<PAGE>
[GRAPHIC]
[GRAPHIC]
Smith Barney
Special
Equities Fund
------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(SM)
<PAGE>
Smith Barney
Special Equities Fund
================================================================================
The Smith Barney Special Equities Fund seeks long-term appreciation by investing
primarily in equity securities that are believed to have superior appreciation
potential and that are not generally within the S&P 500 Composite Stock Price
Index. They may be securities of companies in their development stage or older
companies that appear to be entering a new stage of more rapid growth.
Smith Barney Special Equities Fund
Average Annual Total Returns
June 30, 1998
<TABLE>
<CAPTION>
Without Sales Charge*
------------------------------------
Class A Class B Class L#
===============================================================================
<S> <C> <C> <C>
Six-Month+ 9.73% 9.32% 9.32%
- -------------------------------------------------------------------------------
One-Year 7.90 7.10 7.06
- -------------------------------------------------------------------------------
Five-Year 11.51 10.69 N/A
- -------------------------------------------------------------------------------
Ten-Year N/A 10.22 N/A
- -------------------------------------------------------------------------------
Since Inception++ 14.92 9.65 5.98
===============================================================================
<CAPTION>
With Sales Charge**
-------------------------------------
Class A Class B Class L#
================================================================================
<S> <C> <C> <C>
Six-Month+ 4.23% 4.32% 7.22%
- --------------------------------------------------------------------------------
One-Year 2.50 2.10 5.00
- --------------------------------------------------------------------------------
Five-Year 10.38 10.56 N/A
- --------------------------------------------------------------------------------
Ten-Year N/A 10.22 N/A
- --------------------------------------------------------------------------------
Since Inception++ 13.88 9.65 5.76
================================================================================
</TABLE>
* Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect deduction of the applicable
sales charges with respect to Class A and L shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and L
shares.
# On June 12, 1998, Class C shares were renamed Class L shares.
** Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum sales charge of 5.00% and 1.00% respectively; and
Class B shares reflect the deduction of a 5.00% CDSC, which applies if
shares are redeemed within one year from purchase. Thereafter, this CDSC
declines by 1.00% per year until no CDSC is incurred. Class L shares
reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed
within the first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+ Total return is not annualized as it may not be representative of the total
return for the year.
++ Inception dates for Class A, B and L shares are November 6, 1992, December
13, 1982 and October 18, 1993, respectively.
================================================================================
FUND HIGHLIGHT
================================================================================
We continue to focus on high-quality emerging growth small-capitalization stocks
with the belief that, despite their inherent volatility, small-capitalization
companies offer investors significant potential for total return over the long
term.
================================================================================
NASDAQ SYMBOL
================================================================================
Class A HSEAX
Class B HSPEX
Class L HSELX
================================================================================
What's Inside
================================================================================
Shareholder Letter ...................................................... 1
Historical Performance .................................................. 4
Smith Barney Special Equities Fund
at a Glance ............................................................. 7
Schedule of Investments ................................................. 8
Statement of Assets and Liabilities ..................................... 14
Statement of Operations ................................................. 15
Statements of Changes in Net Assets ..................................... 16
Notes to Financial Statements ........................................... 17
Financial Highlights .................................................... 21
Additional Shareholder Information ...................................... 24
<PAGE>
================================================================================
Shareholder Letter
================================================================================
[PHOTO] [PHOTO]
HEATH B. GEORGE V.
MCLENDON NOVELLO
Chairman Vice President and
Investment Officer
Dear Shareholder:
Presented for your review is the semi-annual report for the Smith Barney Special
Equities Fund ("Fund") for the period ended June 30, 1998. In this report, we
briefly discuss stock market conditions and outline our investment strategy. A
more detailed summary of performance and current holdings can be found in the
appropriate sections that follow.
A Classic Series Fund
The Special Equities Fund is part of the Classic Series of Smith Barney Mutual
Funds. Classic Series Funds are mutual funds, whose investment decisions are
determined by experienced portfolio managers, based on each fund's investment
objectives and guidelines. Funds in the Smith Barney Classic Series can invest
across asset classes and sectors, utilizing a range of strategies in order to
achieve their objectives.
Performance Update and Investment Strategy
For the six months ended June 30, 1998, the Smith Barney Special Equities Fund's
Class A shares without sales charges returned 9.73% which compares favorably to
the 4.93% return for the Russell 2000 Index during the same period. (The Russell
2000 Index is made up of 2,000 smaller-capitalized U.S.-based companies whose
common stocks trade on either the New York, American or Nasdaq stock exchanges.)
The Fund's gains were registered principally through continued strength in our
technology stocks such as Metromedia Fiber (a fiber optic communications network
in New York) and Winstar (a comprehensive voice and data telecommunications
business servicing business and individuals). In addition, the Fund's holdings
in Starbucks (a specialty coffee roaster and retailer) and Beringer Wines (a
top-seller of premium wines in the United States) also performed admirably.
We also took the opportunity to reduce or eliminate positions in stocks that we
deemed had potential problems. Included among those stocks were Manugistics
Group, a provider of supply chain management software, that monitors and
controls the flow of products from raw materials to finished goods. We were
fortunate enough to sell sizeable positions before the major decline in the
stock caused by disappointing earnings. N2K, an on-line seller of music CDs,
cassettes and related merchandise through various websites, was also sold as
both earnings losses widened and its Internet competition intensified. Ashworth,
a company that designs and sells high-quality sports apparel, was eliminated
from the Fund's portfolio when its earnings were negatively impacted by
production problems.
Also contributing to the Fund's relative success during the reporting period
were Filenet, a company that develops computer-based imaging and workflow
document managing systems. Safeskin, the leading maker of disposable latex and
powder-free examination gloves, was also a strong contributor to performance.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 1
<PAGE>
We continue to focus on high-quality emerging growth stocks with the belief
that, despite their inherent volatility, small-capitalization companies offer
investors significant potential for total return over the long term. In
selecting investments for the Fund, we search for companies with sound
fundamentals and strong earnings growth. Moreover, we favor relatively new
companies that appear poised for a sustained period of growth or established
companies entering a new stage of rapid earnings growth due to a change in
direction, management or new products technology.
In addition to our in-depth fundamental analysis of companies to identify stocks
that we believe possess superior appreciation potential, we also utilize a
quantitative investment approach designed to mitigate the price volatility
inherent in small cap stocks relative to the major indices. This strategy has
meant that the Fund will have holdings in a larger number of companies than in
the past. However, the combination of reduced volatility potential with a
fundamental research effort to uncover emerging growth companies should result
in a return stream that may be both more consistent and superior to our
competitors over the long term.
Market Update
Large-capitalization growth stocks continued to lead the U.S. equity markets
during the period under review and the broader markets reflect the ongoing
strength in larger-cap names. Yet, for some time now, this performance has been
centered in only a handful of stocks. In fact, an article in a recent issue of a
major financial magazine noted that four stocks --Microsoft, Intel, Cisco and
Dell Computers --represent 25% of the Nasdaq Index. In essence, some 5,400 or so
other Nasdaq companies represent the remaining 75% of the Index.
Moreover, we think that continued large inflows of cash into U.S. mutual funds
has increased the pressure on many portfolio managers to own larger-cap
companies. Why? Because when market uncertainties grow, large-cap stocks tend to
be more liquid and easier to sell. All of these factors have made large-cap
stocks more attractive. Not surprisingly, all of these trends have negatively
affected the small-cap stock sector. Combined with a growing concern that
earnings growth could slow has caused the markets to give up some ground
- --another reason for the relatively poor small cap performance.
Small-Cap Market Outlook
Despite low valuations and relatively stronger earnings growth, small-cap stocks
have continued to underperform their larger-cap brethren. When will this
situation change? We don't know. However, we do believe this may be an opportune
time for long-term investors who can tolerate significant short-term
fluctuations to purchase small-cap stocks for the first time or to add to their
existing small-cap holdings. In our opinion, we think that small-cap stocks are
very attractive right now due to their low valuations and strong earnings.
