.60% 1.60% 1.60% 1.59% 1.60%+
Net investment income.. 6.47%+ 4.85% 4.20% 4.96% 4.51% 4.85%+
Portfolio Turnover
Rate................... 30% 96% 173% 261% 365% 230%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $0.28* $0.40* $0.39 $0.39 $0.30 $0.34
Expense ratio.......... 2.40%+ 2.42% 2.39% 2.77% 2.96% 2.64%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from February 22, 1995 (inception date) to December 31,
1995.
(3) 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. Initial sales charge or contingent deferred sales charge is not re-
flected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
57
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
U.S. Government Income Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares
---------------------------------------------------
2000(1) 1999 1998(2) 1997 1996 1995(3)
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $9.86 $10.28 $10.19 $10.05 $10.32 $10.00
------ ------ ------ ------ ------ ------
Income (Loss) From
Operations:
Net investment income.. 0.33* 0.49* 0.48 0.51 0.46 0.43
Net realized and
unrealized gain
(loss)................ (0.03) (0.40) 0.21 0.19 (0.21) 0.43
------ ------ ------ ------ ------ ------
Total Income From
Operations............. 0.30 0.09 0.69 0.70 0.25 0.86
------ ------ ------ ------ ------ ------
Less Distributions From:
Net investment income.. (0.25) (0.51) (0.49) (0.46) (0.46) (0.43)
In excess of net
investment income..... -- -- (0.11) (0.10) (0.06) (0.10)
Net realized gains..... -- -- -- -- -- (0.01)
------ ------ ------ ------ ------ ------
Total Distributions..... (0.25) (0.51) (0.60) (0.56) (0.52) (0.54)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $9.91 $9.86 $10.28 $10.19 $10.05 $10.32
====== ====== ====== ====== ====== ======
Total Return(4)......... 3.1%++ 0.9% 6.9% 7.0% 2.7% 8.8%++
Net Assets, End of
Period (000s).......... $4,097 $5,351 $4,715 $751 $422 $273
Ratios to Average Net
Assets:
Expenses............... 1.35%+ 1.37% 1.60% 1.59% 1.60% 1.60%+
Net investment income.. 6.74%+ 4.91% 4.25% 4.94% 4.51% 4.92%+
Portfolio Turnover
Rate................... 56% 96% 173% 261% 365% 230%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $0.29* $0.40* $0.39 $0.39 $0.31 $0.34
Expense ratio.......... 2.15%+ 2.20% 2.39% 2.76% 2.97% 2.64%+
U.S. Government Income Fund
--------------------------------------------------------------------------------
<CAPTION>
Class O Shares
--------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(3)
--------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $9.85 $10.29 $10.19 $10.06 $10.32 $10.00
------ ------ ------ ------ ------ ------
Income (Loss) From
Operations:
Net investment income... 0.37* 0.57* 0.57* 0.61 0.56 0.52
Net realized and
unrealized gain
(loss)................. (0.03) (0.40) 0.23 0.18 (0.20) 0.42
------ ------ ------ ------ ------ ------
Total Income From
Operations.............. 0.34 0.17 0.80 0.79 0.36 0.94
------ ------ ------ ------ ------ ------
Less Distributions From:
Net investment income... (0.31) (0.61) (0.59) (0.56) (0.56) (0.52)
In excess of net
investment income...... -- -- (0.11) (0.10) (0.06) (0.10)
------ ------ ------ ------ ------ ------
Total Distributions...... (0.31) (0.61) (0.70) (0.66) (0.62) (0.62)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period.................. $9.88 $9.85 $10.29 $10.19 $10.06 $10.32
====== ====== ====== ====== ====== ======
Total Return(4).......... 3.5%++ 1.8% 8.1% 8.1% 3.7% 9.7%++
Net Assets, End of Period
(000s).................. $1,297 $3,294 $3,330 $9,553 $9,375 $9,552
Ratios to Average Net
Assets:
Expenses................ 0.60%+ 0.60% 0.60% 0.60% 0.60% 0.60%+
Net investment income... 7.42%+ 5.65% 5.52% 6.01% 5.53% 5.92%+
Portfolio Turnover Rate.. 30% 96% 173% 261% 365% 230%
Before applicable waiver
of management fee,
expenses absorbed by SBAM
and credits earned on
custodian cash balances,
net investment income per
share and expense ratios
would have been:
Net investment income
per share.............. $0.33* $0.48* $0.44* $0.49 $0.41 $0.42
Expense ratio........... 1.38%+ 1.42% 1.38% 1.77% 1.97% 1.64%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) On September 14, 1998, Class C Shares were renamed Class 2 Shares.
(3) For the period from February 22, 1995 (inception date) to December 31,
1995.
(4) 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. Initial sales charge or contingent deferred sales charge is not re-
flected in the calculation of total return.
* Per share amounts have been calculated using the average shares method.
++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
58
<PAGE>
(This page intentionally left blank.)
<PAGE>
Salomon Brothers Investment Series
Investment Manager
Salomon Brothers Asset Management Inc
7 World Trade Center New York, New York 10048
Custodian
PFPC Trust Company, National Association 8800 Tinicum Blvd.
Third Floor Suite 200 Philadelphia, PA 19153
Dividend Disbursing and Transfer Agent
PFPC Global Fund Services
53 State Street
Boston, Massachusetts 02109-2873
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue New
York, New York 10017
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas New
York, New York 10036
Directors
Charles F. Barber
Consultant; formerly Chairman; ASARCO Inc.
Carol L. Colman
Consultant, Colman Consulting
Daniel P. Cronin
Vice President-General Counsel,
Pfizer International Inc.
Heath B. McLendon
Chairman and President, Managing Director,
Salomon Smith Barney Inc.; President and Director,
SSB Citi Fund Management LLC
and Travelers Investment Advisers, Inc.
Officers
Heath B. McLendon
Chairman and President
Lewis E. Daidone
Executive Vice President and Treasurer
Robert E. Amodeo
Executive Vice President
James E. Craige
Executive Vice President
Thomas K. Flanagan
Executive Vice President
Roger Lavan
Executive Vice President
Ross S. Margolies
Executive Vice President
Maureen O'Callaghan
Executive Vice President
David J. Scott
Executive Vice President
Beth A. Semmel
Executive Vice President
Peter J. Wilby
Executive Vice President
George J. Williamson
Executive Vice President
Thomas A. Croak
Vice President
Nancy A. Noyes
Vice President
Anthony Pace
Controller
Christina T. Sydor
Secretary
<PAGE>
=========================
Salomon Brothers
=========================
Assets Management
Seven World Trade Center . New York, New York 10048
<PAGE>
SEMI-ANNUAL
REPORT
June 30, 2000
[PHOTO]
[PHOTO]
[PHOTO]
SALOMON BROTHERS ASSET MANAGEMENT
[_] New York Municipal
SALOMON BROTHERS Money Market Fund
[_] Cash Management Fund
<PAGE>
For almost a century, Salomon Brothers has provided serious investors with
advice and resources to help them reach their financial goals.
Salomon Brothers offers...
Quality Service
Scope of Choice
An Information Advantage
We offer cutting-edge solutions and investment programs delivered through
financial advisors. Our rich tradition and expertise provides access to
innovative ideas and extensive resources.
We wish to extend our sincere thanks for investing with us. Technology, new
innovations and business opportunities have changed the financial world over the
years -- but one constant remains: our commitment to serve your investment
needs.
BRIDGING WALL STREET OPPORTUNITIES TO YOUR FINANCIAL FUTURE
Rich Tradition
Bold initiative, determination and market foresight have defined the Salomon
Brothers name for nearly a century.
Global Resources
We have access to one of the world's largest financial institutions, creating a
global web of resources comprised of 170,000 employees in over 100 countries.
Investment Expertise
Averaging over 16 years of professional industry experience, our seasoned
portfolio management team consistently demonstrates a disciplined institutional
approach to money management.
Performance
We believe that a true measure of performance extends beyond short-term time
frames to long-term outcomes, quality of management, quality of relationship and
quality of thought.
Information Advantage
We offer a global information advantage to investors and their advisors --
providing the benefits of a world of rapid knowledge acquisition.
<PAGE>
Table of Contents
<TABLE>
<S> <C>
A Message From the Chairman.......................................... 2
The Salomon Brothers Investment Series
New York Municipal Money Market Fund............................... 4
Cash Management Fund............................................... 6
Schedules of Investments............................................. 9
Statements of Assets And Liabilities................................. 13
Statements of Operations............................................. 14
Statements of Changes in Net Assets.................................. 15
Notes to Financial Statements........................................ 17
Financial Highlights................................................. 21
Directors And Officers of
The Salomon Brothers Investment Series............................. IBC
</TABLE>
1
<PAGE>
[PHOTO]
Heath B. McLendon
Chairman
SALOMON BROTHERS INVESTMENT SERIES
A Message from the Chairman
Dear Shareholder:
We are pleased to provide the semi-annual report for the Salomon Brothers New
York Municipal Money Market Fund and the Salomon Brothers Cash Management Fund
(the "Funds" and each a "Fund") for the period ended June 30, 2000. We hope you
find this report to be useful and informative.
Market Commentary
Several major stock and bond markets hit record highs in 2000, but have since
backed off from their highs. The first half of 2000 was characterized by
increased levels of stock market volatility worldwide, predominantly in the
technology sector. In fact, the tech-laden Nasdaq Composite Index/1/ experienced
four declines of 10% or more. As the divergence between the so-called "New
Economy," represented by the telecommunications, media and technology companies,
versus the more established blue-chip "Old Economy" stocks, continues many
investors have continued to focus on identifying companies they believe are
best-positioned to grow in the new millennium.
In the first six months of the year, the Federal Reserve Board ("Fed") raised
interest rates three times (on February 2, 2000, March 21, 2000 and May 16,
2000) in an effort to slow the growth of the robust U.S. economy. While rising
interest rates often lead historically to falling stock prices, the economy and
the bond and stock markets appeared to absorb the Fed's rate hikes. While
consumer confidence slipped somewhat so far this year, consumer spending
continues to increase as evidenced by recent economic data. Unemployment remains
near its 30-year low and despite the possibility of future rate hikes this year
by the Fed, we remain optimistic that the growth of the U.S. economy should
continue for the near-term.
Bond investors were faced with many challenges in 2000, largely due to the
actions of the Fed and to the U.S. Treasury Department's plan to buy back
approximately $30 billion in long-term debt obligations. This led to an inverted
yield curve,/2/ a unique occurrence whereby bonds with longer maturities have
lower yields than bonds with shorter maturities.
