SEMI- ANNUAL
REPORT
[Small box above fund name showing S&P Stock
Guide
and a calculator, pen and desk pad.]
SMITH BARNEY
Investment Grade Bond Fund
........................................
JUNE 30, 1995
[LOGO OF SMITH BARNEY APPEARS HERE]
Investment Grade Bond Fund
Dear Shareholder:
We are pleased to provide you with the semi-annual
report and port-
folio of investments for the six months ended June 30,
1995 for
the Smith Barney Investment Grade Bond Fund. After
declining pre-
cipitously during 1994, bond prices rebounded sharply
during the
first half of this fiscal year which resulted in very
attractive
total returns to investors in the Fund. Class A shares
earned a
total return of 21.64%, Class B shares earned a total
return of
21.32%, and Class C shares earned a total return of
21.32% for the
six-month period ended June 30, 1995. Additional
performance data
for each class of shares during this and previous
reporting peri-
ods is available in the "Financial Highlights" section
of this re-
port.
Economic and Market Overview
The first six months of 1995 saw a dramatic slowdown in the
pace of economic
activity. Economic growth as measured by gross domestic
product (GDP) declined
from an annual rate of 4.5% in the fourth quarter of 1994 to
an annual rate of
1% in the second quarter. The implementa-tion of a more
restrictive monetary
policy begun by the Federal Reserve in Feb-ruary 1994 was
obviously successful
in moderating economic activity in 1995. In addition, the
first six months of
1995 witnessed only moderate inflation in both the wholesale
and retail price
gauges.
Both the fixed income and equity markets enjoyed dramatic
improvement in the
first half of 1995. Both markets reacted favorably to the
"soft landing" eco-
nomic scenario that developed in 1995. Long-term U.S.
government 30-year bond
yields declined from 7.90% at year-end 1994 to 6.50% at the
end of June 1995.
Corporate bonds followed the lead of the Treasury market.
Because of the in-
verse relationship between yield and price, bond prices
rose, as yields de-
clined, particularly for long-term bonds such as those in
which the Fund typi-
cally invests. This resulted in an increase in the net asset
value per share of
the Fund and contributed strongly to the high total return
for this period.
We were especially pleased with the performance of the
Investment Grade Bond
Fund during the past six months, but would caution investors
that a duplication
of these returns are unlikely during the second half of the
Fund's fiscal year.
We nonetheless have a positive longer-term outlook for the
fixed income market
and think it meaningful to reiterate. It remains our belief
that a combination
of factors such as an improvement in reducing the federal
budget deficit and
the competitive pressure on businesses to become low cost
producers of goods
and services will help to keep inflation at historically low
levels. The Fed-
eral Reserve's most recent policy shift to lower short-term
interest rates
should provide enough stimulus to ensure only modest
economic growth in late
1995 and 1996. We believe that long-
1
term interest rates will be governed more by the outlook and
perception of the
course of future inflation pressure or the lack thereof.
Portfolio Strategy
Based on our belief that interest rates would move lower, we
did not make any
meaningful changes in the portfolio during the past six
months. We continued to
invest in older, established companies that have dominant
market position.
These include companies such as Hershey Foods Corporation,
General Motors Cor-
poration, Ford Motor Company, and Ralston Purina Company.
The average maturity
of the portfolio at the end of this reporting period was 26
years. Going for-
ward, we will continue to invest in well-managed companies
and industries that
have good fundamentals.
We appreciate the opportunity to help you reach your
financial goals, and value
the trust you continue to place in us. Should you have any
questions about your
investment in the Fund or how other Smith Barney funds may
fit into your in-
vestment portfolio, please speak with your Smith Barney
Financial Consultant.
We look forward to reporting to you in December in the
Fund's annual report.
Sincerely,
/s/ Heath B. Mc Lendon /s/ George E.
Mueller, Jr.
Heath B. McLendon George E. Mueller,
Jr.
Chairman of the Board Investment Officer
and Investment Officer
July 28, 1995
2
Smith Barney
Investment Grade Bond Fund
Portfolio Highlights (unaudited)
June 30, 1995
Pie chart depicting the allocation of the Investment Funds
Investment Grade Bond
Fund investment securities held at June 30, 1995 by industry
classification. The
pie is broken in pieces representing industries in the
following percentages:
<TABLE>
<CAPTION>
Industry
Percentage
<S> <C>
U.S. Government Agency Securities and
Net Other Assets and Liabilities
2.2%
Yankee Bonds
9.4%
Other Corporate Bonds
22.1%
Entertainment
5.4%
Aerospace
6.6%
Publishing
6.7%
Retail Stores
7.5%
Automotive
8.1%
Airlines
11.6%
Food and Beverage
20.4%
</TABLE>
Average Maturity: 26 years
Top Ten Holdings
<TABLE>
<CAPTION>
Percentage of
Company Net assets
- -----------------------------------------
<S> <C>
Hershey Foods Corporation 4.7%
United Airlines, Inc. 4.2
Boeing Company 4.1
General Motors Corporation 4.1
Ford Motor Company 4.0
Seagrams Limited 3.9
Ralston Purina Company 3.5
Hydro-Quebec 3.5
Bowater, Inc. 3.4
CBS, Inc. 3.4
</TABLE>
3
Smith Barney
Investment Grade Bond Fund
Portfolio of Investments (unaudited)
June 30, 1995
<TABLE>
<CAPTION>
Market Value
Face Value
(Note 1)
<C> <S>
<C>
- ------------------------------------------------------------
- ----------
U.S. CORPORATE BONDS AND NOTES -- 88.4%
Food and Beverage -- 20.4%
$ 14,000,000 American Brands Inc., Notes,
7.875% due 1/15/2023 $
14,507,500
16,750,000 Borden Inc., Note,
7.875% due 2/15/2023
15,996,250
9,000,000 Coca-Cola Enterprises Inc., Deb.,
6.750% due 9/15/2023
8,448,750
18,645,000 Hershey Foods Corporation, Deb.,
8.800% due 2/15/2021
22,047,713
16,000,000 Ralston Purina Company, Deb.,
8.125% due 2/1/2023
16,540,000
16,800,000 Seagrams Limited, Deb.,
8.350% due 1/15/2022
18,102,000
- ------------------------------------------------------------
- ----------
95,642,213
- ------------------------------------------------------------
- ----------
Airlines -- 11.6%
AMR Corporation, Deb.:
12,500,000 9.000% due 9/15/2016
13,140,625
4,500,000 9.880% due 6/15/2020
5,152,500
Delta Air Lines, Inc., Deb.:
10,735,000 9.000% due 5/15/2016
11,191,237
5,000,000 9.750% due 5/15/2021
5,612,500
17,650,000 United Airlines, Inc., Deb.,
9.750% due 8/15/2021
19,613,563
- ------------------------------------------------------------
- ----------
54,710,425
- ------------------------------------------------------------
- ----------
Automotive -- 8.1%
18,400,000 Ford Motor Company, Deb.,
7.750% due 6/15/2043
18,975,000
16,000,000 General Motors Corporation, Note,
9.400% due 7/15/2021
19,120,000
- ------------------------------------------------------------
- ----------
38,095,000
- ------------------------------------------------------------
- ----------
Entertainment -- 7.9%
10,500,000 Harcourt General, Inc., Sr. Deb.,
8.875% due 6/1/2022
11,681,250
12,000,000 Paramount Communications, Inc., Sr. Deb.,
7.500% due 7/15/2023
10,770,000
15,000,000 Walt Disney Corp, Sr. Deb.