In closing, we would like to thank you once again for your investment in Smith
Barney Special Equities Fund.
Sincerely,
/s/ Heath B. McLendon /s/ George V. Novello
Heath B. McLendon. George V. Novello
Chairman Vice President and
Investment Officer
July 27, 1998
- --------------------------------------------------------------------------------
2 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Top Ten Holdings* As of June 30, 1998
================================================================================
<S> <C>
1. Starbucks Corp. 3.1%
- -------------------------------------------------------------------------------
2. Safeskin Corp. 3.0
- -------------------------------------------------------------------------------
3. Abercrombie & Fitch Co. 2.6
- -------------------------------------------------------------------------------
4. Uniphase Corp. 2.5
- -------------------------------------------------------------------------------
5. Beringer Wine Estates Holdings, Inc. 2.3
- -------------------------------------------------------------------------------
6. Winstar Communications, Inc. 2.1
- -------------------------------------------------------------------------------
7. Chancellor Media Corp. 2.1
- -------------------------------------------------------------------------------
8. Abacus Direct Corp. 2.1
- -------------------------------------------------------------------------------
9. Metromedia Fiber Network, Inc. 2.0
- -------------------------------------------------------------------------------
10. American Italian Pasta Co. 1.9
- -------------------------------------------------------------------------------
</TABLE>
* As a percentage of total common stock.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 3
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Historical Performance -- Class A Shares
===================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $26.52 $29.10 $0.00 $0.00 $0.00 9.73%+
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/97 28.11 26.52 0.00 0.00 0.00 (5.66)
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/96 30.44 28.11 0.00 0.28 0.36 (5.81)
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/95 19.10 30.44 0.00 0.76 0.00 63.48
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/94 20.23 19.10 0.00 0.00 0.00 (5.59)
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/93 15.47 20.23 0.00 0.33 0.00 32.90
- -----------------------------------------------------------------------------------------------------------------------------------
Inception*--12/31/92 14.13 15.47 0.00 0.00 0.00 9.48+
===================================================================================================================================
Total $0.00 $1.37 $0.36
===================================================================================================================================
<CAPTION>
===================================================================================================================================
Historical Performance -- Class B Shares
===================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $25.54 $27.92 $0.00 $0.00 $0.00 9.32%+
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/97 27.28 25.54 0.00 0.00 0.00 (6.38)
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/96 29.76 27.28 0.00 0.28 0.36 (6.44)
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/95 18.82 29.76 0.00 0.76 0.00 62.30
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/94 20.08 18.82 0.00 0.00 0.00 (6.27)
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/93 15.47 20.08 0.00 0.33 0.00 31.93
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/92 14.18 15.47 0.00 0.00 0.00 9.10
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/91 9.82 14.18 0.00 0.00 0.03 44.76
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/90 13.77 9.82 0.29 0.23 0.02 (24.71)
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/89 12.04 13.77 0.27 0.00 0.24 18.60
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/88 11.48 12.04 0.55 0.30 0.00 12.60
===================================================================================================================================
Total $1.11 $1.90 $0.65
===================================================================================================================================
<CAPTION>
===================================================================================================================================
Historical Performance -- Class L Shares
===================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $25.54 $27.92 $0.00 $0.00 $0.00 9.32%+
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/97 27.28 25.54 0.00 0.00 0.00 (6.38)
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/96 29.77 27.28 0.00 0.28 0.36 (6.44)
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/95 18.82 29.77 0.00 0.76 0.00 62.35
- -----------------------------------------------------------------------------------------------------------------------------------
12/31/94 20.08 18.82 0.00 0.00 0.00 (6.27)
- -----------------------------------------------------------------------------------------------------------------------------------
Inception*--12/31/93 22.62 20.08 0.00 0.33 0.00 (9.77)+
===================================================================================================================================
Total $0.00 $1.37 $0.36
===================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
4 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Historical Performance -- Class Y Shares
===================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $ 26.72 $ 29.38 $ 0.00 $ 0.00 $ 0.00 9.96%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 28.21 26.72 0.00 0.00 0.00 (5.28)
- ------------------------------------------------------------------------------------------------------------------------------------
Inception*--12/31/96 28.99 28.21 0.00 0.28 0.36 (0.75)+
====================================================================================================================================
Total $ 0.00 $ 0.28 $ 0.36
===================================================================================================================================
<CAPTION>
===================================================================================================================================
Historical Performance -- Class Z Shares
===================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $26.76 $29.42 $0.00 $0.00 $0.00 9.94%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 28.26 26.76 0.00 0.00 0.00 (5.31)
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/96 30.46 28.26 0.00 0.28 0.36 (5.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Inception*--12/31/95 26.49 30.46 0.00 0.76 0.00 17.95+
====================================================================================================================================
Total $0.00 $1.04 $0.36
====================================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
<TABLE>
<CAPTION>
===================================================================================================================================
Average Annual Total Return
===================================================================================================================================
Without Sales Charge(1)
-------------------------------------------------------------------------
Class A Class B Class L Class Y Class Z
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 6/30/98+ 9.73% 9.32% 9.32% 9.96% 9.94%
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended 6/30/98 7.90 7.10 7.06 8.33 8.32
- -----------------------------------------------------------------------------------------------------------------------------------
Five Years Ended 6/30/98 11.51 10.69 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 6/30/98 N/A 10.22 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/98 14.92 9.65 5.98 1.38 5.62
===================================================================================================================================
<CAPTION>
Without Sales Charge(2)
-------------------------------------------------------------------------
Class A Class B Class L Class Y Class Z
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 6/30/98+ 4.23% 4.32% 7.22% 9.96% 9.94%
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended 6/30/98 2.50 2.10 5.00 8.33 8.32
- -----------------------------------------------------------------------------------------------------------------------------------
Five Years Ended 6/30/98 10.38 10.56 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 6/30/98 N/A 10.22 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/98 13.88 9.65 5.76 1.38 5.62
===================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 5
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
Cumulative Total Return
===============================================================================
Without Sales Charge(1)
===============================================================================
<S> <C>
Class A (Inception* through 6/30/98) 119.00%
- -------------------------------------------------------------------------------
Class B (6/30/88 through 6/30/98) 164.70
- -------------------------------------------------------------------------------
Class L (Inception* through 6/30/98) 31.42
- -------------------------------------------------------------------------------
Class Y (Inception* through 6/30/98) 3.37
- -------------------------------------------------------------------------------
Class Z (Inception* through 6/30/98) 16.20
===============================================================================
</TABLE>
(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 and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and Class L shares reflect
the deduction of the maximum initial sales charge of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase and declines
thereafter by 1.00% per year until no CDSC is incurred. Class L shares also
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 dates for Class A, B, L, Y and Z shares are November 6, 1992,
December 13, 1982, October 18, 1993, January 31, 1996 and October 2, 1995,
respectively.