__________
1 The Nasdaq Composite Index is a market value-weighted index that measures
all domestic and non-U.S. based securities listed on the NASDAQ stock
market. An investor cannot invest directly in an index.
2 The yield curve is a graphical depiction of the relationship between the
yield on bonds of the same credit quality, but different maturities.
2
<PAGE>
On behalf of everyone here at Salomon Brothers Asset Management Inc, we would
like to thank you for your continued confidence in the Funds. We look forward to
helping you pursue your financial goals in the new century.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman and President
July 31, 2000
MONEY MARKET FUNDS: AN INVESTMENT THAT SEEKS
INCOME, CAPITAL PRESERVATION AND LIQUIDITY
Since the 1970s, millions of investors worldwide have made money market funds a
key part of their investment portfolios. While all investments involve some
degree of risk, money market funds provide investors with an opportunity to earn
current short-term interest rates with a higher degree of liquidity than most
other types of funds.
While not insured by the U.S. government, money market funds may be suitable for
virtually all investors seeking attractive returns on short-term investments.
You can use the money market fund for temporary cash or as part of a balanced
long-term investment portfolio.
The Salomon Brothers Investment Series -- New York Municipal Money Market Fund
and Salomon Brothers Cash Management Fund may help you achieve your investment
goals of income and preservation of capital with liquidity. Interest earned from
these funds are usually competitive to those offered for Certificates of Deposit
("CDs"),/3/ but provide easier access to your money. Also, your monthly
interest rate is currently higher than that offered by most banks' savings
accounts. Of course interest rates are subject to change. For New York
investors, the New York Municipal Money Market Fund may offer significant tax
advantages as well.
Please note that your investment in either Fund is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Funds seek to preserve the value of your investment at
$1.00 per share, there is no assurance that the Funds will be able to do so and
it is possible to lose money by investing in the Funds.
___________
3 A CD is a debt instrument issued by a bank that usually pays an interest
rate set by competitive forces in the marketplace. CDs are insured up to
$100,000 under the Federal Deposit Insurance Corporation ("FDIC").
3
<PAGE>
[PHOTO]
The Fund Managers
[PHOTO] Charles K. Bardes, Vice President and Co-Portfolio Manager at Salomon
Brothers Asset Management Inc, has 13 years of investment industry
experience. Mr. Bardes shares responsibility for day-to-day Fund
management.
[PHOTO] Thomas A. Croak, Vice President and Co-Portfolio Manager at Salomon
Brothers Asset Management Inc, has 16 years of investment industry
experience in the municipal securities market. Mr. Croak shares the
responsibility for day-to-day Fund management.
SALOMON BROTHERS
New York Municipal
Money Market Fund
PERFORMANCE UPDATE
As of June 30, 2000, the New York Municipal Money Market Fund's seven-day
current yield was 4.13% for Class A shares. The Fund's seven-day effective
yield -- which reflects compounding -- was 4.17% for Class A shares.
INVESTMENT STRATEGY
The Fund invests primarily in high-quality, short-term "New York municipal
securities," which are debt obligations issued by the State of New York and its
political subdivisions, agencies and public authorities (or certain other
governmental issuers such as Puerto Rico, the Virgin Islands and Guam).
The Fund invests primarily in securities rated in the two highest short-term
rating categories, or if unrated, of equivalent quality. The Fund invests in
securities having remaining maturities of 397 days or less. The Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less.
We select securities primarily by identifying undervalued sectors and individual
securities, while also selecting securities that we believe may benefit from
changes in market conditions. In selecting individual securities, the managers:
. Use fundamental credit analysis to estimate the relative value and
attractiveness of various opportunities in the New York municipal bond
market;
. Identify eligible issuers with the most desirable credit quality;
. Trade between general obligations and revenue bonds and among various
revenue bond sectors such as housing, hospital and industrial development,
based on their apparent relative values; and
. Consider a security's maturity in light of the outlook for the issuer and
its sector and interest rates.
MUNICIPAL BOND MARKET REVIEW
The new year began on an anti-climactic note as news surrounding liquidity
strains due to Y2K computer problems turned out to be no news at all. Both
international and domestic financial markets operated without any disruptions
and trading activity quickly returned to normal. With Y2K proving to be
uneventful, traders and investors shifted their focus to the Federal Reserve
Board's ("Fed") task of containing inflation in the face of a vibrant economy
and a rising stock market.
Stronger indicators of consumer demand and manufacturing production prompted the
Fed to raise short-term interest rates at each of the first three Federal Open
Market Committee ("FOMC")/1/ meetings of 2000. By the middle of May, the
___________
1 The FOMC is a policy-making body of the Federal Reserve System, the U.S.
central bank, that is responsible for the formulation of policy designed to
promote economic growth, full employment, stable prices and a sustainable
pattern of international trade and payments.
4
<PAGE>
federal funds rate/2/ stood at 6.50%. Furthermore, statements released by the
Fed after each FOMC meeting pointed to its belief that additional rate hikes
would be necessary until there is some sign of moderation in economic activity.
During the first quarter of 2000, many cautious investors sought safe harbor by
investing in money market funds. Both bond buyers (who placed coupon interest
payments and maturing bond proceeds) and stock investors (who took profits in
the stock market) parked an abundance of temporary cash in money market funds.
This, in turn, led short-term managers scrambling to find product. As a result,
rates on Variable Rate Demand Notes ("VRDNs")/3/ remained relatively low during
the first quarter, as money fund managers kept a defensive posture against
redemptions by retaining VRDNs, while also keeping their portfolios poised for
yield increases in a rising interest-rate environment.
Rates on VRDNs rose in mid-April as cash poured out of money funds, due mostly
to a record amount of income tax payments. This forced dealer and remarketing
agents to raise yields dramatically in an effort to keep variable rate products
in investor hands. Many corporations also became attracted to VRDNs as rates
went higher. Average rates on daily puttable VRDNs reached 6% in April, which
equates to over 9% taxable equivalent yield.
Please note that your investment is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund.
OUTLOOK
In our view, rates on VRDNs and short-term notes may begin to fall. Technical
factors arising from the "July effect" (a popular bond maturity and coupon
interest date, which usually exceeds the available supply of municipal bonds in
the marketplace) typically result in lower yields for money market funds for the
first couple of weeks of the third quarter.
Our strategy is to continue to invest the Fund's assets in securities that are
among the highest quality available to money market funds since credit quality
spreads remain narrow. A majority of the Fund's holdings are presently in VRDNs,
which has allowed it to successfully perform near the top of its fund type
category in the recent rising interest rate environment. However, we may
consider extending the portfolio's average days if we begin to sense that the
economy is slowing and the Fed may be near the end of its monetary policy
tightening cycle. Please note that portfolio holdings are subject to change.
____________
2 The federal funds rate is the interest charged by banks with excess
reserves at a Federal Reserve district bank to banks needing overnight
loans to meet requirements.
3 VRDNs are floating rate notes whose yields are pegged to short-term
interest rates and may be sold back at par to the dealer/remarketing agent.
5
<PAGE>
[PHOTO]
The Fund Manager
[PHOTO] Nancy A. Noyes, Director and Portfolio Manager at Salomon Brothers
Asset Management Inc, has 17 years of investment industry
experience. Ms. Noyes is primarily responsible for day-to-day Fund
management.
SALOMON BROTHERS
Cash Management Fund
PERFORMANCE UPDATE
As of June 30, 2000 the Cash Management Fund's seven-day current yield was 6.04%
for Class A shares. The Fund's seven-day effective yield -- which reflects
compounding -- was 6.71% for Class A shares.
INVESTMENT STRATEGY
The Fund seeks as high a level of current income as is consistent with liquidity
and stability of principal. The Fund invests in high quality, U.S. dollar-
denominated short-term debt securities. The Fund may invest in all types of
money market instruments including U.S. government securities, short-term debt
securities, commercial paper, variable rate demand notes, obligations, mortgage-
backed and asset-backed securities and repurchase agreements.
While the Fund invests primarily in securities of U.S. issuers, the Fund may
also invest in U.S. dollar-denominated obligations of foreign governmental and
corporate issuers. The debt instruments in which the Fund invests may have fixed
or variable rates of interest. The Fund normally maintains at least 25% of its
assets in bank obligations.
The Fund invests primarily in securities rated in the high short-term rating
category, or if unrated, of equivalent quality. The Fund invests in securities
having, or are deemed to have, remaining maturities of 397 days or less. The
Fund maintains a dollar-weighted average portfolio maturity of 90 days or less.
In selecting investments for the Fund, the manager looks for:
. Eligible issuers with the most desirable credit quality;
. The best relative values based on an analysis of yield, price, interest
rate sensitivity and credit quality; and
. Maturities consistent with the manager's outlook for interest rates.
Although the Fund seeks to preserve the value of an investment at $1.00 per
share, it is possible to lose money by investing in the Fund, or the Fund could
underperform other short-term debt instruments or money market funds if any of
the following occurs:
. Interest rates rise sharply;
. An issuer or guarantor of the Fund's securities defaults, or has its
credit rating downgraded;
. The manager's judgement about the relative value or credit quality of a
particular security proves to be incorrect; and
. The value of the Fund's foreign securities goes down because of
unfavorable government actions or political instability.
6
<PAGE>
There is no assurance that the Cash Management Fund will be able to maintain a
stable net asset value of $1.00 per share. Please note that over time, a money
market fund is likely to underperform other bond or stock investment options.
MARKET REVIEW
The big news surrounding liquidity strains due to Y2K computer problems turned
out to be no news; financial markets did not experience any disruptions in
trading activity. However, the robust economy continued to spell uncertainty for
investors as inflationary pressures weighed on the bond market.
Stronger indicators of consumer demand and manufacturing production prompted the
Federal Reserve Board ("Fed") to raise interest rates at each of the first three
Federal Open Market Committee/1/ ("FOMC") meetings of 2000. The statements made
by the Fed after each meeting pointed to its belief that rate hikes may be
necessary until there is some sign of moderation in economic activity.
Commercial paper issuers played a game of cat and mouse with investors
throughout the first quarter. Issuers would try to issue paper maturing after
FOMC meetings, in hopes of locking in attractive borrowing levels before
interest rates rose. Investors remained defensive by purchasing paper maturing
on or before FOMC meetings, their objective being to capture higher yields each
time the Fed raised rates. Issuers were forced to offer premium yields to entice
investors into longer maturities, which met with investor skepticism.
