<PAGE>


[PHOTO]                                 SMITH BARNEY CONCERT
                                        ALLOCATION SERIES INC.





                                        -    SELECT HIGH GROWTH PORTFOLIO

[PHOTO]                                 -    SELECT GROWTH PORTFOLIO

                                        -    SELECT BALANCED PORTFOLIO

                                        -    SELECT CONSERVATIVE PORTFOLIO

                                        -    SELECT INCOME PORTFOLIO






[PHOTO]                                 ANNUAL REPORT
                                        JANUARY 31, 1998



                                        INVESTMENT STRATEGIES FOR YOUR LIFE



                                        [LOGO]    SMITH BARNEY MUTUAL FUNDS
                                                  INVESTING FOR YOUR FUTURE.
                                                  EVERYDAY.-SM-

<PAGE>
TABLE OF CONTENTS
 
<TABLE>
<S>                                                                         <C>
Letter to Shareholders....................................................    1
 
The Concert Allocation Series Portfolios
 
    The Select High Growth Portfolio......................................    6
 
    The Select Growth Portfolio...........................................    8
 
    The Select Balanced Portfolio.........................................   10
 
    The Select Conservative Portfolio.....................................   12
 
    The Select Income Portfolio...........................................   14
 
Schedules of Investments..................................................   16
 
Statements of Assets and Liabilities......................................   21
 
Statements of Operations..................................................   22
 
Statements of Changes in Net Assets.......................................   23
 
Notes to Financial Statements.............................................   24
 
Financial Highlights......................................................   26
 
Independent Auditors' Report..............................................   27
 
Directors and Officers....................................................   28
</TABLE>
<PAGE>
 
Dear Shareholder:
 
           [PHOTO]
 
Heath B. McLendon
CHAIRMAN
THE CONCERT ALLOCATION SERIES
 
           [PHOTO]
Thomas B. Stiles II
VICE PRESIDENT AND INVESTMENT OFFICER
THE CONCERT ALLOCATION SERIES
 
We are pleased to present the annual report for the Smith Barney Concert
Allocation Series Inc. ("Concert Allocation Series") Select Portfolios for the
period ended January 31, 1998. The Concert Allocation Series Select Portfolios
("Portfolios") covered in this report for the most part delivered competitive
returns during the reporting period. The performance and current holdings of
each Portfolio are discussed in greater detail on the following pages.
 
THE PERFORMANCE OF THE CONCERT ALLOCATION SERIES
SELECT PORTFOLIOS*
 
TOTAL RETURNS FOR THE PERIOD FROM
FEBRUARY 5, 1997 (COMMENCEMENT OF OPERATIONS) TO JANUARY 31, 1998
 
<TABLE>
<CAPTION>
PORTFOLIO             TOTAL RETURN
--------------------  -------------
<S>                   <C>
Select High Growth          10.60%
Select Growth               12.80
Select Balanced             12.80
Select Conservative         13.00
Select Income               12.90
</TABLE>
 
* THE PERFORMANCE FIGURES SHOWN ABOVE 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.
 
NIRVANA'S ORIGINS HARDLY SEEM ASIAN...
In our last letter to you six months ago, we wrote of "an economy that has been
described as somewhere between perfection and nirvana." Growth was strong,
inflation low and all markets were headed upward.
 
It's interesting to note that "nirvana" is a word with Sanskrit roots, and
Sanskrit is an ancient language of India. But despite its roots on the
subcontinent, and the subcontinent's geographical location in Asia, we maintain
that nirvana is not an Asian word. No, we are not talking linguistics--we are
talking economics. The interruption of our economic nirvana emanated from Asia.
It was turmoil in the nations of Southeast Asia, particularly Thailand,
Indonesia and Korea that interrupted our perfect prospects. Although the
economic reverberations are still unfolding, market impacts were immediate:
bonds rallied, while stocks lagged.
 
                                                                          1
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>
 IT'S TIME AND NOT
       TIMING
 GROWTH OF $10,000
  INVESTED IN THE
 STANDARD & POOR'S
500 COMPOSITE STOCK
   INDEX, SALOMON
   BROTHERS WORLD
  GOVERNMENT BOND
       INDEX,
       LEHMAN
GOVERNMENT/CORPORATE
  BOND INDEX, AND
   MORGAN STANLEY
      CAPITAL
 INTERNATIONAL EAFE
       INDEX
(JANUARY 31, 1988 --
 JANUARY 31, 1998)
    (UNAUDITED)
                                                  SALOMON BROTHERS             LEHMAN
                                                  WORLD GOVERNMENT      GOVERNMENT/CORPORATE
                           S&P 500 INDEX             BOND INDEX              BOND INDEX           MSCI EAFE INDEX
<S>                     <C>                     <C>                     <C>                     <C>
Jan-88                               $10,000                 $10,000                 $10,000                 $10,000
Jan-89                                12,004                  10,647                  10,540                  12,855
Jan-90                                13,736                  11,289                  11,719                  13,476
Jan-91                                14,886                  12,343                  13,011                  11,099
Jan-92                                18,258                  13,721                  14,719                  11,171
Jan-93                                20,186                  15,083                  16,424                  10,061
Jan-94                                22,779                  16,703                  18,115                  14,506
Jan-95                                22,898                  16,291                  17,552                  13,898
Jan-96                                31,741                  19,151                  20,662                  16,189
Jan-97                                40,098                  20,798                  21,156                  16,548
Jan-98                                50,886                  23,307                  23,171                  18,277
</TABLE>
 
THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX ("S&P 500") IS A
CAPITALIZATION-WEIGHTED INDEX OF 500 WIDELY HELD COMMON STOCKS. THE SALOMON
SMITH BARNEY WORLD GOVERNMENT BOND INDEX IS A MARKET-CAPITALIZATION-WEIGHTED
BENCHMARK THAT TRACKS THE PERFORMANCE OF THE GOVERNMENT BOND MARKETS OF 14
COUNTRIES. THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX IS A COMBINATION OF
PUBLICLY ISSUED INTERMEDIATE- AND LONG-TERM U.S. GOVERNMENT BONDS AND CORPORATE
BONDS. THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX ("MSCI EAFE")
CONSISTS OF THE EQUITY TOTAL RETURNS FOR EUROPE, AUSTRALIA AND THE FAR EAST.
THESE INDICES ARE UNMANAGED AND ARE NOT SUBJECT TO THE SAME MANAGEMENT AND
TRADING EXPENSES AS A MUTUAL FUND.
 
NIRVANA, PLEASE MEET POLLYANNA AND CASSANDRA
All of the reported economic numbers for the U.S. still look outstanding.
Inflation for calendar year 1997 was only at a 1.7% annual rate as measured by
the Consumer Price Index ("CPI"). (The CPI measures prices that consumers must
pay for goods and services.) Meanwhile, real economic growth was 3.8%. We have
continued to enjoy a nirvana-like economy, but forecasters are split as to
whether past will be prologue. Most agree that the Asian "contagion" will slow
growth worldwide; the question is to what degree. The Pollyannas argue such a
slowdown will prolong the low inflation for the U.S. economy, the Cassandras
believe that Asian economies will collapse and damage U.S. corporate
profitability.
 
Domestic markets have, until recently, behaved as if the Cassandras were right.
During the second half of 1997, stock markets were flat while bond prices rose
as a result of declining interest rates. This divergence, bonds rising while
stocks mark time, has not been typical market behavior over the last several
years. The more usual pattern has been bond and stock markets moving in tandem:
if bonds move up, then stocks follow. But the divergence in the latter part of
1997 was likely an indication that many investors feared an Asian-induced
economic slowdown.
 
Bonds reacted positively to this potential economic slowing. A slowing economy
would mean lower inflation, allowing interest rates to ease further. A
slower-than-expected economy is an unmitigated blessing for a bond investor.
 
                                                                          2
<PAGE>
For a stock investor, however, the picture is mixed. The lower inflation that
often accompanies a slowing economy is a positive for stock valuations.
Investors will pay more for a given stream of earnings or dividends when
inflation is low, boosting stock prices. Offsetting this boost, however, are
fears about what that stream of earnings will actually be. A slowing economy
also puts corporate profitability at risk. So last year these two divergent
forces--higher valuations, but on a less certain earnings base-- offset each
other, leading to flat stock market performance.
 
As we write this letter, however, Pollyanna has reappeared and markets are
shifting once again. Stocks perked up in the beginning of 1998, as earnings
reports appeared more robust than analysts had thought likely. Domestic
companies have managed their Asian exposures in such a way that the earnings
impact has been far less than most investors like. But then again, it would not
be surprising to see the cycle repeat, as Asian economic difficulties or fears
of an Iraqi military conflict re-emerge.
 
AND THE WINNER IS...
Looking ahead is never easy. It is always much easier to say with precision what
has happened in the past than to even approximate what the future holds. But the
task today seems particularly daunting. There are the Asian and Mideast problems
referred to above, as well as markets that cannot decide whether it is Pollyanna
or Cassandra that has the better advice.
 
Nonetheless, it seems to us that inflation still looks terrific, that is, there
is none to be found! We are now in the seventh year of an economic recovery and
inflation is still extremely low. As noted previously, the CPI shows inflation
up just 1.7%. Wholesale prices are actually down, as the Producer Price Index
measured -0.7% for 1997. This past summer there were some fears that domestic
employment growth would trigger inflation pressures. But this fear dissipated
with the Asian economic turmoil. It seems clear that the Asian slowdown, if
nothing else, has dampened worldwide growth and demand. Commodity prices provide
striking evidence, for they all are pointed in one direction--down. It's hard to
imagine how prices can re-accelerate over the next six to twelve months, so
inflation should remain low, and provide support to bond prices and stock
valuations.
 
The economic growth picture is more mixed. We believe that the economic turmoil
in Asia may indeed slow growth more dramatically for domestic companies than
recent earnings reports, or stock market increases, may suggest. The used-to-
be-called "tiger" economies of Southeast Asia were the world's fastest-growing
countries over the past few years. Many Southeast Asian economies had growth
rates three times faster than the developed countries. So it seems to us that
the deceleration, or even cessation of growth in the ex-tigers will have more
meaningful effects than we have seen so far. Companies may not be able to
continue to manage their profitability as successfully as they have over the
last few months. Does this mean that we believe the stock market is headed for a
big decline? No. But it does mean that stock prices will probably be more
volatile as the market sorts through the various earnings impacts of a possible
worldwide slowdown. So, ultimately, while we think that while Pollyanna will
prevail, we also believe Cassandra is due for a few more appearances.
 
INTERNATIONAL STOCK MARKETS:
International markets experienced diametrically opposite performances in the
first and second halves of the year ended January 1998. International markets
achieved solid first half returns on the coattails of the ebullient U.S. capital
markets. The second half was marked by repeated crises as the Southeast Asian
currency collapse radiated outward, engulfing not only some of the strongest
regional economies such as Taiwan and Singapore, but also ultimately crushing
the Korean economy and its currency. And the effects on Japan, the largest Asian
stock market and economy and a major regional lender, were an added negative to
an already deteriorating local Japanese outlook.
 
                                                                          3
<PAGE>
As noted, the Asian currency and economic collapse have far-reaching and as yet
not fully understood implications for global capital markets. Rescue efforts
have centered on stability and stemming further precipitous declines in
currencies as well as consumer and business confidence. The strength of the U.S.
dollar and bond market at the end of 1997, to some degree, reflected growing
investor preference for liquidity, stability and strength during a period of
global economic uncertainty.
 
European and U.S. companies will not escape untouched as exports to Asia decline
and Asian produced goods become even more competitive in domestic markets.
Nevertheless, we remain very positive overall on European investments for
several reasons, including:
 
    - The push for the European Monetary Union ("EMU") has created favorable
      macroeconomic conditions the likes of which have not been seen for two
      decades. Interest rates and inflation are subdued and likely to remain so
      and should heighten demand for stocks from both individuals and
      institutions.
 
    - Corporations in Europe are restructuring, boosting investor returns and,
      for the first time, aligning management interests with external
      shareholder interests through stock incentives.
 
    - The recovery of the U.S. currency against its major trading partners of
      the past 30 months has improved export competitiveness for major European
      and Asian exporters and led to an upturn in the consolidated European
      economy.
 
    - Many industries, such as financial services and pharmaceuticals, have
      improved their economies of scale and eliminated inefficient local and
      regional goods and service providers. At the same time, innovative
      mid-sized companies are finding access to capital and finding an open door
      to technologies and processes that lower costs for businesses and
      consumers.
 
GLOBAL BOND MARKETS:
Moderate U.S. economic growth, combined with historically low inflation and the
ongoing financial and economic turmoil in Southeast Asia, should provide more
than enough ammunition for U.S. interest rates to fall lower. With respect to
the high-yield bond market, we believe the uncertainties that exist in the
world's stock markets will tend to favor the higher-quality high-yield bonds
over the lower-quality bonds, which are usually more vulnerable in the event of
a market downturn. In the global government bond arena, the onset of the EMU
should continue to exert a positive influence on European bond markets. The
integration of Europe's key economies should help keep interest rates low and
encourage greater fiscal restraint from the member governments.
 
Thank you for investing with us. We look forward to helping you reach your
financial goals through all types of market conditions.
 
Sincerely,
 
/s/ Heath B. McLendon              /s/ Thomas B. Stiles II
Heath B. McLendon                  Thomas B. Stiles II
CHAIRMAN                           VICE PRESIDENT AND INVESTMENT
                                   OFFICER
 
FEBRUARY 26, 1998
 
                                                                          4
<PAGE>
A FEW WORDS ABOUT RECENT CHANGES TO THE MIX OF UNDERLYING FUNDS
Since the Smith Barney Concert Allocation Series Select Portfolios were
introduced in February 1997, one of our goals in developing the Portfolios was
to minimize risk for investors through diversification by participating in a
wide range of asset classes. Yet the asset mix within the five Concert
Allocation Series Select Portfolios is STRATEGIC, not tactical and designed for
a long-term investment horizon.
 
Some changes have been made recently with respect to the underlying funds that
make up the Concert Allocation Series Portfolios. The reason? We wanted to take
advantage of other Smith Barney Mutual Funds such as the Smith Barney Large
Capitalization Growth Fund, the Smith Barney Small Cap Blend Fund, Inc.
(formerly known as the Disciplined Small Cap Fund, Inc.) and the Concert
Peachtree Growth Fund (formerly known as the Smith Barney Growth Opportunity
Fund). For additional information about the actual breakdown of the underlying
funds within each Concert Allocation Series Portfolio as of January 31, 1998,
please refer to the schedules of investments showing the underlying funds that
begin on page 16.
 
                                                                          5
<PAGE>
 
THE SELECT HIGH GROWTH PORTFOLIO
TARGET ASSET ALLOCATION
 
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>
     BOND FUNDS             STOCK FUNDS
<S>                     <C>
10%                                      90%
</TABLE>
 
THE SELECT HIGH GROWTH PORTFOLIO SEEKS CAPITAL APPRECIATION BY INVESTING A HIGH
PERCENTAGE OF ITS ASSETS IN AGGRESSIVE EQUITY FUNDS.
 .................................................................
 
THE SELECT HIGH GROWTH PORTFOLIO
The Select High Growth Portfolio seeks capital appreciation. Among the
Portfolios of the Concert Allocation Series, the Select High Growth Portfolio
invests a large portion of its assets in aggressive equity mutual funds that
focus on smaller, more speculative companies as well as mid-sized (or larger)
companies with the potential for rapid growth. Moreover, a significant portion
of the Portfolio is invested in international or emerging markets funds in order
to achieve a greater level of diversification.
INDEX COMPARISON*
 
<TABLE>
<S>                                                 <C>
S&P 500                                             26.90%
RUSSELL 2000                                        18.07%
MSCI EAFE                                           10.29%
SALOMON SMITH BARNEY
 HIGH YIELD MARKET                                  15.75%
</TABLE>
 
*THE CHART ABOVE REPRESENTS TOTAL RETURNS FOR THE YEAR ENDED JANUARY 31, 1998.
 .................................................................
PORTFOLIO UPDATE
1997 turned out to be another stellar year for the U.S. stock market. For the
first time ever, the U.S. stock market posted three consecutive years of gains
in excess of 20%. Stable economic growth, robust corporate earnings growth and
subdued inflation helped fuel the U.S. stock market's climb. So far in 1998, the
bull market in U.S. stocks has continued. Moreover, large-capitalization, blue-
chip domestic stocks that dominate the popular market averages did better than
most other types of stocks.
Yet behind the good news, stock market volatility also increased markedly during
the past twelve months. The currency and economic crisis in Southeast Asia that
started in the summer negatively affected the U.S. stock market. In the third
quarter of 1997, the Dow Jones Industrial Average registered its second-largest
point decline and its single largest daily gain within a three week period in
the middle of the third quarter. (The Dow Jones Industrial Average, or DJIA, is
a price-weighted average of 30 actively traded blue chip stocks of primarily
industrial companies.)
International markets experienced diametrically opposite performances in the
first and second halves of the year ended January 31, 1998. International
markets achieved solid first half returns on the coattails of the ebullient U.S.
capital markets. The second half was marked by repeated crises as the Southeast
Asian currency collapse radiated outward, engulfing not only some of the
strongest regional economies such as Taiwan and Singapore, but also ultimately
crushing the Korean economy and its currency. And the effects on Japan, the
largest Asian stock market and economy and a major regional lender, were an
added negative to an already deteriorating local Japanese outlook.
Because the ultimate impact of the Asian crisis on U.S. exports and corporate
earnings is still unknown, the rest of 1998 promises to be a year of greater
uncertainty and higher market volatility. As noted in this report's letter to
shareholders, we believe that the problems of Asia may slow growth more
dramatically than recent earnings reports, or stock market increases, may
suggest. The profit growth of many companies has been cast into doubt. With
current valuations in the stock market at fairly high levels, investors may be
intolerant of any earnings disappointment.
The Concert Allocation Series Select High Growth Portfolio generated a total
return of 10.60% for the period ended January 31, 1998. The chart that appears
on page 7 compares the Portfolio's performance to broad-based indices that track
four of the asset classes represented in the Portfolio. Historically, the
leading asset class and the lagging asset class change from year to year. Each
Concert Allocation Series Select Portfolio is a long-term investment that has
been designed to reduce overall market volatility and will usually achieve a
rate of return roughly in the middle of the asset classes in which it invests.
------------------------------------------------------------------
THE TARGET ASSET ALLOCATION SET FORTH ABOVE REPRESENTS AN APPROXIMATE MIX OF
INVESTMENTS FOR THE SELECT HIGH GROWTH PORTFOLIO. THE ALLOCATION AND INVESTMENT
MIX OF THE PORTFOLIO MAY VARY DEPENDING UPON MARKET CONDITIONS, CASH FLOWS IN
AND OUT OF THE PORTFOLIO AND OTHER FACTORS. IN ADDITION, THE ALLOCATION AND
INVESTMENT RANGES OF THE PORTFOLIO MAY BE CHANGED FROM TIME TO TIME UPON THE
APPROVAL OF THE CONCERT ALLOCATION SERIES' BOARD OF DIRECTORS.
 
                                                                          6
<PAGE>
GROWTH OF $10,000 INVESTED IN THE SELECT HIGH GROWTH PORTFOLIO VS.
THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX, RUSSELL 2000 INDEX,
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX AND SALOMON SMITH BARNEY HIGH
YIELD MARKET INDEX
 ...............................................................................
FEBRUARY 5, 1997 - JANUARY 31, 1998 (UNAUDITED)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>
                                                 STANDARD & POOR'S
                            SELECT HIGH                 500                   RUSSELL                   MSCI
                                                  COMPOSITE STOCK
                          GROWTH PORTFOLIO             INDEX                 2000 INDEX              EAFE INDEX
       2/5/97                 $10,000                 $10,000                 $10,000                 $10,000
        2/97                   $9,870                 $10,079                  $9,758                 $10,164
<S>                     <C>                     <C>                     <C>                     <C>
3/97                                  $9,610                  $9,666                  $9,297                 $10,201
4/97                                  $9,650                 $10,242                  $9,323                 $10,255
5/97                                 $10,350                 $10,868                 $10,360                 $10,922
6/97                                 $10,620                 $11,351                 $10,805                 $11,524
7/97                                 $11,250                 $12,254                 $11,307                 $11,711
8/97                                 $11,030                 $11,567                 $11,566                 $10,836
9/97                                 $11,640                 $12,200                 $12,413                 $11,443
10/97                                $10,970                 $11,793                 $11,868                 $10,563
11/97                                $10,930                 $12,339                 $11,791                 $10,455
12/97                                $11,010                 $12,551                 $11,997                 $10,546
1/31/98                              $11,060                 $12,689                 $11,807                 $11,028
 
<CAPTION>
                      SALOMON SMITH BARNEY
                           HIGH YIELD
 
                          MARKET INDEX
       2/5/97               $10,000
        2/97                $10,170
<S>                     <C>
3/97                               $10,065
4/97                               $10,137
5/97                               $10,341
6/97                               $10,516
7/97                               $10,757
8/97                               $10,784
9/97                               $10,973
10/97                              $11,060
11/97                              $11,117
12/97                              $11,234
1/31/98                            $11,487
</TABLE>
 
THE CHART ABOVE REPRESENTS A HYPOTHETICAL ILLUSTRATION OF $10,000 INVESTED ON
FEBRUARY 5, 1997 (COMMENCEMENT OF OPERATIONS), ASSUMING REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS, IF ANY, AT NET ASSET VALUE THROUGH JANUARY 31,
1998. THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX IS AN UNMANAGED INDEX
COMPOSED OF 500 WIDELY HELD COMMON STOCKS LISTED ON THE NEW YORK STOCK EXCHANGE,
AMERICAN STOCK EXCHANGE AND THE OVER-THE-COUNTER MARKET. THE RUSSELL 2000 INDEX
IS A CAPITALIZATION WEIGHTED TOTAL RETURN INDEX WHICH IS COMPRISED OF 2,000 OF
SOME OF THE SMALLER-CAPITALIZED U.S.-DOMICILED COMPANIES WHOSE COMMON STOCK IS
TRADED IN THE UNITED STATES ON THE NEW YORK STOCK EXCHANGE, AMERICAN STOCK
EXCHANGE AND NASDAQ. THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX ("MSCI
EAFE") CONSISTS OF THE EQUITY TOTAL RETURNS FOR EUROPE, AUSTRALIA AND THE FAR
EAST. THE SALOMON SMITH BARNEY HIGH YIELD MARKET INDEX COVERS A SIGNIFICANT
PORTION OF THE BELOW-INVESTMENT-GRADE U.S. CORPORATE BOND MARKET. THESE INDICES
ARE UNMANAGED AND ARE NOT SUBJECT TO THE SAME MANAGEMENT AND TRADING EXPENSES AS
A MUTUAL FUND. THE PERFORMANCE OF THE PORTFOLIO'S OTHER CLASSES MAY BE GREATER
OR LESS THAN THE SHARES' PERFORMANCE INDICATED ON THIS CHART, DEPENDING ON
WHETHER GREATER OR LESSER SALES CHARGES AND FEES WERE INCURRED BY SHAREHOLDERS
INVESTING IN THE OTHER CLASSES.
 
ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE, AND REDEMPTION
VALUES MAY BE MORE OR LESS THAN THE ORIGINAL COST. NO ADJUSTMENT HAS BEEN MADE
FOR SHAREHOLDER TAX LIABILITY ON DIVIDENDS OR CAPITAL GAINS.
 
HISTORICAL PERFORMANCE--SELECT HIGH GROWTH PORTFOLIO+
 ...............................................................................
 
<TABLE>
<CAPTION>
                                                    NET ASSET VALUE
                                         -------------------------------------   INCOME    CAPITAL GAIN    AVERAGE ANNUAL
             PERIOD ENDED                BEGINNING OF PERIOD    END OF PERIOD    DIVIDED   DISTRIBUTION     TOTAL RETURN
<S>                                      <C>                    <C>              <C>       <C>             <C>
-------------------------------------------------------------------------------------------------------------------------
2/5/97*-1/31/98                                 $10.00              $11.06        $0.00        $0.00            10.60%++
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
 
+  IT IS THE SELECT HIGH GROWTH PORTFOLIOS' POLICY TO DISTRIBUTE DIVIDENDS AND
   CAPITAL GAINS, IF ANY, ANNUALLY.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
   RETURN FOR THE YEAR.
*  COMMENCEMENT OF OPERATIONS.
 
                                                                          7
<PAGE>
 
THE SELECT GROWTH PORTFOLIO
TARGET ASSET ALLOCATION
 
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>
     BOND FUNDS             STOCK FUNDS
<S>                     <C>
30%                                      70%
</TABLE>
 
THE SELECT GROWTH PORTFOLIO SEEKS LONG-TERM GROWTH OF CAPITAL BY INVESTING
PRIMARILY IN FUNDS CONTAINING THE ISSUES OF MORE ESTABLISHED COMPANIES.
 .................................................................
 
THE SELECT GROWTH PORTFOLIO
The Select Growth Portfolio seeks long-term growth of capital. Among the
Portfolios of the Concert Allocation Series, the Select Growth Portfolio invests
the highest percentage of its assets in large-capitalization stock mutual funds,
to provide growth. The Portfolio's equity allocation also includes funds that
invest in small- and mid-cap stocks and international securities. In addition, a
significant portion of the Select Growth Portfolio is also allocated to bonds,
to help reduce volatility.
INDEX COMPARISON*
 
<TABLE>
<S>                                                 <C>
S&P 500                                             26.90%
RUSSELL 2000                                        18.07%
MSCI EAFE                                           10.29%
LEHMAN GOVERNMENT/CORPORATE BOND                    11.17%
</TABLE>
 
*THE CHART ABOVE REPRESENTS TOTAL RETURNS FOR THE YEAR ENDED JANUARY 31, 1998.
 .................................................................
PORTFOLIO UPDATE
1997 turned out to be another stellar year for the U.S. stock market. For the
first time ever, the U.S. stock market posted three consecutive years of gains
in excess of 20%. Stable economic growth, robust corporate earnings growth and
subdued inflation helped fuel the U.S. stock market's climb. So far in 1998, the
bull market in U.S. stocks has continued. Moreover, large-capitalization, blue-
chip domestic stocks that dominate the popular market averages did better than
most other types of stocks.
Yet behind the good news, stock market volatility also increased markedly during
the past twelve months. The currency and economic crisis in Southeast Asia that
started in the summer negatively affected the U.S. stock market. In the third
quarter of 1997, the Dow Jones Industrial Average registered its second-largest
point decline and its single largest daily gain within a three week period in
the middle of the third quarter. (The Dow Jones Industrial Average, or DJIA, is
a price-weighted average of 30 actively traded blue chip stocks of primarily
industrial companies.)
International markets experienced diametrically opposite performances in the
first and second halves of the year ended January 1998. International markets
achieved solid first half returns on the coattails of the ebullient U.S. capital
markets. The second half was marked by repeated crises as the Southeast Asian
currency collapse radiated outward, engulfing not only some of the strongest
regional economies such as Taiwan and Singapore, but also ultimately crushing
the Korean economy and its currency. And the effects on Japan, the largest Asian
stock market and economy and a major regional lender, were an added negative to
an already deteriorating local Japanese outlook.
Because the ultimate impact of the Asian crisis on U.S. exports and corporate
earnings is still unknown, the rest of 1998 promises to be a year of greater
uncertainty and higher market volatility. As noted in this report's letter to
shareholders, we believe that the problems of Asia may slow growth more
dramatically than recent earnings reports, or stock market increases, may
suggest. The profit growth of many companies has been cast into doubt. With
current valuations in the stock market at fairly high levels, investors may be
intolerant of any earnings disappointment.
During the second half of 1997, bond prices rose because of declining interest
rates and the potential economic slowdown from the problems in Southeast Asia.
For the year ended January 31, 1998, the Lehman Brothers Aggregate Bond Index
returned 11.17%. (The Lehman Brothers Aggregate Bond Index is composed of the
Government/Corporate Bond Index, the Asset-Backed Securities Index and includes
U.S. Treasury issues, agency issues, corporate bond issues and mortgage-backed
issues.)
The Concert Allocation Series Select Growth Portfolio generated a total return
of 12.80% for the period ended January 31, 1998. The chart that appears on page
9 compares the Portfolio's performance to broad-based indices that track four of
the asset classes represented in the Portfolio. Historically, the leading asset
class and the lagging asset class change from year to year. Each Concert
Allocation Series Select Portfolio is a long-term investment that has been
designed to reduce overall market volatility and will usually achieve a rate of
return roughly in the middle of the asset classes in which it invests.
------------------------------------------------------------------
THE TARGET ASSET ALLOCATION SET FORTH ABOVE REPRESENTS AN APPROXIMATE MIX OF
INVESTMENTS FOR THE SELECT GROWTH PORTFOLIO. THE ALLOCATION AND INVESTMENT MIX
OF THE PORTFOLIO MAY VARY DEPENDING UPON MARKET CONDITIONS, CASH FLOWS IN AND
OUT OF THE PORTFOLIO AND OTHER FACTORS. IN ADDITION, THE ALLOCATION AND
INVESTMENT RANGES OF THE PORTFOLIO MAY BE CHANGED FROM TIME TO TIME UPON THE
APPROVAL OF THE CONCERT ALLOCATION SERIES' BOARD OF DIRECTORS.
 