- --------------------------------------------------------------------------------
6 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Smith Barney Special Equities Fund at a Glance (unaudited)
================================================================================
Growth of $10,000 Invested in Class B Shares of the Smith Barney Special
Equities Fund vs. the Standard & Poor's 500 Index and the Russell 2000 Index+
- --------------------------------------------------------------------------------
June 1988 -- June 1998
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Smith Barney Standard & Poor's Russell 2000
Special Equities Fund 500 Index Index
--------------------- ---------------- ------------
<S> <C> <C> <C>
Jun 1988 $ 10,000 $ 10,000 $ 10,000
Dec 1988 $ 9,768 $ 10,343 $ 9,846
Dec 1989 $ 11,585 $ 13,615 $ 11,448
Dec 1990 $ 8,723 $ 13,192 $ 9,217
Dec 1991 $ 12,627 $ 17,203 $ 13,462
Dec 1992 $ 13,775 $ 18,513 $ 15,940
Dec 1993 $ 18,174 $ 20,374 $ 18,949
Dec 1994 $ 17,033 $ 20,642 $ 18,604
Dec 1995 $ 27,645 $ 28,389 $ 23,898
Dec 1996 $ 25,863 $ 34,904 $ 27,841
Dec 1997 $ 24,213 $ 46,548 $ 34,067
Jun 1998 $ 26,470 $ 54,796 $ 35,747
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class B shares on June 30,
1988, assuming reinvestment of dividends and capital gains, if any, at net
asset value through June 30, 1998. The Standard & Poor's 500 Index is
composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. Figures for
the index include reinvestment of dividends. The Russell 2000 Index is
composed of the 2,000 smallest companies in the Russell 3000 Index. The
Russell 3000 Index is composed of 3,000 of the largest U.S. companies by
market capitalization. The indexes are unmanaged and are not subject to the
same management and trading expenses as a mutual fund. The performance of
the Fund's other classes may be greater or less than the Class B 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 value may be more or less than the original cost. No adjustment
has been made for shareholders tax liability on dividends or capital gains.
Industry Diversification of Common Stock*
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<S> <C>
Broadcasting 3.6%
Business Services 9.5%
Communications 10.8%
Food & Beverages 5.9%
Health Care 7.3%
Pharmaceuticals/Medical Products 4.6%
Restaurant 5.1%
Retail 10.2%
Semiconductors/Components 5.8%
Software 17.8%
Other 19.4%
</TABLE>
* As a percentage of total common stock.
Investment Breakdown**
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<S> <C>
Repurchase Agreement 6.6%
Common Stock and Warrants 93.4%
</TABLE>
** As a percentage of total investments.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 7
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited) June 30, 1998
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C>
COMMON STOCK -- 93.4%
Advertising -- 0.6%
47,800 Advo, Inc. $ 1,347,363
57,600 Outdoor Systems, Inc.+ 1,612,800
- ------------------------------------------------------------------------------------------------------------------------------------
2,960,163
- ------------------------------------------------------------------------------------------------------------------------------------
Auto/Truck Parts -- 0.6%
49,200 Hayes Lemmerz International, Inc.+ 1,955,700
47,800 Wabash National Corp. 1,230,850
- ------------------------------------------------------------------------------------------------------------------------------------
3,186,550
- ------------------------------------------------------------------------------------------------------------------------------------
Broadcasting -- 3.4%
13,900 BET Holdings, Inc.+ 874,831
200,000 Chancellor Media Corp.+ 9,931,250
23,700 Heftel Broadcasting Corp., Class A Shares+ 1,060,575
29,000 Jacor Communications, Inc.+* 1,711,000
100,000 Univision Communications, Inc.+ 3,725,000
- ------------------------------------------------------------------------------------------------------------------------------------
17,302,656
- ------------------------------------------------------------------------------------------------------------------------------------
Building & Building Products -- 0.4%
45,800 Centex Construction Products, Inc. 1,763,300
18,000 Oakwood Homes Corp.* 540,000
- ------------------------------------------------------------------------------------------------------------------------------------
2,303,300
- ------------------------------------------------------------------------------------------------------------------------------------
Business Services -- 8.9%
190,000 Abacus Direct Corp.+ 9,868,125
21,600 Applied Graphics Technologies, Inc.+ 988,200
30,700 Billing Concepts Corp.+ 475,850
200,000 Brightstar Information Technology Group, Inc.+ 2,775,000
100,000 Caliber Learning Network, Inc.+ 1,537,500
100,000 Charles Rivers Associates, Inc.+ 2,500,000
200,000 Ciber, Inc. + 7,600,000
29,600 Cort Business Services Corp.+ 932,400
24,500 CSG Systems International, Inc.+ 1,148,438
200,000 Ingram Micro Inc., Class A Shares+ 8,850,000
29,900 Iron Mountain, Inc.+ 1,338,025
58,700 McGrath Rent Corp. 1,240,038
49,500 On Assignment, Inc.+ 1,729,406
50,000 Provant, Inc.+ 918,750
68,200 Renaissance Worldwide, Inc.+* 1,483,350
63,565 Romac International, Inc.+ 1,930,787
- ------------------------------------------------------------------------------------------------------------------------------------
45,315,869
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals -- 1.0%
100,000 Agribiotech, Inc.+ 2,768,750
84,800 Lilly Industries, Inc. 1,833,800
38,400 NL Industries, Inc. 768,000
- ------------------------------------------------------------------------------------------------------------------------------------
5,370,550
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C>
Communications -- 10.1%
65,200 Brightpoint, Inc.+ $ 945,400
32,400 Cablevision Systems Corp., Class A Shares+* 2,705,400
135,000 Com21, Inc.+ 2,868,750
125,000 DSET Corp.+ 1,890,625
210,000 Metromedia Fiber Network, Inc.+ 9,791,250
17,300 P-Com, Inc.+ 158,403
139,500 Paging Network, Inc.+ 1,953,000
39,100 Premisys Communications, Inc.+ 972,613
60,600 Skytel Communications, Inc.+* 1,418,419
24,700 Superior Telecom, Inc. 1,028,138
190,200 Uniphase Corp.+ 11,940,994
26,400 United States Cellular Corp.+* 811,800
76,500 West Teleservices Co.+ 927,563
63,500 Western Wireless Corp.+* 1,266,031
232,500 Winstar Communications, Inc.+* 9,982,969
100,000 World Access, Inc.+ 3,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
51,661,355
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Services -- 2.4%
57,800 Checkfree Holdings Corp.+ 1,701,488
30,700 Computer Horizons Corp.+ 1,137,819
39,000 Factset Research Systems, Inc.+ 1,267,500
51,700 International Network Services+ 2,119,700
125,000 Manhattan Associates, Inc.+ 2,601,563
56,900 Sabre Group Holdings, Inc.+ 2,162,200
19,200 Shared Medical Systems Corp.* 1,410,000
- ------------------------------------------------------------------------------------------------------------------------------------
12,400,270
- ------------------------------------------------------------------------------------------------------------------------------------
Containers & Packaging -- 0.6%
85,350 Shorewood Packaging Corp.+ 1,354,931
65,200 ZERO Corp. 1,850,050
- ------------------------------------------------------------------------------------------------------------------------------------
3,204,981
- ------------------------------------------------------------------------------------------------------------------------------------
Electronics - Semiconductors/Components -- 5.4%
40,800 AFC Cable Systems, Inc.+ 1,448,400
24,400 Amphenol Corp., Class A Shares+ 951,600
31,200 Berg Electronics Corp.+ 610,350
80,980 CHS Electronics, Inc.+* 1,447,518
21,700 Cohu, Inc. 527,581
39,200 The DII Group, Inc.+ 668,850
11,100 Dynatech Corp.+ 34,688
22,200 Etec Systems, Inc.+ 781,163
75,000 Genesis Microchip, Inc.+ 595,313
3,000 Genrad, Inc.+ 59,250
41,600 Kulicke & Soffa Industries, Inc. + 707,200
33,800 Micrel, Inc.+ 1,098,500
200,000 MMC Networks, Inc.+ 6,375,000
36,300 Network Appliance, Inc. 1,413,431
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 9
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C>
Electronics - Semiconductors/Components -- 5.4% (continued)
39,100 PMC Sierra, Inc.+* $ 1,832,813
29,000 Recoton Corp.+ 971,500
39,400 Remec, Inc.+ 448,175
36,600 Sanmina Corp. + 1,587,525
500,000 SRS Labs, Inc. + 2,968,750
33,300 Waters Corp.+ 1,962,619
92,200 X-Rite, Inc. 1,261,988
- ------------------------------------------------------------------------------------------------------------------------------------
27,752,214
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment & Leisure -- 0.7%
50,000 Action Performance Co.+ 1,609,375
100,000 Callaway Golf Co.* 1,968,750
- ------------------------------------------------------------------------------------------------------------------------------------
3,578,125
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services -- 2.9%
69,800 Americredit Corp.+ 2,490,988
62,600 Delta Financial Corp.+* 1,150,275
35,000 Firstfed Financial Corp.+ 1,820,000
92,200 Hilb, Rogal & Hamilton Co. 1,440,625
42,750 Imperial Bancorp+ 1,282,500
61,000 Imperial Credit Industries, Inc.+ 1,433,500
40,000 NCO Group, Inc.+ 880,000
86,600 Ocean Financial Corp. 1,656,225
79,950 Raymond James Financial Corp. 2,393,503