The financial markets were surprised in early June when the nonfarm payroll
employment number was reported at 231,000,/2/ far lower than forecasted. Fixed
income investments rallied dramatically, as market participants concluded that
the Fed may have accomplished its objective of slowing down the economy.
Investors who had been content to stay relatively neutral in their investment
strategies now scrambled to extend their portfolios' maturities.
OUTLOOK
Although higher oil prices, higher import prices and nascent dollar weakness
looms, the U.S. economy is clearly decelerating. The FOMC meetings on June 27
and 28, 2000, concluded with no change in interest rates. Many
__________
1 The FOMC is a policy-making body of the Federal Reserve System, the U.S.
central bank, that is responsible for the formulation of policy designed to
promote economic growth, full employment, stable prices and a sustainable
pattern of international trade and payments.
2 Source: Bureau of Labor Statistics.
7
<PAGE>
investors, who expected the federal funds rate/3/ to be left unchanged, still
anticipate at least one more quarter-point increase in 2000. Our strategy is to
continue to invest the Fund's assets in securities that are among the highest
quality available to money market portfolios and to selectively lengthen when we
think the opportunity represents good relative value.
The Fund holds positions in short-term variable rate demand notes ("VRDNs")/4/
in order to garner incremental yield. As of June 30, 2000, the Fund's holdings
consisted of approximately 44% in variable rate demand notes, 32% in commercial
paper, and 24% in treasuries and high-quality asset-backed issues. The Fund
maintained a 28-day average maturity at the end of June. Portfolio holdings are
subject to change.
______________
3 The federal funds rate is the interest rate charged by banks with excess
reserves at a Federal Reserve district bank to banks needing overnight
loans to meet reserve requirements.
4 VRDNs are floating rate notes whose yields are pegged to short-term
interest rates and may be sold back at par to the dealer/remarketing agent.
8
<PAGE>
Schedules of Investments
June 30, 2000 (unaudited)
Salomon Brothers New York Municipal Money Market Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Yield to
Face Maturity on Date Maturity
Amount Security of Purchase+ Date Value
-------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL SECURITIES -- 100.0%
New York -- 99.9%
$2,120,000 Albany County, NY Industrial
Development Agency PUT..... 3.50% 7/3/00 $2,120,000
400,000 Amherst, NY Industrial
Development Agency VR...... 4.40 7/6/00 400,000
1,550,000 Auburn, NY Industrial
Development Agency VR...... 5.15 7/5/00 1,550,000
725,000 Broome County, NY Industrial
Development Agency VR...... 4.40 7/6/00 725,000
900,000 Cattaraugus County, NY
Industrial Development
Agency VR.................. 4.50 7/6/00 900,000
1,235,000 Cattaraugus County, NY
Industrial Development
Agency VR.................. 4.50 7/6/00 1,235,000
1,200,000 Chautauqua County, NY
Industrial Development
Agency VR.................. 5.15 7/5/00 1,200,000
1,600,000 Chemung County, NY
Industrial Development
Agency VR.................. 4.40 7/6/00 1,600,000
3,420,000 Chenango, NY Industrial
Development Agency VR...... 4.50 7/6/00 3,420,000
350,000 Colonie, NY Housing
Development Corp. VR....... 4.40 7/6/00 350,000
620,000 Colonie, NY Industrial
Development Agency VR...... 4.75 7/6/00 620,000
875,000 Dutchess County, NY
Industrial Development
Agency VR.................. 4.40 7/6/00 875,000
380,000 Erie County, NY Industrial
Development Agency VR...... 4.40 7/6/00 380,000
550,000 Erie County, NY Industrial
Development Agency VR...... 4.40 7/6/00 550,000
2,015,000 Erie County, NY Industrial
Development Agency VR...... 4.40 7/6/00 2,015,000
3,000,000 Hempstead, NY Industrial
Development Agency VR...... 4.85 7/5/00 3,000,000
1,680,000 Islip, NY Industrial
Development Authority VR... 4.40 7/6/00 1,680,000
1,500,000 Metropolitan Transit
Authority, NY PR CP........ 7.87 7/3/00 1,522,500
2,000,000 Metropolitan Transit
Authority, NY PR........... 4.20 10/16/00 2,000,000
1,300,000 Monroe County, NY Industrial
Development Agency PUT..... 4.70 7/6/00 1,300,000
6,500,000 Monroe County, NY Industrial
Development Agency VR...... 5.05 7/5/00 6,500,000
2,040,000 Monroe County, NY Industrial
Development Agency VR...... 4.40 7/6/00 2,040,000
2,240,000 Monroe County, NY Industrial
Development Agency VR...... 4.40 7/6/00 2,240,000
550,000 Monroe County, NY Industrial
Development Agency VR...... 4.50 7/6/00 550,000
1,310,000 Monroe County, NY Industrial
Development Agency VR...... 4.50 7/6/00 1,310,000
705,000 Monroe County, NY Industrial
Development Agency VR...... 4.90 7/6/00 705,000
2,925,000 Monroe County, NY Industrial
Development Agency VR...... 4.90 7/6/00 2,925,000
700,000 Monroe County, NY Industrial
Development Agency VR...... 4.90 7/6/00 700,000
600,000 Nassau County, NY Industrial
Development Agency VR...... 4.40 7/6/00 600,000
1,835,000 New York City, Health and
Hospital Corp. VR.......... 4.35 7/5/00 1,835,000
500,000 New York City, NY GO VR..... 4.60 7/3/00 500,000
4,000,000 New York City, NY Housing
Development Corp. VR....... 4.45 7/5/00 4,000,000
1,200,000 New York City, NY Housing
Development Corp. VR....... 4.65 7/5/00 1,200,000
2,400,000 New York City, NY Housing
Development Corp. VR....... 4.65 7/5/00 2,400,000
1,800,000 New York City, NY Housing
Development Corp. VR....... 4.70 7/5/00 1,800,000
3,000,000 New York City, NY Housing
Development Corp. VR....... 4.70 7/5/00 3,000,000
200,000 New York City, NY Industrial
Development Agency VR...... 4.50 7/6/00 200,000
100,000 New York City, NY Industrial
Development Agency VR...... 5.05 7/6/00 100,000
5,100,000 New York City, NY
Transitional Finance
Authority VR............... 4.40 7/5/00 5,100,000
1,000,000 New York City, NY VR........ 4.40 7/5/00 1,000,000
1,230,000 New York City, NY VR........ 4.65 7/5/00 1,230,000
5,000,000 New York State, Dormitory
Authority CP............... 4.15 10/13/00 5,000,000
2,175,000 New York State, Dormitory
Authority VR............... 4.30 7/5/00 2,175,000
2,500,000 New York State, Dormitory
Authority VR............... 4.35 7/6/00 2,500,000
2,000,000 New York State, Energy
Research and Development
Corp. VR................... 4.55 7/3/00 2,000,000
3,100,000 New York State, Energy
Research and Development
Corp. VR................... 4.55 7/3/00 3,100,000
1,475,000 New York State, Energy
Research and Development
Corp. VR................... 4.40 7/5/00 1,475,000
1,500,000 New York State,
Environmental Facilities
Corp. CP................... 4.10 7/10/00 1,500,000
5,000,000 New York State, Housing
Finance Agency VR.......... 4.45 7/5/00 5,000,000
1,000,000 New York State, Housing
Finance Agency VR.......... 4.60 7/5/00 1,000,000
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers New York Municipal Money Market Fund
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Yield to
Face Maturity on Date Maturity
Amount Security of Purchase+ Date Value
<C> <S> <C> <C> <C>
-------------------------------------------------------------------------------
New York -- 99.9% (continued)
$1,700,000 New York State, Housing
Finance Agency VR........ 4.70% 7/5/00 $ 1,700,000
3,300,000 New York State, Housing
Finance Agency VR........ 4.70 7/5/00 3,300,000
150,000 New York State, Job
Development Authority
VR....................... 4.55 7/3/00 150,000
160,000 New York State, Job
Development Authority
VR....................... 4.55 7/3/00 160,000
6,300,000 New York State, Local
Government Assistance
Corp. VR................. 4.40 7/5/00 6,300,000
400,000 Niagara County, NY
Industrial Development
Agency VR................ 4.70 7/5/00 400,000
1,000,000 Niagara County, NY
Industrial Development
Agency VR................ 4.80 7/5/00 1,000,000
465,000 Niagara County, NY
Industrial Development
Agency VR................ 4.50 7/6/00 465,000
4,310,000 Oneida County, NY
Industrial Development
Agency VR................ 4.50 7/6/00 4,310,000
5,500,000 Onondaga County, NY
Industrial Development
Agency VR................ 4.80 7/5/00 5,500,000
4,700,000 Ontario County, NY
Industrial Development
Agency VR................ 4.85 7/3/00 4,700,000
2,680,000 Otsego County, NY
Industrial Development
Agency VR................ 4.80 7/6/00 2,680,000
1,610,000 Port Authority of NY and
NJ CP.................... 4.65 7/13/00 1,610,000
1,300,000 Port Authority of NY and
NJ VR.................... 4.50 7/3/00 1,300,000
900,000 Rockland County, NY
Industrial Development
Agency VR................ 4.50 7/6/00 900,000
4,270,000 Suffolk County, NY
Industrial Development
Agency VR................ 4.40 7/6/00 4,270,000
3,800,000 Syracuse, NY Industrial
Development Agency VR.... 5.10 7/5/00 3,800,000
4,235,000 Ulster County, NY
Industrial Development
Agency VR................ 4.65 7/5/00 4,235,000
1,960,000 Warren & Washington
Counties, NY Industrial
Development Agency VR.... 4.80 7/6/00 1,960,000
675,000 Wyoming County, NY
Industrial Development
Agency VR................ 4.40 7/6/00 675,000
5,010,000 Wyoming County, NY
Industrial Development
Agency VR................ 4.50 7/6/00 5,010,000
------------
145,552,500
------------
Puerto Rico -- 0.1%
100,000 Commonwealth of Puerto
Rico, Public Improvement
MBIA PR.................. 7.30 7/3/00 102,000
------------
TOTAL INVESTMENTS -- 100%
(Cost -- $145,654,500*)... $145,654,500
============
</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, ma-
turity date shown is the date of next interest rate change.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this schedule:
-----------------------------------
CP-- Commerical Paper.
MBIA-- Insured as to principal and interest by the MBIA Insurance Corpora-
tion.
PR-- Pre-Refunded.