                                                                          8
<PAGE>
GROWTH OF $10,000 INVESTED IN THE SELECT GROWTH PORTFOLIO VS.
THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX, RUSSELL 2000 INDEX,
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX AND LEHMAN GOVERNMENT/CORPORATE
BOND INDEX
 ...............................................................................
FEBRUARY 5, 1997 - JANUARY 31, 1998 (UNAUDITED)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>
                                                 STANDARD & POOR'S
                           SELECT GROWTH                500
                                                  COMPOSITE STOCK
                             PORTFOLIO                 INDEX             RUSSELL 2000 INDEX       MSCI EAFE INDEX
       2/5/97                 $10,000                 $10,000                 $10,000                 $10,000
        2/97                   9,990                   10,079                  9,758                   10,164
<S>                     <C>                     <C>                     <C>                     <C>
3/97                                   9,700                   9,666                   9,297                  10,201
4/97                                   9,820                  10,242                   9,323                  10,255
5/97                                  10,330                  10,868                  10,360                  10,922
6/97                                  10,590                  11,351                  10,805                  11,524
7/97                                  11,170                  12,254                  11,307                  11,711
8/97                                  10,920                  11,567                  11,566                  10,836
9/97                                  11,410                  12,200                  12,413                  11,443
10/97                                 11,000                  11,793                  11,868                  10,563
11/97                                 11,060                  12,339                  11,791                  10,455
12/97                                 11,190                  12,551                  11,997                  10,546
1/31/98                               11,280                  12,689                  11,807                  11,028
 
<CAPTION>
 
                       LEHMAN GOVERNMENT/
 
                      CORPORATE BOND INDEX
       2/5/97               $10,000
        2/97                 10,021
<S>                     <C>
3/97                                 9,902
4/97                                10,046
5/97                                10,140
6/97                                10,261
7/97                                10,575
8/97                                10,457
9/97                                10,621
10/97                               10,791
11/97                               10,848
12/97                               10,962
1/31/98                             11,117
</TABLE>
 
THE CHART ABOVE REPRESENTS A HYPOTHETICAL ILLUSTRATION OF $10,000 INVESTED ON
FEBRUARY 5, 1997 (COMMENCEMENT OF OPERATIONS), ASSUMING REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS, IF ANY, AT NET ASSET VALUE THROUGH JANUARY 31,
1998. THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX IS AN UNMANAGED INDEX
COMPOSED OF 500 WIDELY HELD COMMON STOCKS LISTED ON THE NEW YORK STOCK EXCHANGE,
AMERICAN STOCK EXCHANGE AND THE OVER-THE-COUNTER MARKET. THE RUSSELL 2000 INDEX
IS A CAPITALIZATION-WEIGHTED TOTAL RETURN INDEX WHICH IS COMPRISED OF 2,000 OF
SOME OF THE SMALLER-CAPITALIZED U.S.-DOMICILED COMPANIES WHOSE COMMON STOCK IS
TRADED IN THE UNITED STATES ON THE NEW YORK STOCK EXCHANGE, AMERICAN STOCK
EXCHANGE AND NASDAQ. THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX ("MSCI
EAFE") IS A COMPOSITE INDEX THAT CONSISTS OF EQUITY TOTAL RETURNS FOR EUROPE,
AUSTRALIA AND THE FAR EAST. THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX IS A
COMBINATION OF PUBLICLY ISSUED INTERMEDIATE- AND LONG-TERM U.S. GOVERNMENT BONDS
AND CORPORATE BONDS. THESE INDICES ARE UNMANAGED AND ARE NOT SUBJECT TO THE SAME
MANAGEMENT AND TRADING EXPENSES AS A MUTUAL FUND. THE PERFORMANCE OF THE
PORTFOLIO'S OTHER CLASSES MAY BE GREATER OR LESS THAN THE PERFORMANCE INDICATED
ON THIS CHART, DEPENDING ON WHETHER GREATER OR LESSER SALES CHARGES AND FEES
WERE INCURRED BY SHAREHOLDERS INVESTING IN THE OTHER CLASSES.
 
ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE, AND REDEMPTION
VALUES MAY BE MORE OR LESS THAN THE ORIGINAL COST. NO ADJUSTMENT HAS BEEN MADE
FOR SHAREHOLDER TAX LIABILITY ON DIVIDENDS OR CAPITAL GAINS.
 
HISTORICAL PERFORMANCE--SELECT GROWTH PORTFOLIO+
 ...............................................................................
 
<TABLE>
<CAPTION>
                                                    NET ASSET VALUE
                                         -------------------------------------   INCOME    CAPITAL GAIN    AVERAGE ANNUAL
             PERIOD ENDED                BEGINNING OF PERIOD    END OF PERIOD    DIVIDED   DISTRIBUTION     TOTAL RETURN
<S>                                      <C>                    <C>              <C>       <C>             <C>
-------------------------------------------------------------------------------------------------------------------------
2/5/97*-1/31/98                                 $10.00              $11.28        $0.00        $0.00            12.80%++
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
 
+  IT IS THE SELECT GROWTH PORTFOLIOS' POLICY TO DISTRIBUTE DIVIDENDS AND
   CAPITAL GAINS, IF ANY, ANNUALLY.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
   RETURN FOR THE YEAR.
*  COMMENCEMENT OF OPERATIONS.
 
                                                                          9
<PAGE>
 
THE SELECT BALANCED PORTFOLIO
TARGET ASSET ALLOCATION
 
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>
     BOND FUNDS             STOCK FUNDS
<S>                     <C>
50%                                      50%
</TABLE>
 
THE SELECT BALANCED PORTFOLIO SEEKS A BALANCE OF CAPITAL GROWTH AND INCOME BY
PLACING EQUAL EMPHASIS ON FUNDS INVESTING IN STOCKS AND BONDS.
 .................................................................
 
THE SELECT BALANCED PORTFOLIO
The Select Balanced Portfolio seeks long-term growth of capital and income,
placing equal emphasis on current income and capital appreciation. The Select
Balanced Portfolio, as its name states, divides its assets roughly between
equity and fixed-income mutual funds. The equity funds are primarily
large-capitalization, dividend-paying stock funds. The fixed-income portion of
the Portfolio is mainly invested in funds that invest in U.S. government and
agency securities, as well as mortgage-backed securities.
 
INDEX COMPARISON*
 
<TABLE>
<S>                                                 <C>
S&P 500                                             26.90%
LEHMAN GOVERNMENT/CORPORATE BOND                    11.17%
SALOMON SMITH BARNEY
 ONE-YEAR TREASURY BILL                              6.82%
SALOMON SMITH BARNEY
 WORLD GOVERNMENT BOND                              12.06%
</TABLE>
 
*THE CHART ABOVE REPRESENTS TOTAL RETURNS FOR THE YEAR ENDED JANUARY 31, 1998.
 .................................................................
PORTFOLIO UPDATE
1997 turned out to be another stellar year for the U.S. stock market. For the
first time ever, the U.S. stock market posted three consecutive years of gains
in excess of 20%. Stable economic growth, robust corporate earnings growth and
subdued inflation helped fuel the U.S. stock market's climb. So far in 1998, the
bull market in U.S. stocks has continued. Moreover, large-capitalization, blue-
chip domestic stocks that dominate the popular market averages did better than
most other types of stocks.
 
Yet behind the good news, stock market volatility also increased markedly during
the past twelve months. The currency and economic crisis in Southeast Asia that
started in the summer negatively affected the U.S. stock market. In the third
quarter of 1997, the Dow Jones Industrial Average registered its second-largest
point decline and its single largest daily gain within a three week period in
the middle of the third quarter. (The Dow Jones Industrial Average, or DJIA, is
a price-weighted average of 30 actively traded blue chip stocks of primarily
industrial companies.)
 
Because the ultimate impact of the Asian crisis on U.S. exports and corporate
earnings is still unknown, the rest of 1998 promises to be a year of greater
uncertainty and higher market volatility. As noted in this report's letter to
shareholders, we believe that the problems of Asia may slow growth more
dramatically than recent earnings reports, or stock market increases, may
suggest. The profit growth of many companies has been cast into doubt. With
current valuations in the stock market at fairly high levels, investors may be
intolerant of any earnings disappointment.
 
In contrast, the uncertainties surrounding the world's stock markets helped
ignite a bond market rally in the closing months of 1997. Following the sudden
collapse of many Southeast Asian stock markets and the currency devaluations of
several key economies such as Korea and Indonesia, many investors around the
world sought out the stability and liquidity of bonds. The U.S. dollar was a
clear beneficiary of this shift in investor sentiment and with the help of an
influx of foreign capital, the yield on the benchmark 30-year U.S. Treasury bond
fell to a historic low of 5.74% on January 5, 1998. Moreover, the continued
decline of interest rates has been supported by a moderately expanding U.S.
economy with a near absence of inflationary pressure.
 
The Concert Allocation Series Select Balanced Portfolio generated a total return
of 12.80% for the period ended January 31, 1998. The chart that appears on page
11 compares the Portfolio's performance to broad-based indices that track four
of the asset classes represented in the Portfolio. Historically, the leading
asset class and the lagging asset class change from year to year. Each Concert
Allocation Series Portfolio is a long-term investment that has been designed to
reduce overall market volatility and will usually achieve a rate of return
roughly in the middle of the asset classes in which it invests.
------------------------------------------------------------------
THE TARGET ASSET ALLOCATION SET FORTH ABOVE REPRESENTS AN APPROXIMATE MIX OF
INVESTMENTS FOR THE SELECT BALANCED PORTFOLIO. THE ALLOCATION AND INVESTMENT MIX
OF THE PORTFOLIO MAY VARY DEPENDING UPON MARKET CONDITIONS, CASH FLOWS IN AND
OUT OF THE PORTFOLIO AND OTHER FACTORS. IN ADDITION, THE ALLOCATION AND
INVESTMENT RANGES OF THE PORTFOLIO MAY BE CHANGED FROM TIME TO TIME UPON THE
APPROVAL OF THE CONCERT ALLOCATION SERIES' BOARD OF DIRECTORS.
 
                                                                          10
<PAGE>
GROWTH OF $10,000 INVESTED IN THE SELECT BALANCED PORTFOLIO VS.
THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX, LEHMAN GOVERNMENT/CORPORATE
BOND INDEX,
SALOMON SMITH BARNEY ONE-YEAR TREASURY BILL INDEX AND SALOMON SMITH BARNEY WORLD
GOVERNMENT BOND INDEX
 ...............................................................................
FEBRUARY 5, 1997 - JANUARY 31, 1998 (UNAUDITED)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>
                                                 STANDARD & POOR'S             LEHMAN
                          SELECT BALANCED               500             GOVERNMENT/CORPORATE    SALOMON SMITH BARNEY
                                                  COMPOSITE STOCK                                ONE-YEAR TREASURY
                             PORTFOLIO                 INDEX                 BOND INDEX              BILL INDEX
<S>                     <C>                     <C>                     <C>                     <C>
2/05/97                              $10,000                 $10,000                 $10,000                 $10,000
2/97                                 $10,040                 $10,079                 $10,021                 $10,036
3/97                                  $9,920                  $9,666                  $9,902                 $10,063
4/97                                 $10,080                 $10,242                 $10,046                 $10,124
5/97                                 $10,390                 $10,868                 $10,140                 $10,188
6/97                                 $10,650                 $11,351                 $10,261                 $10,248
7/97                                 $11,050                 $12,254                 $10,575                 $10,322
8/97                                 $10,750                 $11,567                 $10,457                 $10,358
9/97                                 $11,130                 $12,200                 $10,621                 $10,414
10/97                                $10,960                 $11,793                 $10,791                 $10,473
11/97                                $11,080                 $12,339                 $10,848                 $10,508
12/97                                $11,200                 $12,551                 $10,962                 $10,558
1/31/98                              $11,280                 $12,689                 $11,117                 $10,627
 
<CAPTION>
 
                      SALOMON SMITH BARNEY
                        WORLD GOVERNMENT
                           BOND INDEX
<S>                     <C>
2/05/97                            $10,000
2/97                               $10,044
3/97                                $9,986
4/97                               $10,096
5/97                               $10,157
6/97                               $10,309
7/97                               $10,512
8/97                               $10,488
9/97                               $10,658
10/97                              $10,770
11/97                              $10,838
12/97                              $10,964
1/31/98                            $11,111
</TABLE>
 
THE CHART ABOVE REPRESENTS A HYPOTHETICAL ILLUSTRATION OF $10,000 INVESTED ON
FEBRUARY 5, 1997 (COMMENCEMENT OF OPERATIONS), ASSUMING REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS, IF ANY, AT NET ASSET VALUE THROUGH JANUARY 31,
1998. THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX IS AN UNMANAGED INDEX
COMPOSED OF 500 WIDELY HELD COMMON STOCKS LISTED ON THE NEW YORK STOCK EXCHANGE,
AMERICAN STOCK EXCHANGE AND THE OVER-THE-COUNTER MARKET. THE LEHMAN
GOVERNMENT/CORPORATE BOND INDEX IS A COMBINATION OF PUBLICLY ISSUED
INTERMEDIATE- AND LONG-TERM U.S. GOVERNMENT BONDS AND CORPORATE BONDS. THE
SALOMON SMITH BARNEY ONE-YEAR TREASURY BILL INDEX IS COMPOSED OF ONE 1-YEAR
UNITED STATES TREASURY BILL WHOSE RETURN IS TRACKED UNTIL ITS MATURITY. THE
SALOMON SMITH BARNEY WORLD GOVERNMENT BOND INDEX IS A
MARKET-CAPITALIZATION-WEIGHTED BENCHMARK THAT TRACKS THE PERFORMANCE OF THE
GOVERNMENT BOND MARKETS OF 14 COUNTRIES. THESE INDICES ARE UNMANAGED AND ARE NOT
SUBJECT TO THE SAME MANAGEMENT AND TRADING EXPENSES AS A MUTUAL FUND. THE
PERFORMANCE OF THE PORTFOLIO'S OTHER CLASSES MAY BE GREATER OR LESS THAN THE
PERFORMANCE INDICATED ON THIS CHART, DEPENDING ON WHETHER GREATER OR LESSER
SALES CHARGES OR FEES WERE INCURRED BY SHAREHOLDERS INVESTING IN THE OTHER
CLASSES.
 
ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE, AND REDEMPTION
VALUES MAY BE MORE OR LESS THAN THE ORIGINAL COST. NO ADJUSTMENT HAS BEEN MADE
FOR SHAREHOLDER TAX LIABILITY ON DIVIDENDS OR CAPITAL GAINS.
 
HISTORICAL PERFORMANCE--SELECT BALANCED PORTFOLIO+
 ...............................................................................
 
<TABLE>
<CAPTION>
                                                    NET ASSET VALUE
                                         -------------------------------------   INCOME    CAPITAL GAIN    AVERAGE ANNUAL
             PERIOD ENDED                BEGINNING OF PERIOD    END OF PERIOD    DIVIDED   DISTRIBUTION     TOTAL RETURN
<S>                                      <C>                    <C>              <C>       <C>             <C>
-------------------------------------------------------------------------------------------------------------------------
2/5/97*-1/31/98                                 $10.00              $11.28        $0.00        $0.00            12.80%++
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
 
+  IT IS THE SELECT BALANCED PORTFOLIOS' POLICY TO DISTRIBUTE DIVIDENDS AND
   CAPITAL GAINS, IF ANY, ANNUALLY.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
   RETURN FOR THE YEAR.
*  COMMENCEMENT OF OPERATIONS.
 
                                                                          11
<PAGE>
 
THE SELECT CONSERVATIVE PORTFOLIO
TARGET ASSET ALLOCATION
 
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>       
<S>            <C>              <C>
    STOCK FUNDS              BOND FUNDS
        30%                     70%
</TABLE>
 
THE SELECT CONSERVATIVE PORTFOLIO SEEKS INCOME AND, SECONDARILY, LONG-TERM
GROWTH OF CAPITAL BY INVESTING THE MAJORITY OF ITS ASSETS IN FUNDS THAT INVEST
IN BONDS.
 .................................................................
 
THE SELECT CONSERVATIVE PORTFOLIO
The Select Conservative Portfolio primarily seeks income and secondarily,
long-term capital growth. Among the Portfolios of the Concert Allocation Series,
the Select Conservative Portfolio consists primarily of taxable fixed income
funds, with a significant portion invested in stock funds that invest primarily
in large-capitalization U.S. stocks.
 
INDEX COMPARISON*
 
<TABLE>
<S>                                                 <C>
S&P 500                                             26.90%
LEHMAN GOVERNMENT/CORPORATE BOND                    11.17%
SALOMON SMITH BARNEY
 HIGH YIELD MARKET                                  15.75%
SALOMON SMITH BARNEY
 ONE-YEAR TREASURY BILL                              6.82%
</TABLE>
 
*THE CHART ABOVE REPRESENTS TOTAL RETURNS FOR THE YEAR ENDED JANUARY 31, 1998.
 .................................................................
PORTFOLIO UPDATE
During the second half of 1997, bond prices rose because of declining interest
rates and the potential economic slowdown from the problems in Southeast Asia.
For the year ended January 31, 1998, the Lehman Brothers Aggregate Bond Index
returned 11.17%. (The Lehman Brothers Aggregate Bond Index is composed of the
Government/Corporate Bond Index, the Asset-Backed Securities Index and includes
U.S. Treasury issues, agency issues, corporate bond issues and mortgage-backed
issues.)
 
The uncertainties surrounding the world's stock markets helped ignite a bond
market rally in the closing months of 1997. Following the sudden collapse of
many Southeast Asian stock markets and the currency devaluations of several key
economies such as Korea and Indonesia, many investors around the world sought
out the stability and liquidity of bonds. The U.S. dollar was a clear
beneficiary of this shift in investor sentiment and with the help of an influx
of foreign capital, the yield on the benchmark 30-year U.S. Treasury bond fell
to a historic low of 5.74% on January 5, 1998. Moreover, the continued decline
of interest rates has been supported by a moderately expanding U.S. economy with
a near absence of inflationary pressure.
 
The Concert Allocation Series Select Conservative Portfolio generated a total
return of 13.00% for the period ended January 31, 1998. The chart that appears
on page 13 compares the Portfolio's performance to broad-based indices that
track four of the asset classes represented in the Portfolio. Historically, the
leading asset class and the lagging asset class change from year to year. Each
Concert Allocation Series Select Portfolio is a long-term investment that has
been designed to reduce overall market volatility and will usually achieve a
rate of return roughly in the middle of the asset classes in which it invests.
------------------------------------------------------------------
THE TARGET ASSET ALLOCATION SET FORTH ABOVE REPRESENTS AN APPROXIMATE MIX OF
INVESTMENTS FOR THE SELECT CONSERVATIVE PORTFOLIO. THE ALLOCATION AND INVESTMENT
MIX OF THE PORTFOLIO MAY VARY DEPENDING UPON MARKET CONDITIONS, CASH FLOWS IN
AND OUT OF THE PORTFOLIO AND OTHER FACTORS. IN ADDITION, THE ALLOCATION AND
INVESTMENT RANGES OF THE PORTFOLIO MAY BE CHANGED FROM TIME TO TIME UPON THE
APPROVAL OF THE CONCERT ALLOCATION SERIES' BOARD OF DIRECTORS.
 
                                                                          12
<PAGE>
GROWTH OF $10,000 INVESTED IN THE SELECT CONSERVATIVE PORTFOLIO VS.
THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX, LEHMAN GOVERNMENT/CORPORATE
BOND INDEX,
SALOMON SMITH BARNEY HIGH YIELD MARKET INDEX AND SALOMON SMITH BARNEY ONE-YEAR
TREASURY BILL INDEX
 ...............................................................................
FEBRUARY 5, 1997 - JANUARY 31, 1998 (UNAUDITED)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>
                                                 STANDARD & POOR'S                              SALOMON SMITH BARNEY
                               SELECT                   500              LEHMAN GOVERNMENT/             HIGH
                            CONSERVATIVE          COMPOSITE STOCK
                             PORTFOLIO                 INDEX            CORPORATE BOND INDEX     YIELD MARKET INDEX
<S>                     <C>                     <C>                     <C>                     <C>
2/05/97                              $10,000                 $10,000                 $10,000                 $10,000
2/97                                  10,070                  10,079                  10,021                  10,170
3/97                                   9,980                   9,666                   9,902                  10,065
4/97                                  10,100                  10,242                  10,046                  10,137
5/97                                  10,350                  10,868                  10,140                  10,341
6/97                                  10,580                  11,351                  10,261                  10,516
7/97                                  10,930                  12,254                  10,575                  10,757
8/97                                  10,730                  11,567                  10,457                  10,784
9/97                                  11,030                  12,200                  10,621                  10,973
10/97                                 10,980                  11,793                  10,791                  11,060
11/97                                 11,080                  12,339                  10,848                  11,117
12/97                                 11,210                  12,551                  10,962                  11,234
1/31/98                               11,300                  12,689                  11,117                  11,487
 
<CAPTION>
                      SALOMON SMITH BARNEY
                            ONE-YEAR
 
                      TREASURY BILL INDEX
<S>                     <C>
2/05/97                            $10,000
2/97                                10,036
3/97                                10,063
4/97                                10,124
5/97                                10,188
6/97                                10,248
7/97                                10,322
8/97                                10,358
9/97                                10,414
10/97                               10,473
11/97                               10,508
12/97                               10,558
1/31/98                             10,627
</TABLE>
 
THE CHART ABOVE REPRESENTS A HYPOTHETICAL ILLUSTRATION OF $10,000 INVESTED ON
FEBRUARY 5, 1997 (COMMENCEMENT OF OPERATIONS), ASSUMING REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS, IF ANY, AT NET ASSET VALUE THROUGH JANUARY 31,
1998. THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX IS AN UNMANAGED INDEX
COMPOSED OF 500 WIDELY HELD COMMON STOCKS LISTED ON THE NEW YORK STOCK EXCHANGE,
AMERICAN STOCK EXCHANGE AND THE OVER-THE-COUNTER MARKET. THE LEHMAN
GOVERNMENT/CORPORATE BOND INDEX IS A COMBINATION OF PUBLICLY ISSUED
INTERMEDIATE- AND LONG-TERM U.S. GOVERNMENT BONDS AND CORPORATE BONDS. THE
SALOMON SMITH BARNEY HIGH YIELD MARKET INDEX COVERS A SIGNIFICANT PORTION OF THE
BELOW-INVESTMENT-GRADE U.S. CORPORATE BOND MARKET. THE SALOMON SMITH BARNEY ONE-
YEAR TREASURY BILL INDEX IS COMPOSED OF ONE 1-YEAR UNITED STATES TREASURY BILL
WHOSE RETURN IS TRACKED UNTIL ITS MATURITY. THESE INDICES ARE UNMANAGED AND ARE
NOT SUBJECT TO THE SAME MANAGEMENT AND TRADING EXPENSES AS A MUTUAL FUND. THE
PERFORMANCE OF THE PORTFOLIO'S OTHER CLASSES MAY BE GREATER OR LESS THAN THE
PERFORMANCE INDICATED ON THIS CHART, DEPENDING ON WHETHER GREATER OR LESSER
SALES CHARGES AND FEES WERE INCURRED BY SHAREHOLDERS INVESTING IN THE OTHER
CLASSES.
 
ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE, AND REDEMPTION
VALUES MAY BE MORE OR LESS THAN THE ORIGINAL COST. NO ADJUSTMENT HAS BEEN MADE
FOR SHAREHOLDER TAX LIABILITY ON DIVIDENDS OR CAPITAL GAINS.
 
HISTORICAL PERFORMANCE--SELECT CONSERVATIVE PORTFOLIO+
 ...............................................................................
 
<TABLE>
<CAPTION>
                                                    NET ASSET VALUE
                                         -------------------------------------   INCOME    CAPITAL GAIN    AVERAGE ANNUAL
             PERIOD ENDED                BEGINNING OF PERIOD    END OF PERIOD    DIVIDED   DISTRIBUTION     TOTAL RETURN
<S>                                      <C>                    <C>              <C>       <C>             <C>
-------------------------------------------------------------------------------------------------------------------------
2/5/97*-1/31/98                                 $10.00              $11.30        $0.00        $0.00            13.00%++
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
 
+  IT IS THE SELECT CONSERVATIVE PORTFOLIOS' POLICY TO DISTRIBUTE DIVIDENDS AND
   CAPITAL GAINS, IF ANY, ANNUALLY.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
   RETURN FOR THE YEAR.
*  COMMENCEMENT OF OPERATIONS.
 
                                                                          13
<PAGE>
 
THE SELECT INCOME PORTFOLIO
TARGET ASSET ALLOCATION
 
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>
     BOND FUNDS             STOCK FUNDS
<S>                     <C>
90%                                      10%
</TABLE>
 
THE SELECT INCOME PORTFOLIO SEEKS HIGH CURRENT INCOME BY INVESTING PRIMARILY IN
BOND FUNDS.
 .................................................................
 
THE SELECT INCOME PORTFOLIO
The Select Income Portfolio seeks high current income. Among the Portfolios of
the Concert Allocation Series, the Select Income Portfolio allocates most of its
assets in taxable fixed-income funds designed to generate a high level of income
consistent with safety and relative stability of principal. A small portion of
the Portfolio is invested in equity funds that invest in large-capitalization
U.S. stocks.
 
INDEX COMPARISON*
 
<TABLE>
<S>                                                 <C>
S&P 500                                             26.90%
LEHMAN GOVERNMENT/CORPORATE BOND                    11.17%
SALOMON SMITH BARNEY
 HIGH YIELD MARKET                                  15.75%
SALOMON SMITH BARNEY
 ONE-YEAR TREASURY BILL                              6.82%
</TABLE>
 
*THE CHART ABOVE REPRESENTS TOTAL RETURNS FOR THE YEAR ENDED JANUARY 31, 1998.
 .................................................................
PORTFOLIO UPDATE
During the second half of 1997, bond prices rose because of declining interest
rates and the potential economic slowdown from the problems in Southeast Asia.
For the year ended January 31, 1998, the Lehman Brothers Aggregate Bond Index
returned 11.17%. (The Lehman Brothers Aggregate Bond Index is composed of the
Government/Corporate Bond Index, the Asset-Backed Securities Index and includes
U.S. Treasury issues, agency issues, corporate bond issues and mortgage-backed
issues.)
 
The uncertainties surrounding the world's stock markets helped ignite a bond
market rally in the closing months of 1997. Following the sudden collapse of
many Southeast Asian stock markets and the currency devaluations of several key
economies such as Korea and Indonesia, many investors around the world sought
out the stability and liquidity of bonds. The U.S. dollar was a clear
beneficiary of this shift in investor sentiment and with the help of an influx
of foreign capital, the yield on the benchmark 30-year U.S. Treasury bond fell
to a historic low of 5.74% on January 5, 1998. Moreover, the continued decline
of interest rates has been supported by a moderately expanding U.S. economy with
a near absence of inflationary pressure.
 
The Concert Allocation Series Select Income Portfolio generated a total return
of 12.90% for the period ended January 31, 1998. The chart that appears on page
15 compares the Portfolio's performance to broad-based indices that track four
of the asset classes represented in the Portfolio. Historically, the leading
asset class and the lagging asset class change from year to year. Each Concert
Allocation Series Portfolio is a long-term investment that has been designed to
reduce overall market volatility and will usually achieve a rate of return
roughly in the middle of the asset classes in which it invests.
------------------------------------------------------------------
THE TARGET ASSET ALLOCATION SET FORTH ABOVE REPRESENTS AN APPROXIMATE MIX OF
INVESTMENTS FOR THE SELECT INCOME PORTFOLIO. THE ALLOCATION AND INVESTMENT MIX
OF THE PORTFOLIO MAY VARY DEPENDING UPON MARKET CONDITIONS, CASH FLOWS IN AND
OUT OF THE PORTFOLIO AND OTHER FACTORS. IN ADDITION, THE ALLOCATION AND
INVESTMENT RANGES OF THE PORTFOLIO MAY BE CHANGED FROM TIME TO TIME UPON THE
APPROVAL OF THE CONCERT ALLOCATION SERIES' BOARD OF DIRECTORS.
 
                                                                          14
<PAGE>
GROWTH OF $10,000 INVESTED IN THE SELECT INCOME PORTFOLIO VS.
THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX, LEHMAN GOVERNMENT/CORPORATE
BOND INDEX,
SALOMON SMITH BARNEY HIGH YIELD MARKET INDEX AND SALOMON SMITH BARNEY ONE-YEAR
TREASURY BILL INDEX
 ...............................................................................
FEBRUARY 5, 1997 - JANUARY 31, 1998 (UNAUDITED)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>
                                                 STANDARD & POOR'S             LEHMAN
                               SELECT                   500             GOVERNMENT/CORPORATE    SALOMON SMITH BARNEY
                                                  COMPOSITE STOCK                                HIGH YIELD MARKET
                          INCOME PORTFOLIO             INDEX                 BOND INDEX                INDEX
<S>                     <C>                     <C>                     <C>                     <C>
2/05/97                              $10,000                 $10,000                 $10,000                 $10,000
2/97                                 $10,050                 $10,079                 $10,021                 $10,170
3/97                                  $9,980                  $9,666                  $9,902                 $10,055
4/97                                 $10,120                 $10,242                 $10,046                 $10,137
5/97                                 $10,320                 $10,868                 $10,140                 $10,341
6/97                                 $10,520                 $11,351                 $10,261                 $10,516
7/97                                 $10,850                 $12,254                 $10,575                 $10,757
8/97                                 $10,680                 $11,567                 $10,457                 $10,784
9/97                                 $10,910                 $12,200                 $10,621                 $10,973
10/97                                $10,940                 $11,793                 $10,791                 $11,060
11/97                                $11,040                 $12,339                 $10,848                 $11,117
12/97                                $11,170                 $12,551                 $10,962                 $11,234
1/31/98                              $11,290                 $12,689                 $11,117                 $11,487
 
<CAPTION>
                      SALOMON SMITH BARNEY
                            ONE-YEAR
 
                      TREASURY BILL INDEX
<S>                     <C>
2/05/97                            $10,000
2/97                               $10,036
3/97                               $10,063
4/97                               $10,124
5/97                               $10,188
6/97                               $10,248
7/97                               $10,322
8/97                               $10,358
9/97                               $10,414
10/97                              $10,473
11/97                              $10,508
12/97                              $10,558
1/31/98                            $10,627
</TABLE>
 
THE CHART ABOVE REPRESENTS A HYPOTHETICAL ILLUSTRATION OF $10,000 INVESTED ON
FEBRUARY 5, 1997 (COMMENCEMENT OF OPERATIONS), ASSUMING REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS, IF ANY, AT NET ASSET VALUE THROUGH JANUARY 31,
1998. THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX IS AN UNMANAGED INDEX
COMPOSED OF 500 WIDELY HELD COMMON STOCKS LISTED ON THE NEW YORK STOCK EXCHANGE,
AMERICAN STOCK EXCHANGE AND THE OVER-THE-COUNTER MARKET. THE LEHMAN
GOVERNMENT/CORPORATE BOND INDEX IS A COMBINATION OF PUBLICLY ISSUED
INTERMEDIATE- AND LONG-TERM U.S. GOVERNMENT BONDS AND CORPORATE BONDS. THE
SALOMON SMITH BARNEY HIGH YIELD MARKET INDEX COVERS A SIGNIFICANT PORTION OF THE
BELOW-INVESTMENT-GRADE U.S. CORPORATE BOND MARKET. THE SALOMON SMITH BARNEY ONE-
YEAR TREASURY BILL INDEX IS COMPOSED OF ONE 1-YEAR UNITED STATES TREASURY BILL
WHOSE RETURN IS TRACKED UNTIL ITS MATURITY. THESE INDICES ARE UNMANAGED AND ARE
NOT SUBJECT TO THE SAME MANAGEMENT AND TRADING EXPENSES AS A MUTUAL FUND. THE
PERFORMANCE OF THE PORTFOLIO'S OTHER CLASSES MAY BE GREATER OR LESS THAN THE
PERFORMANCE INDICATED ON THIS CHART, DEPENDING ON WHETHER GREATER OR LESSER
SALES CHARGES AND FEES WERE INCURRED BY SHAREHOLDERS INVESTING IN THE OTHER
CLASSES.
 
ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE, AND REDEMPTION
VALUES MAY BE MORE OR LESS THAN THE ORIGINAL COST. NO ADJUSTMENT HAS BEEN MADE
FOR SHAREHOLDER TAX LIABILITY ON DIVIDENDS OR CAPITAL GAINS.
 
HISTORICAL PERFORMANCE--SELECT INCOME PORTFOLIO+
 ...............................................................................
 
<TABLE>
<CAPTION>
                                                    NET ASSET VALUE
                                         -------------------------------------   INCOME    CAPITAL GAIN    AVERAGE ANNUAL
             PERIOD ENDED                BEGINNING OF PERIOD    END OF PERIOD    DIVIDED   DISTRIBUTION     TOTAL RETURN
<S>                                      <C>                    <C>              <C>       <C>             <C>
-------------------------------------------------------------------------------------------------------------------------
2/5/97*-1/31/98                                 $10.00              $11.29        $0.00        $0.00            12.90%++
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
 
+  IT IS THE SELECT INCOME PORTFOLIOS' POLICY TO DISTRIBUTE DIVIDENDS AND
   CAPITAL GAINS, IF ANY, ANNUALLY.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
   RETURN FOR THE YEAR.
*  COMMENCEMENT OF OPERATIONS.
 
                                                                          15
<PAGE>
THE SELECT HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS                                         JANUARY 31, 1998
 ...............................................................................
 
<TABLE>
<CAPTION>
  SHARES                       DESCRIPTION                        VALUE
 <C>        <S>                                                <C>
 -------------------------------------------------------------------------
 UNDERLYING FUNDS--98.4%
   68,016   Smith Barney Aggressive Growth Fund                $ 2,717,247
   84,699   Smith Barney Equity Funds - Smith Barney Growth &
              Income Fund                                        1,332,322
   77,259   Smith Barney Funds, Inc. - Large Cap Value Fund      1,333,501
  199,248   Smith Barney Investment Funds, Inc. - Concert
              Peachtree Growth Fund                              2,685,872
  212,666   Smith Barney Investment Funds, Inc. - Smith
              Barney High Income Fund                            2,532,857
   95,737   Smith Barney Investment Funds, Inc. - Smith
              Barney Managed Growth Fund                         1,346,069
  103,966   Smith Barney Investment Funds, Inc. - Smith
              Barney Special Equities Fund                       2,674,007
  211,636   Smith Barney Investment Trust - Smith Barney
              Large Capitalization Growth Fund                   2,713,174
  300,652   Smith Barney Small Cap Blend Fund, Inc.              4,040,772
  267,593   Smith Barney World Funds - International Equity
              Portfolio                                          5,392,002
 -------------------------------------------------------------------------
            TOTAL UNDERLYING FUNDS (Cost--$26,659,439)          26,767,823
 -------------------------------------------------------------------------
</TABLE>
 
<TABLE>
<CAPTION>
   FACE
  AMOUNT                                                          VALUE
 <C>        <S>                                                <C>
 -------------------------------------------------------------------------
 REPURCHASE AGREEMENT--1.6%
 $448,000   Chase Securities Inc., 5.520% due 2/2/98;
            Proceeds at maturity--$448,206;
            (Fully collateralized by U.S. Treasury Notes,
            6.125% due 9/30/00; Market value--$456,961)
            (Cost--$448,000)                                       448,000
 -------------------------------------------------------------------------
            TOTAL INVESTMENTS--100% (Cost--$27,107,439*)       $27,215,823
 -------------------------------------------------------------------------
</TABLE>
 
 *  AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS SUBSTANTIALLY THE SAME.
 
                       SEE NOTES TO FINANCIAL STATEMENTS.
                                                                          16
<PAGE>
THE SELECT GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS                                         JANUARY 31, 1998
 ...............................................................................
 
<TABLE>
<CAPTION>
  SHARES                            DESCRIPTION                              VALUE
<C>         <S>                                                           <C>
--------------------------------------------------------------------------------------
UNDERLYING FUNDS--97.8%
   115,227  Smith Barney Aggressive Growth Fund                           $  4,603,342
   285,993  Smith Barney Equity Funds - Smith Barney Growth & Income
              Fund                                                           4,498,683
   260,860  Smith Barney Funds, Inc. - Large Cap Value Fund                  4,502,456
   338,791  Smith Barney Investment Funds, Inc. - Concert Peachtree
              Growth Fund                                                    4,566,913
   460,163  Smith Barney Investment Funds, Inc. - Smith Barney
              Government Securities Fund                                     4,523,403
   357,871  Smith Barney Investment Funds, Inc. - Smith Barney High
              Income Fund                                                    4,262,248
   342,479  Smith Barney Investment Funds, Inc. - Smith Barney
              Investment Grade Bond Fund                                     4,565,256
   161,635  Smith Barney Investment Funds, Inc. - Smith Barney Managed
              Growth Fund                                                    2,272,591
    88,283  Smith Barney Investment Funds, Inc. - Smith Barney Special
              Equities Fund                                                  2,270,656
   180,556  Smith Barney Investment Trust - Smith Barney Large
              Capitalization Growth Fund                                     2,314,734
   169,710  Smith Barney Small Cap Blend Fund, Inc.                          2,280,908
   223,910  Smith Barney World Funds - International Equity Portfolio        4,511,795
--------------------------------------------------------------------------------------
            TOTAL UNDERLYING FUNDS (Cost--$44,997,353)                      45,172,985
--------------------------------------------------------------------------------------
</TABLE>
 
<TABLE>
<CAPTION>
   FACE
  AMOUNT                                                                     VALUE
<C>         <S>                                                           <C>
--------------------------------------------------------------------------------------
REPURCHASE AGREEMENT --2.2%
$1,022,000  Chase Securities Inc., 5.517% due 2/2/98; Proceeds at
            maturity--$1,022,470;
            (Fully collateralized by U.S. Treasury Notes, 6.125% due
            9/30/00; Market value--$1,042,442)
            (Cost--$1,022,000)                                               1,022,000
--------------------------------------------------------------------------------------
            TOTAL INVESTMENTS--100% (Cost--$46,019,353*)                  $ 46,194,985
--------------------------------------------------------------------------------------
</TABLE>
 
 *  AGGREGRATE COST FOR FEDERAL INCOME TAX PURPOSES IS SUBSTANTIALLY THE SAME.
 
                       SEE NOTES TO FINANCIAL STATEMENTS.
                                                                          17
<PAGE>
THE SELECT BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS                                         JANUARY 31, 1998
 ...............................................................................
 
<TABLE>
<CAPTION>
 SHARES                           DESCRIPTION                              VALUE
<C>       <S>                                                           <C>
-----------------------------------------------------------------------------------
UNDERLYING FUNDS--98.3%
 321,148  Smith Barney Appreciation Fund Inc.                           $ 4,508,927
 143,050  Smith Barney Equity Funds - Smith Barney Growth and Income
            Fund                                                          2,250,186
 447,105  Smith Barney Fundamental Value Fund Inc.                        4,573,893
 130,353  Smith Barney Funds, Inc. - Large Cap Value Fund                 2,249,899
 489,311  Smith Barney Funds, Inc. - Short-Term U.S. Treasury
            Securities Fund                                               2,015,963
 263,637  Smith Barney Income Funds - Smith Barney Convertible Fund       4,479,206
 837,895  Smith Barney Income Funds - Smith Barney Diversified
            Strategic Income Fund                                         6,728,301
 202,387  Smith Barney Income Funds - Smith Barney Premium Total
            Return Fund                                                   4,484,906
 229,854  Smith Barney Investment Funds, Inc. - Smith Barney
            Government Securities Fund                                    2,259,466
 348,994  Smith Barney Managed Governments Fund Inc.                      4,505,521
 191,964  Smith Barney World Funds, Inc. - Global Government Bond
            Portfolio                                                     2,245,986
 349,008  Smith Barney World Funds, Inc. - International Balanced
            Portfolio                                                     4,491,736
-----------------------------------------------------------------------------------
          TOTAL UNDERLYING FUNDS (Cost--$45,064,397)                     44,793,990
-----------------------------------------------------------------------------------
</TABLE>
 
<TABLE>
<CAPTION>
  FACE
 AMOUNT                                                                    VALUE
<C>       <S>                                                           <C>
-----------------------------------------------------------------------------------
REPURCHASE AGREEMENT--1.7%
$761,000  Chase Securities Inc., 5.517% due 2/2/98; Proceeds at
          maturity--$761,350;
          (Fully collaterlized by U.S. Treasury Notes, 6.125% due
          9/30/00; Market value--$776,222)
          (Cost--$761,000)                                                  761,000
-----------------------------------------------------------------------------------
          TOTAL INVESTMENTS--100% (Cost--$45,825,397*)                  $45,554,990
-----------------------------------------------------------------------------------
</TABLE>
 
 *  AGGREGRATE COST FOR FEDERAL INCOME TAX PURPOSES IS SUBSTANTIALLY THE SAME.
 
                       SEE NOTES TO FINANCIAL STATEMENTS.
                                                                          18
<PAGE>
THE SELECT CONSERVATIVE PORTFOLIO
SCHEDULE OF INVESTMENTS                                         JANUARY 31, 1998
 ...............................................................................
 
<TABLE>
<CAPTION>
  SHARES                       DESCRIPTION                        VALUE
 <C>        <S>                                                <C>
 -------------------------------------------------------------------------
 UNDERLYING FUNDS--98.9%
   76,379   Smith Barney Appreciation Fund Inc.                $ 1,072,373
   52,377   Smith Barney Fundamental Value Fund Inc.               535,823
  116,321   Smith Barney Funds, Inc. - Short-Term U.S.
              Treasury Securities Fund                             479,244
   62,117   Smith Barney Income Funds - Smith Barney
              Convertible Fund                                   1,055,369
  262,648   Smith Barney Income Funds - Smith Barney
              Diversified Strategic Income Fund                  2,109,067
   88,480   Smith Barney Income Funds - Smith Barney High
              Income Fund                                        1,053,802
   23,902   Smith Barney Income Funds - Smith Barney Premium
              Total Return Fund                                    529,688
  109,165   Smith Barney Investment Funds, Inc. - Smith
              Barney Government Securities Fund                  1,073,099
  123,898   Smith Barney Managed Governments Fund Inc.           1,599,535
   45,224   Smith Barney World Funds, Inc. - Global
              Government Bond Portfolio                            529,127
   41,317   Smith Barney World Funds, Inc. - International
              Balanced Portfolio                                   531,754
 -------------------------------------------------------------------------
            TOTAL UNDERLYING FUNDS (Cost--$10,595,478)          10,568,881
 -------------------------------------------------------------------------
</TABLE>
 
<TABLE>
<CAPTION>
   FACE
  AMOUNT                                                          VALUE
 <C>        <S>                                                <C>
 -------------------------------------------------------------------------
 REPURCHASE AGREEMENT-- 1.1%
 $115,000   Chase Securities Inc., 5.520% due 2/2/98;
            Proceeds at maturity--$115,053;
            (Fully collateralized by U.S. Treasury Notes,
            6.125% due 9/30/00; Market value--$117,300)
            (Cost--$115,000)                                       115,000
 -------------------------------------------------------------------------
            TOTAL INVESTMENTS--100% (Cost--$10,710,478*)       $10,683,881
 -------------------------------------------------------------------------
</TABLE>
 
 *  AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS SUBSTANTIALLY THE SAME.
 
                       SEE NOTES TO FINANCIAL STATEMENTS.
                                                                          19
<PAGE>
THE SELECT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS                                         JANUARY 31, 1998
 ...............................................................................
 
<TABLE>
<CAPTION>
 SHARES                           DESCRIPTION                             VALUE
<C>       <S>                                                           <C>
----------------------------------------------------------------------------------
UNDERLYING FUNDS--97.9%
  15,712  Smith Barney Appreciation Fund Inc.                           $  220,601
 100,956  Smith Barney Funds, Inc. - Short-Term U.S. Treasury
            Securities Fund                                                415,943
  12,832  Smith Barney Income Funds - Smith Barney Convertible Fund        218,017
 108,441  Smith Barney Income Funds - Smith Barney Diversified
            Strategic Income Fund                                          870,784
  73,107  Smith Barney Income Funds - Smith Barney High Income Fund        870,715
   9,867  Smith Barney Income Funds - Smith Barney Premium Total
            Return Fund                                                    218,661
  67,082  Smith Barney Investment Funds, Inc. - Smith Barney
            Government Securities Fund                                     659,420
  67,869  Smith Barney Managed Governments Fund Inc.                       876,198
----------------------------------------------------------------------------------
          TOTAL UNDERLYING FUNDS (Cost--$4,318,829)                      4,350,339
----------------------------------------------------------------------------------
</TABLE>
 
<TABLE>
<CAPTION>
  FACE
 AMOUNT                                                                   VALUE
<C>       <S>                                                           <C>
----------------------------------------------------------------------------------
REPURCHASE AGREEMENT--2.1%
$ 95,000  Chase Securities Inc., 5.520% due 2/2/98; Proceeds at
          maturity--$95,044;
          (Fully collateralized by U.S. Treasury Notes, 6.125% due
          9/30/00; Market value--$96,900)
          (Cost--$95,000)                                                   95,000
----------------------------------------------------------------------------------
          TOTAL INVESTMENTS--100% (Cost--$4,413,829*)                   $4,445,339
----------------------------------------------------------------------------------
</TABLE>
 
 *  AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS SUBSTANTIALLY THE SAME.
 
                       SEE NOTES TO FINANCIAL STATEMENTS.
                                                                          20
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES                            JANUARY 31, 1998
 ...............................................................................
 
<TABLE>
<CAPTION>
                                           SELECT       SELECT       SELECT        SELECT         SELECT
                                         HIGH GROWTH    GROWTH      BALANCED    CONSERVATIVE      INCOME
                                          PORTFOLIO    PORTFOLIO    PORTFOLIO     PORTFOLIO      PORTFOLIO
<S>                                      <C>          <C>          <C>          <C>             <C>
-----------------------------------------------------------------------------------------------------------
ASSETS:
   Investments, at cost                  $27,107,439  $46,019,353  $45,825,397   $ 10,710,478   $ 4,413,829
-----------------------------------------------------------------------------------------------------------
   Investments, at value                 $27,215,823  $46,194,985  $45,554,990   $ 10,683,881   $ 4,445,339
   Cash                                          538          510          858            946           611
   Receivable for Fund shares sold            89,430      111,179           --         41,997         1,498
   Receivable from manager                        --           --           --          9,203        16,537
   Dividend and interest receivables              69          157        6,301          1,505         1,278
-----------------------------------------------------------------------------------------------------------
   TOTAL ASSETS                           27,305,860   46,306,831   45,562,149     10,737,532     4,465,263
-----------------------------------------------------------------------------------------------------------
LIABILITIES:
   Payable for securities purchased          221,498      293,263      317,797         39,289        24,697
   Payable for Fund shares purchased           1,032           32      139,198            507           311
   Accrued expenses                           12,590       31,987       34,316             --            --
-----------------------------------------------------------------------------------------------------------
   TOTAL LIABILITIES                         235,120      325,282      491,311         39,796        25,008
-----------------------------------------------------------------------------------------------------------
   TOTAL NET ASSETS                      $27,070,740  $45,981,549  $45,070,838   $ 10,697,736   $ 4,440,255
-----------------------------------------------------------------------------------------------------------
NET ASSETS:
   Par value of capital shares           $     2,447  $     4,077  $     3,997   $        947   $       393
   Capital paid in excess of par value    26,637,578   44,410,650   43,218,715     10,263,569     4,235,320
   Undistributed net investment income       259,643      689,661    1,058,984        290,574       124,186
   Accumulated net realized gain on
     security transactions                    62,688      701,529    1,059,549        169,245        48,846
   Net unrealized appreciation
     (depreciation)
     of investments                          108,384      175,632     (270,407)       (26,599)       31,510
-----------------------------------------------------------------------------------------------------------
   TOTAL NET ASSETS                      $27,070,740  $45,981,549  $45,070,838   $ 10,697,736   $ 4,440,255
-----------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING                         2,447,271    4,077,421    3,997,048        946,622       393,144
-----------------------------------------------------------------------------------------------------------
NET ASSET VALUE                               $11.06       $11.28       $11.28         $11.30        $11.29
-----------------------------------------------------------------------------------------------------------
</TABLE>
 
                       SEE NOTES TO FINANCIAL STATEMENTS.
                                                                          21
<PAGE>
STATEMENTS OF OPERATIONS                FOR THE PERIOD ENDED JANUARY 31, 1998(a)
 ...............................................................................
 
<TABLE>
<CAPTION>
                                             SELECT           SELECT          SELECT          SELECT         SELECT
                                           HIGH GROWTH        GROWTH         BALANCED      CONSERVATIVE      INCOME
                                            PORTFOLIO        PORTFOLIO       PORTFOLIO       PORTFOLIO     PORTFOLIO
<S>                                      <C>               <C>             <C>             <C>             <C>
---------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
   Income distributions from Underlying
      Funds                                  $162,493      $     515,675   $     874,572      $257,527      $ 120,130
   Short-term capital gains from
     Underlying Funds                         111,739            194,877         212,597        38,729          6,748
   Interest                                    22,798             37,436          34,296         8,259          3,174
---------------------------------------------------------------------------------------------------------------------
   TOTAL INVESTMENT INCOME                    297,030            747,988       1,121,465       304,515        130,052
---------------------------------------------------------------------------------------------------------------------
EXPENSES:
   Other expenses                              37,387             58,327          62,481        13,941          5,866
---------------------------------------------------------------------------------------------------------------------
   TOTAL EXPENSES                              37,387             58,327          62,481        13,941          5,866
---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME                         259,643            689,661       1,058,984       290,574        124,186
---------------------------------------------------------------------------------------------------------------------
NET UNREALIZED GAIN (NOTE 3):
   Realized Gain (Loss) From:
       Security transactions                 (556,767)          (429,734)         88,672        53,720         24,934
       Capital gain distributions from
         Underlying Funds                     619,455          1,131,263         970,877       115,525         23,912
---------------------------------------------------------------------------------------------------------------------
   NET REALIZED GAIN                           62,688            701,529       1,059,549       169,245         48,846
---------------------------------------------------------------------------------------------------------------------
   Change in Net Unrealized
     Appreciation (Depreciation)
   of Investments:
       Beginning of period                         --                 --              --            --             --
       End of period                          108,384            175,632        (270,407)      (26,599)        31,510
---------------------------------------------------------------------------------------------------------------------
   INCREASE IN NET UNREALIZED
    APPRECIATION (DEPRECIATION)               108,384            175,632        (270,407)      (26,599)        31,510
---------------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS                       171,072            877,161         789,142       142,646         80,356
---------------------------------------------------------------------------------------------------------------------
 INCREASE IN NET ASSETS FROM OPERATIONS      $430,715      $   1,566,822   $   1,848,126      $433,220      $ 204,542
---------------------------------------------------------------------------------------------------------------------
</TABLE>
 
(a)  FOR THE PERIOD FROM FEBRUARY 5, 1997 (COMMENCEMENT OF OPERATIONS) TO
     JANUARY 31, 1998.
 
                       SEE NOTES TO FINANCIAL STATEMENTS.
                                                                          22
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS     FOR THE PERIOD ENDED JANUARY 31, 1998(a)
 ...............................................................................
 
<TABLE>
<CAPTION>
                                           SELECT       SELECT       SELECT        SELECT         SELECT
                                         HIGH GROWTH    GROWTH      BALANCED    CONSERVATIVE      INCOME
                                          PORTFOLIO    PORTFOLIO    PORTFOLIO     PORTFOLIO      PORTFOLIO
<S>                                      <C>          <C>          <C>          <C>             <C>
-----------------------------------------------------------------------------------------------------------
OPERATIONS:
   Net investment income                 $   259,643  $   689,661  $ 1,058,984   $    290,574   $   124,186
   Net realized gain                          62,688      701,529    1,059,549        169,245        48,846
   Increase in net unrealized
     appreciation (depreciation)             108,384      175,632     (270,407)       (26,599)       31,510
-----------------------------------------------------------------------------------------------------------
   INCREASE IN NET ASSETS FROM
    OPERATIONS                               430,715    1,566,822    1,848,126        433,220       204,542
-----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
   Net investment income                          --           --           --             --            --
   Net realized gain                              --           --           --             --            --
-----------------------------------------------------------------------------------------------------------
   DECREASE IN NET ASSETS FROM
    DISTRIBUTIONS TO SHAREHOLDERS                 --           --           --             --            --
-----------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS:
   Net proceeds from sale of shares       27,068,949   44,701,278   43,860,501     10,936,593     4,630,140
   Cost of shares reacquired                (428,924)    (286,551)    (637,789)      (672,077)     (394,427)
-----------------------------------------------------------------------------------------------------------
   INCREASE IN NET ASSETS FROM
    FUND SHARE TRANSACTIONS               26,640,025   44,414,727   43,222,712     10,264,516     4,235,713
-----------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS                    27,070,740   45,981,549   45,070,838     10,697,736     4,440,255
NET ASSETS:
   Beginning of period                            --           --           --             --            --
-----------------------------------------------------------------------------------------------------------
   END OF PERIOD*                        $27,070,740  $45,981,549  $45,070,838   $ 10,697,736   $ 4,440,255
-----------------------------------------------------------------------------------------------------------
 *INCLUDES UNDISTRIBUTED NET
   INVESTMENT INCOME OF:                    $259,643     $689,661   $1,058,984       $290,574      $124,186
-----------------------------------------------------------------------------------------------------------
</TABLE>
 
(a)  FOR THE PERIOD FROM FEBRUARY 5, 1997 (COMMENCEMENT OF OPERATIONS) TO
     JANUARY 31, 1998.
 
                       SEE NOTES TO FINANCIAL STATEMENTS.
                                                                          23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
 ...............................................................................
 
1. SIGNIFICANT ACCOUNTING POLICIES
 
The Select High Growth, Select Growth, Select Balanced, Select Conservative and
Select Income Portfolios ("Portfolios") are separate investment portfolios of
the Smith Barney Concert Allocation Series Inc. ("Fund"). The Fund, a Maryland
corporation, is registered under the Investment Act of 1940, as amended, as an
open-end management investment company and consists of these portfolios and six
other separate investment portfolios: High Growth, Growth, Balanced,
Conservative, Income and Global Portfolios. The Portfolios invest in other
mutual funds ("Underlying Funds") managed by Mutual Management Corp. ("MMC"),
formerly known as Smith Barney Mutual Funds Management Inc., or another
affiliate of Smith Barney Inc. Shares of the Portfolios are offered to separate
accounts sponsored by certain life insurance companies and qualified pension and
retirement plans. The financial statements and financial highlights for the
other portfolios are presented in a separate annual report.
 
The significant accounting policies consistently followed by the Fund are: (a)
investments in the Underlying Funds are valued at the closing net asset value
per share of each Underlying Fund on the day of valuation; (b) dividend income
and short-term capital gains from Underlying Funds are recorded on the
ex-dividend date as investment income and interest income is recorded on the
accrual basis; (c) gains or losses on the sale of Underlying Funds are
calculated by using the specific identification method; (d) dividends and
distributions to shareholders are recorded on the ex-dividend date; (e) the Fund
intends to comply with the applicable provisions of the Internal Revenue Code of
1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; and (f) estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
 
2. MANAGEMENT AGREEMENT
Travelers Investment Advisor, Inc. ("TIA"), a subsidiary of Salomon Smith Barney
Holdings Inc., acts as the investment manager for the Fund. Each Portfolio pays
TIA a monthly fee calculated at an annual rate of 0.35% on the average daily net
assets. From this fee all expenses of the Fund are deducted, except for
extraordinary expenses. If expenses exceed the 0.35% fee, this amount is paid on
behalf of the Fund by TIA.
 
All officers and one director of the Fund are employees of Smith Barney Inc.
 
3. INVESTMENTS
During the period from commencement of operations to January 31, 1998, the
aggregate cost of purchases and proceeds from sales of investments (including
maturities, but excluding short-term securities) were as follows:
 
<TABLE>
<CAPTION>
PORTFOLIO                                 PURCHASES     SALES
<S>                                      <C>          <C>
-------------------------------------------------------------------
Select High Growth                       $31,871,803  $4,655,597
Select Growth                             53,991,106   8,562,504
Select Balanced                           48,800,359   3,810,428
Select Conservative                       11,970,919   1,427,335
Select Income                              4,900,781     606,539
-------------------------------------------------------------------
</TABLE>
 
At January 31, 1998, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
 
<TABLE>
<CAPTION>
                                                                         NET UNREALIZED
                                                                          APPRECIATION
PORTFOLIO                                APPRECIATION    DEPRECIATION    (DEPRECIATION)
<S>                                      <C>             <C>             <C>
----------------------------------------------------------------------------------------
Select High Growth                            $408,319     $(299,935)       $ 108,384
Select Growth                                  575,440      (399,808)         175,632
Select Balanced                                481,639      (752,046)        (270,407)
Select Conservative                            111,277      (137,876)         (26,599)
Select Income                                   49,668       (18,158)          31,510
----------------------------------------------------------------------------------------
</TABLE>
 
                                                                          24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 ...............................................................................
 
4. REPURCHASE AGREEMENTS
The Portfolios purchase (and their custodian takes possession of ) U.S.
government securities from banks and security dealers subject to agreements to
resell the securities to sellers at a future date (generally, the next business
day) at an agreed-upon higher repurchase price. The Portfolios require continual
maintenance of the market value of the collateral in amounts at lease equal to
the repurchase price.
 
5. CAPITAL SHARES
At January 31, 1998, the Fund had 5.5 billion shares of capital stock authorized
with a par value of $0.001 per share. Transactions in shares for each portfolio
were as follows:
 
<TABLE>
<CAPTION>
                                                 PERIOD ENDED
                                              JANUARY 31, 1998(a)
<S>                                      <C>
----------------------------------------------------------------------
SELECT HIGH GROWTH PORTFOLIO
  Shares sold                                         2,486,848
  Shares redeemed                                       (39,577)
----------------------------------------------------------------------
  NET INCREASE                                        2,447,271
----------------------------------------------------------------------
SELECT GROWTH PORTFOLIO
  Shares sold                                         4,103,840
  Shares redeemed                                       (26,419)
----------------------------------------------------------------------
  NET INCREASE                                        4,077,421
----------------------------------------------------------------------
SELECT BALANCED PORTFOLIO
  Shares sold                                         4,056,352
  Shares redeemed                                       (59,304)
----------------------------------------------------------------------
  NET INCREASE                                        3,997,048
----------------------------------------------------------------------
SELECT CONSERVATIVE PORTFOLIO
  Shares sold                                         1,009,487
  Shares redeemed                                       (62,865)
----------------------------------------------------------------------
  NET INCREASE                                          946,622
----------------------------------------------------------------------
SELECT INCOME PORTFOLIO
  Shares sold                                           429,622
  Shares redeemed                                       (36,478)
----------------------------------------------------------------------
  NET INCREASE                                          393,144
----------------------------------------------------------------------
</TABLE>
 
(a)  FOR THE PERIOD FROM FEBRUARY 5, 1997 (COMMENCEMENT OF OPERATIONS) TO
     JANUARY 31, 1998.
 
                                                                          25
<PAGE>
FINANCIAL HIGHLIGHTS
 ...............................................................................
 
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD:
 
<TABLE>
<CAPTION>
                                    SELECT             SELECT         SELECT        SELECT            SELECT
                                  HIGH GROWTH          GROWTH        BALANCED    CONSERVATIVE         INCOME
                                   PORTFOLIO         PORTFOLIO       PORTFOLIO     PORTFOLIO        PORTFOLIO
                                    (1)(2)             (1)(2)         (1)(2)        (1)(2)            (1)(2)
<S>                             <C>               <C>                <C>         <C>             <C>
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
 PERIOD                              $10.00                 $10.00      $10.00          $10.00        $10.00
-----------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
   Net investment income (3)           0.26                   0.44        0.64            0.78          0.80
   Net realized and unrealized
     gain                              0.80                   0.84        0.64            0.52          0.49
-----------------------------------------------------------------------------------------------------------------
Total Income From Operations           1.06                   1.28        1.28            1.30          1.29
-----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTION FROM:
   Net investment income                 --                     --          --              --            --
-----------------------------------------------------------------------------------------------------------------
Total Distributions                      --                     --          --              --            --
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD       $11.06                 $11.28      $11.28          $11.30        $11.29
-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN++                        10.60%                 12.80%      12.80%          13.00%        12.90%
-----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
 (000'S)                            $27,071            $    45,982    $ 45,071      $   10,698        $4,440
-----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
   Expenses                            0.35%                  0.35%       0.35%           0.35%         0.35%
   Net investment income               2.41                   4.11        5.89            7.24          7.36
-----------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE                  43%                  % 43          19%            %35            11%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
 
(1)  FOR THE PERIOD FROM FEBRUARY 5, 1997 (COMMENCEMENT OF OPERATIONS) TO
     JANUARY 31, 1998.
(2)  PER SHARE AMOUNTS HAVE BEEN CALCULATED USING THE MONTHLY AVERAGE SHARES
     METHOD, RATHER THAN THE UNDISTRIBUTED NET INVESTMENT INCOME METHOD, BECAUSE
     IT MORE ACCURATELY REFLECTS THE PER SHARE DATA FOR THE PERIOD.
(3)  NET INVESTMENT INCOME PER SHARE INCLUDES SHORT-TERM CAPITAL GAIN
     DISTRIBUTIONS FROM UNDERLYING FUNDS.
++   TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE
     TOTAL RETURN FOR THE YEAR.
 +   ANNUALIZED.
 
                                                                          26
<PAGE>
INDEPENDENT AUDITORS' REPORT
 ...............................................................................
 
THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
SMITH BARNEY CONCERT ALLOCATION SERIES INC.:
 
    We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Select High Growth, Select
Growth, Select Balanced, Select Conservative, and Select Income Portfolios
("Portfolios") of the Smith Barney Concert Allocation Series Inc. ("Fund") as of
January 31, 1998, and the related statements of operations, changes in net
assets and financial highlights for the period from February 5, 1997
(commencement of operations) to January 31, 1998. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
 
    We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1998, by correspondence with the custodian. As to securities
purchased but not received, we performed other appropriate auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
    In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial positions of
the aforementioned portfolios of the Smith Barney Concert Allocation Series Inc.
as of January 31, 1998, and the results of their operations, changes in their
net assets and financial highlights for the period from February 5, 1997 to
January 31, 1998, in conformity with generally accepted accounting principles.
 
                                                  KPMG Peat Marwick LLP
 
New York, New York
March 17, 1998
 
                                                                          27
<PAGE>
 
DIRECTORS
Walter E. Auch
Martin Brody
Stephen E. Kaufman
Armon E. Kamesar
Heath B. McLendon,
CHAIRMAN
H. John Ellis
 
OFFICERS
Heath B. McLendon
CHIEF EXECUTIVE OFFICER
 
Lewis E. Daidone
SENIOR VICE PRESIDENT
AND TREASURER
 
Thomas B. Stiles II
VICE PRESIDENT AND
INVESTMENT OFFICER
 
R. Jay Gerken
VICE PRESIDENT AND
INVESTMENT OFFICER
 
Thomas M. Reynolds
CONTROLLER
 
Christina T. Sydor
SECRETARY
 
INVESTMENT MANAGER
Travelers Investment
Adviser, Inc.
 
CUSTODIAN
PNC Bank, N.A.
 
SHAREHOLDER SERVICING
AGENT
First Data Investor
Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
 
SMITH BARNEY CONCERT
ALLOCATION SERIES INC.
388 Greenwich Street
New York, New York 10013
 
                                                                          28
<PAGE>
 
<TABLE>
<S>                                                             <C>
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF
THE OWNER OF THE SMITH BARNEY CONCERT ALLOCATION SERIES INC.:                       [LOGO]
SELECT HIGH GROWTH, SELECT GROWTH, SELECT BALANCED, SELECT
CONSERVATIVE AND SELECT INCOME PORTFOLIOS. IT IS NOT                     Member NASD, SIPC
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS     -C- 1996 Smith Barney Inc.
ACCOMPANIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS FOR THE                    FD01436 3/98
FUND, WHICH CONTAINS INFORMATION CONCERNING THE FUND'S
INVESTMENT POLICIES, FEES AND EXPENSES, AS WELL AS OTHER
PERTINENT INFORMATION.
</TABLE> 

[PHOTO]

[PHOTO]

[PHOTO]


SMITH BARNEY CONCERT
ALLOCATION SERIES INC.


- High Growth Portfolio

- Growth Portfolio

- Balanced Portfolio

- Conservative Portfolio

- Income Portfolio


ANNUAL REPORT
January 31, 1998


Investment Strategies for Your Life


[LOGO] Smith Barnet Mutual Funds
       Investing for your future.
       Every day/SM/.
<PAGE>
 
Table of Contents

Letter to Shareholders.........................................................1

The Concert Allocation Series Portfolios

      The High Growth Portfolio...............................................10

      The Growth Portfolio....................................................15

      The Balanced Portfolio..................................................20

      The Conservative Portfolio..............................................25

      The Income Portfolio....................................................30

Schedules of Investments......................................................35

Statements of Assets and Liabilities..........................................40

Statements of Operations......................................................41

Statements of Changes in Net Assets...........................................42

Notes to Financial Statements.................................................44

Financial Highlights..........................................................49

Independent Auditors' Report..................................................54

Tax Information...............................................................55

Directors and Officers........................................................56
<PAGE>
 
Dear Shareholder:



[PHOTO]

Heath B. McLendon
Chairman
The Concert Allocation Series



[PHOTO]

Thomas B. Stiles II
Vice President and
Investment Officer
The Concert Allocation Series

We are pleased to present the annual report for the Smith Barney Concert
Allocation Series Inc. for the year ended January 31, 1998. The Concert
Allocation Series Inc. ("Portfolios") covered in this report for the most part
delivered competitive returns during the reporting period. In addition, we are
proud to announce the introduction of the new Global Portfolio, the sixth and
most aggressively managed offering in the Concert Allocation Series Inc.
(Commencement of Operations for the Global Portfolio will be March 9, 1998). The
performance and current holdings of each Portfolio are discussed in greater
detail on the following pages.

As of January 31, 1998, total assets in the Portfolios were approximately $1.7
billion and we are currently helping more than a quarter of a million
shareholders pursue their financial goals. Because different markets perform
differently at various times, we believe that the Portfolios continue to be an
extremely effective way to take advantage of the benefits of broad
diversification. By not putting all of their eggs in one basket, investors can
help to lower their risk, weather the ups and downs of the market and better
position themselves for long-term success.

The Performance of the Portfolios*

Class A shares Total Returns for the Year Ended January 31, 1998

                                With Sales Charge**      Without Sales Charge***
                                -------------------      -----------------------
High Growth Portfolio                  2.86%                        8.25%
Growth Portfolio                       6.22                        11.82
Balanced Portfolio                     6.00                        11.59
Conservative Portfolio                 6.68                        11.70
Income Portfolio                       6.45                        11.44

* Performance numbers for the other classes of shares can be found beginning on
page 12.

** These total return figures assume reinvestment of all dividends and reflect
the deduction of the maximum front-end sales charge for each Portfolio's Class A
shares: 5.00% for the High Growth, Growth and Balanced Portfolios and 4.50% for
the Conservative and Income Portfolios.

*** These total return figures do not reflect the deduction of a sales charge
for each Portfolio's Class A shares.

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.


                                                                               1
<PAGE>
 
--------------------------------------------------------------------------------
                       The Benefits of Long-Term Investing

 Growth of $10,000 Invested in the Standard & Poor's 500 Composite Stock Index,
  Salomon Smith Barney World Government Bond Index, Lehman Government/Corporate
         Bond Index and Morgan Stanley Capital International EAFE Index
                      (January 31, 1988 - January 31, 1998)
                                   (unaudited)

                                 [Line Chart]

                   Salomon                   
                    World                   Lehman      
                    Gov't.      MSCI        Gov't/      
        S&P 500      Bond       EAFE        Corp.       
        Index       Index       Index       Bond Index  
                                                        
1/88    10000       10000       10000       10000       
1/89    12004       10647       12855       10540       
1/90    13736       11289       13476       11719       
1/91    14886       12343       11099       13011       
1/92    18258       13721       11171       14719       
1/93    20186       15083       10061       16424       
1/94    22779       16703       14506       18115       
1/95    22898       16291       13898       17552       
1/96    31741       19151       16189       20662       
1/97    40098       20798       16548       21156       
1/98    50886       23564       18277       23520        

--------------------------------------------------------------------------------
The Standard & Poor's 500 Composite Stock Index ("S&P 500") is a
capitalization-weighted index of 500 widely held common stocks. The Salomon
Smith Barney World Government Bond Index is a market-capitalization-weighted
benchmark that tracks the performance of the government bond markets of 14
countries. The Lehman Government/Corporate Bond Index is a combination of
publicly issued intermediate- and long-term U.S. government bonds and corporate
bonds. The Morgan Stanley Capital International EAFE Index ("MSCI EAFE")
consists of the equity total returns for Europe, Australia and the Far East.
These indices are unmanaged and are not subject to the same management and
trading expenses as a mutual fund.

Nirvana's Origins Hardly Seem Asian...

In our last letter to you six months ago, we wrote of "an economy that has been
described as somewhere between perfection and nirvana." Growth was strong,
inflation low and all markets were headed upward.

It's interesting to note that "nirvana" is a word with Sanskrit roots, and
Sanskrit is an ancient language of India. But despite its roots on the
subcontinent, and the subcontinent's geographical location in Asia, we maintain
that nirvana is not an Asian word. No, we are not talking linguistics -- we are
talking economics. The interruption of our economic nirvana emanated from Asia.
It was turmoil in the nations of Southeast Asia, particularly Thailand,
Indonesia and Korea that interrupted our perfect prospects. Although the
economic reverberations are still unfolding, market impacts were immediate:
bonds rallied, while stocks lagged.

Nirvana, Please Meet Pollyanna and Cassandra

All of the reported economic numbers for the U.S. still look outstanding.
Inflation for calendar year 1997 was only at a 1.7% annual rate as measured by
the Consumer Price Index ("CPI"). (The CPI measures prices that consumers must
pay for goods and services.) Meanwhile, real economic growth was 3.8%. We have
continued to enjoy a nirvana-like economy, but forecasters are split as to
whether past will be prologue. Most agree that the Asian "contagion" will slow


                                                                               2
<PAGE>
 
growth worldwide, the question is to what degree. The Pollyannas argue such a
slowdown will prolong the low inflation for the U.S. economy, while the
Cassandras believe that Asian economies will collapse and damage U.S. corporate
profitability.

Domestic markets have, until recently, behaved as if the Cassandras were right.
During the second half of 1997, stock markets were flat while bond prices rose
as a result of declining interest rates. This divergence, bonds rising while
stocks mark time, has not been typical market behavior over the last several
years. The more usual pattern has been bond and stock markets moving in tandem:
if bonds move up, then stocks follow. But the divergence in the latter part of
1997 was likely an indication that many investors feared an Asian-induced
economic slowdown.

Bonds reacted positively to this potential economic slowing. A slowing economy
would mean lower inflation, allowing interest rates to ease further. A
slower-than-expected economy is an unmitigated blessing for a bond investor.

For a stock investor, however, the picture is mixed. The lower inflation that
often accompanies a slowing economy is a positive for stock valuations.
Investors will pay more for a given stream of earnings or dividends when
inflation is low, boosting stock prices. Offsetting this boost, however, are
fears about what that stream of earnings will actually be. A slowing economy
also puts corporate profitability at risk. Over the last months of 1997, these
two conflicting forces -- higher valuations, but on a less certain earnings base
-- offset each other, leading to flat stock market performance.

As we write this letter, however, Pollyanna has reappeared and markets are
shifting once again. Stocks perked up in the beginning of 1998, as earnings
reports appeared more robust than analysts had thought likely. Domestic
companies have managed their Asian exposures in such a way that the earnings
impact has been far less than most investors originally thought. But then again,
it would not be surprising to see the cycle repeat, as Asian economic
difficulties or fears of an Iraqi military conflict re-emerge.

And the Winner Is...

Looking ahead is never easy. It is always much easier to say with precision what
has happened in the past than to even approximate what the future holds. But the
task today seems particularly daunting. There are the Asian and Mideast problems
referred to above, as well as markets that cannot decide whether it is Pollyanna
or Cassandra that has the better advice.

Nonetheless, it seems to us that inflation still looks terrific, that is, there
is none to be found! We are now in the seventh year of an economic recovery and
inflation is still extremely low. As noted previously, the CPI shows inflation
at just 1.7%. Wholesale prices are actually down, as the Producer Price Index
measured -0.7% for 1997. This past summer there were some fears that domestic
employment growth would trigger inflation pressures. But this fear dissipated
with the Asian economic turmoil. It seems clear that the Asian slowdown, if
nothing else, has dampened worldwide growth and demand. Commodity prices provide
striking evidence, for they all are pointed in one direction -- down. It's hard
to imagine how prices can re-accelerate over the next six to twelve months, so
inflation should remain low, and provide support to bond prices and stock
valuations.

The economic growth picture is more mixed. We believe that the economic turmoil
in Asia may indeed slow growth more dramatically for domestic companies than
recent earnings reports, or stock market increases, may suggest. The
used-to-be-called "tiger" economies of Southeast Asia were the world's
fastest-growing countries over the past few years.


                                                                               3
<PAGE>
 
Many Southeast Asian economies had growth rates three times faster than the
developed countries. It seems to us that the deceleration, or even cessation of
growth in the ex-tigers will have more meaningful effects than we have seen so
far. Companies may not be able to continue to manage their profitability as
successfully as they have over the last few months. Does this mean that we
believe the stock market is headed for a big decline? No. But it does mean that
stock prices will probably be more volatile as the market sorts through the
various earnings impacts of a possible worldwide slowdown. Ultimately, while we
think that while Pollyanna will prevail, we also believe Cassandra is due for a
few more appearances.

International Stock Markets

International markets experienced diametrically opposite performances in the
first and second halves of the year ended January 1998. International markets
achieved solid first half returns on the coattails of the ebullient U.S. capital
markets. The second half was marked by repeated crises as the Southeast Asian
currency collapse radiated outward, engulfing not only some of the strongest
regional economies such as Taiwan and Singapore, but also ultimately crushing
the Korean economy and its currency. And the effects on Japan, the largest Asian
stock market and economy and a major regional lender, were an added negative to
an already deteriorating local Japanese outlook.

As noted, the Asian currency and economic collapse have far-reaching and as yet
not fully understood implications for global capital markets. Rescue efforts
have centered on stability and stemming further precipitous declines in
currencies as well as consumer and business confidence. The strength of the U.S.
dollar and bond market at the end of 1997, to some degree, reflected growing
investor preference for liquidity, stability and strength during a period of
global economic uncertainty.

European and U.S. companies will not escape untouched as exports to Asia decline
and Asian produced goods become even more competitive in domestic markets.
Nevertheless, we remain very positive overall on European investments for
several reasons, including:

o     The push for the European Monetary Union ("EMU") has created favorable
      macroeconomic conditions the likes of which have not been seen for two
      decades. Interest rates and inflation are subdued and likely to remain so
      and should heighten demand for stocks from both individuals and
      institutions.

o     Corporations in Europe are restructuring, boosting investor returns and,
      for the first time, aligning management interests with external
      shareholder interests through stock incentives.

o     The recovery of the U.S. currency against its major trading partners of
      the past 30 months has improved export competitiveness for major European
      and Asian exporters and led to an upturn in the consolidated European
      economy.

o     Many industries, such as financial services and pharmaceuticals, have
      improved their economies of scale and eliminated inefficient local and
      regional goods and service providers. At the same time, innovative
      mid-sized companies are finding access to capital and finding an open door
      to technologies and processes that lower costs for businesses and
      consumers.


                                                                               4
<PAGE>
 
Global Bond Markets

Moderate U.S. economic growth, combined with historically low inflation and the
ongoing financial and economic turmoil in Southeast Asia, should provide more
than enough ammunition for U.S. interest rates to fall lower. With respect to
the high-yield bond market in the U.S., we believe the uncertainties that exists
in the world's stock markets will tend to favor the higher-quality high yield
bonds over the lower-quality bonds, which are usually more vulnerable in the
event of a market downturn. In the global government bond arena, the onset of
the EMU should continue to exert a positive influence on European bond markets.
The integration of Europe's key economies should help keep interest rates low
and encourage greater fiscal restraint from the member governments.

As the Concert Allocation Series Inc. celebrates its second anniversary, we
would like to thank you for your support. We look forward to continuing to help
you pursue your financial goals in the years to come.

Sincerely,


/s/ Heath B. McLendon                       /s/ Thomas B. Stiles II

Heath B. McLendon                           Thomas B. Stiles II
Chairman                                    Vice President and
                                            Investment Officer

February 26, 1998


                                                                               5
<PAGE>
 
Announcing important changes. . .

--------------------------------------------------------------------------------
         A Few Words About Recent Changes to the Mix of Underlying Funds
--------------------------------------------------------------------------------

Since the Smith Barney Concert Allocation Series Inc. was introduced in February
of 1996, one of our goals in developing the Portfolios was to minimize risk for
investors through diversification by participating in a wide range of asset
classes. Yet the asset mix within the five Portfolios is strategic, not
tactical, and designed for a long-term investment horizon.

Some changes have been made recently with respect to the underlying funds that
make up the Portfolios. The reason? We wanted to take advantage of other Smith
Barney Mutual Funds such as the Smith Barney Large Capitalization Growth Fund,
the Smith Barney Small Cap Blend Fund, Inc. (formerly known as the Disciplined
Small Cap Fund, Inc.) and the Concert Peachtree Growth Fund (formerly known as
the Smith Barney Growth Opportunity Fund). For additional information about the
actual breakdown of the underlying funds within each Portfolio as of January 31,
1998, please refer to the pie charts showing the underlying funds that appear
after each "Portfolio Update" section.

Funds where the portfolio manager makes the asset allocation decisions and may
typically hold meaningful cash positions for defensive purposes, such as the
Fundamental Value Fund and Appreciation Fund, have been replaced in the Concert
Allocation High Growth and Growth Portfolios by the funds listed on page seven.
Yet, the Fundamental Value Fund and Appreciation Fund are being utilized more in
the Balanced, Conservative and Income Portfolios.

While some of these new underlying Smith Barney Mutual Funds may be fully
invested and utilize different investment management philosophies than were
available in the past, we believe these Smith Barney Mutual Funds fit well into
the existing Concert Allocation Series framework. We are very excited about the
contribution that these Smith Barney Mutual Funds will play in the Concert
Allocation Series Portfolios going forward. Our commitment to providing our
shareholders with a simple and less administratively burdensome program of broad
diversification and competitive performance remains stronger than ever before.


                                                                               6
<PAGE>
 
--------------------------------------------------------------------------------
           New Underlying Funds in the Concert Allocation Series Inc.
--------------------------------------------------------------------------------

Smith Barney Large Capitalization Growth Fund seeks long-term growth of capital
by investing in equity securities of companies with large market capitalization.

Portfolio Manager

Alan Blake currently manages over $5.5 billion in private client and
institutional assets. Mr. Blake had developed his large-cap growth style of
investing through his 20 years in the industry, 15 years as a money manager. He
joined Smith Barney in 1991.

--------------------------------------------------------------------------------

Smith Barney Small Cap Blend Fund, Inc. seeks long-term capital appreciation by
investing primarily in common stock of companies with relatively small market
capitalization.

Portfolio Manager

Sandip A. Bhagat, CFA is the senior portfolio manager for the Smith Barney Small
Cap Blend Fund, Inc. He has extensive portfolio management experience in
quantitative investment management involving stocks, asset allocation,
currencies and derivatives. Mr. Bhagat received his B.S. in Chemical Engineering
from the University of Bombay in 1981 and a M.S. in Chemical Engineering from
the University of Connecticut in 1984. He later received a M.B.A. from the
University of Connecticut in 1985.

--------------------------------------------------------------------------------

Concert Peachtree Growth Fund seeks capital appreciation through investments in
securities believed to have above-average potential for capital appreciation.

Portfolio Manager

Dennis A. Johnson, CFA is President and CIO of Peachtree Asset Manage-ment, a
division of Mutual Management Corp., formerly known as Smith Barney Mutual Funds
Management Inc. Prior to joining the firm, he was Vice President and portfolio
manager of Trusco Capital, and Assistant Director of Research at Capitoline
Investment Services, Inc. and a Treasury Analyst at Blue Cross and Blue Shield
of Virginia. Mr. Johnson has a B.S. degree in Economics from Virginia Military
Institute and a M.S. degree in Finance from Virginia Commonwealth University.


                                                                               7
<PAGE>
 
THE GLOBAL PORTFOLIO

--------------------------------------------------------------------------------
Introducing the New Global Portfolio
--------------------------------------------------------------------------------

Today's global stock markets can offer investors unprecedented opportunities for
long-term growth. However, the knowledge, experience and hard work required for
successful global investing can be challenging even for seasoned investors.
That's why we are pleased to announce the introduction of the sixth Portfolio of
the Concert Allocation Series Inc. -- The Global Portfolio.

Launched on March 9, 1998, the Global Portfolio seeks capital appreciation by
investing 100% of its assets in global, international and U.S. stock funds
managed by Smith Barney. The Portfolio is the most aggressively managed one of
the Concert Allocation Series and has been designed for investors who are
willing to tolerate short-term market fluctuations for potential long-term
gains. In addition, please note that investing in international markets involves
certain risks including but not limited to illiquid markets and political and
economic instability. Before investing overseas, you should understand the risks
as well as the opportunities and be prepared for substantial market volatility,
especially when investing in emerging markets.

--------------------------------------------------------------------------------
Portfolio's Target Allocation
--------------------------------------------------------------------------------

   [The following table was depicted as a pie chart in the printed material.]

                       100% Stock Funds

The Global Portfolio seeks capital appreciation by investing 100% of its assets
in international and U.S. stock funds.

--------------------------------------------------------------------------------
The Global Portfolio at a Glance
--------------------------------------------------------------------------------

Investment Objective

The Global Portfolio seeks capital appreciation.

Key Smith Barney Funds in the Global Portfolio Include:

Smith Barney World Funds, Inc. -- International Equity Portfolio seeks total
return from growth of capital and income by investing in a diversified portfolio
of equity securities of established non-U.S. companies.

Portfolio Manager

Jeffrey J. Russell is a Managing Director of Smith Barney and portfolio manager
of the Smith Barney International Equity Portfolio. Prior to joining the firm in
1990, he worked for Drexel Burnham Lambert. Mr. Russell holds an undergraduate
degree from Massachusetts Institute of Technology and a M.B.A. from the
University of Pennsylvania's Wharton School of Finance.


                                                                               8
<PAGE>
 
Smith Barney Hansberger Global Value Fund seeks long-term capital growth by
investing in the stocks of U.S. and foreign companies that are believed to be
undervalued by the fund's management team.

Smith Barney Hansberger Global Small Cap Value Fund seeks long-term capital
growth by investing in the stocks of U.S. and foreign companies with relatively
small market capitalizations that are believed to be undervalued by the fund's
management team.

Portfolio Management Team

Thomas Hansberger, CFA, CIC, is Chairman and Chief Executive Officer of
Hansberger Global Investors ("HGI"). Before forming HGI, he served as Chairman,
President and Chief Executive Officer of Templeton Worldwide, Inc.

James E. Chaney is Chief Investment Officer of HGI. Prior to joining the firm,
he was Executive Vice President for the Templeton organization and a senior
member of its Portfolio Management/Strategy Committee.

Lauretta (Retz) Reeves, CFA, serves as Senior Portfolio Manager and Director of
Research at HGI. Prior to joining the firm, she was Senior Vice President at
Templeton in its research and portfolio management area.

--------------------------------------------------------------------------------

Smith Barney Small Cap Blend Fund, Inc. (Please refer to page seven for Fund
objective and portfolio manager biography.)

--------------------------------------------------------------------------------

Smith Barney Large Capitalization Growth Fund (Please refer to page seven for
Fund objective and portfolio manager biography.)

--------------------------------------------------------------------------------

The Target Asset Allocation set forth on pages eight and nine represents an
approximate mix of investments for the Global Portfolio. The allocation and
investment mix of the Portfolio may vary depending upon market conditions, cash
flows in and out of the Portfolio and other factors. In addition, the allocation
and investment ranges of the Portfolio may be changed from time to time upon the
approval of the Concert Allocation Series Inc.'s Board of Directors.


                                                                               9
<PAGE>
 
THE HIGH GROWTH PORTFOLIO

--------------------------------------------------------------------------------
                             Target Asset Allocation
--------------------------------------------------------------------------------

                   [The following information was represented
                    as a pie chart in the printed material.]

                                 10% Bond Funds
                                 90% Stock Funds

The High Growth Portfolio seeks capital appreciation by investing a high
percentage of its assets in aggressive equity funds.

--------------------------------------------------------------------------------

The High Growth Portfolio

The High Growth Portfolio seeks capital appreciation. Among the Portfolios of
the Concert Allocation Series Inc., the High Growth Portfolio invests a large
percentage of its assets in aggressive equity mutual funds. This includes mutual
funds that focus on smaller, more speculative companies as well as mid-sized (or
larger) companies with the potential for rapid growth. Moreover, a significant
portion of the Portfolio is invested in international or emerging markets funds
in order to achieve a greater level of diversification.

--------------------------------------------------------------------------------
                                Portfolio Update
--------------------------------------------------------------------------------

1997 turned out to be another stellar year for the U.S. stock market. For the
first time ever, the U.S. stock market posted three consecutive years of gains
in excess of 20%. Stable economic growth, robust corporate earnings growth and
subdued inflation helped fuel the U.S. stock market's climb. So far in 1998, the
bull market in U.S. stocks has continued. Moreover, large-capitalization,
blue-chip domestic stocks that dominate the popular market averages did better
than most other types of stocks.

Yet behind the good news, stock market volatility also increased markedly during
the past twelve months. The currency and economic crisis in Southeast Asia that
started in the summer negatively affected the U.S. stock market. In the third
quarter of 1997, the Dow Jones Industrial Average registered its second-largest
point decline and its single largest daily gain within a three week period in
the middle of the third quarter. (The Dow Jones Industrial Average, or DJIA, is
a price-weighted average of 30 actively traded blue chip stocks of primarily
industrial companies.)

International markets experienced diametrically opposite performances in the
first and second halves of the year ended January 31, 1998. International
markets achieved solid first half returns on the coattails of the ebullient U.S.
capital markets. The second half was marked by repeated crises as the Southeast
Asian currency collapse radiated outward, engulfing not only some of the
strongest regional economies such as Taiwan and Singapore, but also ultimately
crushing the Korean economy and its currency. And the effects on Japan, the
largest Asian stock market, economy and a major regional lender, were an added
negative to an already deteriorating local Japanese outlook.

Because the ultimate impact of the Asian crisis on U.S. exports and corporate
earnings is still unknown, the rest of 1998 promises to be a year of greater
uncertainty and higher market volatility. As noted in this report's letter to
shareholders, we believe that the problems of Asia may slow growth more
dramatically than recent earnings reports, or stock market increases, may
suggest. The profit growth of many companies has been cast into doubt. With
current valuations in the stock market at fairly high levels, investors may be
intolerant of any earnings disappointment.

The High Growth Portfolio's Class A shares generated a total return of 8.25% for
the year ended January 31, 1998, before the effect of any sales charges is
deducted. The chart that appears on page 14 compares the Portfolio's performance
to broad-based indices that track four of the asset classes represented in the
Portfolio. Historically, the leading asset class and the lagging asset class
change from year to year. Each Concert Allocation Series Portfolio is a
long-term investment that has been designed to reduce overall market volatility
and will usually achieve a rate of return roughly in the middle of the asset
classes in which it invests.

--------------------------------------------------------------------------------

The Target Asset Allocation set forth above represents an approximate mix of
investments for the High Growth Portfolio. The allocation and investment mix of
the Portfolio may vary depending upon market conditions, cash flows in and out
of the Portfolio and other factors. In addition, the allocation and investment
ranges of the Portfolio may be changed from time to time upon the approval of
the Concert Allocation Series Inc.'s Board of Directors.


                                                                              10
<PAGE>
 
The Concert Allocation Series High Growth Portfolio Breakdown (as of 1/31/98)

                   [The following information was represented
                    as a pie chart in the printed material.]

                   -----------------------------------------
                                10% Smith Barney
                           Aggressive Growth Fund Inc.
                   -----------------------------------------
                      Top 5 Holdings:                          
                       Intel Corp.                             
                       Tyco International Ltd.                 
                       Quantum Corp. Delaware                  
                       CBS Corp.                               
                       Forest Laboratories Inc., Class A Shares
                   -----------------------------------------

                   -----------------------------------------
                                10% Smith Barney
                             Investment Funds Inc. -
                       Smith Barney Special Equities Fund
                   -----------------------------------------
                     Top 5 Holdings:               
                      Starbucks Corp.              
                      WinStar Communications, Inc. 
                      Safeskin Corp.               
                      Chancellor Media Corp.       
                      Univision Communications Inc.
                   -----------------------------------------

                   -----------------------------------------
                       20% Smith Barney World Funds, Inc.
                         International Equity Portfolio
                   -----------------------------------------
                     Top 5 Holdings:                 
                      Telefonaktiebolaget LM Ericsson
                      Novartis AG                    
                      Misys PLC                      
                      Nokia Oyj                      
                      Bank of Ireland                
                   -----------------------------------------

                   -----------------------------------------
                          5% Smith Barney Funds, Inc.-
                              Large Cap Value Fund
                   -----------------------------------------
                     Top 5 Holdings:              
                      Bristol-Myers Squibb Co.    
                      American Home Products Corp.
                      Sprint Corp.                
                      Xerox Corp.                 
                      Unilever NV                 
                   -----------------------------------------

                   -----------------------------------------
                        10% Smith Barney Investment Funds
                       Inc.- Concert Peachtree Growth Fund
                   -----------------------------------------
                     Top 5 Holdings:         
                      Tyco International Ltd.
                      Crane Co.              
                      Conseco Inc.           
                      Compaq Computer Corp.  
                      General Electric Co.   
                   -----------------------------------------

                   -----------------------------------------
                       10% Smith Barney Investment Trust-
                        Smith Barney Large Capitalization
                                   Growth Fund
                   -----------------------------------------
                     Top 5 Holdings:        
                      The Walt Disney Co.   
                      The Coca-Cola Co.     
                      Wells Fargo & Co.     
                      Intel Corp.           
                      Texas Instruments Inc.
                   -----------------------------------------

                   -----------------------------------------
                          5% Smith Barney Equity Funds-
                        Smith Barney Growth & Income Fund
                   -----------------------------------------
                     Top 5 Holdings:       
                      Hewlett-Packard Co.  
                      Eli Lilly & Co.      
                      The Walt Disney Co.  
                      Mercury General Corp.
                      General Electric Co. 
                   -----------------------------------------

                   -----------------------------------------
                                15% Smith Barney
                           Small Cap Blend Fund, Inc.
                   -----------------------------------------
                     Top 5 Holdings:                     
                      Arterial Vascular Engineering, Inc.
                      Century Telephone Enterprises, Inc.
                      Rio Hotel & Casino, Inc.           
                      HSN Inc.                           
                      Watson Pharmaceuticals, Inc.       
                   -----------------------------------------

                   -----------------------------------------
                         10% Smith Barney Income Funds-
                          Smith Barney High Income Fund
                   -----------------------------------------
                     Top 5 Holdings:           
                      Time Warner Inc.         
                      Unisys Corp.             
                      HMH Properties, Inc.     
                      Cablevision Systems Corp.
                      First Nationwide Bank    
                   -----------------------------------------

                   -----------------------------------------
                     5% Smith Barney Investment Funds Inc.-
                        Smith Barney Managed Growth Fund
                   -----------------------------------------
                     Top 5 Holdings:                          
                      Forest Laboratories Inc., Class A Shares
                      Amgen. Inc.                             
                      Tupperware Corp.                        
                      United Healthcare Corp.                 
                      Wellpoint Health Networks Inc.          
                   -----------------------------------------


                                                                              11
<PAGE>
 
THE HIGH GROWTH PORTFOLIO

<TABLE>
<CAPTION>
Historical Performance--Class A Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.41          $12.97       $0.13       $0.33        8.25%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.40           12.41        0.20        0.04       11.04+
=====================================================================================
Total                                                 $0.33       $0.37
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class B Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.41          $12.95       $0.05       $0.33        7.44%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.40           12.41        0.07        0.04        9.91+
=====================================================================================
Total                                                 $0.12       $0.37
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class C Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.42          $12.96       $0.05       $0.33         7.44%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.40           12.42        0.07        0.04        10.00+
=====================================================================================
Total                                                 $0.12       $0.37
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class Z Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.41          $12.97       $0.17       $0.33        8.58%
-------------------------------------------------------------------------------------
Inception*-1/31/97        12.24           12.41        0.00        0.00        1.39+
=====================================================================================
Total                                                 $0.17       $0.33
=====================================================================================
</TABLE>

It is the Fund's policy to distribute dividends and capital gains, if any,
annually.