7,700 Triangle Bancorp, Inc. 241,588
- ------------------------------------------------------------------------------------------------------------------------------------
14,789,204
- ------------------------------------------------------------------------------------------------------------------------------------
Foods & Beverages -- 5.6%
250,000 American Italian Pasta Co.+ 9,312,500
250,000 Beringer Wine Estates Holdings, Inc.+ 11,015,625
43,200 Interstate Bakeries Corp.* 1,433,700
50,000 Keebler Foods Co.+ 1,375,000
73,200 Lance, Inc. 1,637,850
42,700 Smithfield Foods, Inc.+ 1,302,350
22,500 Suiza Foods Corp.+* 1,342,969
47,400 Triarc Cos. 1,039,838
- ------------------------------------------------------------------------------------------------------------------------------------
28,459,832
- ------------------------------------------------------------------------------------------------------------------------------------
Gas & Oil Exploration -- 2.8%
49,900 BJ Services Co.+ 1,450,219
11,500 Devon Energy Corp. 401,781
200,000 Drill-Quip Inc.+ 5,250,000
37,100 EVI Weatherford, Inc.+ 1,377,338
54,100 Input/Output, Inc.+ 963,656
25,300 Newfield Exploration Co.+ 629,338
108,500 Parker Drilling Co.+ 766,281
41,300 St. Mary Land & Exploration Co. 996,363
74,000 Swift Energy Co.+* 1,179,375
60,800 Tuboscope, Inc.+ 1,200,800
- ------------------------------------------------------------------------------------------------------------------------------------
14,215,151
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C>
Health Care -- 6.8%
50,900 Alkermes, Inc.+ $ 909,838
59,600 Atria Communities, Inc.+ 1,028,100
57,500 Cerner Corp.+ 1,627,969
63,200 Concentra Managed Care, Inc.+* 1,643,200
28,400 Cooper Companies, Inc.+ 1,034,825
24,400 Dentsply International, Inc.* 610,000
40,800 Human Genome Sciences, Inc.+ 1,456,050
91,200 ICOS Corp.+* 1,744,200
62,900 Integrated Health Services, Inc.* 2,358,750
54,200 Medquist, Inc.+ 1,565,025
87,000 NBTY, Inc.+ 1,598,625
33,800 Parexel International Corp.+ 1,229,475
58,600 Patterson Dental Co.+ 2,146,225
175,000 Promedco Management Co.+ 1,793,750
134,850 PSS World Medical, Inc.+* 1,972,181
215,000 Quadramed Corp.+ 5,872,188
68,850 Res-Care, Inc.+* 1,269,422
40,000 Rexall Sundown, Inc.+* 1,410,000
33,800 Sunrise Assisted Living, Inc.+* 1,161,875
71,000 Total Renal Care Holdings, Inc.+ 2,449,500
- ------------------------------------------------------------------------------------------------------------------------------------
34,881,198
- ------------------------------------------------------------------------------------------------------------------------------------
Hotels/Motels -- 0.6%
28,200 Capstar Hotel Co.+ 789,600
72,000 Prime Hospitality Corp. 1,255,500
29,000 Promus Hotel Corp.+ 1,116,500
- ------------------------------------------------------------------------------------------------------------------------------------
3,161,600
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturing -- 2.0%
75,000 Ashworth, Inc.+ 1,040,625
150,000 Happy Kids, Inc.+ 2,062,500
56,900 Hexcel Corp.* 1,287,363
59,400 Kaydon Corp. 2,097,563
43,200 Robbins & Myers, Inc.* 1,255,500
49,400 SLI, Inc. 1,290,575
150,000 Ultralife Batteries, Inc. 1,275,000
- ------------------------------------------------------------------------------------------------------------------------------------
10,309,126
- ------------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals/Medical Products -- 4.3%
42,800 Alpharma, Inc.* 941,600
49,000 Arterial Vascular Engineering, Inc.+ 1,751,750
19,950 ICN Pharmaceuticals, Inc. 911,466
25,300 Medicis Pharmaceuticals Corp., Class A Shares+* 923,450
349,400 Safeskin Corp.+* 14,369,075
69,600 Thermotrex Corp.+ 1,191,900
115,000 Trex Medical Corp.+ 1,897,500
- ------------------------------------------------------------------------------------------------------------------------------------
21,986,741
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 11
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C>
Printing & Publishing -- 0.9%
51,400 Day Runner, Inc.+ $ 1,294,638
32,500 Lexmark International Group, Inc., Class A Shares+ 1,982,500
61,600 Merrill Corp. 1,359,050
- ------------------------------------------------------------------------------------------------------------------------------------
4,636,188
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate -- 1.1%
25,800 Forest City Enterprises, Inc., Class A Shares 1,527,038
45,599 Glenborough Realty Trust, Inc. 1,202,674
64,500 JP Realty, Inc. 1,519,781
91,500 Saul Centers, Inc. 1,584,094
- ------------------------------------------------------------------------------------------------------------------------------------
5,833,587
- ------------------------------------------------------------------------------------------------------------------------------------
Restaurant -- 4.8%
43,600 CKE Restaurants, Inc.* 1,798,500
800,000 Planet Hollywood International, Inc., Class A Shares+* 5,600,000
61,100 Showbiz Pizza Time, Inc.+ 2,463,094
275,000 Starbucks Corp.+ 14,695,313
- ------------------------------------------------------------------------------------------------------------------------------------
24,556,907
- ------------------------------------------------------------------------------------------------------------------------------------
Retail -- 9.5%
287,000 Abercrombie & Fitch Co., Class A Shares+* 12,628,000
84,200 Family Dollar Stores, Inc. 1,557,700
126,000 Guitar Center, Inc. + 3,795,750
275,000 Pier 1 Imports, Inc. 6,565,625
53,300 Proffitt's, Inc.+ 2,151,988
120,000 Restoration Hardware, Inc.+ 3,015,000
100,000 Ross Stores, Inc. + 4,300,000
124,100 Stride Rite Corp. 1,869,256
19,650 U.S. Office Products Co.+ 383,175
48,300 Viking Office Products, Inc.+ 1,515,413
33,800 Wet Seal, Inc., Class A Shares+ 1,081,600
21,100 Whole Foods Market, Inc.+ 1,276,550
270,000 Williams-Sonoma, Inc.+ 8,589,375
- ------------------------------------------------------------------------------------------------------------------------------------
48,729,432
- ------------------------------------------------------------------------------------------------------------------------------------
Software -- 16.7%
42,800 Advent Software, Inc.+ 1,797,600
43,300 Analysts International Corp. 1,228,638
320,000 Applied Voice Technology, Inc.+ 7,360,000
40,500 Aspen Technology, Inc.+ 2,045,250
38,400 Avid Technology, Inc.+ 1,286,400
250,000 Bea Systems, Inc.+ 5,734,375
29,800 Citrix Systems, Inc.+ 2,037,575
260,000 Concord Communications, Inc.+ 6,646,250
26,900 Dialogic Corp.+ 800,275
300,000 Filenet Corp.+ 8,662,500
26,850 Information Management Resources, Inc.+ 907,866
600 Inktomi Corp.+ 23,850
175,000 Learning Company, Inc.+ 5,184,375
200,000 Legato Systems, Inc.+ 7,800,000
22,500 Lycos, Inc.+* 1,695,938
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C>
Software -- 16.7% (continued)
36,500 Mercury Interactive Corp.+ $ 1,628,813
150,000 Networks Associates, Inc.+ 7,181,250
155,600 Platinum Technology, Inc.+* 4,444,325
32,400 Sapient Corp.+ 1,709,100
49,000 Siebel Systems, Inc.+ 1,580,250
160,000 Software.net Corp.+ 3,060,000
36,100 Sterling Commerce, Inc.+ 1,750,850
57,800 Symantec Corp.+* 1,510,025
110,000 Transaction Systems Architects, Inc.+ 4,235,000
45,450 Veritas Software Corp.+* 1,880,494
37,800 Visio Corp.+ 1,804,950
37,100 Wind River Systems, Inc.+ 1,330,963
- ------------------------------------------------------------------------------------------------------------------------------------
85,326,912
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation -- 0.4%
6,800 Airborne Freight Corp. 237,575
40,000 Expeditors International of Washington, Inc. 1,760,000
- ------------------------------------------------------------------------------------------------------------------------------------
1,997,575
- ------------------------------------------------------------------------------------------------------------------------------------
Waste Disposal -- 0.6%
69,200 Allied Waste Industries, Inc.+* 1,660,800
46,100 Superior Services, Inc.+ 1,385,873
- ------------------------------------------------------------------------------------------------------------------------------------
3,046,673
- ------------------------------------------------------------------------------------------------------------------------------------
Wholesale -- 0.3%
25,100 United Stationers, Inc. 1,625,229
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost-- $387,554,992) 478,591,388
====================================================================================================================================
WARRANTS -- 0.0%
696 Jan Bell Marketing Inc., Expire 12/16/98+
(Cost-- $0) 7
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
====================================================================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT -- 6.6%
$33,674,000 Goldman, Sachs & Co., 5.645% due 7/1/98;
Proceeds at maturity -- $33,679,281; (Fully collateralized by
U.S. Treasury Notes, 5.375% due 6/30/00;
Market value -- $34,363,493)
(Cost-- $33,674,000) 33,674,000
====================================================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $421,228,992**) $512,265,395
====================================================================================================================================
</TABLE>
+ Non-income producing security.