PUT -- Optional or mandatory put. Maturity date shown is the put date as well
as the date of the next interest rate change.
See Notes to Financial Statements.
10
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Cash Management Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Yield to
Face Maturity on Date Maturity
Amount Security of Purchase+ Date Value
-------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ASSET-BACKED SECURITIES -- 5.8%
Financial Services -- 5.8%
$ 660,403 Ford Motor Credit Co......... 6.22% 12/15/00 $ 660,403
1,500,000 SMM Trust.................... 6.29 7/15/00 1,500,000
----------
TOTAL ASSET-BACKED SECURITIES
(Cost -- $2,160,403)......... 2,160,403
----------
COMMERCIAL PAPER -- 31.4%
Auto and Transportation -- 4.0%
1,500,000 DaimlerChrysler AG........... 6.70 9/21/00 1,478,000
----------
Consumer Products -- 4.6%
1,700,000 Associates Corp.............. 6.63 7/12/00 1,697,216
----------
Electric -- 4.0%
1,500,000 Sharp Electronics Corp. ..... 6.63 7/24/00 1,494,225
----------
Financial Services -- 4.0%
1,500,000 International Lease Finance.. 6.57 7/19/00 1,495,640
----------
Municipal -- 10.8%
2,000,000 Emory University, Georgia.... 6.22 7/11/00 2,000,000
1,000,000 Lower Colorado River
Authority................... 6.28 7/11/00 1,000,000
1,000,000 Tennessee State School
Board....................... 6.62 8/3/00 1,000,000
----------
4,000,000
----------
Real Estate -- 4.0%
1,500,000 Homeside Lending............. 6.58 7/18/00 1,495,907
----------
TOTAL COMMERCIAL PAPER
(Cost -- $11,660,988)........ 11,660,988
----------
FLOATING RATE NOTES -- 44.2%
California -- 4.9%
1,000,000 Pasedena, California VR...... 6.56 7/4/00 1,000,000
800,000 Sacramento County, California
VR.......................... 6.71 7/5/00 800,000
----------
1,800,000
----------
Florida -- 2.4%
195,000 Baptist Health Systems VR
MBIA........................ 6.50 7/5/00 195,000
710,000 Dade County, Florida
Expressway Authority VR
FGIC........................ 6.49 7/6/00 710,000
----------
905,000
----------
Illinois -- 4.3%
295,000 Aurora Kane & Dupage County,
IL Industrial Development
Authority VR................ 6.61 7/6/00 295,000
400,000 Chicago, Illinois VR......... 6.54 7/5/00 400,000
900,000 Illinois Student Assistance
Commission VR............... 6.66 7/5/00 900,000
----------
1,595,000
----------
Indiana -- 3.5%
1,300,000 Indiana State Development
Finance Authority VR........ 6.65 7/5/00 1,300,000
----------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Schedules of Investments
(unaudited) (continued)
Salomon Brothers Cash Management Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Yield to
Face Maturity on Date Maturity
Amount Security of Purchase+ Date Value
-------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Kentucky -- 2.7%
$1,000,000 Lexington Fayette, Kentucky
VR........................ 6.54% 7/19/00 $ 1,000,000
-----------
Maryland -- 2.0%
765,000 Maryland Stadium Authority
VR........................ 6.68 7/6/00 765,000
-----------
Massachusetts -- 1.1%
400,000 Massachusetts Development
Finance Authority VR...... 6.85 7/5/00 400,000
-----------
New Jersey -- 0.6%
215,000 New Jersey Economic
Development Authority VR.. 6.79 7/3/00 215,000
-----------
New York -- 4.2%
1,155,000 Clinton County, New York
Industrial Development
Agency VR................. 6.68 7/6/00 1,155,000
400,000 NYS Housing Finance Agency
New York VR............... 6.50 7/5/00 400,000
-----------
1,555,000
-----------
North Carolina -- 1.1%
400,000 Community Health Systems
VR........................ 6.75 7/5/00 400,000
-----------
Pennsylvania -- 3.5%
390,000 Moon, Pennsylvania
Industrial Development
Authority VR.............. 6.62 7/6/00 390,000
925,000 Pennsylvania Economic
Development Authority VR.. 6.78 7/3/00 925,000
-----------
1,315,000
-----------
Texas -- 4.0%
1,500,000 Gulf Coast Texas Solid
Waste Disposal VR......... 6.48 7/5/00 1,500,000
-----------
Washington -- 2.0%
725,000 District of Columbia
University VR............. 6.68 7/6/00 725,000
-----------
Miscellaneous -- 7.9%
1,400,000 Assisted Living Concepts
Inc. VR................... 6.76 7/6/00 1,400,000
1,000,000 FE LLC VR.................. 6.62 7/6/00 1,000,000
515,000 Piercing Pagoda Inc. VR.... 6.72 7/5/00 515,000
-----------
2,915,000
-----------
TOTAL FLOATING RATE NOTES.. 16,390,000
-----------
REPURCHASE AGREEMENT -- 18.6%
6,906,075 J.P. Morgan Securities,
Inc., 6.400% due 7/3/00;
Proceeds at maturity --
$6,906,758; (Fully
collateralized by U.S.
Treasury Bonds, 8.375% due
8/15/08; Market value --
$7,044,213) (Cost --
$6,906,075).............. 6,906,075
-----------
TOTAL INVESTMENTS -- 100%
(Cost -- $37,117,466*)..... $37,117,466
===========
</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, ma-
turity date shown is the date of next interest rate change.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this schedule:
-----------------------------------
FGIC -- Insured as to principal and interest by the Financial Guaranty In-
surance Corporation.
MBIA -- Insured as to principal and interest by the MBIA Insurance Corpora-
tion.
See Notes to Financial Statements.
12
<PAGE>
Statements of Assets and Liabilities
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
New York Cash
Municipal Management
Money Fund Fund
-------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at amortized cost..................... $145,654,500 $37,117,466
Cash............................................... 1,291,207 --
Interest receivable................................ 498,439 241,607
Receivable from manager............................ -- 1,187
Other assets....................................... -- 49,000
------------ -----------
Total Assets....................................... 147,444,146 37,409,260
------------ -----------
LIABILITIES:
Dividends payable.................................. 501,104 190,244
Management fees payable............................ 26,228 524
Administration fees payable........................ 6,581 440
Accrued expenses................................... 92,155 24,844
------------ -----------
Total Liabilities.................................. 626,068 216,052
------------ -----------
Total Net Assets.................................... $146,818,078 $37,193,208
============ ===========
NET ASSETS:
Par value of shares of capital stock............... $ 147,054 $ 37,196
Capital paid in excess of par value................ 146,844,675 37,157,842
Accumulated net realized loss from security
transactions...................................... (173,651) (1,830)
------------ -----------
Total Net Assets.................................... $146,818,078 $37,193,208
============ ===========
Shares Outstanding:
Class A............................................. 5,093,925 14,926,225
============ ===========
Class B............................................. 36,289 12,002,296
============ ===========
Class 2............................................. 34,184 1,118,317
============ ===========
Class O............................................. 141,889,134 9,149,094
============ ===========
Net Asset Value:
Class A............................................. $ 1.00 $ 1.00
============ ===========
Class B............................................. $ 1.00 $ 1.00
============ ===========
Class 2............................................. $ 1.00 $ 1.00
============ ===========
Class O............................................. $ 1.00 $ 1.00
============ ===========
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Statements of Operations
For the Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
New York Cash
Municipal Management
Money Fund Fund
-------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................... $3,169,934 $1,215,055
---------- ----------
EXPENSES:
Management fees (Note 2)............................... 161,745 39,555
Shareholder and system servicing fees.................. 42,656 34,146
Administration fees (Note 2)........................... 40,436 9,889
Audit and legal........................................ 25,160 15,321
Shareholder communications............................. 15,990 6,323
Registration fees...................................... 11,162 16,345
Custody................................................ 4,282 2,904
Directors' fees........................................ 1,472 1,290
Other.................................................. 13,594 4,711
---------- ----------
Total Expenses......................................... 316,497 130,484
Less: Management and administration fee waiver and
expense reimbursement (Note 2)........................ -- (24,525)
---------- ----------
Net Expenses........................................... 316,497 105,959
---------- ----------
Net Investment Income................................... 2,853,437 1,109,096
---------- ----------
Net Realized Gain From Security Transactions............ -- 357
---------- ----------
Increase in Net Assets From Operations.................. $2,853,437 $1,109,453
========== ==========
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
New York Cash
Municipal Management
Money Fund Fund
-------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income.............................. $ 2,853,437 $ 1,109,096
Net realized gain from security transactions....... -- 357
------------ -----------
Increase in Net Assets From Operations............. 2,853,437 1,109,453
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................. (2,853,437) (1,109,096)
------------ -----------
Decrease in Net Assets From Distributions to
Shareholders...................................... (2,853,437) (1,109,096)
------------ -----------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares................... 68,527,266 73,793,047
Net asset value of shares issued for reinvestment
of dividends...................................... 2,726,673 433,963
Cost of shares reacquired.......................... (99,238,264) (89,178,585)
------------ -----------
Decrease in Net Assets From Fund Share
Transactions...................................... (27,984,325) (14,951,575)
------------ -----------
Decrease in Net Assets.............................. (27,984,325) (14,951,218)
NET ASSETS:
Beginning of period................................ 174,802,403 52,144,426
------------ -----------
End of period...................................... $146,818,078 $37,193,208
============ ===========
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Statements of Changes in Net Assets
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
New York Cash
Municipal Management
Money Fund Fund
-------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income........................... $ 5,102,358 $ 2,366,468
Net realized gain (loss) from security
transactions................................... 47 (349)
------------- -------------
Increase in Net Assets From Operations.......... 5,102,405 2,366,119
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................... (5,102,358) (2,366,468)
------------- -------------
Decrease in Net Assets From Distributions to
Shareholders................................... (5,102,358) (2,366,468)
------------- -------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares................ 105,246,111 489,787,924
Net asset value of shares issued for
reinvestment of dividends...................... 5,036,010 637,113
Cost of shares reacquired....................... (136,613,603) (493,253,551)
------------- -------------
Decrease in Net Assets From Fund Share
Transactions................................... (26,331,482) (2,828,514)
------------- -------------
Decrease in Net Assets........................... (26,331,435) (2,828,863)
NET ASSETS:
Beginning of year............................... 201,133,838 54,973,289
------------- -------------
End of year..................................... $ 174,802,403 $ 52,144,426
============= =============
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
Notes to Financial Statements
(unaudited)
1. Organization and Significant Accounting Policies
The Salomon Brothers Investment Series ("Investment Series") consists of cer-
tain portfolios of the Salomon Brothers Series Funds Inc ("Series Fund"), the
Salomon Brothers Investors Value Fund Inc. and the Salomon Brothers Capital
Fund Inc.