7.550% due 7/15/2093
14,662,500
- ------------------------------------------------------------
- ----------
37,113,750
- ------------------------------------------------------------
- ----------
</TABLE>
See Notes to Financial Statements.
4
Smith Barney
Investment Grade Bond Fund
Portfolio of Investments (unaudited) (continued)
June 30, 1995
<TABLE>
<CAPTION>
Market Value
Face Value
(Note 1)
<C> <S>
<C>
- ------------------------------------------------------------
- ----------
U.S. CORPORATE BONDS AND NOTES -- (continued)
Publishing -- 6.7%
$ 15,000,000 News America Holdings Inc., Note,
8.250% due 08/10/2018 $
15,525,000
15,000,000 Time Warner, Inc., Deb.,
9.150% due 2/1/2023
15,656,250
- ------------------------------------------------------------
- ----------
31,181,250
- ------------------------------------------------------------
- ----------
Aerospace -- 6.6%
20,500,000 Boeing Company, Deb.,
6.875% due 10/15/2043
19,321,250
10,000,000 United Technologies Corporation, Deb.,
8.750% due 3/1/2021
11,625,000
- ------------------------------------------------------------
- ----------
30,946,250
- ------------------------------------------------------------
- ----------
Retail Stores -- 5.0%
14,000,000 K Mart Corporation, Deb.,
7.950% due 2/1/2023
13,405,000
10,000,000 Woolworth Corporation, Deb.,
8.500% due 1/15/2022
10,162,500
- ------------------------------------------------------------
- ----------
23,567,500
- ------------------------------------------------------------
- ----------
SupraNational Entity -- 5.1%
International Bank for Reconstruction and
Development:
110,000,000 Zero coupon due 3/1/2026
13,062,500
70,000,000 Zero coupon due 3/1/2028
7,087,500
42,860,000 Zero coupon due 7/15/2029
3,750,250
- ------------------------------------------------------------
- ----------
23,900,250
- ------------------------------------------------------------
- ----------
Paper Products -- 3.6%
14,000,000 Bowater, Inc., Deb.,
9.375% due 12/15/2021
16,170,000
500,000 Georgia-Pacific Corporation, Deb.,
9.625% due 3/15/2022
560,625
- ------------------------------------------------------------
- ----------
16,730,625
- ------------------------------------------------------------
- ----------
Television -- 3.4%
17,500,000 CBS Inc., Note,
7.125% due 11/1/2023
16,121,875
- ------------------------------------------------------------
- ----------
</TABLE>
See Notes to Financial Statements.
5
Smith Barney
Investment Grade Bond Fund
Portfolio of Investments (unaudited) (continued)
June 30, 1995
<TABLE>
<CAPTION>
Market Value
Face Value
(Note 1)
<C> <S> <C>
- ------------------------------------------------------------
- -------
U.S. CORPORATE BONDS AND NOTES -- (continued)
Electronics -- 3.4%
$ 17,500,000 Loral Corporation, Sr. Deb.,
7.000% due 9/15/2023 $
16,078,125
- ------------------------------------------------------------
- -------
Timber Products -- 2.4%
Weyerhaeuser Company, Deb.:
6,000,000 7.125% due 07/15/2023
5,865,000
5,000,000 7.950% due 03/15/2025
5,350,000
- ------------------------------------------------------------
- -------
11,215,000
- ------------------------------------------------------------
- -------
Oil & Gas -- 2.3%
10,000,000 Burlington Resources, Inc., Deb.,
8.200% due 3/15/2025
10,875,000
- ------------------------------------------------------------
- -------
Apparel -- 1.2%
6,000,000 Fruit of the Loom, Inc., Deb.,
7.375% due 11/15/2023
5,610,000
- ------------------------------------------------------------
- -------
Chemical -- 0.7%
3,500,000 Eastman Chemical Company, Deb.,
7.250% due 1/15/2024
3,403,750
- ------------------------------------------------------------
- -------
TOTAL U.S. CORPORATE BONDS AND NOTES
(Cost $393,379,950)
415,191,013
- ------------------------------------------------------------
- -------
YANKEE BONDS -- 9.4%
Hydro-Quebec, Deb.,:
1,600,000 Series HE, 8.625% due 6/15/2029
1,760,000
15,000,000 Series HH, 8.500% due 12/1/2029
16,293,750
1,000,000 Series HI, 9.375% due 4/15/2030
1,188,750
5,000,000 Newfoundland Province of Canada, Deb.,
7.320% due 10/13/2023
4,768,750
6,500,000 Nova Scotia Power Corporation,
8.250% due 7/30/2022
6,922,500
Nova Scotia Province of Canada, Deb.:
3,000,000 9.125% due 5/1/2021
3,476,250
8,500,000 8.750% due 4/1/2022
9,509,375
- ------------------------------------------------------------
- -------
TOTAL YANKEE BONDS
(Cost $40,464,557)
43,919,375
- ------------------------------------------------------------
- -------
</TABLE>
See Notes to Financial Statements.