* A portion of the security is on loan (See Note 7).
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 13
<PAGE>
<TABLE>
<CAPTION>
======================================================================================
Statement of Assets and Liabilities (unaudited) June 30, 1998
======================================================================================
<S> <C>
ASSETS:
Investments, at value (Cost-- $421,228,992) $512,265,395
Collateral for securities on loan (Note 7) 51,974,820
Receivable for securities sold 2,360,914
Receivable for Fund shares sold 264,524
Dividends and interest receivable 153,261
- --------------------------------------------------------------------------------------
Total Assets 567,018,914
- --------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 7) 51,974,820
Payable for securities purchased 2,637,596
Payable to bank 917,325
Investment advisory fees payable 228,950
Administration fees payable 82,447
Distribution fees payable 55,476
Payable for Fund shares purchased 13,720
Accrued expenses 397,687
- --------------------------------------------------------------------------------------
Total Liabilities 56,308,021
- --------------------------------------------------------------------------------------
Total Net Assets $510,710,893
======================================================================================
NET ASSETS:
Par value of capital shares $ 17,807
Capital paid in excess of par value 403,537,939
Accumulated net investment loss (1,998,090)
Accumulated net realized gain on security transactions 18,116,834
Net unrealized appreciation of investments 91,036,403
======================================================================================
Total Net Assets $510,710,893
======================================================================================
Shares Outstanding:
Class A 6,208,692
---------------------------------------------------------------------------------
Class B 6,861,726
---------------------------------------------------------------------------------
Class L 489,338
---------------------------------------------------------------------------------
Class Y 3,814,113
---------------------------------------------------------------------------------
Class Z 432,738
---------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $29.10
---------------------------------------------------------------------------------
Class B* $27.92
---------------------------------------------------------------------------------
Class L** $27.92
---------------------------------------------------------------------------------
Class Y (and redemption price) $29.38
---------------------------------------------------------------------------------
Class Z (and redemption price) $29.42
---------------------------------------------------------------------------------
Maximum Public Offering Price Per Share
Class A (net asset value plus 5.26% of net asset value per share) $30.63
---------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $28.20
======================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L 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.
- --------------------------------------------------------------------------------
14 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Statement of Operations (unaudited) For the Six Months Ended June 30, 1998
================================================================================
<S> <C>
INVESTMENT INCOME:
Interest $ 1,312,351
Dividends 388,246
- -------------------------------------------------------------------------------
Total Investment Income 1,700,597
- -------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 1,403,004
Distribution fees (Note 2) 1,351,424
Administration fees (Note 2) 510,183
Shareholder and system servicing fees 236,885
Shareholder communications 65,310
Registration fees 49,589
Custody 22,017
Directors' fees 21,919
Audit and legal 16,737
Other 6,738
- -------------------------------------------------------------------------------
Total Expenses 3,683,806
- -------------------------------------------------------------------------------
Net Investment Loss (1,983,209)
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED Gain (Loss)
ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 460,040,606
Cost of securities sold 391,311,256
- -------------------------------------------------------------------------------
Net Realized Gain 68,729,350
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 108,735,832
End of period 91,036,403
- -------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (17,699,429)
- -------------------------------------------------------------------------------
Net Gain on Investments 51,029,921
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 49,046,712
===============================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 15
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended June 30, 1998 (unaudited)
and the Year Ended December 31, 1997
<TABLE>
<CAPTION>
1998 1997
========================================================================================
<S> <C> <C>
OPERATIONS:
Net investment loss $ (1,983,209) $ (6,449,871)
Net realized gain (loss) 68,729,350 (40,421,604)
Increase (decrease) in net unrealized appreciation (17,699,429) 8,970,299
- ----------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 49,046,712 (37,901,176)
- ----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- --
Net realized gains -- --
- ----------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders -- --
- ----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 500,256,513 582,676,285
Cost of shares reacquired (599,151,116) (716,903,253)
- ----------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (98,894,603) (134,226,968)
- ----------------------------------------------------------------------------------------
Decrease in Net Assets (49,847,891) (172,128,144)
NET ASSETS:
Beginning of period 560,558,784 732,686,928
- ----------------------------------------------------------------------------------------
End of period* $ 510,710,893 $ 560,558,784
========================================================================================
* Includes accumulated net investment loss of: $(1,998,090) $(14,881)
========================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
The Smith Barney Special Equities Fund ("Portfolio"), a separate investment fund
of the Smith Barney Investment Funds Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund consists of the
Portfolio and six other separate investment portfolios: Smith Barney Government
Securities Fund, Smith Barney Contrarian Fund (formerly known as Smith Barney
Managed Growth Fund), Smith Barney Investment Grade Bond Fund, Concert Peachtree
Growth Fund, Smith Barney Hansberger Global Value Fund and Smith Barney
Hansberger Global Small Cap Value Fund. The financial statements and financial
highlights for the other portfolios are presented in separate semi-annual
reports except for Smith Barney Hansberger Global Value and Global Small Cap
Value Funds whose annual reports are dated April 30, 1998, and semi-annual
reports will be dated October 31, 1998.