                                                                              12
<PAGE>
 
Average Annual Total Return
--------------------------------------------------------------------------------
                                                     Without Sales Charge(1)    
                                              ----------------------------------
                                              Class A  Class B  Class C  Class Z
================================================================================
Year Ended 1/31/98                             8.25%    7.44%    7.44%    8.58% 
--------------------------------------------------------------------------------
Inception*-1/31/98                             9.71     8.73     8.77     9.69  
================================================================================

                                                      With Sales Charge(2)    
                                              ----------------------------------
                                              Class A  Class B  Class C  Class Z
================================================================================
Year Ended 1/31/98                             2.86%    2.44%    6.44%    8.58%
--------------------------------------------------------------------------------
Inception*-1/31/98                             6.91     6.86     8.77     9.69
================================================================================

Cumulative Total Return
--------------------------------------------------------------------------------
                                                     Without Sales Charge(1)    
================================================================================
Class A (Inception* through 1/31/98)                         20.20%
--------------------------------------------------------------------------------
Class B (Inception* through 1/31/98)                         18.09
--------------------------------------------------------------------------------
Class C (Inception* through 1/31/98)                         18.18
--------------------------------------------------------------------------------
Class Z (Inception* through 1/31/98)                         10.08
================================================================================
(1)   Assumes reinvestment of all dividends and capital gain distributions, if
      any, at net asset value and does not reflect the deduction of the
      applicable sales charges with respect to Class A shares or the applicable
      contingent deferred sales charges ("CDSC") with respect to Class B and C
      shares.
(2)   Assumes reinvestment of all dividends and capital gain distributions, if
      any, at net asset value. In addition, Class A shares reflect the deduction
      of the maximum initial sales charge of 5.00%; and Class B shares reflect
      the deduction of a 5.00% CDSC, which applies if shares are redeemed within
      one year from initial purchase and declines thereafter by 1.00% per year
      until no CDSC is incurred. Class C shares reflect the deduction of a 1.00%
      CDSC, which applies if shares are redeemed within the first year of
      purchase.
+     Total return is not annualized, as it may not be representative of the
      total return for the year.
*     Inception date for Class A, B and C shares is February 5, 1996 and for
      Class Z shares is January 17, 1997.


                                                                              13
<PAGE>
 
Growth of $10,000 Invested in Class A, B and C Shares of the High Growth
Portfolio vs. the Standard & Poor's 500 Composite Stock Index, Russell 2000
Index, Morgan Stanley Capital International EAFE Index and Salomon Smith Barney
High Yield Market Index
--------------------------------------------------------------------------------
February 5, 1996 -- January 31, 1998 (unaudited)

                                 [Line chart]

<TABLE>
<CAPTION>
                                                                 Standard &                                 Salomon
                High Growth     High Growth     High Growth      Poor's 500                                Brothers
                Portfolio -     Portfolio -     Portfolio -      Composite       Russell     MSCI EAFE    High Yield
                  Class A         Class B         Class C       Stock Index     2000 Index     Index     Market Index
<S>            <C>             <C>             <C>             <C>             <C>           <C>         <C>
2/5/96                 9500           10000           10000           10000         10000       10000          10000
4/96                  10042           10026           10426           10340         11085       10552          10009
7/96                   9142            9083            9466           10175         10084       10119          10208
10/96                  9791            9719           10128           11277         10916       10311          10676
1/97                  10549           10491           10900           12630         11897       10220          11049
4/97                   9996            9998           10398           12935         11092       10480          11201
7/97                  11671           11716           12125           15476         13452       11968          11886
10/97                 11339           11353           11753           14894         14119       10796          12221
1/31/98               11419           11409           11818           16652         13384       12495          12345
</TABLE>

The chart above represents a hypothetical illustration of $10,000 invested in
Class A, B and C shares on February 5, 1996 (inception date), assuming deduction
of the maximum 5.00% sales charge at the time of investment for Class A shares,
the deduction of the maximum 5.00% CDSC for Class B shares and the deduction of
the 1.00% CDSC for Class C shares. It also assumes reinvestment of dividends and
capital gains, if any, at net asset value through January 31, 1998. The Standard
& Poor's 500 Composite Stock Index is an unmanaged index composed of 500 widely
held common stocks listed on the New York Stock Exchange, American Stock
Exchange and the over-the-counter market. The Russell 2000 Index is a
capitalization weighted total return index which is comprised of 2,000 of some
of the smaller-capitalized U.S.-domiciled companies whose common stock is traded
in the United States on the New York Stock Exchange, American Stock Exchange and
Nasdaq. The Morgan Stanley Capital International EAFE Index ("MSCI EAFE")
consists of the equity total returns for Europe, Australia and the Far East. The
Salomon Smith Barney High Yield Market Index covers a significant portion of the
below-investment-grade U.S. corporate bond market. These indices are unmanaged
and are not subject to the same management and trading expenses as a mutual
fund. The performance of the Portfolio's other classes may be greater or less
than the shares' performance indicated on this chart, depending on whether
greater or lesser sales charges and fees were incurred by shareholders investing
in the other classes.

All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
values may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.


                                                                              14
<PAGE>
 
THE GROWTH PORTFOLIO

--------------------------------------------------------------------------------
                             Target Asset Allocation
--------------------------------------------------------------------------------

                   [The following information was represented
                    as a pie chart in the printed material.]

                                 30% Bond Funds
                                 70% Stock Funds

The Growth Portfolio seeks long-term growth of capital by investing primarily in
funds containing the issues of more established companies.

--------------------------------------------------------------------------------

The Growth Portfolio

The Growth Portfolio seeks long-term growth of capital. Among the Portfolios of
the Concert Allocation Series Inc., the Growth Portfolio invests a large
percentage of its assets in large-capitalization stock mutual funds, to provide
growth. The Portfolio's equity allocation also includes funds that invest in
small- and mid-cap stocks and international securities. In addition, a
significant portion of the Portfolio is also allocated to bonds, to help reduce
volatility.

--------------------------------------------------------------------------------
                                Portfolio Update
--------------------------------------------------------------------------------

1997 turned out to be another stellar year for the U.S. stock market. For the
first time ever, the U.S. stock market posted three consecutive years of gains
in excess of 20%. Stable economic growth, robust corporate earnings growth and
subdued inflation helped fuel the U.S. stock market's climb. So far in 1998, the
bull market in U.S. stocks has continued. Moreover, large-capitalization,
blue-chip domestic stocks that dominate the popular market averages did better
than most other types of stocks.

Yet behind the good news, stock market volatility also increased markedly the
past twelve months. The currency and economic crisis in Southeast Asia that
started in the summer negatively affected the U.S. stock market. In the third
quarter of 1997, the Dow Jones Industrial Average registered its second-largest
point decline and its single largest daily gain within a three week period in
the middle of the third quarter. (The Dow Jones Industrial Average, or DJIA, is
a price-weighted average of 30 actively traded blue chip stocks of primarily
industrial companies.)

International markets experienced diametrically opposite performances in the
first and second halves of the year ended January 31, 1998. International
markets achieved solid first half returns on the coattails of the ebullient U.S.
capital markets. The second half was marked by repeated crises as the Southeast
Asian currency collapse radiated outward, engulfing not only some of the
strongest regional economies such as Taiwan and Singapore, but also ultimately
crushing the Korean economy and its currency. And the effects on Japan, the
largest Asian stock market, economy and a major regional lender, were an added
negative to an already deteriorating local Japanese outlook.

Because the ultimate impact of the Asian crisis on U.S. exports and corporate
earnings is still unknown, the rest of 1998 promises to be a year of greater
uncertainty and higher market volatility. As noted in this report's letter to
shareholders, we believe that the problems of Asia may slow growth more
dramatically than recent earnings reports, or stock market increases, may
suggest. The profit growth of many companies has been cast into doubt. With
current valuations in the stock market at fairly high levels, investors may be
intolerant of any earnings disappointment.

During the second half of 1997, bond prices rose because of declining interest
rates and the potential economic slowdown from the problems in Southeast Asia.
For the year ended January 31, 1998, the Lehman Brothers Aggregate Bond Index
returned 11.17%. (The Lehman Brothers Aggregate Bond Index is composed of the
Government/Corporate Bond Index, the Asset-Backed Securities Index and includes
U.S. Treasury issues, agency issues, corporate bond issues and mortgage-backed
issues.)

The Portfolio's Class A shares generated a total return of 11.82% for the year
ended January 31, 1998, before the effect of any sales charges is deducted. The
chart that appears on page 19 compares the Portfolio's performance to
broad-based indices that track four of the asset classes represented in the
Portfolio. Historically, the leading asset class and the lagging asset class
change from year to year. Each Concert Allocation Series Portfolio is a
long-term investment that has been designed to reduce overall market volatility
and will usually achieve a rate of return roughly in the middle of the asset
classes in which it invests.

--------------------------------------------------------------------------------

The Target Asset Allocation set forth above represents an approximate mix of
investments for the Growth Portfolio. The allocation and investment mix of the
Portfolio may vary depending upon market conditions, cash flows in and out of
the Portfolio and other factors. In addition, the allocation and investment
ranges of the Portfolio may be changed from time to time upon the approval of
the Concert Allocation Series Inc.'s Board of Directors.


                                                                              15
<PAGE>
 
The Concert Allocation Series Growth Portfolio Breakdown (as of 1/31/98)

                     --------------------------------------
                        10% Smith Barney Investment Funds
                       Inc.-Concert Peachtree Growth Fund
                     --------------------------------------
                       Top 5 Holdings:
                        Tyco International Ltd.
                        Crane Co.
                        Conseco Inc.
                        Compaq Computer Corp.
                        General Electric Co.
                     --------------------------------------

                     --------------------------------------
                          10% Smith Barney Funds, Inc.-
                              Large Cap Value Fund
                     --------------------------------------
                       Top 5 Holdings:
                        Bristol-Myers Squibb Co.
                        American Home Products Corp.
                        Sprint Corp.                
                        Xerox Corp.                 
                        Unilever NV                 
                     --------------------------------------

                     --------------------------------------
                     5% Smith Barney Investment Funds Inc.-
                        Smith Barney Managed Growth Fund
                     --------------------------------------
                       Top 5 Holdings:
                        Forest Laboratories Inc., Class A Shares
                        Amgen. Inc.
                        Tupperware Corp.
                        United Healthcare Corp.
                        Wellpoint Health Networks Inc.
                     --------------------------------------

                     --------------------------------------
                          10% Smith Barney World Funds,
                      Inc.- International Equity Portfolio
                     --------------------------------------
                       Top 5 Holdings:                 
                        Telefonaktiebolaget LM Ericsson
                        Novartis AG                    
                        Misys PLC                      
                        Nokia Oyj                      
                        Bank of Ireland                
                     --------------------------------------

                     --------------------------------------
                                10% Smith Barney
                           Aggressive Growth Fund Inc.
                     --------------------------------------
                       Top 5 Holdings:                          
                        Intel Corp.                             
                        Tyco International Ltd.                 
                        Quantum Corp. Delaware                  
                        CBS Corp.                               
                        Forest Laboratories Inc., Class A Shares
                     --------------------------------------

                     --------------------------------------
                     5% Smith Barney Investment Funds Inc.-
                       Smith Barney Special Equities Fund
                     --------------------------------------
                       Top 5 Holdings:               
                        Starbucks Corp.              
                        WinStar Communications, Inc. 
                        Safeskin Corp.               
                        Chancellor Media Corp.       
                        Univision Communications Inc.
                     --------------------------------------

                     --------------------------------------
                         10% Smith Barney Equity Funds-
                        Smith Barney Growth & Income Fund
                     --------------------------------------
                       Top 5 Holdings:       
                        Hewlett-Packard Co.  
                        Eli Lilly &Co.       
                        The Walt Disney Co.  
                        Mercury General Corp.
                        General Electric Co. 
                     --------------------------------------

                     --------------------------------------
                         10% Smith Barney Income Funds-
                          Smith Barney High Income Fund
                     --------------------------------------
                       Top 5 Holdings:           
                        Time Warner Inc.         
                        Unisys Corp.             
                        HMHProperties, Inc.      
                        Cablevision Systems Corp.
                        First Nationwide Bank    
                     --------------------------------------

                     --------------------------------------
                           10% Smith Barney Investment
                             Funds Inc-Smith Barney
                           Investment Grade Bond Fund
                     --------------------------------------
                       Top 5 Holdings:     
                        US Treasury Strip  
                        NationsBank        
                        The Walt Disney Co.
                        IBM Corp.          
                        Amgen Inc.         
                     --------------------------------------

                     --------------------------------------
                           5% Smith Barney Investment
                            Trust-Smith Barney Large
                           Capitalization Growth Fund
                     --------------------------------------
                       Top 5 Holdings:        
                        The Walt Disney Co.   
                        The Coca-Cola Co.     
                        Wells Fargo & Co.     
                        Intel Corp.           
                        Texas Instruments Inc.
                     --------------------------------------

                     --------------------------------------
                           10% Smith Barney Investment
                             Funds Inc.-Smith Barney
                           Government Securities Fund
                     --------------------------------------
                       Sector Breakdown:               
                         24.0% U.S. Treasuries         
                         44.2% U.S. Government Agencies
                         31.8% Other                   

                       Credit Quality:                 
                        100% AAA-Rated                 

                       Average Maturity:               
                        15.1 Years                     
                     --------------------------------------

                     --------------------------------------
                            5% Smith Barney Small Cap
                                Blend Fund, Inc.
                     --------------------------------------
                       Top 5 Holdings:                     
                        Arterial Vascular Engineering, Inc.
                        Century Telephone Enterprises, Inc.
                        Rio Hotel & Casino, Inc.           
                        HSN Inc.                           
                        Watson Pharmaceuticals, Inc.       
                     --------------------------------------


                                                                              16
<PAGE>
 
THE GROWTH PORTFOLIO

<TABLE>
<CAPTION>
Historical Performance--Class A Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.32          $12.99       $0.32       $0.46        11.82%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.40           12.32        0.31        0.02        11.08+
=====================================================================================
Total                                                 $0.63       $0.48
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class B Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.33          $13.00       $0.21       $0.46        10.93%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.40           12.33        0.22        0.02        10.32+
=====================================================================================
Total                                                 $0.43       $0.48
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class C Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.33          $13.00       $0.21       $0.46        10.92%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.40           12.33        0.22        0.02        10.32+
=====================================================================================
Total                                                 $0.43       $0.48
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class Z Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.32          $12.99       $0.35       $0.46        12.08%
-------------------------------------------------------------------------------------
Inception*-1/31/97        12.18           12.32        0.00        0.00         1.15+
=====================================================================================
Total                                                 $0.35       $0.46
=====================================================================================
</TABLE>

It is the Fund's policy to distribute dividends and capital gains, if any,
annually.


                                                                              17
<PAGE>
 
Average Annual Total Return
--------------------------------------------------------------------------------
                                                     Without Sales Charge(1)    
                                              ----------------------------------
                                              Class A  Class B  Class C  Class Z
================================================================================
Year Ended 1/31/98                             11.82%   10.93%   10.92%   12.08%
--------------------------------------------------------------------------------
Inception*-1/31/98                             11.53    10.70    10.70    12.85
================================================================================

--------------------------------------------------------------------------------
                                                      With Sales Charge(2)    
                                              ----------------------------------
                                              Class A  Class B  Class C  Class Z
================================================================================
Year Ended 1/31/98                              6.22%    5.93%    9.92%   12.08%
--------------------------------------------------------------------------------
Inception*-1/31/98                              8.69     8.87    10.70    12.85
================================================================================

Cumulative Total Return
--------------------------------------------------------------------------------
                                                     Without Sales Charge(1)
================================================================================
Class A (Inception* through 1/31/98)                         24.21%
--------------------------------------------------------------------------------
Class B (Inception* through 1/31/98)                         22.38
--------------------------------------------------------------------------------
Class C (Inception* through 1/31/98)                         22.37
--------------------------------------------------------------------------------
Class Z (Inception* through 1/31/98)                         13.37
================================================================================
(1)   Assumes reinvestment of all dividends and capital gain distributions, if
      any, at net asset value and does not reflect the deduction of the
      applicable sales charges with respect to Class A shares or the applicable
      contingent deferred sales charges ("CDSC") with respect to Class B and C
      shares.
(2)   Assumes reinvestment of all dividends and capital gain distributions, if
      any, at net asset value. In addition, Class A shares reflect the deduction
      of the maximum initial sales charge of 5.00%; and Class B shares reflect
      the deduction of a 5.00% CDSC, which applies if shares are redeemed within
      one year from initial purchase and declines thereafter by 1.00% per year
      until no CDSC is incurred. Class C shares reflect the deduction of a 1.00%
      CDSC, which applies if shares are redeemed within the first year of
      purchase.
+     Total return is not annualized, as it may not be representative of the
      total return for the year.
*     Inception date for Class A, B and C shares is February 5, 1996 and for
      Class Z shares is January 17, 1997.


                                                                              18
<PAGE>
 
Growth of $10,000 Invested in Class A, B and C Shares of the Growth Portfolio
vs. the Standard & Poor's 500 Composite Stock Index, Russell 2000 Index, Morgan
Stanley Capital International EAFE Index and Lehman Government/Corporate Bond
Index
--------------------------------------------------------------------------------
February 5, 1996 -- January 31, 1998 (unaudited)

                                 [Line Chart]

<TABLE>
<CAPTION>
                                                                                    Standard                                    
                                                                                    & Poor's                                    
                                                                                      500                              Lehman   
                                  Growth            Growth            Growth       Composite   Russell   MSCI        Government/
                             Portfolio-Class   Portfolio-Class   Portfolio-Class     Stock       2000    EAFE        Corporate 
                                    A                 B                 C            Index      Index    INDEX        Bond Index
<S>                          <C>               <C>               <C>               <C>         <C>       <C>        <C>
2/5/96                               9500             10000             10000        10000      10000    10000         10000
4/96                                 9775              9772             10172        10340      11085    10552          9639
7/96                                 9258              9225              9613        10175      10084    10119          9473
10/96                                9875              9833             10242        11277      10916    10311          9064
1/97                                10552             10532             10932        12630      11897    10220          9118
4/97                                10270             10310             10740        12935      11092    10400          9160
7/97                                11700             11787             12187        15476      13452    11968          9643
10/97                               11503             11554             11963        14894      14119    10796          9839
1/31/98                             11800             11838             12237        16652      13384    12495          9934
</TABLE>

The chart above represents a hypothetical illustration of $10,000 invested in
Class A, B and C shares on February 5, 1996 (inception date), assuming deduction
of the maximum 5.00% sales charge at the time of investment for Class A shares,
the deduction of the maximum 5.00% CDSC for Class B shares and the deduction of
the 1.00% CDSC for Class C shares. It also assumes reinvestment of dividends and
capital gains, if any, at net asset value through January 31, 1998. The Standard
& Poor's 500 Composite Stock Index is an unmanaged index composed of 500 widely
held common stocks listed on the New York Stock Exchange, American Stock
Exchange and the over-the-counter market. The Russell 2000 Index is a
capitalization-weighted total return index which is comprised of 2,000 of some
of the smaller-capitalized U.S.-domiciled companies whose common stock is traded
in the United States on the New York Stock Exchange, American Stock Exchange and
Nasdaq. The Morgan Stanley Capital International EAFE Index ("MSCI EAFE") is a
composite index that consists of equity total returns for Europe, Australia and
the Far East. The Lehman Government/Corporate Bond Index is a combination of
publicly issued intermediate- and long-term U.S. government bonds and corporate
bonds. These indices are unmanaged and are not subject to the same management
and trading expenses as a mutual fund. The performance of the Portfolio's other
classes may be greater or less than the performance indicated on this chart,
depending on whether greater or lesser sales charges and fees were incurred by
shareholders investing in the other classes.

All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
values may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.


                                                                              19
<PAGE>
 
THE BALANCED PORTFOLIO

--------------------------------------------------------------------------------
                             Target Asset Allocation
--------------------------------------------------------------------------------

                   [The following information was represented
                    as a pie chart in the printed material.]

                                 50% Bond Funds
                                 50% Stock Funds

The Balanced Portfolio seeks a balance of capital growth and income by placing
equal emphasis on funds investing in stocks and bonds.

--------------------------------------------------------------------------------

The Balanced Portfolio

The Balanced Portfolio seeks long-term growth of capital and income, placing
equal emphasis on current income and capital appreciation. The Balanced
Portfolio, as its name states, divides its assets roughly between equity and
fixed-income mutual funds. The equity funds are primarily large-capitalization,
dividend-paying stock funds. The fixed income portion of the Portfolio is mainly
invested in funds that invest in U.S. government and Agency securities, as well
as mortgage-backed securities.

--------------------------------------------------------------------------------
                                Portfolio Update
--------------------------------------------------------------------------------

1997 turned out to be another stellar year for the U.S. stock market. For the
first time ever, the U.S. stock market posted three consecutive years of gains
in excess of 20%. Stable economic growth, robust corporate earnings growth and
subdued inflation helped fuel the U.S. stock market's climb. So far in 1998, the
bull market in U.S. stocks has continued. Moreover, large-capitalization,
blue-chip domestic stocks that dominate the popular market averages did better
than most other types of stocks.

Yet behind the good news, stock market volatility also increased markedly the
past twelve months. The currency and economic crisis in Southeast Asia that
started in the summer negatively affected the U.S. stock market. In the third
quarter of 1997, the Dow Jones Industrial Average registered its second-largest
point decline and its single largest daily gain within a three week period in
the middle of the third quarter. (The Dow Jones Industrial Average, or DJIA, is
a price-weighted average of 30 actively traded blue chip stocks of primarily
industrial companies.)

Because the ultimate impact of the Asian crisis on U.S. exports and corporate
earnings is still unknown, the rest of 1998 promises to be a year of greater
uncertainty and higher market volatility. As noted in this report's letter to
shareholders, we believe that the problems of Asia may slow growth more
dramatically than recent earnings reports, or stock market increases, may
suggest. The profit growth of many companies has been cast into doubt. With
current valuations in the stock market at fairly high levels, investors may be
intolerant of any earnings disappointment.

In contrast, the uncertainties surrounding the world's stock markets helped
ignite a bond market rally in the closing months of 1997. Following the sudden
collapse of many Southeast Asian stock markets and the currency devaluations of
several key economies such as Korea and Indonesia, many investors around the
world sought out the stability and liquidity of bonds. The U.S. dollar was a
clear beneficiary of this shift in investor sentiment and with the help of an
influx of foreign capital, the yield on the benchmark 30-year U.S. Treasury bond
fell to a historic low of 5.74% on January 5, 1998. Moreover, the continued
decline of interest rates has been supported by a moderately expanding U.S.
economy with a near absence of inflationary pressure.

The Portfolio's Class A shares generated a total return of 11.59% for the year
ended January 31, 1998, before the effect of any sales charges is deducted. The
chart that appears on page 24 compares the Portfolio's performance to
broad-based indices that track four of the asset classes represented in the
Portfolio. Historically, the leading asset class and the lagging asset class
change from year to year. Each Concert Allocation Series Portfolio is a
long-term investment that has been designed to reduce overall market volatility
and will usually achieve a rate of return roughly in the middle of the asset
classes in which it invests.

--------------------------------------------------------------------------------

The Target Asset Allocation set forth above represents an approximate mix of
investments for the Balanced Portfolio. The allocation and investment mix of the
Portfolio may vary depending upon market conditions, cash flows in and out of
the Portfolio and other factors. In addition, the allocation and investment
ranges of the Portfolio may be changed from time to time upon the approval of
the Concert Allocation Series Inc.'s Board of Directors.


                                                                              20
<PAGE>
 
The Concert Allocation Series Balanced Portfolio Breakdown (as of 1/31/98)

                   [The following information was represented
                    as a pie chart in the printed material.]

                       ----------------------------------
                          5% Smith Barney Equity Funds-
                        Smith Barney Growth & Income Fund
                       ----------------------------------
                         Top 5 Holdings:       
                          Hewlett-Packard Co.  
                          Eli Lilly & Co.      
                          The Walt Disney Co.  
                          Mercury General Corp.
                          General Electric Co. 
                       ----------------------------------
                         
                       ----------------------------------
                          5% Smith Barney Funds, Inc.-
                              Large Cap Value Fund
                       ----------------------------------
                         Top 5 Holdings:              
                          Bristol-Myers Squibb Co.    
                          American Home Products Corp.
                          Sprint Corp.                
                          Xerox Corp.                 
                          Unilever NV                 
                       ----------------------------------

                       ----------------------------------
                             10% Smith Barney Income
                           Funds-Smith Barney Premium
                                Total Return Fund
                       ----------------------------------
                         Top 5 Holdings:               
                          SLH Corp.                    
                          Loews Corp.                  
                          Lehman Brothers Holdings Inc.
                          Bristol-Myers Squibb Co.     
                          MCI Communications Corp.     
                       ----------------------------------

                       ----------------------------------
                             15% Smith Barney Income
                         Funds-Smith Barney Diversified
                              Strategic Income Fund
                       ----------------------------------
                         Sector Breakdown:               

                         28.0% U.S. Government Agencies  
                          5.5% U.S. Treasuries           
                         26.6% High Yield Corporate Bonds
                         32.9% Foreign Government Bonds  
                          7.0% Other                     

                         Top 5 Holdings:                 
                           GNMA                          
                           FHLMC                         
                           CS First Boston Corp.         
                           U.K. Treasury                 
                           Deutschland Republic          

                         Top 5 Country Holdings:         
                           United States          Germany
                           United Kingdom         Spain  
                           Ireland                       

                         Average Weighted Maturity:      
                          5.0 Years                      
                       ----------------------------------

                       ----------------------------------
                          10% Smith Barney World Funds,
                           Inc.-International Balanced
                                    Portfolio
                       ----------------------------------
                         Top 5 Country Holdings: 
                          Japan                  Italy 
                          United Kingdom         Sweden
                          Germany                
                       ----------------------------------

                       ----------------------------------
                                10% Smith Barney
                          Managed Governments Fund Inc.
                       ----------------------------------
                         Sector Breakdown:                
                          20.4% U.S. Treasuries           
                          54.3% Mortgage-Backed Securities
                         25.3% Other                      
                                                          
                         Credit Quality:                  
                         100% AAA-Rated                   
                                                          
                         Average Weighted Maturity:       
                          12.7 Years                      
                       ----------------------------------

                       ----------------------------------
                          5% Smith Barney Funds, Inc.-
                            Short-Term U.S. Treasury
                                 Securities Fund
                       ----------------------------------
                         Sector Breakdown:          
                          98.8% U.S. Treasuries     
                           1.2% Repurchase Agreement
                                                    
                         Credit Quality:            
                         100% AAA-Rated             
                                                    
                         Average Weighted Maturity: 
                           2.4 Years                
                       ----------------------------------

                       ----------------------------------
                                10% Smith Barney
                             Appreciation Fund Inc.
                       ----------------------------------
                         Top 5 Holdings:          
                          Allstate Corp.          
                          Johnson & Johnson       
                          General Electric Co.    
                          Bristol-Myers Squibb Co.
                          Mobil Corp.             
                       ----------------------------------

                       ----------------------------------
                                10% Smith Barney
                           Fundamental Value Fund Inc.
                       ----------------------------------
                         Top 5 Holdings:                    
                          Aluminum Co. of America           
                          Wal-Mart Stores, Inc.             
                          Adobe Systems Inc.                
                          American International Group, Inc.
                          AMR Corp.                         
                       ----------------------------------

                       ----------------------------------
                         10% Smith Barney Income Funds-
                          Smith Barney Convertible Fund
                       ----------------------------------
                         Top 5 Holdings:         
                          Cendant Corp.          
                          Nascotech Inc.         
                          International Paper Co.
                          Thermo Electron Corp.  
                          ALZA Corp.             
                       ----------------------------------

                       ----------------------------------
                       5% Smith Barney World Funds, Inc.-
                        Global Government Bond Portfolio
                       ----------------------------------
                         Top 5 Country Holdings:
                          United States         
                          Japan                 
                          Germany               
                          United Kingdom        
                          Italy                 
                       ----------------------------------

                       ----------------------------------
                           5% Smith Barney Investment
                             Funds Inc.-Smith Barney
                           Government Securities Fund
                       ----------------------------------
                         Sector Breakdown:              
                          24.0% U.S. Treasuries         
                          44.2% U.S. Government Agencies
                          31.8% Other                   
                                                        
                         Credit Quality:                
                         100% AAA-Rated                 
                                                        
                         Average Weighted Maturity:     
                          15.1 Years                    
                       ----------------------------------

                                                                              21
<PAGE>
 
THE BALANCED PORTFOLIO

<TABLE>
<CAPTION>
Historical Performance--Class A Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.14          $12.62       $0.54       $0.36        11.59%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.40           12.14        0.45        0.00        10.64+
=====================================================================================
Total                                                 $0.99       $0.36
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class B Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.14          $12.61       $0.45       $0.36        10.67%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.40           12.14        0.37        0.00         9.90+
=====================================================================================
Total                                                 $0.82       $0.36
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class C Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.14          $12.61       $0.45       $0.36        10.67%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.40           12.14        0.37        0.00         9.90+
=====================================================================================
Total                                                 $0.82       $0.36
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class Z Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $12.13          $12.61       $0.57       $0.36        11.82%
-------------------------------------------------------------------------------------
Inception*-1/31/97        12.10           12.13        0.00        0.00         0.25+
=====================================================================================
Total                                                 $0.57       $0.36
=====================================================================================
</TABLE>

It is the Fund's policy to distribute dividends quarterly and capital gains, if
any, annually.