Salomon Brothers New York Municipal Money Market Fund ("New York Municipal
Money Fund") and Salomon Brothers Cash Management Fund ("Cash Management
Fund"), are separate investment portfolios of the Series Fund, an open-end man-
agement investment company, incorporated in Maryland on April 17, 1990. The Se-
ries Fund consists of these portfolios and ten other separate investment port-
folios: Salomon Brothers Asia Growth Fund, Salomon Brothers International Eq-
uity Fund, Salomon Brothers Small Cap Growth Fund, Salomon Brothers Large Cap
Growth Fund, Salomon Brothers Balanced Fund, Salomon Brothers High Yield Bond
Fund, Salomon Brothers Strategic Bond Fund, Salomon Brothers National Interme-
diate Municipal Fund, Salomon Brothers U.S. Government Income Fund and Salomon
Brothers Institutional Money Market Fund. The financial statements and finan-
cial highlights for the other portfolios are presented in separate shareholder
reports.
The Investment Series operates under a multiple class pricing structure, with
each portfolio of the Investment Series (individually a "Fund") offering Class
A, B, 2 and O shares, each with their own expense structure. Each Fund has a
specific investment objective:
<TABLE>
<CAPTION>
Fund: Objective:
<C> <S>
New York Municipal Money Fund.. To seek a high level of current income exempt
from Federal income taxes, New York State and
New York City personal income taxes consistent
with liquidity and the stability of principal.
Cash Management Fund........... To seek as high a level of current income as
is consistent with liquidity and the stability
of principal.
</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 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 and does
not include unrealized gains or losses.
(b) Repurchase Agreements. When entering into repurchase agreements, it is
each Fund's policy that the Fund take possession, through its custodian, of the
underlying collateral and monitor the collateral's value at the time the
agreement is entered into and on a daily basis during the term of the
repurchase agreement to ensure that it equals or exceeds the repurchase price.
In the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.
(c) Federal Income Taxes. Each Fund has complied with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
distributed all of its income, including any net realized gains, to
shareholders. Therefore, no Federal income tax or excise tax provision is
required for such Funds.
(d) Dividends and Distributions to Shareholders. Dividends from net investment
income on the shares of each of the Funds are declared each business day to
shareholders of record that day, and are paid on the last business day of the
month. 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.
(e) 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. Each class currently has the same expense
structure.
17
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
(f) 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.
(g) Other. Investment transactions are recorded as of the trade date. 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 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 Salomon Brothers Asset Management Inc ("SBAM"), a wholly
owned subsidiary of Salomon Brothers Holding Co., Inc., which, in turn is
wholly owned by Salomon Smith Barney Holdings, Inc. ("SSBH"), to act as invest-
ment 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 cer-
tain services and facilities required for conducting the business of the In-
vestment Series and pays the compensation of its officers. The management fee
for these services for each Fund is payable monthly and is calculated at an an-
nual rate of 0.20% of each Fund's average daily net assets. For the six months
ended June 30, 2000, SBAM waived a portion of its management fees amounting to
$21,946 for the Cash Management Fund.
SBAM also acts as administrator for each of the Funds. SBAM has delegated its
responsibilities as administrator to SSB Citi Fund Management LLC ("SSBC"), an
affiliate of SBAM, pursuant to a Sub-Administration Agreement between SBAM and
SSBC. Each Fund also pays an administration fee which is payable monthly and is
calculated at an annual rate of 0.05% of each Fund's average daily net assets.
For the six months ended June 30, 2000, SBAM waived a portion of its adminis-
tration fees amounting to $1,392 for the Cash Management Fund.
For the six months ended June 30, 2000, SBAM agreed to reimburse expenses
amounting to $1,187 for the Cash Management Fund.
Each Fund has an agreement with CFBDS, Inc. to distribute its shares pursuant
to a multiple pricing system. The Funds are not subject to a front-end sales
charge or service and distribution plan fees.
Contingent deferred sales charges of $74,088 were paid to Salomon Smith Barney
Inc., another subsidiary of SSBH, in connection with redemptions of certain
Class B and 2 shares of the Cash Management Fund for the six months ended
June 30, 2000.
3. Portfolio Investment Risks
The New York Municipal Money Fund and Cash Management Fund invest in money
market instruments maturing in thirteen months or less whose short-term credit
ratings are within the highest rating 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.
18
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
4. Tax Information
At December 31, 1999, New York Municipal Money Fund and Cash Management Fund
had net capital loss carry-forwards available to offset future capital gains as
follows:
<TABLE>
<CAPTION>
New York Cash
Year of Municipal Management
Expiration Money Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C>
2000...................................................... $ 94,778 $ 396
2001...................................................... -- 409
2002...................................................... 65,321 415
2004...................................................... -- 10
2005...................................................... 13,552 42
2006...................................................... -- 566
2007...................................................... -- 349
-------- ------
$173,651 $2,187
======== ======
</TABLE>
5. Capital Stock
At June 30, 2000, the Series Fund had 10,000,000,000 shares of authorized capi-
tal stock, par value $0.001 per share. Transactions in Fund shares for the pe-
riods indicated were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
------------------------- ---------------------------
Shares Amount Shares Amount
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
New York Municipal Money
Fund
Class A
Shares sold............ 1,308,308 $ 1,308,308 3,635,035 $ 3,635,035
Shares issued on
reinvestment.......... 94,733 94,733 144,095 144,095
Shares reacquired...... (2,127,458) (2,127,458) (3,332,584) (3,332,584)
----------- ------------ ------------ -------------
Net Increase
(Decrease)............ (724,417) $ (724,417) 446,546 $ 446,546
=========== ============ ============ =============
Class B
Shares sold............ 11,504 $ 11,504 269,414 $ 269,414
Shares issued on
reinvestment.......... -- -- 4,468 4,468
Shares reacquired...... (233,766) (233,766) (40,331) (40,331)
----------- ------------ ------------ -------------
Net Increase
(Decrease)............ (222,262) $ (222,262) 233,551 $ 233,551
=========== ============ ============ =============
Class 2
Shares sold............ 6,000 $ 6,000 39,204 $ 39,204
Shares issued on
reinvestment.......... 184 184 42 42
Shares reacquired...... (5,000) (5,000) (159,056) (159,056)
----------- ------------ ------------ -------------
Net Increase
(Decrease)............ 1,184 $ 1,184 (119,810) $ (119,810)
=========== ============ ============ =============
Class O
Shares sold............ 67,201,454 $ 67,201,454 101,302,458 $ 101,302,458
Shares issued on
reinvestment.......... 2,631,756 2,631,756 4,887,405 4,887,405
Shares reacquired...... (96,872,040) (96,872,040) (133,081,632) (133,081,632)
----------- ------------ ------------ -------------
Net Decrease........... (27,038,830) $(27,038,830) (26,891,769) $ (26,891,769)
=========== ============ ============ =============
</TABLE>
19
<PAGE>
Notes to Financial Statements
(unaudited) (continued)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
------------------------- ---------------------------
Shares Amount Shares Amount
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash Management Fund
Class A
Shares sold............ 45,648,082 $ 45,648,082 405,754,940 $ 405,754,940
Shares issued on
reinvestment.......... 185,940 185,940 257,814 257,814
Shares reacquired...... (51,610,766) (51,610,766) (412,102,761) (412,102,761)
----------- ------------ ------------ -------------
Net Decrease........... (5,776,744) $ (5,776,744) (6,090,007) $ (6,090,007)
=========== ============ ============ =============
Class B
Shares sold............ 5,822,722 $ 5,822,722 25,772,175 $ 25,772,175
Shares issued on
reinvestment.......... 125,849 125,849 184,493 184,493
Shares reacquired...... (14,423,289) (14,423,289) (22,853,280) (22,853,280)
----------- ------------ ------------ -------------
Net Increase
(Decrease)............ (8,474,718) $ (8,474,718) 3,103,388 $ 3,103,388
=========== ============ ============ =============
Class 2
Shares sold............ 5,291,489 $ 5,291,489 13,158,778 $ 13,158,778
Shares issued on
reinvestment.......... 31,870 31,870 26,636 26,636
Shares reacquired...... (6,137,566) (6,137,566) (13,993,462) (13,993,462)
----------- ------------ ------------ -------------
Net Decrease........... (814,207) $ (814,207) (808,048) $ (808,048)
=========== ============ ============ =============
Class O
Shares sold............ 17,030,754 $ 17,030,754 45,102,031 $ 45,102,031
Shares issued on
reinvestment.......... 90,304 90,304 168,170 168,170
Shares reacquired...... (17,006,964) (17,006,964) (44,304,048) (44,304,048)
----------- ------------ ------------ -------------
Net Increase........... 114,094 $ 114,094 966,153 $ 966,153
=========== ============ ============ =============
</TABLE>
At June 30, 2000, Salomon Brothers Holding Co., Inc., owned approximately 0.09%
and 0.17% of total shares outstanding of the New York Municipal Money Fund and
Cash Management Fund, respectively.
20
<PAGE>
Financial Highlights
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
New York Municipal Money Fund
<TABLE>
-------------------------------------------------------------------------------
<CAPTION>
Class A Shares
---------------------------------------------
2000(1) 1999 1998 1997 1996(2)
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Net investment income....... 0.018 0.029 0.031 0.034 0.006
Dividends from net
investment income.......... (0.018) (0.029) (0.031) (0.034) (0.006)
------- ------- ------- ------- -------
Net Asset Value, End of
Period...................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return(3).............. 1.8%++ 2.9% 3.2% 3.5% 0.6%++
Net Assets, End of Period
(000s)...................... $5,094 $5,810 $5,372 $3,808 $360
Ratios to Average Net Assets:
Expenses.................... 0.39%+ 0.41% 0.41% 0.50% 0.38%+
Net investment income....... 3.56%+ 2.85% 3.15% 3.39% 3.56%+
Before applicable waiver of
management fee, expenses
absorbed by SBAM and credits
earned on custodian cash
balances, net investment
income per share and expense
ratios would have been:
Net investment income per
share...................... -- -- -- -- $ 0.006
Expense ratio............... -- -- -- -- 0.39%+
New York Municipal Money Fund
-------------------------------------------------------------------------------
<CAPTION>
Class B Shares
---------------------------------------------
2000(1) 1999 1998 1997 1996(2)
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Net investment income....... 0.018 0.029 0.031 0.034 0.006
Dividends from net
investment income.......... (0.018) (0.029) (0.031) (0.034) (0.006)
------- ------- ------- ------- -------
Net Asset Value, End of
Period...................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return(3).............. 1.8%++ 2.9% 3.2% 3.5% 0.6%++
Net Assets, End of Period
(000s)...................... $36 $258 $25 $25 $25
Ratios to Average Net Assets:
Expenses.................... 0.39%+ 0.42% 0.42% 0.43% 0.40%+
Net investment income....... 3.25%+ 2.99% 3.21% 3.32% 3.40%+
Before applicable waiver of
management fee, expenses
absorbed by SBAM and credits
earned on custodian cash
balances, net investment
income per share and expense
ratios would have been:
Net investment income per
share...................... -- -- -- -- $ 0.006
Expense ratio............... -- -- -- -- 0.41%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period from November 1, 1996 (inception date) to December 31, 1996.