The significant accounting policies consistently followed by the Portfolio are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing price on such markets;
securities for which no sales price were reported are valued at bid price, or in
the absence of a recent bid price, at the bid equivalent obtained from one or
more of the major market makers; (c) securities maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (d) dividend income is recorded on ex-dividend date and
interest income is recorded on an accrual basis; (e) dividends and distributions
to shareholders are recorded on the ex-dividend date; (f) gains or losses on the
sale of securities are calculated by using the specific identification method;
(g) direct expenses are charged to each class; management fees and general
portfolio expenses are allocated on the basis of relative net assets; (h) the
Portfolio 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; (i) the character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
December 31, 1997, reclassifications were made to the Portfolio's capital
accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Accordingly, a portion
of accumulated net investment loss amounting to $6,441,952 was reclassified to
paid-in capital. Net investment income, net realized gains and net assets were
not affected by this change; and (j) 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. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney Holdings
Inc. ("SSBH"), acts as investment adviser to the Fund. The Portfolio pays MMC an
investment advisory fee calculated at an annual rate of 0.55% of the average
daily net assets. This fee is calculated daily and paid monthly.
MMC also acts as the Fund's administrator for which the Portfolio pays a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SSBH, acts as distributor of
Fund shares and primary broker for its portfolio agency transactions. For the
six months ended June 30, 1998, SB received brokerage commissions of $18,566.
On June 12, 1998, the Portfolio's existing Class C shares were renamed as Class
L shares. Effective June 15, 1998,
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 17
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Class L shares are being sold at net asset value plus a maximum initial sales
charge of 1.00%. Class L shares also have a 1.00% contingent deferred sales
charge ("CDSC"), which applies if redemption occurs within the first year of
purchase.
There is also a CDSC of 5.00% on Class B shares, which applies if redemption
occurs within one year from purchase and declines thereafter by 1.00% per year
until no CDSC is incurred. In addition, 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 six months ended June 30, 1998, SB received sales charges of
approximately $50,000 and $1,000 on sales of the Portfolio's Class A and Class L
shares, respectively. In addition, CDSCs paid to SB were approximately.
<TABLE>
<CAPTION>
Class A Class B Class L
================================================================================
<S> <C> <C> <C>
CDSCs $634,000 $7,000 $1,000
================================================================================
</TABLE>
Pursuant to a Distribution Plan, the Portfolio pays a service fee with respect
to its Class A, B and L shares calculated at an annual rate of 0.25% of the
average daily net assets for each respective class. The Portfolio also pays a
distribution fee with respect to Class B and L shares calculated at the annual
rate of 0.75% of the average daily net assets of each class, respectively. For
the six months ended June 30, 1998, total Distribution Plan fees incurred were:
<TABLE>
<CAPTION>
Class A Class B Class L
================================================================================
<S> <C> <C> <C>
Distribution Plan Fees $210,044 $1,064,211 $77,169
================================================================================
</TABLE>
All officers and one Director of the Fund are employees of SB.
3. Investments
During the six months ended June 30, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $352,501,010
- --------------------------------------------------------------------------------
Sales 460,040,606
================================================================================
</TABLE>
At June 30, 1998, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
===============================================================================
<S> <C>
Gross unrealized appreciation $ 124,937,177
Gross unrealized depreciation (33,900,774)
- -------------------------------------------------------------------------------
Net unrealized appreciation $ 91,036,403
===============================================================================
</TABLE>
4. Repurchase Agreements
The Portfolio purchases (and its 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 Portfolio requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
5. Capital Shares
At June 30, 1998, the Fund had ten billion shares of capital stock authorized
with a par value of $0.001 per share. The Portfolio has the ability to issue
multiple classes of shares. Each share of a class represents an identical
interest and has the same rights, except that each class bears certain direct
expenses, including those specifically related to the distribution of its
shares. Effective June 12, 1998 the Portfolio adopted the renaming of existing
Class C shares as Class L shares.
At June 30, 1998, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Amount
================================================================================
<S> <C>
Class A $108,668,240
- --------------------------------------------------------------------------------
Class B 151,407,832
- --------------------------------------------------------------------------------
Class L 14,817,677
- --------------------------------------------------------------------------------
Class Y 115,985,031
- --------------------------------------------------------------------------------
Class Z 12,676,966
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
18 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, 1998 December 31, 1997
------------------------------------- -------------------------------------
Shares Amount Shares Amount
====================================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 17,101,126 $ 478,995,490 16,896,856 $ 456,165,866
Shares issued on reinvestment -- -- -- --
Shares redeemed (17,562,451) (492,993,515) (18,672,368) (507,105,631)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease (461,325) $ (13,998,025) (1,775,512) $ (50,939,765)
====================================================================================================================================
Class B
Shares sold 258,494 $ 7,009,779 1,840,814 $ 48,152,441
Shares issued on reinvestment -- -- -- --
Shares redeemed (2,960,163) (78,816,468) (5,555,378) (145,731,101)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease (2,701,669) $ (71,806,689) (3,714,564) $ (97,578,660)
====================================================================================================================================
Class L+
Shares sold 43,575 $ 1,164,472 295,802 $ 7,645,773
Shares issued on reinvestment -- -- -- --
Shares redeemed (287,496) (7,633,153) (533,187) (13,995,758)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease (243,921) $ (6,468,681) (237,385) $ (6,349,985)
====================================================================================================================================
Class Y
Shares sold 424,604 $ 11,747,279 2,450,057 $ 65,702,742
Shares issued on reinvestment -- -- -- --
Shares redeemed (590,150) (15,400,000) (1,800,027) (47,481,247)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (165,546) $ (3,652,721) 650,030 $ 18,221,495
====================================================================================================================================
Class Z
Shares sold 48,392 $ 1,339,493 181,226 $ 5,009,463
Shares issued on reinvestment -- -- -- --
Shares redeemed (151,596) (4,307,980) (93,713) (2,589,516)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (103,204) $ (2,968,487) 87,513 $ 2,419,947
====================================================================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed as Class L shares.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 19
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
6. Capital Loss Carryforward
At December 31, 1997, the Portfolio had, for Federal income tax purposes,
approximately $48,171,000 of capital loss carryforwards available to offset
future realized gains. To the extent that these carryforward losses can be used
to offset net realized capital gains, such gains, if any, will not be
distributed.
The amounts and expiration of the carryforward losses are indicated below.
Expiration occurs on December 31 of the year indicated:
<TABLE>
<CAPTION>
2004 2005
================================================================================
<S> <C> <C>
Carryforward Amounts $8,173,000 $39,998,000
================================================================================
</TABLE>
7. Lending of Portfolio Securities
The Portfolio has an agreement with its custodian whereby the custodian may lend
securities owned by the Portfolio to brokers, dealers and other financial
organizations. Fees earned by the Portfolio on securities lending are recorded
as interest income. Loans of securities by the Portfolio are collateralized by
cash, U.S. government securities or high quality money market instruments that
are maintained at all times in an amount at least equal to the current market
value of the loaned securities, plus a margin which may vary depending on the
type of securities loaned. The custodian establishes and maintains the
collateral in a segregated account. The Portfolio maintains exposure for the
risk of any losses in the investment of amounts received as collateral.