6
Smith Barney
Investment Grade Bond Fund
Portfolio of Investments (unaudited) (continued)
June 30, 1995
<TABLE>
<CAPTION>
Market Value
Face Value
(Note 1)
<C> <S> <C>
- ------------------------------------------------------------
- ---------
U.S. GOVERNMENT AGENCY SECURITIES -- 0.9%
Financing Corporation Strips, Series 19:
$ 2,400,000 9.000% due 12/6/2018 $
450,527
21,400,000 9.000% due 6/6/2019
3,894,156
- ------------------------------------------------------------
- ---------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(Cost $3,236,854)
4,344,683
</TABLE>
- ------------------------------------------------------------
- --------------------
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $437,081,361*) 98.7% 463,455,071
OTHER ASSETS AND LIABILITIES (Net) 1.3 6,217,241
- -----------------------------------------------------------
NET ASSETS 100.0% $469,672,312
</TABLE>
- ------------------------------------------------------------
- --------------------
* Aggregate cost for Federal tax purposes.
See Notes to Financial Statements.
7
Smith Barney
Investment Grade Bond Fund
Statement of Assets and Liabilities (unaudited)
June 30, 1995
<TABLE>
<S> <C>
<C>
ASSETS:
Investments, at value (Cost $437,081,361) (Note 1)
See accompanying schedule
$463,455,071
Cash
34,102
Interest receivable
10,492,130
Receivable for Fund shares sold
740,863
- ------------------------------------------------------------
- ----------------
Total Assets
474,722,166
- ------------------------------------------------------------
- ----------------
LIABILITIES:
Notes payable (Note 7)
$3,400,000
Dividends payable
810,186
Payable for Fund shares redeemed
379,056
Investment advisory fee payable (Note 2)
174,521
Administration fee payable (Note 2)
77,565
Distribution fee payable (Note 3)
75,736
Service fee payable (Note 3)
67,600
Transfer agent fees payable (Note 2)
35,006
Custodian fees payable (Note 2)
11,100
Accrued expenses and other payables
19,084
- ------------------------------------------------------------
- ----------------
Total Liabilities
5,049,854
- ------------------------------------------------------------
- ----------------
NET ASSETS
$469,672,312
- ------------------------------------------------------------
- ----------------
</TABLE>
See Notes to Financial Statements.
8
Smith Barney
Investment Grade Bond Fund
Statement of Assets and Liabilities (unaudited) (continued)
June 30, 1995
<TABLE>
<S>
<C>
NET ASSETS consist of:
Distributions in excess of net investment income earned to
date
$ (899,653)
Accumulated net realized gain on investments sold
1,444,673
Unrealized appreciation of investments
26,373,710
Par value
37,596
Paid-in capital in excess of par value
442,715,986
- ------------------------------------------------------------
- ------------------
Total Net Assets
$469,672,312
- ------------------------------------------------------------
- ------------------
NET ASSETS:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($206,535,937 / 16,532,327 shares of common stock
outstanding) $12.49
- ------------------------------------------------------------
- ------------------
Maximum offering price per share ($12.49 / 0.955)
(Based on sales charge of 4.50% of the offering price on
June 30, 1995)
$13.08
- ------------------------------------------------------------
- ------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($261,328,798 / 20,918,506 shares of common stock
outstanding) $12.49
- ------------------------------------------------------------
- ------------------
CLASS C SHARES:
NET ASSET VALUE and offering price per share+
($1,807,577 / 144,689 shares of common stock outstanding)
$12.49
- ------------------------------------------------------------
- ------------------
</TABLE>
+ Redemption price per share is equal to net asset value
less any applicable
contingent deferred sales charge.
See Notes to Financial Statements.
9
Smith Barney
Investment Grade Bond Fund
Statement of Operations (unaudited)
For the six months
ended June 30, 1995
<TABLE>
<S>
<C> <C>
INVESTMENT INCOME:
Interest
$18,241,353
- ------------------------------------------------------------
- ------------------
EXPENSES:
Investment advisory fee (Note 2)
$972,709
Distribution fee (Note 3)
602,242
Service fee (Note 3)
540,394
Administration fee (Note 2)
432,315
Transfer agent fees (Notes 2 and 4)
206,353
Custodian fees (Note 2)
32,165
Directors' fees and expenses (Note 2)
28,644
Legal and audit fees
24,976
Other
85,755
- ------------------------------------------------------------
- ------------------
Total before interest expense
2,925,553
- ------------------------------------------------------------
- ------------------
Interest expense (Note 7)
36,710
- ------------------------------------------------------------
- ------------------
Total Expenses
2,962,263
- ------------------------------------------------------------
- ------------------
NET INVESTMENT INCOME
15,279,090
- ------------------------------------------------------------
- ------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(Notes 1 and 5):
Net realized gain on investments sold during the period
2,304,273
Net unrealized appreciation of investments during the
period
67,903,102
- ------------------------------------------------------------
- ------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
70,207,375
- ------------------------------------------------------------
- ------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$85,486,465
- ------------------------------------------------------------
- ------------------
</TABLE>
See Notes to Financial Statements.