(3) 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. Initial sales charge or contingent deferred sales charge is not re-
flected in the calculation of total return.
++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
21
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
New York Municipal Money Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 2 Shares
--------------------------------------------------
2000(1) 1999 1998(2) 1997 1996(3)
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Net investment income.. 0.018 0.029 0.031 0.034 0.006
Dividends from net
investment income..... (0.018) (0.029) (0.031) (0.034) (0.006)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total Return(4)......... 1.8%++ 2.9% 3.2% 3.5% 0.6%++
Net Assets, End of
Period (000s).......... $34 $33 $153 $25 $25
Ratios to Average Net
Assets:
Expenses............... 0.40%+ 0.40% 0.34% 0.47% 0.40%+
Net investment income.. 3.63%+ 2.78% 3.13% 3.40% 3.40%+
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. -- -- -- -- $ 0.006
Expense ratio.......... -- -- -- -- 0.41%+
New York Municipal Money Fund
-----------------------------------------------------------------------------------------
<CAPTION>
Class O Shares
--------------------------------------------------------------
2000(1) 1999 1998 1997 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.. 0.018 0.029 0.031 0.034 0.032 0.037
Dividends from net
investment income..... (0.018) (0.029) (0.031) (0.034) (0.032) (0.037)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ========
Total Return(4)......... 1.8%++ 2.9% 3.2% 3.5% 3.3% 3.7%
Net Assets, End of
Period (000s).......... $141,654 $168,701 $195,584 $305,419 $273,734 $226,549
Ratios to Average Net
Assets:
Expenses............... 0.40%+ 0.41% 0.43% 0.47% 0.53% 0.43%
Net investment income.. 3.57%+ 2.85% 3.14% 3.39% 3.25% 3.67%
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. -- -- -- -- $ 0.032 $ 0.037
Expense ratio.......... -- -- -- -- 0.53% 0.45%
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) On September 14, 1998, Class C shares were renamed Class 2 shares.
(3) For the period from November 1, 1996 (inception date) to December 31, 1996.
(4) 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. Initial sales charge or contingent deferred sales charge is not re-
flected in the calculation of total return.
++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
22
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Cash Management Fund
<TABLE>
-----------------------------------------------------------------------------------
<CAPTION>
Class A Shares
------------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
------------------------------------------------------
<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.. 0.028 0.047 0.050 0.051 0.050 0.044
Dividends from net
investment income..... (0.028) (0.047) (0.050) (0.051) (0.050) (0.044)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= =======
Total Return(3)......... 2.8%++ 4.8% 5.2% 5.2% 5.1% 4.5%++
Net Assets, End of
Period (000s).......... $14,925 $20,702 $26,793 $18,246 $ 8,175 $ 1,756
Ratios to Average Net
Assets:
Expenses............... 0.54%+ 0.53% 0.55% 0.55% 0.55% 0.55%+
Net investment income.. 5.72%+ 4.65% 5.02% 5.11% 4.95% 5.42%+
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $ 0.001 -- $ 0.049 $ 0.049 $ 0.047 $ 0.037
Expense ratio.......... 0.67%+ -- 0.67% 0.70% 0.82% 1.35%+
Cash Management Fund
----------------------------------------------------------------------------------
<CAPTION>
Class B Shares
------------------------------------------------------
2000(1) 1999 1998 1997 1996 1995(2)
------------------------------------------------------
<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.. 0.028 0.047 0.050 0.051 0.050 0.043
Dividends from net
investment income..... (0.028) (0.047) (0.050) (0.051) (0.050) (0.043)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= =======
Total Return(3)......... 2.8%++ 4.8% 5.2% 5.2% 5.1% 4.4%++
Net Assets, End of
Period (000s).......... $12,001 $20,476 $17,374 $ 4,151 $ 3,920 $ 2,238
Ratios to Average Net
Assets:
Expenses............... 0.54%+ 0.53% 0.55% 0.55% 0.55% 0.55%+
Net investment income.. 5.64%+ 4.72% 4.95% 5.10% 4.95% 5.38%+
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $ 0.001 -- $ 0.049 $ 0.049 $ 0.047 $ 0.037
Expense ratio.......... 0.67%+ -- 0.67% 0.70% 0.82% 1.34%+
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) For the period ended January 3, 1995 (inception date) to December 31, 1995.
(3) 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. Initial sales charge or contingent deferred sales charge is not re-
flected in the calculation of total return.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
23
<PAGE>
Financial Highlights
(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Cash Management Fund
<TABLE>
-----------------------------------------------------------------------------------
<CAPTION>
Class 2 Shares
------------------------------------------------------
2000(1) 1999 1998(2) 1997 1996 1995(3)
------------------------------------------------------
<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.. 0.028 0.047 0.050 0.051 0.050 0.043
Dividends from net
investment income..... (0.028) (0.047) (0.050) (0.051) (0.050) (0.043)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= =======
Total Return(4)......... 2.8%++ 4.8% 5.2% 5.2% 5.1% 4.4%++
Net Assets, End of
Period (000s).......... $ 1,118 $ 1,932 $ 2,741 $ 1,806 $ 435 $ 183
Ratios to Average Net
Assets:
Expenses............... 0.54%+ 0.53% 0.55% 0.55% 0.55% 0.55%+
Net investment income.. 5.66%+ 4.67% 4.98% 5.16% 4.95% 5.40%+
Before applicable waiver
of management fee,
expenses absorbed by
SBAM and credits earned
on custodian cash
balances, net investment
income per share and
expense ratios would
have been:
Net investment income
per share............. $ 0.001 -- $ 0.049 $ 0.049 $ 0.047 $ 0.036
Expense ratio.......... 0.67%+ -- 0.67% 0.70% 0.82% 1.34%+
Cash Management Fund
-----------------------------------------------------------------------------------
<CAPTION>
Class O Shares
------------------------------------------------------
2000(1) 1999 1998 1997 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.. 0.028 0.047 0.050 0.051 0.050 0.055
Dividends from net
investment income..... (0.028) (0.047) (0.050) (0.051) (0.050) (0.055)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= =======
Total Return(4)......... 2.8%++ 4.8% 5.2% 5.2% 5.1% 5.6%
Net Assets, End of
Period (000s).......... $ 9,149 $ 9,034 $ 8,066 $19,872 $14,225 $ 6,684
Ratios to Average Net
Assets:
Expenses............... 0.54%+ 0.53% 0.55% 0.55% 0.55% 0.55%
Net investment income.. 5.68%+ 4.67% 5.08% 5.10% 4.95% 5.46%
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............. $ 0.001 -- $ 0.049 $ 0.049 $ 0.047 $ 0.047
Expense ratio.......... 0.67%+ -- 0.67% 0.70% 0.82% 1.34%
</TABLE>
------
(1) For the six months ended June 30, 2000 (unaudited).
(2) On September 14, 1998, Class C shares were renamed Class 2 shares.
(3) For the period ended January 3, 1995 (inception date) to December 31, 1995.
(4) 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. Initial sales charge or contingent deferred sales charge is not re-
flected in the calculation of total return.
++ Total return is not annualized, as it may not be representative of the to-
tal return for the year.
+ Annualized.
24
<PAGE>
Salomon Brothers Investment Series
Investment Manager
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
Custodian
PFPC Trust Company
200 Stevens Drive
Suite 440
Lester, Pennsylvania 19113
Dividend Disbursing and Transfer Agent
PFPC Global Fund Services
53 State Street
Boston, Massachusetts 02109-2873
Legal Counsel
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
Directors
Charles F. Barber
Consultant; formerly Chairman; ASARCO Inc.
Carol L. Colman
Consultant, Colman Consulting
Daniel P. Cronin
Vice President-General Counsel, Pfizer International Inc.
Heath B. Mclendon
Chairman and President, Managing Director,
Salomon Smith Barney Inc.; President and Director,
SSB Citi Fund Management LLC and Travelers
Investment Adviser, Inc.
Officers
Heath B. Mclendon
Chairman and President
Lewis E. Daidone
Executive Vice President
and Treasurer
Robert E. Amodeo
Executive Vice President
James E. Craige
Executive Vice President
Thomas K. Flanagan
Executive Vice President
Roger Lavan
Executive Vice President
Ross S. Margolies
Executive Vice President
Maureen O'callaghan
Executive Vice President
David J. Scott
Executive Vice President
Beth A. Semmel
Executive Vice President
Peter J. Wilby
Executive Vice President
George J. Williamson
Executive Vice President
Charles K. Bardes
Vice President
Thomas A. Croak
Vice President
Nancy A. Noyes
Vice President
Anthony Pace
Controller
Christina T. Sydor
Secretary
<PAGE>
----------------------
Salomon Brothers
---------------------
Asset Management
Seven World Trade Center . New York, New York 10048
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
July 28, 2000
Dear Shareholder:
We are pleased to present the semi-annual report for the Salomon Brothers
Institutional Money Market Fund ('Fund') for the period ended June 30, 2000.
Included are market commentary, financial statements and other important Fund
information. We hope you find this report to be useful and informative.
MARKET REVIEW & PERFORMANCE
The Fund returned 3.0% (net of fees) for the six months ended June 30, 2000,
outperforming the Lipper Inc. ('Lipper') peer group of institutional money
market funds, which returned 2.88% over the same period.(1) (Lipper is a major
fund-tracking organization.) As of June 30, 2000, the Fund's 7-day yield was
6.50%. The Fund's 7-day effective yield, which reflects compounding, was 6.71%.