At June 30, 1998, the Portfolio and common stocks having a value of
approximately $50,101,493 and holds the following collateral for loaned
securities:
<TABLE>
<CAPTION>
Security Description Value
================================================================================
<S> <C>
Time Deposits:
Banque Paribas, 6.500% due 7/1/98 $11,607,953
Deutsche Bank, 7.000% due 7/1/98 9,437,358
Svenska Handelsbank, 6.500% due 7/1/98 9,437,358
Toronto Dominion Euro, 6.500% due 7/1/98 9,437,358
Repurchase Agreements:
Goldman, Sachs & Co., 6.250% due 7/1/98 5,920,510
Morgan Stanley, 6.250% due 7/1/98 6,134,283
- --------------------------------------------------------------------------------
Total $51,974,820
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
20 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class A Shares 1998(1) 1997 1996(2) 1995 1994(2) 1993(2)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $26.52 $28.11 $30.44 $19.10 $20.23 $15.47
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.07) (0.21) (0.19) (0.27) (0.13) (0.08)
Net realized and unrealized gain (loss) 2.65 (1.38) (1.50) 12.37 (1.00) 5.17
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.58 (1.59) (1.69) 12.10 (1.13) 5.09
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- (0.28) (0.76) -- (0.33)
Capital -- -- (0.36) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.64) (0.76) -- (0.33)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $29.10 $26.52 $28.11 $30.44 $19.10 $20.23
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return 9.73%++ (5.66)% (5.81)% 63.48% (5.59)% 32.90%
Net Assets, End of Period (000s) $180,673 $176,889 $237,435 $159,316 $101,052 $50,121
Ratios to Average Net Assets:
Expenses 1.20%+ 1.20% 1.17% 1.43% 1.49% 1.67%
Net investment loss (0.53)+ (0.67) (0.61) (1.05) (0.94) (0.46)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 73% 145% 118% 113% 123% 112%
- -----------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(3) $0.05 $0.06 $0.06 $0.06 -- --
===================================================================================================================================
<CAPTION>
Class B Shares 1988(1) 1997 1996(2) 1995 1994(2) 1993(2)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $25.54 $27.28 $29.76 $18.82 $20.08 $15.47
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.26) (0.45) (0.41) (0.37) (0.27) (0.20)
Net realized and unrealized gain (loss) 2.64 (1.29) (1.43) 12.07 (0.99) 5.14
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.38 (1.74) (1.84) 11.70 (1.26) 4.94
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- (0.28) (0.76) -- (0.33)
Capital -- -- (0.36) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.64) (0.76) -- (0.33)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $27.92 $25.54 $27.28 $29.76 $18.82 $20.08
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return 9.32%++ (6.38)% (6.44)% 62.30% (6.27)% 31.93%
Net Assets, End of Period (000s) $191,590 $244,258 $362,163 $171,081 $93,920 $138,401
Ratios to Average Net Assets:
Expenses 1.95%+ 1.94% 1.91% 2.04% 2.21% 2.34%
Net investment loss (1.28)+ (1.41) (1.36) (1.61) (1.66) (1.13)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 73% 145% 118% 113% 123% 112%
- -----------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions (3) $0.05 $0.06 $0.06 $0.06 -- --
===================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited)
(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) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 21
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class L Shares(1) 1998(2) 1997 1996(3) 1995 1994(3) 1993(3)(4)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $25.54 $27.28 $29.77 $18.82 $20.08 $22.62
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.28) (0.45) (0.41) (0.42) (0.25) (0.16)
Net realized and unrealized gain (loss) 2.66 (1.29) (1.44) 12.13 (1.01) (2.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.38 (1.74) (1.85) 11.71 (1.26) (2.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- (0.28) (0.76) -- (0.33)
Capital -- (0.36) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.64) (0.76) -- (0.33)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $27.92 $25.54 $27.28 $29.77 $18.82 $20.08
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 9.32%++ (6.38)% (6.44)% 62.35% (6.27)% (9.77)%++
Net Assets, End of Period (000s) $13,663 $18,730 $26,480 $9,417 $1,528 $185
Ratios to Average Net Assets:
Expenses 1.96%+ 1.95% 1.90% 2.25% 2.15% 2.19%+
Net investment loss (1.30)+ (1.42) (1.34) (1.79) (1.60) (0.98)+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 73% 145% 118% 113% 123% 112%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions (5) $0.05 $0.06 $0.06 $0.06 -- --
====================================================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) For the six months ended June 30, 1998 (unaudited).
(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 October 18, 1993 (inception date) to December 31, 1993.
(5) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
22 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class Y Shares Class Z Shares
-------------------------------------- ----------------------------------------------------
1998(1) 1997 1996(2)(3) 1998(1) 1997 1996(2) 1995(4)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $26.72 $28.21 $28.99 $26.76 $28.26 $30.46 $26.49
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss)
From Operations:
Net investment gain (loss) (0.01) (0.09) (0.08) 0.02 (0.08) (0.08) (0.06)
Net realized and
unrealized gain (loss) 2.67 (1.40) (0.06) 2.64 (1.42) (1.48) 4.79
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 2.66 (1.49) (0.14) 2.66 (1.50) (1.56) 4.73
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- (0.28) -- -- (0.28) (0.76)
Capital -- -- (0.36) -- -- (0.36) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.64) -- -- (0.64) (0.76)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $29.38 $26.72 $28.21 $29.42 $26.76 $28.26 $30.46
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 9.96%++ (5.28)% (0.75)%++ 9.94%++ (5.31)% (5.37)% 17.95%++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $112,055 $106,341 $93,938 $12,730 $14,341 $12,671 $5,364
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 0.80%+ 0.80% 0.82%+ 0.81%+ 0.81% 0.80% 1.10%+
Net investment loss (0.13)+ (0.27) (0.29)+ (0.15)+ (0.29) (0.24) (0.86)+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 73% 145% 118% 73% 145% 118% 113%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions
per share paid on
equity transactions $0.05 $0.06 $0.06 $0.05 $0.06 $0.06 $0.06
====================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(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) For the period from January 31, 1996 (inception date) to December 31, 1996.
(4) For the period from October 2, 1995 (inception date) to December 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 23
<PAGE>
================================================================================
Additional Shareholder Information (unaudited)
================================================================================
On March 9, 1998, a special meeting of shareholders of the Fund was held for the
purpose of voting on the following matters:
1. To elect Directors of the Fund; and
2. To approve or disapprove the reclassification, modification and/or
elimination of certain fundamental investment policies.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Voted Percentage Shares Voted Percentage
Name of Directors For Shares Voted Against Shares Voted
====================================================================================================================================
<S> <C> <C> <C> <C>
Paul R. Ades 110,457,871.145 96.547% 3,950,761.251 3.453%
Herbert Barg 110,299,351.998 96.408 4,109,280.398 3.592
Dwight B. Crane 110,443,765.891 96.534 3,964,866.505 3.466
Frank Hubbard 110,456,573.292 96.546 3,952,059.104 3.454
Jerome Miller 110,457,232.652 96.546 3,951,399.744 3.454
Ken Miller 110,449,857.597 96.540 3,958,774.799 3.460
Heath B. McLendon 110,401,492.247 96.498 4,007,140.149 3.502
====================================================================================================================================
</TABLE>
Proposal 2 requested that shareholders approve certain changes to the
fundamental policies of the Portfolio in order to modernize them in view of
certain regulatory, business or industry developments that have occurred since
original adoption of these policies by the Portfolio. The following chart
demonstrates that all proposals were approved by shareholders.
Please note that "M" indicates a modification of the policy; "E" indicates the
elimination of the policy; and "R" indicates the reclassification of the policy
from fundamental (which would require shareholder approval to change) to
non-fundamental (which can be changed by a vote of the Board of Directors).
<TABLE>
====================================================================================================================================
<S> <C> <C>
M Diversification Approved
M Industry Concentration Approved
M Borrowing Approved
M Lending Approved
R Margin and Short-Sales Approved
M Real Estate Approved
R Restricted and Illiquid Securities Approved
R Unseasoned Issuers Approved
E 5% Ownership of Certain Securities Approved
R Purchases of Securities of Other Investment Companies Approved
R Exercising Control or Management Approved
R Investments in Oil, Gas or Mineral Exploration Approved
E Limiting Participation in Joint Trading Accounts Approved
R Puts, Calls and Combinations Thereof Approved
====================================================================================================================================
</TABLE>
The information below reports the lowest percentage of shares voting for the
proposals, the highest percentage of shares voting against and abstaining by
shareholders of the Portfolio on all proposals.
<TABLE>
<CAPTION>
Percentage Percentage Percentage
Shares Voted of Shares Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Voted
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
10,320,464.470 89.762% 284,173.086 2.471% 893,277.293 7.769%
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
24 1998 Semi-Annual Report to Shareholders
<PAGE>
Smith Barney
Special Equities Fund
Directors Investment Manager
Mutual Management Corp.
Paul R. Ades
Herbert Barg Distributor
Dwight B. Crane Smith Barney Inc.