10
Smith Barney
Investment Grade Bond Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six
Months
Ended
Year
6/30/95
Ended
(unaudited) 12/31/94
<S> <C>
<C>
Net investment income $
15,279,090 $ 29,760,763
Net realized gain on investments sold during the
period
2,304,273 2,616,051
Net unrealized appreciation/(depreciation) on
investments
during the period
67,903,102 (76,397,864)
- ------------------------------------------------------------
- -------------------
Net increase/(decrease) in net assets resulting
from operations
85,486,465 (44,021,050)
Distributions to shareholders from net investment
income:
Class A
(7,452,794) (4,485,918)
Class B
(8,675,204) (25,035,743)
Class C
(50,745) (27,021)
Distributions to shareholders from net realized
gain on investments:
Class A --
(5,098,443)
Class B --
(6,190,272)
Class C --
(27,765)
Distributions to shareholders from capital:
Class A --
(173,244)
Class B --
(949,145)
Class C --
(1,041)
Net increase/(decrease) in net assets from Fund
share
transactions (Note 6):
Class A
(5,414,736) 179,594,112
Class B
1,761,200 (177,349,987)
Class C
565,430 865,702
- ------------------------------------------------------------
- -------------------
Net increase/(decrease) in net assets
66,219,616 (82,899,815)
NET ASSETS:
Beginning of period
403,452,696 486,352,511
- ------------------------------------------------------------
- -------------------
End of period (including distributions in excess
of net investment income earned to date of
$899,653 at June 30, 1995)
$469,672,312 $ 403,452,696
- ------------------------------------------------------------
- -------------------
</TABLE>
See Notes to Financial Statements.
11
[This page intentionally left blank]
12
Smith Barney
Investment Grade Bond Fund
Financial Highlights
For a Class A share outstanding throughout each period.
<TABLE>
<CAPTION>
Six Months Year
Year Period
Ended Ended
Ended Ended
6/30/95 12/31/94#
12/31/93# 12/31/92*
(unaudited)
<S> <C> <C> <C>
<C>
Net asset value, beginning
of period $ 10.67 $ 13.01 $
11.89 $11.67
- ------------------------------------------------------------
- -------------------
Income from investment
operations:
Net investment income 0.42 0.74
0.88 0.14
Net realized and unrealized
gain/(loss) on investments 1.84 (1.88)
1.27 0.23
- ------------------------------------------------------------
- -------------------
Total from investment
operations 2.26 (1.14)
2.15 0.37
- ------------------------------------------------------------
- -------------------
Less distributions:
Distributions from net
investment income (0.44) (0.86)
(0.88) (0.14)
Distributions in excess of
net investment income -- --
(0.01) --
Distributions from net
realized capital gains -- (0.31)
(0.14) --
Distributions from capital -- (0.03)
- -- (0.01)
- ------------------------------------------------------------
- -------------------
Total distributions (0.44) (1.20)
(1.03) (0.15)
- ------------------------------------------------------------
- -------------------
Net asset value, end of
period $ 12.49 $ 10.67 $
13.01 $11.89
- ------------------------------------------------------------
- -------------------
Total return+ 21.64% (8.95)%
18.45% 3.25%
- ------------------------------------------------------------
- -------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $206,536 $181,334
$10,136 $ 933
Ratio of operating expenses
to average net assets 1.07%**++ 1.11%
1.11% 1.03%**++
Ratio of net investment
income to average net
assets 7.35%** 7.35%
6.67% 7.53%**
Portfolio turnover rate 29% 18%
65% 47%
- ------------------------------------------------------------
- -------------------
</TABLE>
* The Fund commenced selling Class A shares on November 6,
1992.
** Annualized.
+ Total return represents aggregate total return for the
periods indicated and
does not reflect any applicable sales charge.
++ The annualized operating expense ratio excludes interest
expense. The
annualized ratio including interest expense was 1.09% and
1.04% for the six
months ended June 30, 1995 and the period ended December
31, 1992, respec-
tively.
# Per share amounts have been calculated using the average
shares method, which
more appropriately presents the per share data for the
period since use of
the undistributed net investment income method does not
accord with results
of operations.
See Notes to Financial Statements.
13
Smith Barney
Investment Grade Bond Fund
Financial Highlights
For a Class B share outstanding throughout each period.
<TABLE>
<CAPTION>
Six Months
Year Year
Ended
Ended Ended
6/30/95
12/31/94# 12/31/93#
(unaudited)
<S> <C>
<C> <C>
Net asset value, beginning of period $ 10.67 $
13.01 $ 11.89
- ------------------------------------------------------------
- -------------------
Income from investment operations:
Net investment income 0.39
0.82 0.80
Net realized and unrealized gain/(loss)
on investments 1.84
(2.02) 1.29
- ------------------------------------------------------------
- -------------------
Total from investment operations 2.23
(1.20) 2.09
- ------------------------------------------------------------
- -------------------
Less distributions:
Distributions from net investment income (0.41)
(0.80) (0.82)
Distributions in excess of net
investment income --
- -- (0.01)
Distributions from net realized capital
gains --
(0.31) (0.14)
Distributions from capital --
(0.03) --
- ------------------------------------------------------------
- -------------------
Total distributions (0.41)
(1.14) (0.97)
- ------------------------------------------------------------
- -------------------
Net asset value, end of period $ 12.49 $
10.67 $ 13.01
- ------------------------------------------------------------
- -------------------
Total return+ 21.32%
(9.41)% 18.06%
- ------------------------------------------------------------
- -------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $261,329
$221,120 $476,088
Ratio of operating expenses to average
net assets 1.57%**++
1.57% 1.58%
Ratio of net investment income to
average net assets 6.85%**
6.89% 6.56%
Portfolio turnover rate 29%
18% 65%
- ------------------------------------------------------------
- -------------------
</TABLE>
* On November 6, 1992 the Fund commenced selling Class A
shares. Those shares
in existence prior to November 6, 1992 were designated
as Class B shares.