Please note that an investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund.
The big news surrounding liquidity strains due to Y2K computer problems turned
out to be no news; financial markets did not experience any disruptions in
trading activity. However, the steamy economy continued to spell uncertainty for
investors as inflationary pressures weighed on the bond market.
Stronger indicators of consumer demand and manufacturing production prompted the
Federal Reserve Board ('Fed') to raise rates at each of the first three Federal
Open Market Committee ('FOMC')(2) meetings of 2000. The statements made by the
Fed after each meeting pointed to their belief that rate hikes would be
necessary until there is some sign of moderation in economic activity.
Commercial paper issuers played a game of cat and mouse with investors
throughout the first quarter of 2000. Issuers would try to issue paper maturing
after FOMC meetings, in hopes of locking in attractive borrowing levels before
interest rates rose. Investors remained defensive by purchasing paper maturing
on or before FOMC meetings, their objective being to capture higher yields each
time the Fed raised rates. Issuers were forced to offer premium yields to entice
investors into longer maturities, which met with investor skepticism.
The financial markets were surprised in early June when the nonfarm payroll
employment number was reported at 231,000,(3) far lower than forecasted. Bonds
rallied dramatically, as many investors concluded that the Fed may have
accomplished their objective of slowing down the growth of the economy.
Investors who had been content to stay relatively neutral in their investment
strategies now scrambled to extend their portfolios' maturities.
---------
1 Lipper is a nationally recognized organization that reports on mutual fund
total return performance and calculates fund rankings based on total returns.
Total returns are calculated based on changes in net asset value which
includes the reinvestment of dividends and capital gains.
2 The FOMC is the committee that sets interest rate and credit policies for the
Federal Reserve System, the United States central bank.
3 Source: Bureau of Labor Statistics
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
MARKET OUTLOOK
Although higher oil prices, higher import prices and nascent dollar weakness
looms, the U.S. economy is decelerating. The FOMC meetings on June 27 and 28,
2000, concluded with no change in interest rates. Many investors, who expected
the federal funds rate(4) to be left unchanged, still anticipate at least one
more quarter-point increase this year.
Our strategy is to continue to invest the Fund's assets in securities that are
among the highest quality available to money market portfolios and to
selectively lengthen when the opportunity represents relative value. The Fund
holds positions in short-term variable rate demand notes in order to garner
incremental yield. As of June 30, 2000, the Fund's holdings consisted of
approximately 59% in variable rate demand notes, 31% in commercial paper, 6% in
certificates of deposit, and 4% in treasuries and high-quality asset-backed
issues. The Fund maintained a 28-day average maturity at the end of June.
Portfolio holdings are subject to change.
Thank you for your investment in the Salomon Brothers Institutional Money Market
Fund. We look forward to serving you in the years ahead.
Sincerely,
HEATH B. MCLENDON
Heath B. McLendon
Chairman
---------
4 The federal funds rate is the interest rate charged by banks with excess
reserves at a Federal Reserve district bank to banks needing overnight loans
to meet reserve requirements.
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (unaudited)
June 30, 2000
<TABLE>
<CAPTION>
YIELD TO
MATURITY ON
FACE DATE OF MATURITY
AMOUNT DESCRIPTION PURCHASE* DATE VALUE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES -- 3.5%
FINANCIAL SERVICES -- 3.5%
$4,637,000 SMM Trust............................................... 6.40% 7/15/00 $ 4,637,000
------------
TOTAL ASSET-BACKED SECURITIES (Cost -- $4,637,000).... 4,637,000
------------
CERTIFICATES OF DEPOSIT -- 6.1%
BANKING & FINANCIAL SERVICES -- 6.1%
2,000,000 Commerzbank AG.......................................... 7.37 5/21/01 2,001,205
3,000,000 Societe Generale........................................ 6.15 7/6/00 2,999,984
3,000,000 Westdeutsche Landesbank................................. 6.98 11/22/00 3,000,000
------------
TOTAL CERTIFICATES OF DEPOSIT (Cost -- $8,001,189).... 8,001,189
------------
COMMERCIAL PAPER -- 30.7%
AUTO & TRANSPORTATION -- 6.7%
1,233,000 American Honda Finance Corp............................. 6.69 9/6/00 1,218,351
3,200,000 Atlanta, Georgia Airport................................ 6.58 10/3/00 3,191,274
4,405,000 BMW U.S. Capital Corp................................... 6.78 8/30/00 4,357,663
------------
8,767,288
------------
FINANCIAL SERVICES -- 6.0%
1,000,000 Houston Industrial Finance.............................. 7.07 7/12/00 998,238
3,300,000 KFW International Finance............................... 6.63 8/22/00 3,269,933
3,737,000 Paccar Financial Corp................................... 6.68 9/18/00 3,684,486
------------
7,952,657
------------
MUNICIPAL -- 9.1%
4,000,000 Emory University, Georgia............................... 6.22 7/11/00 4,000,000
2,000,000 Lower Colorado River Authority.......................... 6.28 7/11/00 2,000,000
5,000,000 New York City, New York GO.............................. 6.51 8/10/00 5,000,000
1,000,000 Tennessee State School Board............................ 6.25 8/3/00 1,000,000
------------
12,000,000
------------
PUBLISHING -- 5.1%
6,700,000 The New York Times Co................................... 6.57 7/6/00 6,696,371
------------
REAL ESTATE -- 3.8%
5,000,000 Homeside Lending, Inc................................... 6.64 8/2/00 4,972,500
------------
TOTAL COMMERCIAL PAPER (Cost -- $40,388,816).......... 40,388,816
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 3
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2000
<TABLE>
<CAPTION>
YIELD TO
MATURITY ON
FACE DATE OF MATURITY
AMOUNT DESCRIPTION PURCHASE* DATE VALUE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLOATING RATE NOTES -- 59.3%
CALIFORNIA -- 6.6%
$3,725,000 California PCR Authority Environmental VR............... 6.54% 7/5/00 $ 3,725,000
5,000,000 Sacramento County, California VR........................ 6.69 7/5/00 5,000,000
------------
8,725,000
------------
FLORIDA -- 5.9%
2,985,000 Baptist Health Systems of South Florida VR MBIA......... 6.49 7/5/00 2,985,000
1,100,000 Baptist Health Systems of South Florida VR MBIA......... 6.51 7/5/00 1,100,000
3,700,000 Dade County, Florida Expressway Authority VR FGIC....... 6.49 7/6/00 3,700,000
------------
7,785,000
------------
ILLINOIS -- 12.9%
3,010,000 Barton Healthcare VR.................................... 6.59 7/5/00 3,010,000
5,000,000 Edwards Hospital Group VR............................... 6.66 7/5/00 5,000,000
2,000,000 Illinois Student Assistant Commission VR................ 6.66 7/5/00 2,000,000
2,000,000 Illinois Student Assistant Commission VR................ 6.68 7/5/00 2,000,000
4,950,000 North Kite Rubloff VR................................... 6.71 7/6/00 4,950,000
------------
16,960,000
------------
INDIANA -- 3.8%
5,000,000 Indiana State Finance Authority VR...................... 6.66 7/5/00 5,000,000
------------
KENTUCKY -- 1.1%
1,500,000 Lexington-Fayette, Kentucky Urban County Airport VR..... 6.56 7/5/00 1,500,000
------------
MINNESOTA -- 4.7%
4,900,000 Catholic Health Initiatives VR.......................... 6.59 7/5/00 4,900,000
1,200,000 Fairview Hospital & Healthcare VR....................... 6.74 7/6/00 1,200,000
------------
6,100,000
------------
NEW YORK -- 15.0%
500,000 Clinton County, New York Industrial Development Agency
VR..................................................... 6.64 7/6/00 500,000
2,465,000 Clinton County, New York Industrial Development Agency
VR..................................................... 6.68 7/6/00 2,465,000
1,800,000 Clinton County, New York Industrial Development Agency
VR..................................................... 6.69 7/6/00 1,800,000
5,100,000 New York City, New York Housing Development Corp. VR.... 6.50 7/5/00 5,100,000
5,500,000 New York State, Housing Finance Agency Talleyrand VR.... 6.58 7/5/00 5,500,000
2,000,000 New York State, Housing Finance Agency Talleyrand VR.... 6.59 7/5/00 2,000,000
2,400,000 New York State, Housing Finance Agency VR............... 6.59 7/5/00 2,400,000
------------
19,765,000
------------
NORTH CAROLINA -- 1.1%
1,465,000 Community Health Systems VR............................. 6.74 7/5/00 1,465,000
------------
PENNSYLVANIA -- 2.1%
1,055,000 Moon, Pennsylvania Industrial Development Authority
VR..................................................... 6.62 7/6/00 1,055,000
1,700,000 Union County, Pennsylvania Hospital Authority VR........ 6.68 7/3/00 1,700,000
------------
2,755,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 4
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2000
<TABLE>
<CAPTION>
YIELD TO
MATURITY ON
FACE DATE OF MATURITY
AMOUNT DESCRIPTION PURCHASE* DATE VALUE
------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA -- 1.1%
<C> <S> <C> <C> <C>
$1,400,000 Edgefield County, South Carolina Industrial Development
Agency VR.............................................. 6.69% 7/6/00 $ 1,400,000
------------
TEXAS -- 2.7%
3,000,000 Gulf Coast Texas VR..................................... 6.50 7/5/00 3,000,000
500,000 Texas State VR.......................................... 6.48 7/5/00 500,000
------------
3,500,000
------------
MISCELLANEOUS -- 2.3%
230,000 Assisted Living Concepts, Inc. VR....................... 6.66 7/6/00 230,000
1,000,000 FE LLC VR............................................... 6.62 7/6/00 1,000,000
1,805,000 Piercing Pagoda, Inc. VR................................ 6.81 7/5/00 1,805,000
------------
3,035,000
------------
TOTAL FLOATING RATE NOTES (Cost -- $77,990,000)....... 77,990,000
------------
REPURCHASE AGREEMENT -- 0.4%
496,141 J.P. Morgan Securities, Inc., 6.400% due 7/3/00;
Proceeds at maturity -- $496,406; (Fully
collateralized by U.S. Treasury Bonds, 8.375% due
8/15/08; Market value -- $506,062)
(Cost -- $496,141)................................... 496,141
------------
TOTAL INVESTMENTS -- 100% (Cost -- $131,513,146**).. $131,513,146
------------
------------
</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.
** Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this schedule:
-----------------------------------
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.
PCR -- Pollution Control Revenue.
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 5
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (unaudited)
June 30, 2000
ASSETS:
Investments, at amortized cost........................... $131,513,146
Interest receivable...................................... 804,760
------------
TOTAL ASSETS............................................. 132,317,906
------------
LIABILITIES:
Dividends payable........................................ 757,370
Management fees payable.................................. 6,471
Administration fees payable.............................. 5,832
Accrued expenses......................................... 46,820
------------
TOTAL LIABILITIES........................................ 816,493
------------
TOTAL NET ASSETS............................................ $131,501,413
------------
------------
NET ASSETS:
Par value of capital shares.............................. $ 131,503
Capital paid in excess of par value...................... 131,371,063
Undistributed net investment income...................... 881
Accumulated net realized loss on investments............. (2,034)
------------
TOTAL NET ASSETS (equivalent to $1.00 per share on
131,502,566 shares of $0.001 par value capital stock
outstanding)............................................. $131,501,413
------------
------------
STATEMENT OF OPERATIONS (unaudited)
For the Six Months Ended June 30, 2000
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest........................................................... $ 3,826,373
------------
EXPENSES:
Management fees (Note 2)........................................... 123,129
Administration fees (Note 2)....................................... 30,782
Audit and legal.................................................... 20,856
Shareholder communications......................................... 12,037
Registration and filing fees....................................... 10,299
Custody............................................................ 7,480
Shareholder and system servicing fees.............................. 4,935
Directors' fees.................................................... 2,151
Other.............................................................. 5,988
------------
TOTAL EXPENSES..................................................... 217,657
Less: Management fee waiver (Note 2)............................... (106,981)
------------
NET EXPENSES....................................................... 110,676
------------
NET INVESTMENT INCOME................................................. 3,715,697
NET REALIZED GAIN FROM SECURITY TRANSACTIONS.......................... --
------------
INCREASE IN NET ASSETS FROM OPERATIONS................................ $ 3,715,697
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 6
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
-----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income.................................... $ 3,715,697 $ 6,336,004
Net realized gain from security transactions............. -- 663
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS................... 3,715,697 6,336,667
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................... (3,715,697) (6,336,004)
------------ ------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (3,715,697) (6,336,004)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 3):
Net proceeds from sale of shares......................... 50,919,503 44,681,156
Net asset value of shares issued for reinvestment of
dividends............................................... 2,518,914 4,291,711
Cost of shares reacquired................................ (41,167,979) (68,683,659)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS............................................ 12,270,438 (19,710,792)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS........................... 12,270,438 (19,710,129)
NET ASSETS:
Beginning of period...................................... 119,230,975 138,941,104
------------ ------------
END OF PERIOD............................................ $131,501,413 $119,230,975
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
PAGE 7
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers Series Funds Inc ('Company') was incorporated in Maryland on
April 17, 1990 as an open-end management investment company, and currently
operates as a series company comprised of eleven portfolios. Only information
with respect to Salomon Brothers Institutional Money Market Fund ('Fund') is
included in this report. The other portfolios of the Company are reported in
separate shareholder reports. The Fund's objective is to seek as high a level of
current income as is consistent with liquidity and the stability of principal.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
('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) SECURITIES VALUATION. Portfolio securities 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 and does not
include recognition of any unrealized gains or losses.
(b) FEDERAL INCOME TAXES. The Fund has complied and intends to continue to
comply with the requirements of the Internal Revenue Code applicable to
regulated investment companies, including the distribution requirements of the
Tax Reform Act of 1986, and to distribute all of its income, including any net
realized gains, to shareholders. Therefore, no Federal income tax or excise tax
provision is required.
(c) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends on the shares of the
Fund are declared each business day to shareholders of record at twelve noon
(New York time) on that day, and paid on the last business day of the month.
Distributions of net realized gains to shareholders, if any, are declared
annually and recorded on the ex-dividend date. Dividends and distributions are
determined in accordance with income tax regulations, which may differ from
GAAP.
(d) EXPENSES. Direct expenses are charged to the Fund, and general expenses of
the Company are allocated to the Fund based on relative average net assets for
the period in which the expense was incurred.
(e) OTHER. Investment transactions are recorded as of the trade date. Interest
income, including the accretion of discounts or the amortization of premiums, is
recognized when earned. Gains or losses on sales of securities are calculated on
the identified cost basis.
PAGE 8
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
NOTE 2. MANAGEMENT FEE AND OTHER AGREEMENTS
The Company retains Salomon Brothers Asset Management Inc ('SBAM'), a wholly-
owned subsidiary of Salomon Smith Barney Holdings Inc. ('SSBH'), to act as
investment manager of the Fund, subject to the supervision by the Board of
Directors of the Company. The management fee to SBAM is based on an annual rate
of 0.20% of the Fund's average daily net assets. This fee is calculated daily
and paid monthly.
Under a voluntary agreement between SBAM and the Fund, SBAM has agreed to reduce
or otherwise limit the expenses of the Fund (exclusive of taxes, interest, and
extraordinary expenses such as litigation and indemnification expenses), on an
annualized basis to 0.18% of the Fund's average daily net assets. For the six
months ended June 30, 2000, SBAM voluntarily waived a portion of its management
fees amounting to $106,981.
SSB Citi Fund Management LLC ('SSBC'), an affiliate of SBAM, acts as
administrator for the Fund. The administration fee to SSBC is based on an annual
rate of 0.05% of the Fund's average daily net assets. This fee is calculated
daily and paid monthly.
The Fund has an agreement with CFBDS, Inc. to distribute its shares.
NOTE 3. CAPITAL STOCK
At June 30, 2000, the Company had 10,000,000,000 shares of authorized capital
stock, par value $0.001 per share.
Because the Fund has maintained a $1.00 net asset value per share from
inception, the number of shares sold, shares issued in reinvestment of dividends
declared, and shares repurchased, are equal to the dollar amount shown in the
Statement of Changes in Net Assets for the corresponding capital share
transactions.
NOTE 4. PORTFOLIO ACTIVITY
The Fund invests in money market instruments maturing in thirteen months or less
whose credit ratings are within the two 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.
At December 31, 1999, the Fund had net capital loss carry-forwards available to
offset future capital gains of $2,034, of which $286 expires on December 31,
2005, and $1,748 expires on December 31, 2006.
PAGE 9
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
DECEMBER 31, EXCEPT WHERE NOTED:
<TABLE>
<CAPTION>
2000(1) 1999 1998 1997 1996(2) 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........................ 0.030 0.051 0.054 0.055 0.050 0.049
Dividends from net investment income......... (0.030) (0.051) (0.054) (0.055) (0.050) (0.049)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............... $ 1.000 $ 1.000 $ 1.000 $1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Net assets, end of period (thousands)........ $131,501 $119,231 $138,941 $133,012 $159,651 $11,425
Total return................................. 3.0%'DD' 5.2% 5.6% 5.6% 5.1% 5.0%
Ratios to average net assets:
Expenses.................................. 0.18%'D' 0.17% 0.18% 0.18% 0.20% 0.65%
Net investment income..................... 6.11%'D' 5.04% 5.45% 5.48% 5.29% 4.89%
Before waiver of management and adminstration
fees and expenses absorbed by Salomon
Brothers Asset Management Inc, net
investment income per share and expense
ratio would have been:
Net investment income per share........... $ 0.002 $ 0.048 $ 0.053 $ 0.052 $ 0.048 $ 0.049
Expense ratio(3).......................... 0.36% 0.37% 0.37% 0.41% 0.46% 0.70%
</TABLE>
---------
(1) For the six months ended June 30, 2000 (unaudited).
(2) The Fund changed its name and objective on April 29, 1996.
(3) The ratio of expenses to average net assets will not exceed 0.18%, as a
result of a voluntary expense limitation which went into effect in 1997.
'DD' Total return is not annualized, as it may not be representative of the
total return for the year.
'D' Annualized.
PAGE 10
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
--------------------------------------------------------------------------------
DIRECTORS
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
CAROL L. COLMAN
Consultant, Colman Consulting
DANIEL P. CRONIN
Vice President -- General Counsel,
Pfizer International Inc.
HEATH B. MCLENDON
Chairman and President,
Managing Director, Salomon Smith Barney Inc.; President and Director, SSB
Citi Fund Management LLC and Travelers Investment Adviser, Inc.
OFFICERS
HEATH B. MCLENDON
Chairman and President
LEWIS E. DAIDONE
Executive Vice President and Treasurer
PETER J. WILBY
Executive Vice President
NANCY A. NOYES
Vice President
IRVING P. DAVID
Controller
CHRISTINA T. SYDOR
Secretary
--------------------------------------------------------------------------------
<PAGE>
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
--------------------------------------------------------------------------------
SALOMON BROTHERS INSTITUTIONAL MONEY MARKET FUND
7 World Trade Center
New York, New York 10048
1-800-347-6028
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street
Boston, Massachusetts 02109-5408
CUSTODIAN
PFPC Trust Company
8800 Tinicum Blvd.
Third Floor, Suite 200
Philadelphia, Pennsylvania 19153
DIVIDEND DISBURSING AND TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
----------------------------------------
THE SALOMON BROTHERS INSTITUTIONAL INVESTMENT SERIES*
SALOMON BROTHERS INSTITUTIONAL
HIGH YIELD BOND FUND
The High Yield Bond Fund's investment objective is to maximize total return. The
Fund seeks to achieve its objective by investing primarily in a portfolio of
high yield fixed-income securities that offer a yield above that generally
available on debt securities in the four highest rating categories of the
recognized rating services and which generally entail increased credit and
market risks.
SALOMON BROTHERS INSTITUTIONAL
EMERGING MARKETS DEBT FUND
The Emerging Market Debt Fund's objective is to maximize total return. The Fund
seeks to achieve its objective by investing at least 65% of its total assets in
debt securities of government, government-related and corporate issuers in
emerging market countries.
--------------------------------------------------------------------------------
* For more complete information about Salomon Brothers Institutional Investment
Series, you may obtain a Prospectus by calling 1-800-347-6028.
This report is submitted for the general information of the shareholders of
Salomon Brothers Institutional Money Market Fund. It is not authorized for
distribution to prospective investors unless accompanied or preceded by an
effective Prospectus, which contains information concerning the Fund's
investment policies and expenses as well as other pertinent information.
<PAGE>
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<PAGE>
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STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as......................................'D'
The double dagger symbol shall be expressed as..............................'DD'