                                                                              22
<PAGE>
 
Average Annual Total Return
--------------------------------------------------------------------------------
                                                     Without Sales Charge(1)    
                                              ----------------------------------
                                              Class A  Class B  Class C  Class Z
================================================================================
Year Ended 1/31/98                             11.59%   10.67%   10.67%   11.82%
--------------------------------------------------------------------------------
Inception*-1/31/98                             11.19    10.36    10.36    11.62
================================================================================

                                                     With Sales Charge(2)
                                              ----------------------------------
                                              Class A  Class B  Class C  Class Z
================================================================================
Year Ended 1/31/98                              6.00%    5.67%    9.67%   11.82%
--------------------------------------------------------------------------------
Inception*-1/31/98                              8.36     8.52    10.36    11.62
================================================================================

Cumulative Total Return
--------------------------------------------------------------------------------
                                                     Without Sales Charge(1)
================================================================================
Class A (Inception* through 1/31/98)                          23.46%
--------------------------------------------------------------------------------
Class B (Inception* through 1/31/98)                          21.63
--------------------------------------------------------------------------------
Class C (Inception* through 1/31/98)                          21.63
--------------------------------------------------------------------------------
Class Z (Inception* through 1/31/98)                          12.09
================================================================================
(1)   Assumes reinvestment of all dividends and capital gain distributions, if
      any, at net asset value and does not reflect the deduction of the
      applicable sales charges with respect to Class A shares or the applicable
      contingent deferred sales charges ("CDSC") with respect to Class B and C
      shares.
(2)   Assumes reinvestment of all dividends and capital gain distributions, if
      any, at net asset value. In addition, Class A shares reflect the deduction
      of the maximum initial sales charge of 5.00%; and Class B shares reflect
      the deduction of a 5.00% CDSC, which applies if shares are redeemed within
      one year from initial purchase and declines thereafter by 1.00% per year
      until no CDSC is incurred. Class C shares reflect the deduction of a 1.00%
      CDSC, which applies if shares are redeemed within the first year of
      purchase.
+     Total return is not annualized, as it may not be representative of the
      total return for the year.
*     Inception date for Class A, B and C shares is February 5, 1996 and for
      Class Z shares is January 17, 1997.


                                                                              23
<PAGE>
 
Growth of $10,000 Invested in Class A, B and C Shares of the Balanced Portfolio
vs. the Standard &Poor's 500 Composite Stock Index, Lehman Government/Corporate
Bond Index, Salomon Smith Barney One-Year Treasury Bill Index and Salomon Smith
Barney World Government Bond Index
--------------------------------------------------------------------------------
February 5, 1996 -- January 31, 1998 (unaudited)

                                 [Line chart]

<TABLE>
<CAPTION>
                                                                       Standard                         Salomon 
                                                                       & Poor's          Lehman           S/B        Salomon
                                                                         500           Government/      One-Year       S/B  
                                                                       Composite       Corporation      Treasury      World  
                     Balanced          Balanced          Balanced       Stock            Bond             Bill      Government
                  Portfolio-Class A Portfolio-Class B Portfolio-Class C Index            Index           Index      Bond Index
<S>                <C>              <C>              <C>              <C>             <C>              <C>         <C>
2/5/96                    9500            10000            10000        10000            10000           10000        10000
4/96                      9533             9520             9920        10340             9639           10078         9895
7/96                      9513             9486             9881        10175             9473           10214        10167
10/96                    10062            10037            10437        11277             9064           10410        10440
1/97                     10511            10490            10890        12630             9118           10551        10568
4/97                     10562            10615            11015        12935             9160           10683        10760
7/97                     11587            11664            12064        15476             9643           10892        11204
10/97                    11499            11551            11951        14894             9839           11051        11479
1/31/98                  11729            11763            12163        16652             9934           11053        11558
</TABLE>


The chart above represents a hypothetical illustration of $10,000 invested in
Class A, B and C shares on February 5, 1996 (inception date), assuming deduction
of the maximum 5.00% sales charge at the time of investment for Class A shares,
the deduction of the maximum 5.00% CDSC for Class B shares and the deduction of
the 1.00% CDSC for Class C shares. It also assumes reinvestment of dividends and
capital gains, if any, at net asset value through January 31, 1998. The Standard
& Poor's 500 Composite Stock Index is an unmanaged index composed of 500 widely
held common stocks listed on the New York Stock Exchange, American Stock
Exchange and the over-the-counter market. The Lehman Government/Corporate Bond
Index is a combination of publicly issued intermediate- and long-term U.S.
government bonds and corporate bonds. The Salomon Smith Barney One-Year Treasury
Bill Index consists of one 1-Year United States Treasury bill whose return is
tracked until its maturity. The Salomon Smith Barney World Government Bond Index
is a market-capitalization-weighted benchmark that tracks the performance of the
government bond markets of 14 countries. These indices are unmanaged and are not
subject to the same management and trading expenses as a mutual fund. The
performance of the Portfolio's other classes may be greater or less than the
performance indicated on this chart, depending on whether greater or lesser
sales charges and fees were incurred by shareholders investing in the other
classes.

All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
values may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.


                                                                              24
<PAGE>
 
THE CONSERVATIVE PORTFOLIO

--------------------------------------------------------------------------------
                             Target Asset Allocation
--------------------------------------------------------------------------------

                   [The following information was represented
                    as a pie chart in the printed material.]

                                 70% Bond Funds
                                 30% Stock Funds

The Conservative Portfolio seeks income and, secondarily, long-term growth of
capital by investing the majority of its assets in funds that invest in bonds.

--------------------------------------------------------------------------------

The Conservative Portfolio

The Conservative Portfolio seeks income and, secondarily, long-term capital
growth. Among the Portfolios of the Concert Allocation Series Inc., the
Conservative Portfolio consists primarily of taxable fixed income funds, with a
significant portion invested in stock funds that invest primarily in
large-capitalization U.S. stocks.


--------------------------------------------------------------------------------
                                Portfolio Update
--------------------------------------------------------------------------------

During the second half of 1997, bond prices rose because of declining interest
rates and the potential economic slowdown from the problems in Southeast Asia.
For the year ended January 31, 1998, the Lehman Brothers Aggregate Bond Index
returned 11.17%. (The Lehman Brothers Aggregate Bond Index is composed of the
Government/Corporate Bond Index, the Asset-Backed Securities Index and includes
U.S. Treasury issues, agency issues, corporate bond issues and mortgage-backed
issues.)

The uncertainties surrounding the world's stock markets helped ignite a bond
market rally in the closing months of 1997. Following the sudden collapse of
many Southeast Asian stock markets and the currency devaluations of several key
economies such as Korea and Indonesia, many investors around the world sought
out the stability and liquidity of bonds. The U.S. dollar was a clear
beneficiary of this shift in investor sentiment and with the help of an influx
of foreign capital, the yield on the benchmark 30-year U.S. Treasury bond fell
to a historic low of 5.74% on January 5, 1998. Moreover, the continued decline
of interest rates has been supported by a moderately expanding U.S. economy with
a near absence of inflationary pressure.

The Portfolio's Class A shares generated a total return of 11.70% for the year
ended January 31, 1998, before the effect of any sales charges was deducted. The
chart that appears on page 29 compares the Portfolio's performance to
broad-based indices that track four of the asset classes represented in the
Portfolio. Historically, the leading asset class and the lagging asset class
change from year to year. Each Concert Allocation Series Portfolio is a
long-term investment that has been designed to reduce overall market volatility
and will usually achieve a rate of return roughly in the middle of the asset
classes in which it invests.

--------------------------------------------------------------------------------

The Target Asset Allocation set forth above represents an approximate mix of
investments for the Conservative Portfolio. The allocation and investment mix of
the Portfolio may vary depending upon market conditions, cash flows in and out
of the Portfolio and other factors. In addition, the allocation and investment
ranges of the Portfolio may be changed from time to time upon the approval of
the Concert Allocation Series Inc.'s Board of Directors.


                                                                              25
<PAGE>
 
The Concert Allocation Series Conservative Portfolio Breakdown (as of 1/31/98)

                       -----------------------------------
                                15% Smith Barney
                          Managed Governments Fund Inc.
                       -----------------------------------
                         Sector Breakdown:                 
                           20.4% U.S. Treasuries           
                           54.3% Mortgage-Backed Securities
                           25.3% Other                     
                                                           
                         Credit Quality:                   
                         100% AAA-Rated                    
                                                           
                         Average Maturity:                 
                          12.7 Years                       
                       -----------------------------------

                       -----------------------------------
                         10% Smith Barney Income Funds-
                          Smith Barney Convertible Fund
                       -----------------------------------
                         Top 5 Holdings:         
                          Cendant Corp.          
                          Nascotech Inc.         
                          International Paper Co.
                          Thermo Electron Corp.  
                          ALZA Corp.             
                       -----------------------------------

                       -----------------------------------
                          5% Smith Barney Income Funds-
                           Smith Barney Premium Total
                                   Return Fund
                       -----------------------------------
                         Top 5 Holdings:              
                          SLHCorp.                    
                          Loews Corp.                 
                          Lehman Brothers Holding Inc.
                          Bristol-Myers Squibb Co.    
                          MCI Communications Corp.     
                       -----------------------------------

                       -----------------------------------
                             20% Smith Barney Income
                         Funds-Smith Barney Diversified
                              Strategic Income Fund
                       -----------------------------------
                         Sector Breakdown:               
                                                         
                         28.0% U.S. Government Agencies  
                          5.5% U.S. Treasuries           
                         26.6% High Yield Corporate Bonds
                         32.9% Foreign Government Bonds  
                          7.0% Other                     
                                                         
                         Top 5 Holdings:                 
                          GNMA                           
                          FHLMC                          
                          CS FirstBoston Corp.           
                          U.K. Treasury                  
                          Deutschland Republic           
                                                         
                         Top 5 Country Holdings:         
                          United States       Germany    
                          United Kingdom      Spain      
                          Ireland                        
                                                         
                         Average Weighted Maturity:      
                         5.0 Years                       
                       -----------------------------------

                       -----------------------------------
                                 5% Smith Barney
                           Fundamental Value Fund Inc.
                       -----------------------------------
                         Top 5 Holdings:         
                          Aluminum Co. of America
                          Wal-Mart Stores, Inc.  
                          Adobe Systems Inc.     
                          American International 
                            Group, Inc.          
                          AMRCorp.               
                       -----------------------------------

                       -----------------------------------
                                10% Smith Barney
                             Appreciation Fund Inc.
                       -----------------------------------
                         Top 5 Holdings:          
                          Allstate Corp.          
                          Johnson & Johnson       
                          General Electric Co.    
                          Bristol-Myers Squibb Co.
                          Mobil Corp.             
                       -----------------------------------

                       -----------------------------------
                           10% Smith Barney Investment
                             Funds Inc.-Smith Barney
                           Government Securities Fund
                       -----------------------------------
                         Sector Breakdown:              
                          24.0% U.S. Treasuries         
                          44.2% U.S. Government Agencies
                          31.8% Other                   
                                                        
                         Credit Quality:                
                         100% AAA-Rated                 
                                                        
                         Average Weighted Maturity:     
                          15.1 Years                    
                       -----------------------------------

                       -----------------------------------
                          5% Smith Barney Funds, Inc.-
                       Short-Term U.S. Treasury Securities
                                      Fund
                       -----------------------------------
                         Sector Breakdown:          
                          98.8% U.S. Treasuries     
                           1.2% Repurchase Agreement
                                                    
                         Credit Quality:            
                         100% AAA-Rated             
                                                    
                         Average Maturity:          
                           2.4 Years                
                       -----------------------------------

                       -----------------------------------
                             10% Smith Barney Income
                               Funds-Smith Barney
                                High Income Fund
                       -----------------------------------
                         Top 5 Holdings:           
                          Time Warner Inc.         
                          Unisys Corp.             
                          HMH Properties, Inc.     
                          Cablevision Systems Corp.
                          First Nationwide Bank    
                       -----------------------------------

                       -----------------------------------
                          5% Smith Barney World Funds,
                           Inc.-International Balanced
                                    Portfolio
                       -----------------------------------
                         Top 5 Country Holdings:
                          Japan                 
                          United Kingdom        
                          Germany               
                          Italy                 
                          Sweden                
                       -----------------------------------

                       -----------------------------------
                          5% Smith Barney World Funds,
                           Inc.-Global Government Bond
                                    Portfolio
                       -----------------------------------
                         Top 5 Country Holdings:
                          United States         
                          Japan                 
                          Germany               
                          United Kingdom        
                          Italy                 
                       -----------------------------------


                                                                              26
<PAGE>
 
THE CONSERVATIVE PORTFOLIO

<TABLE>
<CAPTION>
Historical Performance--Class A Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $11.90          $12.17       $0.69       $0.40        11.70%
=====================================================================================
Inception*-1/31/97        11.46           11.90        0.52        0.00         8.57+
-------------------------------------------------------------------------------------
Total                                                 $1.21       $0.40
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class B Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $11.89          $12.16       $0.63       $0.40        11.21%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.46           11.89        0.47        0.00         8.03+
=====================================================================================
Total                                                 $1.10       $0.40
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class C Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $11.89          $12.16       $0.64       $0.40        11.25%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.46           11.89        0.47        0.00         8.08+
=====================================================================================
Total                                                 $1.11       $0.40
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class Z Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $11.90          $12.17       $0.73       $0.40        12.09%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.89           11.90        0.00        0.00         0.08+
=====================================================================================
Total                                                 $0.73       $0.40
=====================================================================================
</TABLE>

It is the Fund's policy to distribute dividends quarterly and capital gains, if
any, annually.


                                                                              27
<PAGE>
 
Average Annual Total Return
--------------------------------------------------------------------------------
                                                     Without Sales Charge(1)    
                                              ----------------------------------
                                              Class A  Class B  Class C  Class Z
================================================================================
Year Ended 1/31/98                             11.70%   11.21%   11.25%   12.09%
--------------------------------------------------------------------------------
Inception*-1/31/98                             10.19     9.68     9.72    11.71
================================================================================

                                                     With Sales Charge(2)
                                              ----------------------------------
                                              Class A  Class B  Class C  Class Z
================================================================================
Year Ended 1/31/98                              6.68%    6.71%   10.25%   12.09%
--------------------------------------------------------------------------------
Inception*-1/31/98                              7.67     7.83     9.72    11.71
================================================================================

Cumulative Total Return
--------------------------------------------------------------------------------
                                                     Without Sales Charge(1)
================================================================================
Class A (Inception* through 1/31/98)                           21.27%
--------------------------------------------------------------------------------
Class B (Inception* through 1/31/98)                           20.14
--------------------------------------------------------------------------------
Class C (Inception* through 1/31/98)                           20.24
--------------------------------------------------------------------------------
Class Z (Inception* through 1/31/98)                           12.18
================================================================================
(1)   Assumes reinvestment of all dividends and capital gain distributions, if
      any, at net asset value and does not reflect the deduction of the
      applicable sales charge with respect to Class A shares or the applicable
      contingent deferred sales charges ("CDSC") with respect to Class B and C
      shares.
(2)   Assumes reinvestment of all dividends and capital gain distributions, if
      any, at net asset value. In addition, Class A shares reflect the deduction
      of the maximum initial sales charge of 4.50%; Class B shares reflect the
      deduction of a 4.50% CDSC, which applies if shares are redeemed within one
      year from initial purchase. The CDSC declines by 0.50% the first year
      after purchase and thereafter by 1.00% per year until no CDSC is incurred.
      Class C shares reflect the deduction of a 1.00% CDSC, which applies if
      shares are redeemed within the first year of purchase.
+     Total return is not annualized, as it may not be representative of the
      total return for the year.
*     Inception date for Class A, B and C shares is February 5, 1996 and for
      Class Z shares is January 17, 1997.


                                                                              28
<PAGE>
 
Growth of $10,000 Invested in Class A, B and C Shares of the Conservative
Portfolio vs. the Standard & Poor's 500 Composite Stock Index, Lehman
Government/Corporate Bond Index, Salomon Smith Barney High Yield Market Index
and Salomon Smith Barney One-Year Treasury Bill Index

--------------------------------------------------------------------------------
February 5, 1996 -- January 31, 1998 (unaudited)

                              [Line chart omitted]

<TABLE>
<CAPTION>
                                                                                       Standard
                                                                                       & Poor's   
                              Conservative      Conservative      Conservative           500
                             Portfolio-Class A Portfolio-Class B Portfolio-Class C  Composite Stock Index
<S>                          <C>              <C>              <C>              <C>        
2/5/96                              9550            10000            10000              10000                   
4/96                                9526             9515             9872              10340                   
7/96                                9560             9542             9888              10175                   
10/96                              10039            10023            10385              11277                   
1/97                               10369            10353            10708              12630                   
4/97                               10424            10448            10854              12935                   
7/97                               11277            11323            11731              15476                   
10/97                              11581            11614            12024              14894                   
1/31/98                            11581            11614            12024              16652                   
</TABLE>

                                              Salomon           Salomon
                                              S/B High          S/B One-      
                              Lehman          Yield              Year    
                     Government/Corporation   Market            Treasury
                            Bond Index         Index             Index

2/5/96                        10000            10000             10000
4/96                           9639            10009             10078
7/96                           9473            10206             10214
10/96                          9064            10676             10410
1/97                           9118            11049             10551
4/97                           9160            11201             10683
7/97                           9643            11886             10892
10/97                          9839            12221             11051
1/31/98                        9934            12345             11053

The chart above represents a hypothetical illustration of $10,000 invested in
Class A, B and C shares on February 5, 1996 (inception date), assuming deduction
of the maximum 4.50% sales charge at the time of investment for Class A shares,
the deduction of the maximum 4.50% CDSC for Class B shares and the deduction of
the 1.00% CDSC for Class C shares. It also assumes reinvestment of dividends and
capital gains, if any, at net asset value through January 31, 1998. The Standard
& Poor's 500 Composite Stock Index is an unmanaged index composed of 500 widely
held common stocks listed on the New York Stock Exchange, American Stock
Exchange and the over-the-counter market. The Lehman Government/Corporate Bond
Index is a combination of publicly issued intermediate- and long-term U.S.
government bonds and corporate bonds. The Salomon Smith Barney High Yield Market
Index covers a significant portion of the below-investment-grade U.S. corporate
bond market. The Salomon Smith Barney One-Year Treasury Bill Index consists of
one 1-Year United States Treasury bill whose return is tracked until its
maturity. These indices are unmanaged and are not subject to the same management
and trading expenses as a mutual fund. The performance of the Portfolio's other
classes may be greater or less than the performance indicated on this chart,
depending on whether greater or lesser sales charges and fees were incurred by
shareholders investing in the other classes.

All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
values may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.


                                                                              29
<PAGE>
 
THE INCOME PORTFOLIO

--------------------------------------------------------------------------------
                             Target Asset Allocation
--------------------------------------------------------------------------------

                   [The following information was represented
                    as a pie chart in the printed material.]

                                 90% Bond Funds
                                 10% Stock Funds

The Income Portfolio seeks high current income by investing primarily in bond
funds.

--------------------------------------------------------------------------------

The Income Portfolio

The Income Portfolio seeks high current income. Among the Portfolios of the
Concert Allocation Series Inc., the Income Portfolio allocates most of its
assets in taxable fixed-income funds designed to generate a high level of income
consistent with relative stability of principal. A small portion of the
Portfolio is invested in equity funds that invest in large-capitalization U.S.
stocks.

--------------------------------------------------------------------------------
                                Portfolio Update
--------------------------------------------------------------------------------

During the second half of 1997, bond prices rose because of declining interest
rates and the potential economic slowdown from the problems in Southeast Asia.
For the year ended January 31, 1998, the Lehman Brothers Aggregate Bond Index
returned 11.17%. (The Lehman Brothers Aggregate Bond Index is composed of the
Government/Corporate Bond Index, the Asset-Backed Securities Index and includes
U.S. Treasury issues, agency issues, corporate bond issues and mortgage-backed
issues.)

The uncertainties surrounding the world's stock markets helped ignite a bond
market rally in the closing months of 1997. Following the sudden collapse of
many Southeast Asian stock markets and the currency devaluations of several key
economies such as Korea and Indonesia, many investors around the world sought
out the stability and liquidity of bonds. The U.S. dollar was a clear
beneficiary of this shift in investor sentiment and with the help of an influx
of foreign capital, the yield on the benchmark 30-year U.S. Treasury bond fell
to a historic low of 5.74% on January 5, 1998. Moreover, the continued decline
of interest rates has been supported by a moderately expanding U.S. economy with
a near absence of inflationary pressure.

The Portfolio's Class A shares generated a total return of 11.44% for the year
ended January 31, 1998, before the effect of any sales charges was deducted. The
chart that appears on page 34 compares the Portfolio's performance to
broad-based indices that track four of the asset classes represented in the
Portfolio. Historically, the leading asset class and the lagging asset class
change from year to year. Each Concert Allocation Series Portfolio is a
long-term investment that has been designed to reduce overall market volatility
and will usually achieve a rate of return roughly in the middle of the asset
classes in which it invests.

--------------------------------------------------------------------------------

The Target Asset Allocation set forth above represents an approximate mix of
investments for the Income Portfolio. The allocation and investment mix of the
Portfolio may vary depending upon market conditions, cash flows in and out of
the Portfolio and other factors. In addition, the allocation and investment
ranges of the Portfolio may be changed from time to time upon the approval of
the Concert Allocation Series Inc.'s Board of Directors.


                                                                              30
<PAGE>
 
The Concert Allocation Series Income Portfolio Breakdown (as of 1/31/98)

                       -----------------------------------
                       10% Smith Barney Funds, Inc.-Short-
                       Term U.S. Treasury Securities Fund
                       -----------------------------------
                         Sector Breakdown:          
                          98.8% U.S. Treasuries     
                           1.2% Repurchase Agreement
                                                    
                         Credit Quality:            
                         100% AAA-Rated             
                                                    
                         Average Maturity:          
                           2.4 Years                
                       -----------------------------------

                       -----------------------------------
                           15% Smith Barney Investment
                             Funds Inc.-Smith Barney
                           Government Securities Fund
                       -----------------------------------
                         Sector Breakdown:              
                          24.0% U.S. Treasuries         
                          44.2% U.S. Government Agencies
                          31.8% Other                   
                                                        
                         Credit Quality:                
                          100% AAA-Rated                
                                                        
                         Average Maturity:              
                          15.1 Years                    
                       -----------------------------------

                       -----------------------------------
                                20% Smith Barney
                          Managed Governments Fund Inc.
                       -----------------------------------
                         Sector Breakdown:                
                          20.4% U.S. Treasuries           
                          54.3% Mortgage-Backed Securities
                           25.3% Other                    
                                                          
                         Credit Quality:                  
                         100% AAA-Rated                   
                                                          
                         Average Maturity:                
                          12.7 Years                      
                       -----------------------------------

                       -----------------------------------
                             20% Smith Barney Income
                         Funds-Smith Barney Diversified
                              Strategic Income Fund
                       -----------------------------------
                         Sector Breakdown:               
                                                         
                         28.0% U.S. Government Agencies  
                          5.5% U.S. Treasuries           
                         26.6% High Yield Corporate Bonds
                         32.9% Foreign Government Bonds  
                           7.0% Other                    
                                                         
                         Top 5 Holdings:                 
                          GNMA                           
                          FHLMC                          
                          CSFirst Boston Corp.           
                          U.K. Treasury                  
                          Deutschland Republic           
                                                         
                         Top 5 Country Holdings:         
                          United States  Germany         
                          United Kingdom Spain           
                          Ireland                        
                                                         
                         Average Weighted Maturity:      
                          5.0 Years                      
                       -----------------------------------

                       -----------------------------------
                          5% Smith Barney Income Funds-
                           Smith Barney Premium Total
                                   Return Fund
                       -----------------------------------
                         Top 5 Holdings:              
                          SLH Corp.                   
                          Loews Corp.                 
                          Lehman Brothers Holding Inc.
                          Bristol-Myers Squibb Co.    
                          MCI Communications Corp.    
                       -----------------------------------

                       -----------------------------------
                                 5% Smith Barney
                             Appreciation Fund Inc.
                       -----------------------------------
                         Top 5 Holdings:          
                          Allstate Corp.          
                          Johnson & Johnson       
                          General Electric Co.    
                          Bristol-Myers Squibb Co.
                          Mobil Corp.             
                       -----------------------------------

                       -----------------------------------
                          5% Smith Barney Income Funds-
                          Smith Barney Convertible Fund
                       -----------------------------------
                         Top 5 Holdings:         
                          Cendant Corp.          
                          Nascotech Inc.         
                          International Paper Co.
                          Thermo Electron Corp.  
                          ALZA Corp.             
                       -----------------------------------

                       -----------------------------------
                         20% Smith Barney Income Funds-
                          Smith Barney High Income Fund
                       -----------------------------------
                         Top 5 Holdings:           
                          Time Warner Inc.         
                          Unisys Corp.             
                          HMH Properties, Inc.     
                          Cablevision Systems Corp.
                          First Nationwide Bank    
                       -----------------------------------


                                                                              31
<PAGE>
 
THE INCOME PORTFOLIO

<TABLE>
<CAPTION>
Historical Performance--Class A Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $11.53          $11.75       $0.77       $0.29        11.44%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.46           11.53        0.63        0.00         6.39+
=====================================================================================
Total                                                 $1.40       $0.29
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class B Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $11.53          $11.76       $0.70       $0.29        10.93%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.46           11.53        0.58        0.00         5.89+
=====================================================================================
Total                                                 $1.28       $0.29
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class C Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $11.53          $11.76       $0.71       $0.29        10.98%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.46           11.53        0.59        0.00         5.94+
=====================================================================================
Total                                                 $1.30       $0.29
=====================================================================================
</TABLE>

<TABLE>
<CAPTION>
Historical Performance--Class Z Shares
-------------------------------------------------------------------------------------
                              Net Asset Value
                    ------------------------------   Income   Capital Gain   Total
Year Ended          Beginning of Year  End of Year  Dividend  Distribution  Return(1)
=====================================================================================
<S>                      <C>             <C>          <C>         <C>          <C>  
1/31/98                  $11.53          $11.75       $0.82       $0.29        11.88%
-------------------------------------------------------------------------------------
Inception*-1/31/97        11.55           11.53        0.06        0.00         0.35+
=====================================================================================
Total                                                 $0.88       $0.29
=====================================================================================
</TABLE>

It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.


                                                                              32
<PAGE>
 
Average Annual Total Return
--------------------------------------------------------------------------------
                                                     Without Sales Charge(1)    
                                              ----------------------------------
                                              Class A  Class B  Class C  Class Z
================================================================================
Year Ended 1/31/98                             11.44%   10.93%   10.98%   11.88%
--------------------------------------------------------------------------------
Inception*-1/31/98                              8.95     8.44     8.49    11.79
================================================================================

                                                     With Sales Charge(2)
                                              ----------------------------------
                                              Class A  Class B  Class C  Class Z
================================================================================
Year Ended 1/31/98                              6.45%    6.43%    9.98%   11.88%
--------------------------------------------------------------------------------
Inception*-1/31/98                              6.45     6.57     8.49    11.79
================================================================================

Cumulative Total Return
--------------------------------------------------------------------------------
                                                     Without Sales Charge(1)
================================================================================
Class A (Inception* through 1/31/98)                         18.55%
--------------------------------------------------------------------------------
Class B (Inception* through 1/31/98)                         17.46
--------------------------------------------------------------------------------
Class C (Inception* through 1/31/98)                         17.58
--------------------------------------------------------------------------------
Class Z (Inception* through 1/31/98)                         12.27
================================================================================
(1)   Assumes reinvestment of all dividends and capital gain distributions, if
      any, at net asset value and does not reflect the deduction of the
      applicable sales charges with respect to Class A shares or the applicable
      contingent deferred sales charges ("CDSC") with respect to Class B and C
      shares.
(2)   Assumes reinvestment of all dividends and capital gain distributions, if
      any, at net asset value. In addition, Class A shares reflect the deduction
      of the maximum initial sales charge of 4.50%; and Class B shares reflect
      the deduction of a 4.50% CDSC, which applies if shares are redeemed less
      than one year from initial purchase. This CDSC declines by 0.50% the first
      year after purchase and thereafter by 1.00% per year until no CDSC is
      incurred. Class C shares reflect the deduction of a 1.00% CDSC, which
      applies if shares are redeemed within the first year of purchase.
+     Total return is not annualized, as it may not be representative of the
      total return for the year.
*     Inception date for Class A, B and C shares is February 5, 1996 and for
      Class Z shares is January 17, 1997.


                                                                              33
<PAGE>
 
Growth of $10,000 Invested in Class A, B and C Shares of the Income Portfolio
vs. Standard & Poor's 500 Composite Stock Index, Lehman Government/Corporate
Bond Index, Salomon Smith Barney High Yield Market Index and Salomon Smith
Barney One-Year Treasury Bill Index
--------------------------------------------------------------------------------
February 5, 1996 -- January 31, 1998 (unaudited)

                                 [Line chart]

<TABLE>
<CAPTION>
                                                                                                                            Salomon 
                                                                                  Standard                        Salomon    S/B
                                                                                  & Poor's          Lehman         S/B       One- 
                                  Income           Income           Income           500     Government/Corporate High Yield Year  
                             Portfolio-Class  Portfolio-Class   Portfolio-Class   Composite          Bond         Market    Treasury
                                 A Shares         B Shares         C Shares      Stock Index         Index        Index   Bill Index
<S>                          <C>               <C>              <C>              <C>              <C>             <C>       <C>
2/5/96                              9550            10000            10000          10000           10000          10000     10000
4/96                                9429             9425             9768          10340            9639          10009     10078
7/96                                9482             9472             9812          10175            9473          10208     10214
10/96                               9923             9907            10259          11277            9064          10676     10410
1/97                               10160            10139            10494          12630            9118          11049     10551
4/97                               10216            10236            10641          12935            9160          11201     10683
7/97                               10939            10973            11381          15476            9643          11886     10892
10/97                              11322            11347            11758          14894            9839          12221     11051
1/31/97                            11322            11347            11758          16652            9934          12345     11053
</TABLE>

The chart above represents a hypothetical illustration of $10,000 invested in
Class A, B and C shares on February 5, 1996 (inception date), assuming deduction
of the maximum 4.50% sales charge at the time of investment for Class A shares,
the deduction of the maximum 4.50% CDSC for Class B shares and the deduction of
the 1.00% CDSC for Class C shares. It also assumes reinvestment of dividends and
capital gains, if any, at net asset value through January 31, 1998. The Standard
& Poor's 500 Composite Stock Index is an unmanaged index composed of 500 widely
held common stocks listed on the New York Stock Exchange, American Stock
Exchange and the over-the-counter market. The Lehman Government/Corporate Bond
Index is a combination of publicly issued intermediate- and long-term U.S.
government bonds and corporate bonds. The Salomon Smith Barney High Yield Market
Index covers a significant portion of the below-investment-grade U.S. corporate
bond market. The Salomon Smith Barney One-Year Treasury Bill Index consists of
one 1-Year United States Treasury bill whose return is tracked until its
maturity. These indices are unmanaged and are not subject to the same management
and trading expenses as a mutual fund. The performance of the Portfolio's other
classes may be greater or less than the performance indicated on this chart,
depending on whether greater or lesser sales charges and fees were incurred by
shareholders investing in the other classes.