** Annualized.
*** Annualized expense ratio before waiver of fees by the
distributor for the
years ended December 31, 1989 and 1988 were 1.66% and
1.57%, respectively.
+ Total return represents aggregate total return for the
periods indicated
and does not reflect any applicable sales charge.
++ The annualized operating expense ratio excludes interest
expense. The
annualized ratio including interest expense was 1.59%
and 1.58% for the six
months ended June 30, 1995 and the year ended December
31, 1992, respec-
tively.
+++ Net investment income before waiver of fees by the
distributor would have
been $0.86 and $0.87 for the year ended December 31,
1989 and 1988, respec-
tively.
# Per share amounts have been calculated using the average
shares method,
which more appropriately presents the per share data for
the period since
use of the undistributed net investment income method
does not accord with
results of operations.
See Notes to Financial Statements.
14
Smith Barney
Investment Grade Bond Fund
<TABLE>
<CAPTION>
Year Year Year Year Year
Year Year Year
Ended Ended Ended Ended Ended
Ended Ended Ended
12/31/92* 12/31/91 12/31/90 12/31/89 12/31/88
12/31/87 12/31/86 12/31/85
<S> <C> <C> <C> <C>
<C> <C> <C>
$ 11.80 $ 10.43 $ 11.01 $ 10.33 $ 10.55
$ 12.91 $ 12.00 $ 10.88
- ------------------------------------------------------------
- ---------------------------------
0.83 0.86 0.86 0.87+++
0.90+++ 0.89 1.10 1.08
0.12 1.38 (0.57) 0.68 (0.24)
(1.24) 1.16 1.54
- ------------------------------------------------------------
- ---------------------------------
0.95 2.24 0.29 1.55 0.66
(0.35) 2.26 2.62
- ------------------------------------------------------------
- ---------------------------------
(0.83) (0.87) (0.87) (0.87) (0.88)
(1.12) (1.10) (1.39)
-- -- -- -- --
- -- -- --
-- -- -- -- --
(0.89) (0.25) (0.11)
(0.03) -- -- -- --
- -- -- --
- ------------------------------------------------------------
- ---------------------------------
(0.86) (0.87) (0.87) (0.87) (0.88)
(2.01) (1.35) (1.50)
- ------------------------------------------------------------
- ---------------------------------
$ 11.89 $ 11.80 $ 10.43 $ 11.01 $ 10.33
$ 10.55 $ 12.91 $ 12.00
- ------------------------------------------------------------
- ---------------------------------
8.36% 22.50% 2.98% 15.57% 6.43%
(2.83)% 19.54% 26.43
- ------------------------------------------------------------
- ---------------------------------
$431,783 $413,878 $405,779 $483,382 $532,794
$705,561 $421,011 $233,880
1.57%++ 1.53% 1.58% 1.63%***
1.22%*** 1.62% 1.62% 1.79%
6.99% 7.90% 8.20% 8.07% 8.74%
7.96% 7.74% 9.78%
47% 82% 59% 118% 72%
79% 211% 717%
- ------------------------------------------------------------
- ---------------------------------
</TABLE>
See Notes to Financial Statements.
15
Smith Barney
Investment Grade Bond Fund
Financial Highlights
For a Class C share outstanding throughout each period.
<TABLE>
<CAPTION>
Six Months
Year Period
Ended
Ended Ended
6/30/95
12/31/94# 12/31/93*#
(unaudited)
<S> <C> <C>
<C>
Net asset value, beginning of period $10.67
$13.01 $12.56
- ------------------------------------------------------------
- -------------------
Income from investment operations:
Net investment income 0.41
0.75 0.63
Net realized and unrealized gain/(loss)
on investments 1.82
(1.95) 0.65
- ------------------------------------------------------------
- -------------------
Total from investment operations 2.23
(1.20) 1.28
- ------------------------------------------------------------
- -------------------
Less Distributions:
Distributions from net investment income (0.41)
(0.80) (0.68)
Distributions in excess of net
investment income --
- -- (0.01)
Distributions from net realized capital
gains --
(0.31) (0.14)
Distributions from capital --
(0.03) --
- ------------------------------------------------------------
- -------------------
Total distributions (0.41)
(1.14) (0.83)
- ------------------------------------------------------------
- -------------------
Net asset value, end of period $12.49
$10.67 $13.01
- ------------------------------------------------------------
- -------------------
Total return+ 21.32%
(9.41)% 10.38%
- ------------------------------------------------------------
- -------------------
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $1,808 $
999 $ 208
Ratio of operating expenses to average
net assets 1.51%**++
1.57% 1.61%**
Ratio of net investment income to
average net assets 6.91%**
6.89% 6.17%**
Portfolio turnover rate 29%
18% 65%
- ------------------------------------------------------------
- -------------------
</TABLE>
* The Fund commenced selling Class C shares (previously
designated as Class D)
on February 26, 1993.
** Annualized.
+ Total return represents aggregate total return for the
periods indicated and
does not reflect any applicable sales charge.
++ The annualized operating expense ratio excludes interest
expense. The
annualized ratio including interest expense was 1.53% for
the six months
ended June 30, 1995.
# Per share amounts have been calculated using the average
shares method, which
more appropriately presents the per share data for the
period since use of
the undistributed net investment income method does not
accord with results
of operations.
See Notes to Financial Statements.
16
Smith Barney
Investment Grade Bond Fund
Notes to Financial Statements (unaudited)
1. Significant Accounting Policies
Smith Barney Investment Funds Inc. (the "Company") was
incorporated in Mary-
land on September 29, 1981 and commenced operations on
January 4, 1982. The
Company is registered with the Securities and Exchange
Commission under the
Investment Company Act of 1940, as amended (the "1940 Act"),
as a diversified
open-end management investment company. As of the date of
this report, the
Company is composed of five managed investment funds (the
"Funds"): Smith Bar-
ney Investment Grade Bond Fund (the "Fund"), Smith Barney
Government Securi-
ties Fund, Smith Barney Special Equities Fund, Smith Barney
Managed Growth
Fund and Smith Barney Growth Opportunity Fund. At the time
of this report, the
Fund offered four classes of shares: Class A, Class B, Class
C (formerly Class
D shares) and Class Y shares. Class A shares are sold with a
front-end sales
charge. Class B and Class C shares may be subject to a
contingent deferred
sales charge ("CDSC") upon redemption. Class B shares will
convert automati-
cally to Class A shares approximately eight years after the
date of original
purchase. Class Y shares are available to investors making
an initial invest-
ment of at least $5 million and are not subject to any sales
charges, distri-
bution or service fees. As of June 30, 1995, no Class Y
shares had been sold.
All classes of shares have identical rights and privileges
except with respect
to the effect of the respective sales charges to each class,
the distribution
and/or service fees borne by each class, expenses allocable
exclusively to
each class, voting rights on matters affecting a single
class, the exchange
privilege of each class and the conversion feature of Class
B shares. The fol-
lowing is a summary of significant accounting policies
consistently followed
by the Fund in preparation of its financial statements.
Portfolio valuation: Securities listed on an exchange are
valued on the basis
of the last sale prior to the time the valuation is made. If
there has been no
sale since the immediately previous valuation, then the
current bid price is
used. Over-the-counter securities are valued on the basis of
the bid price at
the close of business on each day. Notwithstanding the
above, bonds and other
fixed-income securities are valued by using market
quotations and may be val-
ued on the basis of prices provided by a pricing service,
when the Board of
Directors believes that such prices reflect the market value
of such securi-
ties. In cases where securities are traded on more than one
exchange, the se-
curities are valued on the exchange designated by or under
the authority of
the Board of Directors as the primary market. Securities and
assets for which
market quotations are not readily available are valued at
fair value as deter-
mined in good faith by or under the direction of the Board
of Directors. Money
market instruments maturing within 60 days of the valuation
date are valued at
amortized cost.
17
Smith Barney
Investment Grade Bond Fund
Notes to Financial Statements (unaudited) (continued)
Repurchase agreements: The Fund engages in repurchase
agreement transactions.
Under the terms of a typical repurchase agreement, the Fund
takes possession of
an underlying debt obligation subject to an obligation of
the seller to repur-
chase, and the Fund to resell, the obligation at an agreed-
upon price and time,
thereby determining the yield during the Fund's holding
period. This arrange-
ment results in a fixed rate of return that is not subject
to market fluctua-
tions during the Fund's holding period. The value of the
collateral is at least
equal at all times to the total amount of the repurchase
obligations, including
interest. In the event of counterparty default, the Fund has
the right to use
the collateral to offset losses incurred. There is a
potential loss to the Fund
in the event the Fund is delayed or prevented from
exercising its rights to
dispose of the collateral securities including the risk of a
possible decline
in the value of the underlying securities during the period
while the Fund
seeks to assert its rights. The Fund's investment adviser,
administrator or
sub-administrator, acting under the supervision of the Board
of Directors, re-
views the value of the collateral and the creditworthiness
of those banks and
dealers with which the Fund enters into repurchase
agreements to evaluate po-
tential risks.
Securities transactions and investment income: Securities
transactions are re-
corded as of the trade date. Dividend income is recorded on
the ex-dividend
date. Interest income is recorded on the accrual basis.
Realized gains and
losses from securities transactions are recorded on the
identified cost basis.
Investment income and realized and unrealized gains and
losses are allocated
based upon the relative net assets of each class of shares.
Dividends and distributions to shareholders: Distributions
from net investment
income, if any, are determined on a class level and will be
declared daily and
paid monthly. Distributions from net realized capital gains,
after utilization
of capital loss carryforwards, are determined on a Fund
level and will be dis-
tributed at least annually. Net short-term capital gains may
be paid more fre-
quently, with the distribution of dividends from net
investment income. Addi-
tional distributions of net investment income and capital
gains may be made at
the discretion of the Board of Directors to avoid
application of a 4.00% nonde-
ductible excise tax on certain amounts of undistributed
income and capital
gains. Income distributions and capital gain distributions
on a Fund level are
determined in accordance with income tax regulations which
may differ from gen-
erally accepted accounting principles. These differences are
primarily due to
differing treatments of income and gains on various
investment securities held
by the Fund, timing differences and differing
characterization of distributions
made by the Fund as a whole.
18
Smith Barney
Investment Grade Bond Fund
Notes to Financial Statements (unaudited) (continued)
Federal income taxes: The Fund intends to continue to
qualify as a regulated
investment company, if such qualification is in the best
interest of its
shareholders, by complying with the requirements of the
Internal Revenue Code
of 1986, as amended, applicable to regulated investment
companies and to dis-
tribute substantially all of its taxable income to its
shareholders. There-
fore, no Federal income tax provision is required.
2. Investment Advisory Fee, Administration Fee and Other
Transactions
The Fund has entered into an investment advisory agreement
(the "Advisory
Agreement") with Smith Barney Mutual Funds Management Inc.
("SBMFM"). SBMFM is
a wholly owned subsidiary of Smith Barney Holdings Inc.,
which in turn is a
wholly owned subsidiary of Travelers Group Inc. Under the
Advisory Agreement,
the Fund pays a monthly fee at the annual rate of 0.45% of
the value of its
average daily net assets, up to $500 million and 0.42% of
the value of its av-
erage daily net assets in excess of $500 million.