All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
values may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.


                                                                              34
<PAGE>
 
THE HIGHGROWTH PORTFOLIO

Schedule of Investments                                         January 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
   Shares                                       Description                                          Value
=============================================================================================================
<S>           <C>                                                                                <C>         
Underlying Funds--99.3%
  1,305,286   Smith Barney Aggressive Growth Fund Inc.                                           $ 52,146,176
  1,622,325   Smith Barney Equity Funds - Smith Barney Growth and Income Fund                      25,519,171
  1,492,393   Smith Barney Funds, Inc. - Large Cap Value Fund                                      25,758,705
  4,065,004   Smith Barney Income Funds - Smith Barney High Income Fund                            48,414,200
  3,844,220   Smith Barney Investment Funds Inc. - Concert Peachtree Growth Fund                   51,820,089
  1,842,389   Smith Barney Investment Funds Inc. - Smith Barney Managed Growth Fund                25,903,996
  1,969,733   Smith Barney Investment Funds Inc. - Smith Barney Special Equities Fund              50,661,527
  4,161,337   Smith Barney Investment Trust - Smith Barney Large Capitalization Growth Fund        53,348,344
  5,775,839   Smith Barney Small Cap Blend Fund, Inc.                                              77,627,273
  5,275,866   Smith Barney World Funds, Inc. - International Equity Portfolio                     106,308,705
-------------------------------------------------------------------------------------------------------------
              Total Underlying Funds (Cost--$491,973,756)                                         517,508,186
=============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
    Face
   Amount                                       Description                                          Value
=============================================================================================================
<S>           <C>                                                                                <C>         
Repurchase Agreement--0.7%
$ 3,591,000   Chase Securities Inc., 5.517% due 2/2/98; Proceeds at maturity--$3,592,651;
              (Fully collateralized by U.S. Treasury Notes, 6.125% due 9/30/00;
              Market value--$3,662,828) (Cost--$3,591,000)                                          3,591,000
=============================================================================================================
              Total Investments--100% (Cost--$495,564,756*)                                      $521,099,186
=============================================================================================================
</TABLE>

*     Aggregate cost for Federal income tax purposes is substantially the same.


                       See Notes to Financial Statements.

                                                                              35
<PAGE>
 
THE GROWTH PORTFOLIO

Schedule of Investments                                         January 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
   Shares                                       Description                                          Value
=============================================================================================================
<S>           <C>                                                                                <C>         
Underlying Funds--99.5%
  1,696,927   Smith Barney Aggressive Growth Fund Inc.                                           $ 67,792,253
  4,206,604   Smith Barney Equity Funds - Smith Barney Growth and Income Fund                      66,169,888
  3,861,433   Smith Barney Funds, Inc. - Large Cap Value Fund                                      66,648,334
  5,246,172   Smith Barney Income Funds - Smith Barney High Income Fund                            62,481,911
  4,995,013   Smith Barney Investment Funds Inc. - Concert Peachtree Growth Fund                   67,332,787
  6,719,414   Smith Barney Investment Funds Inc. - Smith Barney Government Securities Fund         66,051,844
  4,998,575   Smith Barney Investment Funds Inc. - Smith Barney Investment Grade Bond Fund         66,631,009
  2,377,252   Smith Barney Investment Funds Inc. - Smith Barney Managed Growth Fund                33,424,175
  1,295,488   Smith Barney Investment Funds Inc. - Smith Barney Special Equities Fund              33,319,977
  2,655,462   Smith Barney Investment Trust - Smith Barney Large Capitalization Growth Fund        34,043,023
  2,500,599   Smith Barney Small Cap Blend Fund, Inc.                                              33,608,063
  3,398,089   Smith Barney World Funds, Inc. - International Equity Portfolio                      68,471,510
-------------------------------------------------------------------------------------------------------------
              Total Underlying Funds (Cost--$632,338,332)                                         665,974,774
=============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
    Face
   Amount                                       Description                                          Value
=============================================================================================================
<S>           <C>                                                                                <C>         
Repurchase Agreement--0.5%
$ 3,156,000   Chase Securities Inc., 5.517% due 2/2/98; Proceeds at maturity--$3,157,451;
              (Fully collateralized by U.S. Treasury Notes, 6.125% due 9/30/00;
              Market value--$3,219,127) (Cost--$3,156,000)                                          3,156,000
=============================================================================================================
              Total Investments--100% (Cost--$635,494,332*)                                      $669,130,774
=============================================================================================================
</TABLE>

*     Aggregate cost for Federal income tax purposes is substantially the same.


                       See Notes to Financial Statements.

                                                                              36
<PAGE>
 
THE BALANCED PORTFOLIO

Schedule of Investments                                         January 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
   Shares                                       Description                                          Value
=============================================================================================================
<S>           <C>                                                                                <C>         
Underlying Funds--99.2%
  2,800,321   Smith Barney Appreciation Fund Inc.                                                $ 39,316,511
  1,241,121   Smith Barney Equity Funds - Smith Barney Growth and Income Fund                      19,522,836
  3,835,450   Smith Barney Fundamental Value Fund Inc.                                             39,236,662
  1,136,415   Smith Barney Funds, Inc. - Large Cap Value Fund                                      19,614,536
  4,248,984   Smith Barney Funds, Inc. - Short-Term U.S. Treasury Securities Fund                  17,505,814
  2,285,614   Smith Barney Income Funds - Smith Barney Convertible Fund                            38,832,591
  7,258,253   Smith Barney Income Funds - Smith Barney Diversified Strategic Income Fund           58,283,779
  1,756,507   Smith Barney Income Funds - Smith Barney Premium Total Return Fund                   38,924,214
  1,986,440   Smith Barney Investment Funds Inc. - Smith Barney Government Securities Fund         19,526,710
  3,019,758   Smith Barney Managed Governments Fund Inc.                                           38,985,085
  1,747,519   Smith Barney World Funds, Inc. - Global Government Bond Portfolio                    20,445,979
  3,032,189   Smith Barney World Funds, Inc. - International Balanced Portfolio                    39,024,277
-------------------------------------------------------------------------------------------------------------
              Total Underlying Funds (Cost--$380,925,230)                                         389,218,994
=============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
    Face
   Amount                                       Description                                          Value
=============================================================================================================
<S>           <C>                                                                                <C>         
Repurchase Agreement--0.8%
$3,303,000    Chase Securities Inc., 5.517% due 2/2/98; Proceeds at maturity--$3,304,519;
              (Fully collateralized by U.S. Treasury Notes, 6.125% due 9/30/00;
              Market value--$3,369,068) (Cost--$3,303,000)                                          3,303,000
=============================================================================================================
              Total Investments--100% (Cost--$384,228,230*)                                      $392,521,994
=============================================================================================================
</TABLE>

*     Aggregate cost for Federal income tax purposes is substantially the same.


                       See Notes to Financial Statements.

                                                                              37
<PAGE>
 
THE CONSERVATIVE PORTFOLIO

Schedule of Investments                                         January 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
   Shares                                       Description                                          Value
=============================================================================================================
<S>           <C>                                                                                <C>         
Underlying Funds--99.0%
    758,351   Smith Barney Appreciation Fund Inc.                                                $ 10,647,251
    520,063   Smith Barney Fundamental Value Fund Inc.                                              5,320,252
  1,153,304   Smith Barney Funds, Inc. - Short-Term U.S. Treasury Securities Fund                   4,751,615
    618,095   Smith Barney Income Funds - Smith Barney Convertible Fund                            10,501,435
  2,615,310   Smith Barney Income Funds - Smith Barney Diversified Strategic Income Fund           21,000,940
    881,700   Smith Barney Income Funds - Smith Barney High Income Fund                            10,501,055
    237,462   Smith Barney Income Funds - Smith Barney Premium Total Return Fund                    5,262,158
  1,081,613   Smith Barney Investment Funds Inc. - Smith Barney Government Securities Fund         10,632,265
  1,229,578   Smith Barney Managed Governments Fund Inc.                                           15,873,853
    449,957   Smith Barney World Funds, Inc. - Global Government Bond Portfolio                     5,264,498
    416,763   Smith Barney World Funds, Inc. - International Balanced Portfolio                     5,363,750
-------------------------------------------------------------------------------------------------------------
              Total Underlying Funds (Cost--$104,005,055)                                         105,119,072
=============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
    Face
   Amount                                       Description                                          Value
=============================================================================================================
<S>           <C>                                                                                <C>         
Repurchase Agreement--1.0%
 $1,087,000   Chase Securities Inc., 5.517% due 2/2/98; Proceeds at maturity--$1,087,500;
              (Fully collateralized by U.S. Treasury Notes, 6.125% due 9/30/00;
              Market value--$1,108,743) (Cost--$1,087,000)                                          1,087,000
=============================================================================================================
              Total Investments--100% (Cost--$105,092,055*)                                      $106,206,072
=============================================================================================================
</TABLE>

*     Aggregate cost for Federal income tax purposes is substantially the same.


                       See Notes to Financial Statements.

                                                                              38
<PAGE>
 
THE INCOME PORTFOLIO

Schedule of Investments                                         January 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
   Shares                                       Description                                          Value
=============================================================================================================
<S>           <C>                                                                                <C>         
Underlying Funds--99.0%
    218,356   Smith Barney Appreciation Fund Inc.                                                $ 3,065,719
  1,393,314   Smith Barney Funds, Inc. - Short-Term U.S. Treasury Securities Fund                  5,740,453
    176,496   Smith Barney Income Funds - Smith Barney Convertible Fund                            2,998,669
  1,493,052   Smith Barney Income Funds - Smith Barney Diversified Strategic Income Fund          11,989,204
  1,006,211   Smith Barney Income Funds - Smith Barney High Income Fund                           11,983,976
    135,774   Smith Barney Income Funds - Smith Barney Premium Total Return Fund                   3,008,750
    928,846   Smith Barney Investment Funds Inc. - Smith Barney Government Securities Fund         9,130,553
    937,439   Smith Barney Managed Governments Fund Inc.                                          12,102,338
------------------------------------------------------------------------------------------------------------
              Total Underlying Funds (Cost--$58,906,083)                                          60,019,662
============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
    Face
   Amount                                       Description                                          Value
=============================================================================================================
<S>           <C>                                                                                <C>         
Repurchase Agreement--1.0%
   $595,000   Chase Securities Inc., 5.517% due 2/2/98; Proceeds at maturity--$595,274;
              (Fully collateralized by U.S. Treasury Notes, 6.125% due 9/30/00;
              Market value--$606,900) (Cost--$595,000)                                                595,000
=============================================================================================================
              Total Investments--100% (Cost--$59,501,083*)                                        $60,614,662
=============================================================================================================
</TABLE>

*     Aggregate cost for Federal income tax purposes is substantially the same.


                       See Notes to Financial Statements.

                                                                              39
<PAGE>
 
Statements of Assets and Liabilities                            January 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                   High Growth       Growth       Balanced     Conservative      Income
                                                    Portfolio      Portfolio      Portfolio      Portfolio      Portfolio
==========================================================================================================================
<S>                                               <C>            <C>            <C>            <C>            <C>         
Assets:
    Investments, at cost                          $495,564,756   $635,494,332   $384,228,230   $105,092,055   $ 59,501,083
==========================================================================================================================
    Investments, at value                         $521,099,186   $669,130,774   $392,521,994   $106,206,072   $ 60,614,662
    Cash                                                   462            643             14            160            582
    Receivable for Fund shares sold                    852,742      1,178,173        545,435        290,262         56,133
    Dividends and interest receivable                      550      1,194,864         55,389         14,999         18,020
    Receivable from manager                                 --             --             --             --         70,128
    Other Assets                                       127,652        106,186         71,515         27,919         13,279
--------------------------------------------------------------------------------------------------------------------------
    Total Assets                                   522,080,592    671,610,640    393,194,347    106,539,412     60,772,804
--------------------------------------------------------------------------------------------------------------------------
Liabilities:
    Payable for securities purchased                 1,139,998      1,109,189      1,332,794        561,593        321,782
    Payable for Fund shares purchased                  419,327        491,578        381,070        109,054         15,060
    Dividends payable                                       --             --             --             --         39,665
    Accrued expenses                                   285,346        802,609        491,417         28,090             --
--------------------------------------------------------------------------------------------------------------------------
    Total Liabilities                                1,844,671      2,403,376      2,205,281        698,737        376,507
==========================================================================================================================
    Total Net Assets                              $520,235,921   $669,207,264   $390,989,066   $105,840,675   $ 60,396,297
==========================================================================================================================
Net Assets:
    Par value of capital shares                   $     40,134   $     51,494   $     30,995   $      8,701   $      5,137
    Capital paid in excess of par value            487,651,986    623,962,411    371,189,801    102,385,448     58,832,427
    Undistributed net investment income                     --        698,689      1,216,914        425,584             --
    Accumulated net realized gain
      on investments                                 7,009,371     10,858,228     10,257,592      1,906,925        445,154
    Net unrealized appreciation
      of investments                                25,534,430     33,636,442      8,293,764      1,114,017      1,113,579
==========================================================================================================================
    Total Net Assets                              $520,235,921   $669,207,264   $390,989,066   $105,840,675   $ 60,396,297
==========================================================================================================================
Shares Outstanding:
    Class A                                         19,983,548     21,545,068     13,220,760      4,208,606      2,516,106
    Class B                                         17,767,475     26,419,492     15,363,946      3,996,496      2,258,883
    Class C                                          2,148,712      3,305,493      2,178,436        443,011        303,442
    Class Z                                            234,195        223,943        231,377         52,431         58,781
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value:
    Class A (and redemption price)                $      12.97   $      12.99   $      12.62   $      12.17   $      11.75
    Class B*                                      $      12.95   $      13.00   $      12.61   $      12.16   $      11.76
    Class C**                                     $      12.96   $      13.00   $      12.61   $      12.16   $      11.76
    Class Z (and redemption price)                $      12.97   $      12.99   $      12.61   $      12.17   $      11.75
--------------------------------------------------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
    (net asset value plus 4.71% of
      net asset value per share)                            --             --             --   $      12.74   $      12.30
    (net asset value plus 5.26% of
      net asset value per share)                  $      13.65   $      13.67   $      13.28             --             --
==========================================================================================================================
</TABLE>

*     Redemption price is NAV of Class B shares reduced by a 5.00% CDSC (4.50%
      for the Conservative Portfolio and the Income Portfolio) if shares are
      redeemed within one year from initial purchase (See Note 2).
**    Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if
      shares are redeemed within the first year of purchase (See Note 2).

                       See Notes to Financial Statements.

                                                                              40
<PAGE>
 
Statements of Operations                     For the Year Ended January 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                              High Growth      Growth           Balanced        Conservative       Income
                                               Portfolio      Portfolio         Portfolio         Portfolio       Portfolio
===========================================================================================================================
<S>                                          <C>             <C>               <C>               <C>             <C>       
Investment Income:
    Income distributions from
       Underlying Funds                      $ 5,147,883     $14,317,566       $14,142,620       $5,115,496      $3,348,390
    Short-term capital gain distributions
         from Underlying Funds                 1,394,162       3,531,566         2,581,064          605,651         139,248
    Interest                                     284,197         335,729           183,108           53,054          24,141
---------------------------------------------------------------------------------------------------------------------------
    Total Investment Income                    6,826,242      18,184,861        16,906,792        5,774,201       3,511,779
---------------------------------------------------------------------------------------------------------------------------
Expenses:
    Distribution fees (Note 2)                 2,662,674       3,750,315         2,144,655          427,689         241,455
    Other expenses (Note 2)                    1,494,425       1,905,460         1,102,666          297,381         169,641
---------------------------------------------------------------------------------------------------------------------------
    Total Expenses                             4,157,099       5,655,775         3,247,321          725,070         411,096
---------------------------------------------------------------------------------------------------------------------------
Net Investment Income                          2,669,143      12,529,086        13,659,471        5,049,131       3,100,683
---------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Note 3):
    Capital gain distributions from
          Underlying Funds                     9,294,472      14,903,123        11,336,276        2,150,263         486,661
    Realized gain on sale of Underlying Funds  8,481,479      14,590,109         5,463,767        2,053,158         896,756
---------------------------------------------------------------------------------------------------------------------------
    Net Realized Gain                         17,775,951      29,493,232        16,800,043        4,203,421       1,383,417
---------------------------------------------------------------------------------------------------------------------------
    Change in Net Unrealized Appreciation
          of Investments:
    Beginning of year                         14,056,549      16,726,046         6,344,266        1,130,684         378,418
    End of year                               25,534,430      33,636,442         8,293,764        1,114,017       1,113,579
---------------------------------------------------------------------------------------------------------------------------
    Increase (Decrease) in Net Unrealized
         Appreciation                         11,477,881      16,910,396         1,949,498          (16,667)        735,161
===========================================================================================================================
Net Gain on Investments                       29,253,832      46,403,628        18,749,541        4,186,754       2,118,578
===========================================================================================================================
Increase in Net Assets From Operations       $31,922,975     $58,932,714       $32,409,012       $9,235,885      $5,219,261
===========================================================================================================================
</TABLE>


                       See Notes to Financial Statements.

                                                                              41
<PAGE>
 
Statements of Changes in Net Assets          For the Year Ended January 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                             High Growth       Growth        Balanced       Conservative       Income
                                              Portfolio       Portfolio     Portfolio        Portfolio        Portfolio
========================================================================================================================
<S>                                         <C>             <C>            <C>              <C>              <C>        
Operations:
    Net investment income                   $  2,669,143    $ 12,529,086   $ 13,659,471     $  5,049,131     $ 3,100,683
    Net realized gain                         17,775,951      29,493,232     16,800,043        4,203,421       1,383,417
    Increase (decrease) in
        net unrealized appreciation           11,477,881      16,910,396      1,949,498          (16,667)        735,161
------------------------------------------------------------------------------------------------------------------------
    Increase in Net Assets
      From Operations                         31,922,975      58,932,714     32,409,012       9,235,885        5,219,261
------------------------------------------------------------------------------------------------------------------------
Distributions to
Shareholders From:
    Net investment income                     (2,809,546)    (12,438,206)   (12,443,765)     (4,682,272)      (3,100,202)
    Net realized gain                        (13,312,592)    (22,116,042)   (10,546,267)     (3,245,447)      (1,379,897)
------------------------------------------------------------------------------------------------------------------------
    Decrease in Net Assets From
      Distributions to Shareholders          (16,122,138)    (34,554,248)   (22,990,032)     (7,927,719)      (4,480,099)
------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (Note 5):
    Net proceeds from sale of shares         247,787,678     288,173,524    191,523,747      50,928,148       32,582,708
    Net asset value of shares issued
      for reinvestment of dividends           15,986,768      34,055,452     22,287,746       7,648,480        3,947,812
    Cost of shares reacquired                (73,993,785)    (81,145,273)   (55,067,476)    (16,949,496)     (14,603,848)
------------------------------------------------------------------------------------------------------------------------
    Increase in Net Assets From
      Fund Share Transactions                189,780,661     241,083,703    158,744,017      41,627,132       21,926,672
------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets                       205,581,498     265,462,169    168,162,997      42,935,298       22,665,834
Net Assets:
    Beginning of year                        314,654,423     403,745,095    222,826,069       62,905,377      37,730,463
========================================================================================================================
    End of year*                            $520,235,921    $669,207,264   $390,989,066     $105,840,675     $60,396,297
========================================================================================================================
* Includes undistributed
    net investment income of:                         --    $    698,689   $  1,216,914     $    425,584              --
========================================================================================================================
</TABLE>


                       See Notes to Financial Statements.

                                                                              42
<PAGE>
 
Statements of Changes in Net Assets     For the Period Ended January 31, 1997(a)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                             High Growth       Growth          Balanced       Conservative        Income
                                              Portfolio       Portfolio        Portfolio        Portfolio        Portfolio
===========================================================================================================================
<S>                                         <C>             <C>               <C>               <C>             <C>        
Operations:
    Net investment income                   $  3,591,883    $  8,447,855      $  4,704,927      $ 1,685,111     $ 1,199,882
    Net realized capital gain distribution     3,081,396       3,809,172         4,003,816          948,951         441,634
    Increase in net unrealized appreciation   14,056,549      16,726,046         6,344,266        1,130,684         378,418
---------------------------------------------------------------------------------------------------------------------------
    Increase in Net Assets
      From Operations                         20,729,828      28,983,073        15,053,009        3,764,746       2,019,934
---------------------------------------------------------------------------------------------------------------------------
Distributions to
Shareholders From:
    Net investment income                     (3,499,937)     (7,905,908)       (4,740,122)      (1,634,350)     (1,205,277)
    Net realized gains                          (535,384)       (328,134)               --               --              --
---------------------------------------------------------------------------------------------------------------------------
    Decrease in Net Assets From
      Distributions to Shareholders           (4,035,321)     (8,234,042)       (4,740,122)      (1,634,350)     (1,205,277)
---------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (Note 5):
    Net proceeds from sale of shares         312,840,370     393,822,423       218,875,840       65,095,637      41,434,601
    Net asset value of shares issued
      for reinvestment of dividends            4,014,986       8,128,066         4,542,233        1,547,780       1,026,312
    Cost of shares reacquired                (18,995,440)    (18,954,425)      (10,904,891)      (5,868,436)     (5,545,107)
---------------------------------------------------------------------------------------------------------------------------
    Increase in Net Assets From
      Fund Share Transactions                297,859,916     382,996,064       212,513,182       60,774,981      36,915,806
---------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets                       314,554,423     403,745,095       222,826,069       62,905,377      37,730,463
Net Assets:
    Beginning of period                          100,000              --                --               --              --
===========================================================================================================================
    End of period*                          $314,654,423    $403,745,095      $222,826,069      $62,905,377     $37,730,463
===========================================================================================================================
* Includes undistributed (overdistributed)
    net investment income of:               $     91,946    $    541,947      $    (35,195)     $    50,761     $    (5,395)
===========================================================================================================================
</TABLE>

(a)   For the period from February 5, 1996 (commencement of operations) to
      January 31, 1997.


                       See Notes to Financial Statements.

                                                                              43
<PAGE>
 
Notes to Financial Statements
--------------------------------------------------------------------------------

1. Significant Accounting Policies

The High Growth, Growth, Balanced, Conservative and Income Portfolios
("Portfolios") are separate investment portfolios of the Smith Barney Concert
Allocation Series Inc. ("Fund"), formerly known as the Smith Barney Concert
Series Inc. The Fund, a Maryland corporation, is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end management
investment company and consists of these portfolios and five other separate
investment portfolios: Select High Growth, Select Growth, Select Balanced,
Select Conservative and Select Income Portfolios. The Portfolios invest in other
mutual funds ("Underlying Funds") managed by Mutual Management Corp. ("MMC"),
formerly known as Smith Barney Mutual Funds Management Inc., a subsidiary of
Salomon Smith Barney Holdings Inc. ("SSBH"). The financial statements and
financial highlights for the other portfolios are presented in a separate annual
report.

The significant accounting policies consistently followed by the Fund are: (a)
investments in the Underlying Funds are valued at the closing net asset value
per share of each Underlying Fund on the day of valuation; (b) Income
distributions and short-term capital gain distributions from Underlying Funds
are recorded on the ex-dividend date as investment income and interest income is
recorded on an accrual basis; (c) gains or losses on the sale of Underlying
Funds are calculated by using the specific identification method; (d) dividends
and distributions to shareholders are recorded on the ex-dividend date; (e) the
Fund intends to comply with the applicable provisions of the Internal Revenue
Code of 1986, as amended, pertaining to regulated investment companies to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; (f) 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. Accordingly,
overdistributed net investment income in the amounts of $48,457, $65,862,
$36,403, $7,964 and $4,914 have been reclassified to paid-in capital for the
High Growth, Growth, Balanced, Conservative and Income Portfolios, respectively,
for the year ended January 31, 1998. Net Investment income, net realized gains
and net assets were not affected by these adjustments: (g) direct expenses are
charged to each class of each portfolio; management fees are allocated on the
basis of the relative net assets of each class; and (h) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.

2. Management Agreement and Other Transactions

MMC is the investment manager for the Fund. Each Portfolio pays MMC a monthly
fee calculated at an annual rate of 0.35% on the average daily net assets. From
this fee all expenses of the Fund are deducted except for Rule 12b-1 Plan
Distribution fees and extraordinary expenses. If expenses exceed the 0.35% fee,
this amount is paid on behalf of the Fund by MMC.

Smith Barney Inc. ("SB"), another subsidiary of SSBH, acts as distributor of
Fund shares. For the year ended January 31, 1998, SB received sales charges of
approximately $1,163,000 on sales of the Portfolios' Class A shares.

The High Growth Portfolio, Growth Portfolio and Balanced Portfolio have a
contingent deferred sales charge ("CDSC") of 5.00% on Class B shares, which
applies if redemption occurs less than one year from initial purchase and
declines thereafter by 1.00% per year until no CDSC is incurred. The
Conservative Portfolio and Income Portfolio have a CDSC of 4.50% on Class B
shares, which applies if redemption occurs less than one year from initial
purchase and declines by 0.50% the first year after purchase and thereafter by
1.00% per year until no CDSC is incurred. The Portfolios' Class C shares have a
1.00% CDSC, which applies if redemption occurs within the first year of
purchase. In certain cases, Class A shares also have a 1.00% CDSC, which applies
if redemption occurs within the first year of purchase. This CDSC only applies
to those purchases of Class A shares, which when combined with current holdings
of Class A shares, equal or exceed $500,000 in the aggregate. These purchases do
not incur an initial sales charge. For the year ended January 31, 1998, CDSCs
paid to SB were approximately:

Portfolio                                             Class A  Class B   Class C
--------------------------------------------------------------------------------

High Growth                                                --  $260,000  $11,000
Growth                                                     --   404,000   11,000
Balanced                                               $1,000   194,000    5,000
Conservative                                               --    41,000       --
Income                                                     --    32,000    1,000
--------------------------------------------------------------------------------

Pursuant to a Distribution Plan, the Portfolios pay a service fee with respect
to their Class A, B and C shares calculated at an annual rate of 0.25% of the
average daily net assets of each respective class. In addition, the High Growth
Portfolio, Growth Portfolio and Balanced Portfolio each pays a distribution fee
with respect to their Class B and C shares calculated at an annual rate of 0.75%
of the average daily net assets of each class. The Conservative Portfolio and
Income Portfolio each pays a distribution fee with respect to their Class B and
C shares calculated at the annual rates of 0.50% and 0.45%, respectively, of the
average daily net assets of each class.


                                                                              44
<PAGE>
 
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------

For the year ended January 31, 1998, total Distribution Plan fees were as
follows:

Portfolio                                          Class A    Class B    Class C
--------------------------------------------------------------------------------
High Growth                                       $531,389  $1,892,285  $239,000
Growth                                             560,372   2,815,048   374,895
Balanced                                           331,374   1,569,471   243,810
Conservative                                       102,331     292,108    33,250
Income                                              58,968     163,187    19,300
--------------------------------------------------------------------------------

All officers and one Director of the Fund are employees of SB.

3. Investments

During the year ended January 31, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:

Portfolio                                               Purchases       Sales
--------------------------------------------------------------------------------
High Growth                                           $351,892,545  $166,735,305
Growth                                                 460,387,015   225,996,903
Balanced                                               234,551,630    72,671,936
Conservative                                            64,133,346    23,322,656
Income                                                  34,181,537    13,303,176
--------------------------------------------------------------------------------

At January 31, 1998, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:

                                                                  Net Unrealized
Portfolio                             Appreciation  Depreciation    Appreciation
--------------------------------------------------------------------------------
High Growth                            $29,286,884  $(3,752,454)     $25,534,430
Growth                                  38,673,891   (5,037,449)      33,636,442
Balanced                                13,603,312   (5,309,548)       8,293,764
Conservative                             2,894,557   (1,780,540)       1,114,017
Income                                   1,439,700     (326,121)       1,113,579
--------------------------------------------------------------------------------

4. Repurchase Agreements

The Portfolios purchase (and their custodian takes possession of) U.S.
government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Portfolios require
continual maintenance of the market value of the collateral in amounts at least
equal to the repurchase price.

5. Capital Shares

At January 31, 1998, the Fund had 5.5 billion shares of capital stock authorized
with a par value of $0.001 per share. The Portfolios have the ability to issue
multiple classes of shares. Each share of a class represents an identical
interest in the Portfolios and has the same rights, except that each class bears
certain expenses specifically related to the distribution of its shares.