The Fund has entered into an administration agreement (the
"Administration
Agreement") with SBMFM. Under the Administration Agreement,
the Fund pays a
monthly fee at the annual rate of 0.20% of the value of its
average daily net
assets, up to $500 million and 0.18% of the value of its
average daily net as-
sets in excess of $500 million.
The Fund and SBMFM have also entered into a sub-
administration agreement (the
"Sub-Administration Agreement") with The Boston Company
Advisors, Inc. ("Bos-
ton Advisors"), an indirect wholly owned subsidiary of
Mellon Bank Corporation
("Mellon"). Under the Sub-Administration Agreement, SBMFM
pays Boston Advisors
a portion of its administration fee at a rate agreed upon
from time to time
between SBMFM and Boston Advisors.
For the six months ended June 30, 1995, Smith Barney Inc.
("Smith Barney") re-
ceived $56,936 from investors representing commissions
(sales charges) on
sales of Class A shares.
A CDSC is generally payable by a shareholder in connection
with the redemption
of certain Class A, Class B and Class C shares. In
circumstances in which the
CDSC is imposed, the amount will vary depending on the
number of years since
the date of purchase. For the six months ended June 30,
1995, Smith Barney re-
19
Smith Barney
Investment Grade Bond Fund
Notes to Financial Statements (unaudited) (continued)
ceived $317,018 and $2,893 from investors in CDSCs on the
redemption of Class B
and Class C shares, respectively.
No officer, director or employee of Smith Barney or any of
its affiliates re-
ceives any compensation from the Company for serving as an
officer or director
of the Company. The Company pays each Director who is not an
officer, director
or employee of Smith Barney or any of its affiliates $16,000
per annum plus
$2,500 per meeting attended and reimburses each such
Director for travel and
out-of-pocket-expenses.
Boston Safe Deposit and Trust Company ("Boston Safe"), an
indirect wholly owned
subsidiary of Mellon, serves as the Fund's custodian. The
Shareholder Services
Group, Inc., a subsidiary of First Data Corporation, serves
as the Fund's
transfer agent.
3. Distribution Plan
Smith Barney acts as exclusive distributor of the Fund's
shares pursuant to a
distribution agreement with the Company, and sells shares of
the Fund through
Smith Barney or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Company has
adopted a services
and distribution plan (the "Plan"). Under this Plan, the
Company compensates
Smith Barney for servicing shareholder accounts for Class A,
Class B and Class
C shareholders, and covers expenses incurred in distributing
Class B and Class
C shares. Smith Barney is paid an annual service fee with
respect to Class A,
Class B and Class C shares of the Fund at the rate of 0.25%
of the value of the
average daily net assets of each respective class of shares.
Smith Barney is
also paid an annual distribution fee with respect to Class B
and Class C shares
at the rate of 0.50% and 0.45% of the value of the average
daily net assets,
respectively. For the six months ended June 30, 1995 service
fees for Class A,
Class B and Class C shares were $239,092, $299,497 and
$1,805, respectively.
For the six months ended June 30, 1995 distribution fees for
Class B and Class
C shares were $598,992 and $3,250, respectively.
Under its terms, the Plan shall remain in effect from year
to year, provided
that such continuance is approved annually by vote of the
Company's Directors,
including a majority of those Directors who are not
"interested persons" of the
Company and who have no direct or indirect financial
interest in the operation
of the Plan.
20
Smith Barney
Investment Grade Bond Fund
Notes to Financial Statements (unaudited) (continued)
4. Expense Allocation
Expenses of the Fund not directly attributable to the
operations of any class
of shares are prorated among the classes based upon the
relative net assets of
each class. Operating expenses directly attributable to a
class of shares are
charged to that class' operations. In addition to the above
service and distri-
bution fees, class specific operating expenses include the
transfer agent fees.
For the six months ended June 30, 1995, the Fund paid
transfer agent fees of
$91,651, $114,132 and $570 for Class A, Class B and Class C
shares, respective-
ly.
5. Securities Transactions
Cost of purchases and proceeds from sales of securities,
excluding short-term
investments, aggregated $122,677,204 and $125,313,710,
respectively, for the
six months ended June 30, 1995.
At June 30, 1995, aggregate gross unrealized appreciation
for all securities in
which there was an excess of value over tax cost was
$32,477,174 and aggregate
gross unrealized depreciation for all securities in which
there was an excess
of tax cost over value was $6,103,464.
6. Shares of Common Stock
At June 30, 1995, the Company had authorized on behalf of
the Fund, capital of
2.25 billion shares of $.001 par value common stock divided
into four classes
of shares, Class A, Class B, Class C and Class Y.
Changes in common stock outstanding were as follows:
<TABLE>
<CAPTION>
Six months Ended
Year Ended
6/30/95
12/31/94
Class A shares: Shares Amount
Shares Amount
- ------------------------------------------------------------
- ------------------
<S> <C> <C> <C>
<C>
Sold 512,836 $ 5,904,178
16,784,949 $186,110,299
Issued as reinvestment of
dividends 477,684 5,517,706
679,207 7,334,475
Redeemed (1,456,182) (16,836,620)
(1,245,217) (13,850,662)
- ------------------------------------------------------------
- ------------------
Net increase/(decrease) (465,662) $ (5,414,736)
16,218,939 $179,594,112
- ------------------------------------------------------------
- ------------------
</TABLE>
21
Smith Barney
Investment Grade Bond Fund
Notes to Financial Statements (unaudited) (continued)
<TABLE>
<CAPTION>
Six months Ended
Year Ended
6/30/95
12/31/94
Class B shares: Shares Amount Shares
Amount
- ------------------------------------------------------------
- ------------------
<S> <C> <C> <C>
<C>
Sold 2,675,566 $ 30,653,577
5,403,618 $ 63,270,474
Issued as reinvestment
of dividends 496,540 5,737,456
1,992,592 22,870,952
Redeemed (2,979,484) (34,629,833)
(23,258,589) (263,491,413)
- ------------------------------------------------------------
- ------------------
Net increase/(decrease) 192,622 $ 1,761,200
(15,862,379) $(177,349,987)
- ------------------------------------------------------------
- ------------------
</TABLE>
<TABLE>
<CAPTION>
Six months Ended
Year Ended
6/30/95
12/31/94
Class C shares: Shares Amount
Shares Amount
- ------------------------------------------------------------
- ----------------
<S> <C> <C>
<C> <C>
Sold 117,733 $1,346,553
82,608 $ 922,066
Issued as reinvestment of dividends 3,203 37,006
4,936 54,251
Redeemed (69,937) (818,129)
(9,852) (110,615)
- ------------------------------------------------------------
- ----------------
Net increase 50,999 $ 565,430
77,692 $ 865,702
- ------------------------------------------------------------
- ----------------
</TABLE>
As of June 30, 1995, no Class Y shares had been sold.
7. Notes Payable
The Fund and several affiliated entities participate in a
$50 million line of
credit provided by Bank of America, N.A. under an Amended
and Restated Line of
Credit Agreement (the "Agreement") dated April 30, 1992 and
renewed effective
May 31, 1994, primarily for temporary or emergency purposes,
including the
meeting of redemption requests that otherwise might require
the untimely dispo-
sition of securities. Under this Agreement, the Fund may
borrow up to the
lesser of $25 million or 25% of its net assets. However,
pursuant to the Fund's
Statement of Additional Information, the Fund may only
borrow up to 5% of its
total assets. Under the terms of the Agreement, as amended,
the Fund and the
other affiliated entities are charged an aggregate
commitment fee of $100,000
which is allocated equally among each of the participants.
The Agreement re-
quires, among other provisions, each participating fund to
maintain a ratio of
net assets (not including funds borrowed pursuant to the
Agreement) to aggre-
gate amount of indebtedness pursuant to the Agreement of no
less than 5 to 1.
During the six months ended June 30, 1995, the Fund had an
average outstanding
daily balance of $1,196,685 with interest rates ranging from
6.313% to 6.875%.
Interest expense totalled $36,710 for the six months ended
June 30, 1995. At
June 30, 1995, the Fund's outstanding borrowings under this
Agreement totaled
$3,400,000.
22
Smith Barney
Investment Grade Bond Fund
Participants
Distributor
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Investment Adviser and Administrator
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
Sub-Administrator
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
Auditors and Counsel
KPMG Peat Marwick, LLP
345 Park Avenue
New York, New York 10154
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Transfer Agent
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
23
Smith Barney
Investment Grade Bond Fund
Glossary of Commonly Used Mutual Fund Terms
Capital Gain (or Loss) This is the increase (or decrease) in
the market value
(price) of a security in your portfolio. If a stock or bond
appreciates in
price, there is a capital gain; if it depreciates, there is
a capital loss. A
capital gain or loss is "realized" upon the sale of a
security; if net capital
gains exceed net capital losses, there may be a capital gain
distribution to
shareholders.
CDSC (Contingent Deferred Sales Charge) One kind of back-end
load, a CDSC is
imposed if shares are redeemed during the first few years of
ownership. The
CDSC may be expressed as a percentage of either the original
purchase price or
the redemption proceeds. Most CDSC's decline over time, and
some will not be
charged if shares are redeemed after a certain period of
time.
Dividend This is income generated by securities in a
portfolio and distributed
after expenses to shareholders.
Front-End Sales Charge This is the sales charge applied to
an investment at
the time of initial purchase.
Net Asset Value (NAV) Net Asset Value is the total market of
all securities
held by a fund, minus any liabilities, divided by the number
of shares out-
standing. It is the value of a single share of a mutual fund
on a given day.
The total value of your investment would be the NAV
multiplied by the number
of shares you own.
Distribution Rate This is the rate at which a mutual fund
pays out (or dis-
tributes) interest, dividends and realized capital gains to
shareholders. A
fund's distribution rate is usually expressed as an
annualized percent of the
fund's offering price.
SEC Yield This standardized calculation of a mutual fund's
yield is based on a
formula developed by the Securities and Exchange Commission
(SEC) to allow
funds to be compared on an equal basis. It is an annualized
yield based on the
portfolio's potential earnings from dividends, interest and
yield to maturity
of its holdings, and it reflects the payments of all
portfolio expenses for
the most recent 30-day period. Mutual funds are required to
use this figure
when stating yield.
Total Return Total return measures a fund's performance,
taking into account
the combination of dividends paid and the gain or loss in
the value of the se-
curities held in the portfolio. It may be expressed on an
average annual basis
or cumulative basis (total change over a given period). In
addition, total re-
turn may be expressed with or without the effects of sales
charges or the re-
investment of dividends and capital gains.
Whenever a fund reports any type of performance, it must
also report the aver-
age annual total return according to the standardized
calculation developed by
the SEC. The SEC average annual total return calculation
includes the effects
of all fees and sales charges and assumes the reinvestment
of all dividends
and capital gains.
24
Investment Grade Bond Fund
Directors
Paul R. Ades
Herbert Barg
Alger B. Chapman
Dwight B. Crane
Allan R. Johnson
Frank G. Hubbard
Heath B. McLendon
Ken Miller
John F. White
Officers
Heath B. McLendon
Chairman of the Board
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
George E. Mueller Jr.
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
[LOGO OF SMITH
BARNEY APPEARS HERE]
This report is submitted for the general information of the
shareholders of
Smith Barney Investment Grade Bond Fund. 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, fees and expenses as well as other
pertinent information.
Smith Barney Mutual Funds
388 Greenwich Street
New York, New York 10013
Fund 104, 234, 242, 460
FD0317 8/95