                                                                              45
<PAGE>
 
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------

At January 31, 1998, total paid-in capital amounted to the following for each
class:

Portfolio                      Class A        Class B      Class C      Class Z
--------------------------------------------------------------------------------

High Growth                  $243,265,019  $215,428,761  $25,901,255  $3,097,085
Growth                        262,167,411   319,414,664   39,479,732   2,952,098
Balanced                      158,857,969   183,748,228   25,651,859   2,962,740
Conservative                   49,520,525    47,065,851    5,168,399     639,374
Income                         28,829,355    25,832,061    3,482,595     693,553
--------------------------------------------------------------------------------

Transactions in shares of each class within each Portfolio were as follows:

<TABLE>
<CAPTION>
                                    Year Ended January 31, 1998      Period Ended January 31, 1997+
                                    ---------------------------      ------------------------------
                                      Shares           Amount          Shares          Amount
===================================================================================================
<S>                                 <C>             <C>              <C>            <C>         
High Growth Portfolio:
Class A
    Shares sold                     10,010,305      $128,519,682     13,124,757     $154,592,156
    Shares issued on reinvestment      674,466         8,707,357        224,774        2,687,404
    Shares redeemed                 (3,113,531)      (40,195,802)      (937,223)     (11,121,654)
------------------------------------------------------------------------------------------------
    Net Increase                     7,571,240      $ 97,031,237     12,412,308     $146,157,906
================================================================================================
Class B
    Shares sold                      8,083,651      $103,764,047     11,836,415     $138,836,232
    Shares issued on reinvestment      496,177         6,400,681         97,776        1,166,635
    Shares redeemed                 (2,190,222)      (28,152,547)      (556,322)      (6,564,813)
------------------------------------------------------------------------------------------------
    Net Increase                     6,389,606      $ 82,012,181     11,377,869     $133,438,054
================================================================================================
Class C
    Shares sold                        967,197      $ 12,449,955      1,654,072     $ 19,404,342
    Shares issued on reinvestment       60,158           776,640         13,489          160,947
    Shares redeemed                   (435,887)       (5,582,392)      (110,317)      (1,305,526)
------------------------------------------------------------------------------------------------
    Net Increase                       591,468      $  7,644,203      1,557,244     $ 18,259,763
================================================================================================
Class Y*
    Shares sold                             --                --            284     $      3,447
    Shares issued on reinvestment           --                --             --               --
    Shares redeemed                         --                --           (284)          (3,447)
------------------------------------------------------------------------------------------------
    Net Increase                            --                --             --     $        --
================================================================================================
Class Z**
    Shares sold                        230,648      $  3,053,994            340     $      4,193
    Shares issued on reinvestment        7,908           102,090             --               --
    Shares redeemed                     (4,701)          (63,044)            --               --
------------------------------------------------------------------------------------------------
    Net Increase                       233,855      $  3,093,040            340     $      4,193
================================================================================================
</TABLE>

+     For the period from February 5, 1996 (inception date) to January 31, 1997.
*     For Class Y shares, transactions are for the period from January 13, 1997
      (inception date) to January 15, 1997.
**    For the period ended January 31, 1997, Class Z shares' transactions are
      for the period from January 17, 1997 (inception date) to January 31, 1997.


                                                                              46
<PAGE>
 
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                   Year Ended January 31, 1998     Period Ended January 31, 1997+
                                   ---------------------------     ------------------------------
                                     Shares           Amount          Shares          Amount
-------------------------------------------------------------------------------------------------
<S>                                <C>             <C>              <C>            <C>         
GROWTH PORTFOLIO:
Class A
    Shares sold                    10,133,515      $130,849,284     13,495,334     $158,086,985
    Shares issued on reinvestment   1,205,901        15,556,116        325,034        3,912,736
    Shares redeemed                (2,864,046)      (37,262,268)      (750,670)      (8,948,320)
-----------------------------------------------------------------------------------------------
    Net Increase                    8,475,370      $109,143,132     13,069,698     $153,051,401
===============================================================================================
Class B
    Shares sold                    10,828,351      $139,348,855     17,577,354     $205,297,381
    Shares issued on reinvestment   1,263,705        16,327,065        304,841        3,665,936
    Shares redeemed                (2,826,910)      (36,586,917)      (727,849)      (8,603,603)
-----------------------------------------------------------------------------------------------
    Net Increase                    9,265,146      $119,089,003     17,154,346     $200,359,714
===============================================================================================
Class C
    Shares sold                     1,167,870      $ 15,084,743      2,610,438     $ 30,432,078
    Shares issued on reinvestment     155,822         2,013,222         45,684          549,394
    Shares redeemed                  (555,673)       (7,192,671)      (118,648)      (1,402,502)
-----------------------------------------------------------------------------------------------
    Net Increase                      768,019        $9,905,294      2,537,474     $ 29,578,970
===============================================================================================
Class Z*
    Shares sold                       218,816      $  2,890,642            488     $      5,979
    Shares issued on reinvestment      12,339           159,049             --               --
    Shares redeemed                    (7,700)         (103,417)            --               --
-----------------------------------------------------------------------------------------------
    Net Increase                      223,455      $  2,946,274            488     $      5,979
===============================================================================================
Balanced Portfolio:
Class A
    Shares sold                     7,062,248      $ 89,012,976      7,749,149      $89,908,388
    Shares issued on reinvestment     812,798        10,223,473        175,557        2,069,938
    Shares redeemed                (2,144,347)      (27,210,876)      (434,645)      (5,130,613)
-----------------------------------------------------------------------------------------------
    Net Increase                    5,730,699      $ 72,025,573      7,490,061     $ 86,847,713
===============================================================================================
Class B
    Shares sold                     7,134,949      $ 89,763,171      9,437,519     $109,225,248
    Shares issued on reinvestment     834,347        10,489,664        180,806        2,129,887
    Shares redeemed                (1,826,017)      (23,166,035)      (397,658)      (4,675,573)
-----------------------------------------------------------------------------------------------
    Net Increase                    6,143,279      $ 77,086,800      9,220,667     $106,679,562
===============================================================================================
Class C
    Shares sold                       776,967      $  9,788,923      1,709,183     $ 19,739,648
    Shares issued on reinvestment     114,791         1,442,518         29,105          342,408
    Shares redeemed                  (358,733)       (4,560,118)       (92,877)      (1,098,705)
-----------------------------------------------------------------------------------------------
    Net Increase                      533,025      $  6,671,323      1,645,411     $ 18,983,351
===============================================================================================
Class Z*
    Shares sold                       230,880      $  2,958,677            211     $      2,556
    Shares issued on reinvestment      10,474           132,091             --               --
    Shares redeemed                   (10,188)         (130,447)            --               --
-----------------------------------------------------------------------------------------------
    Net Increase                      231,166      $  2,960,321            211     $      2,556
===============================================================================================
</TABLE>

+     For the period from February 5, 1996 (inception date) to January 31, 1997.
*     For the period ended January 31, 1997, Class Z shares' transactions are
      for the period from January 17, 1997 (inception date) to January 31, 1997.


                                                                              47
<PAGE>
 
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                              Year Ended January 31, 1998    Period Ended January 31, 1997+
                                                                 Shares           Amount          Shares          Amount
---------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>              <C>           <C>         
Conservative Portfolio:
Class A
    Shares sold                                                2,101,072       $25,731,997      2,705,133     $ 31,087,958
    Shares issued on reinvestment                                317,020         3,840,702         70,128          813,639
    Shares redeemed                                             (771,353)       (9,452,258)      (213,394)      (2,497,676)
--------------------------------------------------------------------------------------------------------------------------
    Net Increase                                               1,646,739       $20,120,441      2,561,867     $ 29,403,921
==========================================================================================================================
Class B
    Shares sold                                                1,817,304       $22,221,744      2,565,271     $ 29,522,662
    Shares issued on reinvestment                                279,308         3,380,940         55,499          643,899
    Shares redeemed                                             (480,509)       (5,906,489)      (240,377)      (2,793,254)
--------------------------------------------------------------------------------------------------------------------------
    Net Increase                                               1,616,103       $19,696,195      2,380,393     $ 27,373,307
==========================================================================================================================
Class C
    Shares sold                                                  171,125       $ 2,100,179        389,145     $  4,483,964
    Shares issued on reinvestment                                 31,837           385,261          7,781           90,242
    Shares redeemed                                             (107,293)       (1,313,296)       (49,584)        (577,506)
--------------------------------------------------------------------------------------------------------------------------
    Net Increase                                                  95,669       $ 1,172,144        347,342     $  3,996,700
==========================================================================================================================
Class Z*
    Shares sold                                                   70,965       $   874,228             89     $      1,053
    Shares issued on reinvestment                                  3,420            41,577             --               --
    Shares redeemed                                              (22,043)         (277,453)            --               --
--------------------------------------------------------------------------------------------------------------------------
    Net Increase                                                  52,342       $   638,352             89     $      1,053
==========================================================================================================================
Income Portfolio:
Class A
    Shares sold                                                1,518,353       $17,876,653      1,686,791     $ 19,048,638
    Shares issued on reinvestment                                179,710         2,105,847         46,330          526,416
    Shares redeemed                                             (727,648)       (8,590,070)      (187,430)      (2,135,737)
--------------------------------------------------------------------------------------------------------------------------
    Net Increase                                                 970,415       $11,392,430      1,545,691     $ 17,439,317
==========================================================================================================================
Class B
    Shares sold                                                1,016,644       $11,985,471      1,777,131     $ 20,069,722
    Shares issued on reinvestment                                138,552         1,623,669         39,677          450,386
    Shares redeemed                                             (440,392)       (5,187,806)      (272,729)      (3,107,175)
--------------------------------------------------------------------------------------------------------------------------
    Net Increase                                                 714,804       $ 8,421,334      1,544,079     $ 17,412,933
==========================================================================================================================
Class C
    Shares sold                                                  161,208       $ 1,904,319        205,441     $  2,315,807
    Shares issued on reinvestment                                 15,043           176,293          4,366           49,510
    Shares redeemed                                              (56,114)         (660,859)       (26,502)        (302,195)
--------------------------------------------------------------------------------------------------------------------------
    Net Increase                                                 120,137       $ 1,419,753        183,305     $  2,063,122
==========================================================================================================================
Class Z*
    Shares sold                                                   68,905       $   816,265             38     $        434
    Shares issued on reinvestment                                  3,572            42,003             --               --
    Shares redeemed                                              (13,734)         (165,113)            --               --
--------------------------------------------------------------------------------------------------------------------------
    Net Increase                                                  58,743       $   693,155             38     $        434
==========================================================================================================================
</TABLE>

+     For the period from February 5, 1996 (inception date) to January 31, 1997.
*     For the period ended January 31, 1997, Class Z shares' transactions are
      for the period from January 17, 1997 (inception date) to January 31, 1997.


                                                                              48
<PAGE>
 
Financial Highlights
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout the year:

<TABLE>
<CAPTION>
                                          Class A Shares         Class B Shares
                                      -------------------     -------------------
HIGH GROWTH PORTFOLIO                    1998     1997(1)        1998     1997(1)
=================================================================================
<S>                                   <C>        <C>          <C>        <C>     
Net Asset Value, Beginning of Year    $  12.41   $  11.40     $  12.41   $  11.40
---------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)              0.11       0.20         0.03       0.08
    Net realized and unrealized gain      0.91       1.05         0.89       1.04
---------------------------------------------------------------------------------
Total Income From Operations              1.02       1.25         0.92       1.12
---------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                (0.13)     (0.20)       (0.05)     (0.07)
    Net realized gains                   (0.33)     (0.04)       (0.33)     (0.04)
---------------------------------------------------------------------------------
Total Distributions                      (0.46)     (0.24)       (0.38)     (0.11)
---------------------------------------------------------------------------------
Net Asset Value, End of Year          $  12.97   $  12.41     $  12.95   $  12.41
---------------------------------------------------------------------------------
Total Return                              8.25%     11.04%++      7.44%      9.91%++
---------------------------------------------------------------------------------
Net Assets, End of Year (000's)       $259,212   $154,069     $230,142   $141,241
---------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses                              0.60%      0.60%+       1.35%      1.35%+
    Net investment income                 1.00       2.79+        0.25       2.04+
---------------------------------------------------------------------------------
Portfolio Turnover Rate                    39%          0%          39%         0%
---------------------------------------------------------------------------------

<CAPTION>
                                          Class C Shares         Class Z Shares
                                      -------------------     -------------------
                                         1998     1997(1)      1998(3)    1997(4)
=================================================================================
<S>                                   <C>        <C>          <C>        <C>     
Net Asset Value, Beginning of Year    $  12.42   $  11.40     $  12.41   $  12.24
---------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)              0.03       0.08         0.17       0.01
    Net realized and unrealized gain      0.89       1.05         0.89       0.16
---------------------------------------------------------------------------------
Total Income From Operations              0.92       1.13         1.06       0.17
---------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                (0.05)     (0.07)       (0.17)        --
    Net realized gains                   (0.33)     (0.04)       (0.33)        --
---------------------------------------------------------------------------------
Total Distributions                      (0.38)     (0.11)       (0.50)        --
---------------------------------------------------------------------------------
Net Asset Value, End of Year          $  12.96   $  12.42     $  12.97   $  12.41
---------------------------------------------------------------------------------
Total Return                              7.44%     10.00%++      8.58%      1.39%++
---------------------------------------------------------------------------------
Net Assets, End of Year (000's)       $ 27,845   $ 19,340     $  3,037        $4
---------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses                              1.35%      1.35%+       0.35%      0.35%+
    Net investment income                 0.25       2.04+        1.25       3.33*
---------------------------------------------------------------------------------
Portfolio Turnover Rate                     39%         0%          39%         0%
=================================================================================
</TABLE>

(1)   For the period from February 5, 1996 (inception date) to January 31, 1997.
(2)   Net investment income per share includes short-term capital gain
      distributions from Underlying Funds.
(3)   Per share amounts have been calculated using the monthly average shares
      method, rather than the undistributed net investment income method,
      because it more accurately reflects the per share data for the period.
(4)   For the period from January 17, 1997 (inception date) to January 31, 1997.
++    Total return is not annualized, as it may not be representative of the
      total return for the year.
+     Annualized.
*     Not annualized.


                                                                              49
<PAGE>
 
Financial Highlights (continued)
--------------------------------------------------------------------------------

For a share of each class of capital stock outstanding throughout the year:

<TABLE>
<CAPTION>
                                         Class A Shares          Class B Shares
                                      -------------------     -------------------
GROWTH PORTFOLIO                         1998     1997(1)        1998     1997(1)
---------------------------------------------------------------------------------
<S>                                   <C>        <C>          <C>        <C>     
Net Asset Value, Beginning of Year    $  12.32   $  11.40     $  12.33   $  11.40
---------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)              0.31       0.33         0.22       0.23
    Net realized and unrealized gain      1.14       0.92         1.12       0.94
---------------------------------------------------------------------------------
Total Income From Operations              1.45       1.25         1.34       1.17
---------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                (0.32)     (0.31)       (0.21)     (0.22)
    Net realized gains                   (0.46)     (0.02)       (0.46)     (0.02)
---------------------------------------------------------------------------------
Total Distributions                      (0.78)     (0.33)       (0.67)     (0.24)
---------------------------------------------------------------------------------
Net Asset Value, End of Year          $  12.99   $  12.32     $  13.00   $  12.33
Total Return                             11.82%     11.08%++     10.93%     10.32%++
---------------------------------------------------------------------------------
Net Assets, End of Year (000's)       $279,842   $161,026     $343,474   $211,434
---------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses                              0.60%      0.60%+       1.35%      1.35%+
    Net investment income                 2.77       4.79+        1.96       4.04+
---------------------------------------------------------------------------------
Portfolio Turnover Rate                     41%         0%          41%         0%
=================================================================================

<CAPTION>
                                         Class C Shares          Class Z Shares
                                      -------------------     -------------------
                                         1998     1997(1)      1998(3)    1997(4)
=================================================================================
<S>                                   <C>        <C>          <C>        <C>     
Net Asset Value, Beginning of Year    $  12.33   $  11.40     $  12.32   $  12.18
---------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)              0.22       0.24         0.73       0.02
    Net realized and unrealized gain      1.12       0.93         0.75       0.12
---------------------------------------------------------------------------------
Total Income From Operations              1.34       1.17         1.48       0.14
---------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                (0.21)     (0.22)       (0.35)        --
    Net realized gains                   (0.46)     (0.02)       (0.46)        --
---------------------------------------------------------------------------------
Total Distributions                      (0.67)     (0.24)       (0.81)        --
---------------------------------------------------------------------------------
Net Asset Value, End of Year          $  13.00   $  12.33     $  12.99   $  12.32
---------------------------------------------------------------------------------
Total Return                             10.92%     10.32%++     12.08%      1.15%++
---------------------------------------------------------------------------------
Net Assets, End of Year (000's)       $ 42,983   $ 31,279     $  2,908   $      6
---------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses                              1.35%      1.35%+       0.35%      0.35%+
    Net investment income                 1.81       4.04+        5.24       5.30*
---------------------------------------------------------------------------------
Portfolio Turnover Rate                     41%         0%          41%         0%
=================================================================================
</TABLE>

(1)   For the period from February 5, 1996 (inception date) to January 31, 1997.
(2)   Net investment income per share includes short-term capital gain
      distributions from Underlying Funds.
(3)   Per share amounts have been calculated using the monthly average shares
      method, rather than the undistributed net investment income method,
      because it more accurately reflects the per share data for the period.
(4)   For the period from January 17, 1997 (inception date) to January 31, 1997.
++    Total return is not annualized, as it may not be representative of the
      total return for the year.
+     Annualized.
*     Not annualized.


                                                                              50
<PAGE>
 
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout the year:

<TABLE>
<CAPTION>
                                            Class A Shares                Class B Shares
                                       ----------------------       -----------------------
BALANCED PORTFOLIO                        1998        1997(1)          1998         1997(1)
===========================================================================================
<S>                                    <C>            <C>           <C>            <C>     
Net Asset Value, Beginning of Year     $  12.14       $ 11.40       $  12.14       $  11.40
-------------------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)               0.58          0.45           0.48           0.37
    Net realized and unrealized gain       0.80          0.74           0.80           0.74
-------------------------------------------------------------------------------------------
Total Income From Operations               1.38          1.19           1.28           1.11
-------------------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                 (0.54)        (0.45)         (0.45)         (0.37)
    Net realized gains                    (0.36)           --          (0.36)            --
-------------------------------------------------------------------------------------------
Total Distributions                       (0.90)        (0.45)         (0.81)         (0.37)
-------------------------------------------------------------------------------------------
Net Asset Value, End of Year           $  12.62       $ 12.14       $  12.61       $  12.14
-------------------------------------------------------------------------------------------
Total Return                              11.59%        10.64%++       10.67%          9.90%++
-------------------------------------------------------------------------------------------
Net Assets, End of Year (000's)        $166,806       $90,938       $193,791       $111,918
-------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses                               0.60%         0.60%+         1.35%          1.35%+
    Net investment income                  4.79          4.88+          3.96           4.14+
-------------------------------------------------------------------------------------------
Portfolio Turnover Rate                      23%            0%            23%             0%
===========================================================================================

<CAPTION>
                                            Class C Shares                Class Z Shares
                                       ----------------------       -----------------------
                                          1998        1997(1)        1998(3)        1997(4)
===========================================================================================
<S>                                    <C>            <C>           <C>            <C>     
Net Asset Value, Beginning of Year     $  12.14       $ 11.40       $  12.13       $  12.10
-------------------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)               0.46          0.37           1.11           0.00
    Net realized and unrealized gain       0.82          0.74           0.30           0.03
-------------------------------------------------------------------------------------------
Total Income From Operations               1.28          1.11           1.41           0.03
-------------------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                 (0.45)        (0.37)         (0.57)            --
    Net realized gains                    (0.36)           --          (0.36)            --
-------------------------------------------------------------------------------------------
Total Distributions                       (0.81)        (0.37)         (0.93)            --
-------------------------------------------------------------------------------------------
Net Asset Value, End of Year           $  12.61       $ 12.14       $  12.61       $  12.13
-------------------------------------------------------------------------------------------
Total Return                              10.67%         9.90%++       11.82%          0.25%++
-------------------------------------------------------------------------------------------
Net Assets, End of Year (000's)        $ 27,473       $19,968       $  2,919       $      2
-------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses                               1.35%         1.35%+         0.35%          0.35%+
    Net investment income                  3.69          4.14+          8.31           5.39*
-------------------------------------------------------------------------------------------
Portfolio Turnover Rate                      23%            0%            23%             0%
===========================================================================================
</TABLE>

(1)   For the period from February 5, 1996 (inception date) to January 31, 1997.
(2)   Net investment income per share includes short-term capital gain
      distributions from Underlying Funds.
(3)   Per share amounts have been calculated using the monthly average shares
      method, rather than the undistributed net investment income method,
      because it more accurately reflects the per share data for the period.
(4)   For the period from January 17, 1997 (inception date) to January 31, 1997.
      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.
*     Not annualized.


                                                                              51
<PAGE>
 
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout the year:

                                        Class A Shares        Class B Shares
                                      -----------------     -----------------
CONSERVATIVE PORTFOLIO                  1998    1997(1)       1998    1997(1)
================================================================================
Net Asset Value, Beginning of Year    $ 11.90   $ 11.46     $ 11.89   $ 11.46
--------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)             0.73      0.53        0.66      0.48
    Net realized and unrealized gain     0.63      0.43        0.64      0.42
--------------------------------------------------------------------------------
Total Income From Operations             1.36      0.96        1.30      0.90
--------------------------------------------------------------------------------
Less Distributions From:
    Net investment income               (0.69)    (0.52)      (0.63)    (0.47)
    Net realized gains                  (0.40)       --       (0.40)       --
--------------------------------------------------------------------------------
Total Distributions                     (1.09)    (0.52)      (1.03)    (0.47)
--------------------------------------------------------------------------------
Net Asset Value, End of Year          $ 12.17   $ 11.90     $ 12.16   $ 11.89
--------------------------------------------------------------------------------
Total Return                            11.70%     8.57%++    11.21%     8.03%++
--------------------------------------------------------------------------------
Net Assets, End of Year (000's)       $51,233   $30,478     $48,584   $28,297
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses                             0.60%     0.60%+      1.10%     1.10%+
    Net investment income                6.17      5.66+       5.67      5.16+
--------------------------------------------------------------------------------
Portfolio Turnover Rate                    28%       0%          28%        0%
================================================================================

                                        Class C Shares        Class Z Shares
                                      -----------------     -----------------
                                        1998    1997(1)     1998(3)   1997(4)
================================================================================
Net Asset Value, Beginning of Year    $ 11.89   $ 11.46     $ 11.90   $ 11.89
--------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)             0.69      0.48        0.84      0.01
    Net realized and unrealized gain     0.62      0.42        0.56        --
--------------------------------------------------------------------------------
Total Income From Operations             1.31      0.90        1.40      0.01
--------------------------------------------------------------------------------
Less Distributions From:
    Net investment income               (0.64)    (0.47)      (0.73)       --
    Net realized gains                  (0.40)       --       (0.40)       --
--------------------------------------------------------------------------------
Total Distributions                     (1.04)    (0.47)      (1.13)       --
--------------------------------------------------------------------------------
Net Asset Value, End of Year          $ 12.16   $ 11.89     $ 12.17   $ 11.90
--------------------------------------------------------------------------------
Total Return                            11.25%     8.08%++    12.09%     0.08%++
--------------------------------------------------------------------------------
Net Assets, End of Year (000's)       $ 5,386   $ 4,129        $638        $1
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses                             1.05%     1.05%+      0.35%     0.35%+
    Net investment income                5.72      5.21+       6.42      6.15*
--------------------------------------------------------------------------------
Portfolio Turnover Rate                    28%        0%         28%        0%
================================================================================

(1)   For the period from February 5, 1996 (inception date) to January 31, 1997.
(2)   Net investment income per share includes short-term capital gain
      distributions from Underlying Funds.
(3)   Per share amounts have been calculated using the monthly average shares
      method, rather than the undistributed net investment income method,
      because it more accurately reflects the per share data for the period.
(4)   For the period from January 17, 1997 (inception date) to January 31, 1997.
++    Total return is not annualized, as it may not be representative of the
      total return for the year.
+     Annualized.
*     Not annualized.


                                                                              52
<PAGE>
 
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout the year:

<TABLE>
<CAPTION>
                                                  Class A Shares              Class B Shares
                                              ---------------------       ---------------------
INCOME PORTFOLIO                                1998        1997(1)         1998        1997(1)
===============================================================================================
<S>                                           <C>           <C>           <C>           <C>    
Net Asset Value, Beginning of Year            $ 11.53       $ 11.46       $ 11.53       $ 11.46
-----------------------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)                     0.76          0.63          0.70          0.58
    Net realized and unrealized gain             0.52          0.07          0.52          0.07
-----------------------------------------------------------------------------------------------
Total Income From Operations                     1.28          0.70          1.22          0.65
-----------------------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                       (0.77)        (0.63)        (0.70)        (0.58)
    Net realized gains                          (0.29)           --         (0.29)           --
-----------------------------------------------------------------------------------------------
Total Distributions                             (1.06)        (0.63)        (0.99)        (0.58)
-----------------------------------------------------------------------------------------------
Net Asset Value, End of Year                  $ 11.75       $ 11.53       $ 11.76       $ 11.53
-----------------------------------------------------------------------------------------------
Total Return                                    11.44%         6.39%++      10.93%         5.89%++
-----------------------------------------------------------------------------------------------
Net Assets, End of Year (000's)               $29,574       $17,817       $26,563       $17,800
-----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses                                     0.60%         0.60%+        1.10%         1.10%+
    Net investment income                        6.62          6.32+         6.12          5.82+
-----------------------------------------------------------------------------------------------
Portfolio Turnover Rate                            28%            0%           28%            0%
===============================================================================================

<CAPTION>
                                                  Class C Shares              Class Z Shares
                                                1998        1997(1)       1998(3)       1997(4)
===============================================================================================
<S>                                           <C>           <C>           <C>           <C>    
Net Asset Value, Beginning of Year            $ 11.53       $ 11.46       $ 11.53       $ 11.55
-----------------------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)                     0.71          0.59          0.84          0.07
    Net realized and unrealized gain (loss)      0.52          0.07          0.49         (0.03)
-----------------------------------------------------------------------------------------------
Total Income From Operations                     1.23          0.66          1.33          0.04
-----------------------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                       (0.71)        (0.59)        (0.82)        (0.06)
    Net realized gains                          (0.29)           --         (0.29)           --
-----------------------------------------------------------------------------------------------
Total Distributions                             (1.00)        (0.59)        (1.11)        (0.06)
-----------------------------------------------------------------------------------------------
Net Asset Value, End of Year                  $ 11.76       $ 11.53       $ 11.75       $ 11.53
-----------------------------------------------------------------------------------------------
Total Return                                    10.98%         5.94%++      11.88%         0.35%++
-----------------------------------------------------------------------------------------------
Net Assets, End of Year (000's)               $ 3,568       $ 2,113       $   691       $   0.2
-----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses                                     1.05%         1.05%+        0.35%         0.35%+
    Net investment income                        6.17          5.87+         6.85          6.86*
-----------------------------------------------------------------------------------------------
Portfolio Turnover Rate                            28%            0%           28%            0%
===============================================================================================
</TABLE>

(1)   For the period from February 5, 1996 (inception date) to January 31, 1997.
(2)   Net investment income per share includes short-term capital gain
      distributions from Underlying Funds.
(3)   Per share amounts have been calculated using the monthly average shares
      method, rather than the undistributed net investment income method,
      because it more accurately reflects the per share data for the period.
(4)   For the period from January 17, 1997 (inception date) to January 31, 1997.
++    Total return is not annualized, as it may not be representative of the
      total return for the year.
+     Annualized.
*     Not annualized.


                                                                              53
<PAGE>
 
Independent Auditors' Report
--------------------------------------------------------------------------------

The Shareholders and Board of Directors of Smith Barney Concert Allocation
Series Inc.:

We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the High Growth, Growth, Balanced,
Conservative, and Income Portfolios ("Portfolios") of Smith Barney Concert
Allocation Series Inc. ("Fund") as of January 31, 1998, the related statements
of operations for the year then ended, and statements of changes in net assets
and financial highlights for the year then ended and for the period from
February 5, 1996 (commencement of operations) to January 31, 1997. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1998, by correspondence with the custodian. As to securities
purchased but not yet received, we performed other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
aforementioned portfolios of Smith Barney Concert Allocation Series Inc. as of
January 31, 1998, and the results of their operations for the year then ended,
and changes in their net assets and financial highlights for the year then ended
and for the period from February 5, 1996 to January 31, 1997, in conformity with
generally accepted accounting principles.


                                             /s/ KPMG Peat Marwick LLP

New York, New York
March 16, 1998



                                                                              54
<PAGE>
 
Tax Information (unaudited)
--------------------------------------------------------------------------------

For Federal tax purposes the Fund hereby designates for the fiscal year ended
January 31, 1998:

    o Percentage of ordinary dividends paid as qualifying for the corporate
      dividends received deduction:
        High Growth Portfolio .....................................   9.35%
        Growth Portfolio ..........................................   8.37
        Balanced Portfolio ........................................  15.19
        Conservative Portfolio ....................................   7.22
        Income Portfolio ..........................................   4.34

    o The Taxpayer Relief Act of 1997 enacted differing rates of tax on various
      long term capital gain transactions. As a result, the Fund designates:

        o Total long term capital gain distributions paid of:
 
                                       Total    28% rate gains  20% rate gains
                                       -----    --------------  --------------
           High Growth Portfolio   $ 8,395,820   $ 6,595,756      $1,800,064
           Growth Portfolio         14,423,506    11,567,652       2,855,854
           Balanced Portfolio        7,395,781     5,273,931       2,121,850
           Conservative Portfolio    2,271,813     1,630,253         641,560
           Income Portfolio          1,031,791       916,147         115,644

The following percentages of ordinary dividends paid are derived from Federal
obligations and may be exempt from taxation at the state level:

      Growth Portfolio ............................................   4.73%
      Balanced Portfolio ..........................................  11.76
      Conservative Portfolio ......................................  12.12
      Income Portfolio ............................................  22.36


                                                                              55
<PAGE>
 
DIRECTORS
Walter E. Auch
Martin Brody
H. John Ellis
Armon E. Kamesar
Stephen E. Kaufman
Heath B. McLendon, Chairman

OFFICERS
Heath B. McLendon
Chief Executive Officer

Lewis E. Daidone
Senior Vice President
and Treasurer

Thomas B. Stiles II
Vice President and
Investment Officer

R. Jay Gerken
Vice President and
Investment Officer

Thomas M. Reynolds
Controller

Christina T. Sydor
Secretary


INVESTMENT MANAGER
Mutual Management Corp.


DISTRIBUTORS
Smith Barney Inc.
PFS Distributors, Inc.


CUSTODIAN
PNC Bank, N.A.


SHAREHOLDER SERVICING AGENT
First Data Investor Services 
Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134


SMITH BARNEY CONCERT ALLOCATION 
SERIES INC.
388 Greenwich Street
New York, New York 10013


www.smithbarney.com


                                                                              56
<PAGE>
 
This report is submitted for the general information of the shareholders of
Smith Barney Concert Allocation Series Inc. It is not authorized for
distribution to prospective investors unless accompanied or preceded by an
effective Prospectus for the Fund, which contains information concerning the
Fund's investment policies and expenses as well as other pertinent information.


SMITH BARNEY
------------

A Member of TravelersGroup[LOGO]

               Member NASD, SIPC
      (C) 1996 Smith Barney Inc.
                    FD01278 3/98