Frank G. Hubbard
Heath B. McLendon, Chairman Custodian
Jerome Miller PNC Bank, N.A.
Ken Miller
Shareholder Servicing Agent
Allen G. Johnson, Emeritus First Data Investor Services Group, Inc.
John F. White, Emeritus P.O. Box 9134
Boston, MA 02205-9134
Officers
Heath B. McLendon This report is submitted for the
President and Chief Executive Officer general information of shareholders
of Smith Barney Special Equities
Lewis E. Daidone Fund. It is not for distribution to
Senior Vice President and Treasurer prospective investors unless
accompanied by a current Prospectus
George V. Novello for the Fund, which contains
Vice President and Investment Officer information concerning the Fund's
investment policies and expenses as
Thomas M. Reynolds well as other pertinent
Controller information.
Christina T. Sydor
Secretary SMITH BARNEY
--------------------------------
A Member of TravelersGroup[LOGO]
Smith Barney Special Equities Fund
Smith Barney Mutual Funds
388 Greenwich Street
New York, New York 10013
www.smithbarney.com
FD0405 8/98
[PHOTO OMITED]
Smith Barney
[PHOTO OMITTED] Investment Grade
Bond Fund
------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Everyday(SM).
<PAGE>
Smith Barney Investment
Grade Bond Fund
================================================================================
The Smith Barney Investment Grade Bond Fund ("Fund") seeks to provide high
current income primarily by investing in investment-grade corporate bonds and
other income-producing securities.
Smith Barney Investment Grade Bond Fund
Average Annual Total Returns June 30, 1998
Without Sales Charges*
-----------------------------------------
Class A Class B Class L
================================================================================
Six-Month+ 6.01% 5.76% 5.86%
- --------------------------------------------------------------------------------
One-Year 21.03 20.46 20.58
- --------------------------------------------------------------------------------
Five-Year 9.87 9.34 9.38
- --------------------------------------------------------------------------------
Ten-Year N/A 10.97 N/A
- --------------------------------------------------------------------------------
Since Inception++ 11.62 12.18 9.78
================================================================================
With Sales Charges**
-----------------------------------------
Class A Class B Class L#
================================================================================
Six-Month+ 1.25% 1.26% 3.83%
- --------------------------------------------------------------------------------
One-Year 15.62 15.96 18.40
- --------------------------------------------------------------------------------
Five-Year 8.86 9.20 9.16
- --------------------------------------------------------------------------------
Ten-Year N/A 10.97 N/A
- --------------------------------------------------------------------------------
Since Inception++ 10.72 12.18 9.57
================================================================================
* 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 and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
# On June 12, 1998, Class C shares were renamed Class L shares.
** Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 4.50% and 1.00%,
respectively; and Class B shares reflect the deduction of a 4.50% CDSC,
which applies if shares are redeemed within one year from 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 L shares also reflect the
deduction of a 1.00% CDSC, which applies if shares are redeemed within the
first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
++ Inception dates for Class A, B and L shares are November 6, 1992, January
4, 1982 and February 26, 1993, respectively.
- --------------------------------------------------------------------------------
FUND HIGHLIGHT
- --------------------------------------------------------------------------------
The investment strategy we follow in the Fund has remained the same since our
last report: Stay fully invested and maintain a long-term investment horizon.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A SIGAX
Class B HBDIX
Class L SBILX
- --------------------------------------------------------------------------------
WHAT'S INSIDE
- --------------------------------------------------------------------------------
Shareholder Letter ........................................................ 1
Historical Performance .................................................... 4
Smith Barney Investment Grade Bond Fund
at a Glance ............................................................... 6
Schedule of Investments ................................................... 7
Statement of Assets and Liabilities ....................................... 10
Statement of Operations ................................................... 11
Statements of Changes in Net Assets ....................................... 12
Notes to Financial Statements ............................................. 13
Financial Highlights ...................................................... 16
Additional Shareholder Information ........................................ 20
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Letter
- --------------------------------------------------------------------------------
[PHOTO OMITTED] [PHOTO OMITTED]
HEATH B. MCLENDON GEORGE E. MUELLER, JR.
Chairman Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Investment
Grade Bond Fund ("Fund") for the period ended June 30, 1998. A detailed summary
of performance and current holdings can be found in the appropriate sections
that follow.
Performance Update
For the six months ended June 30, 1998, the Fund generated a total return of
6.01% for Class A shares significantly outperforming its Lipper Analytical
Services, Inc. peer group total return of 3.78% for the same period. (Lipper is
a major fund-tracking organization.)
A Style Pure Fund
The Smith Barney Investment Grade Bond Fund is a Style Pure Series Fund. Style
Pure Series Funds are Smith Barney Mutual Funds that represent the basic
building blocks of asset allocation. Other than maintaining minimal cash or
under extraordinary market conditions, each Style Pure Series Fund is totally
invested 100% of the time within designated asset classes and a designated
investment style.
Market and Economic Update
The first six months of 1998 were yet another interesting period in the bond
market. The year began with long-term rates at approximately 5.9%, just a shade
below 6%. At the start of the reporting period, there had been rumors that the
Federal Reserve Board ("Fed") was going to raise short-term rates imminently
because the U.S. economy had been growing too rapidly. Yet the crisis in Asia,
which really began last October, resurfaced again in April and May with mounting
evidence that the problems in the region would not be quickly fixed and were a
lot more enduring, and probably more severe, than originally anticipated.
Because of the relative attractiveness of U.S. securities and the strength of
the U.S. dollar, there was an inflow of money into the U.S. Treasurys market
from overseas and domestic investors. Those inflows brought the yield on
long-term U.S. Treasurys down to approximately 5.6% in the early part of June.
Whereas the year began with a fair degree of either investor skepticism or
negativity toward the U.S. bond market, the first six months of 1998 were
actually quite positive for bonds. In fact, bond investors who were fully
invested or close to being fully invested enjoyed an attractive rate of return.
Investment Strategy
The investment strategy we follow in the Fund has remained the same since our
last report: Stay fully invested and maintain a long-term investment horizon. We
consider not only events in Asia, but also an improving inflation outlook in the
U.S. In addition to the deflationary pressures from the Asian crisis and the
growing global demand for U.S. Treasurys, another reason why bonds have done
well during the past six months was the falling prices of many imports into the
U.S. What that means is that there is more pricing pressure on U.S.
corporations, not only domestically, but also from overseas. While the inflation
numbers have been good for the last three to five years, we think that there is
a very good chance that future inflation numbers may be even better.
We believe that the driving factors behind the corporate bond market in the
first half of 1998 were moderate inflation (that remains under control) and
problems in Asia that will probably be with us for a long time to come.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 1
<PAGE>
We did make some subtle changes to the Fund's portfolio during the period under
review. We sold off some of our longer-term zero-coupon bonds because they had
appreciated with the decline in interest rates. (Zero-coupon bonds are bonds
that pay interest only at maturity. These bonds are sold at a discount to their
face value, which is determined by the stated interest rate.) We used the
proceeds from that sale to add to our holdings in select bonds with 30-year and
100-year maturities. Because we are bullish on Chrysler Corporation's merger
with Daimler-Benz, we bought a 100-year maturity Chrysler bond.
The railroad industry is one where we have identified some solid values.
Railroads have been around for a long period of time and that's been part of the
problem. This is an industry that believed it did not have to do anything to
stay competitive in today's marketplace. As a result of its inactivity, the
railroad industry has lost market share to truckers and airlines in recent
years. Now, railroads are back in vogue again, primarily because of the
tremendous amount of technological advances in the industry, which means
railroads can now ship products more quickly, more efficiently and for less
money. In fact, we believe that the railroad industry is now a growth story and
because of industry mergers, the large players have become larger and more
powerful. The Fund presently owns Norfolk and Southern Railroad stocks and we
will be looking at both Burlington Northern and Canadian Pacific Railroad stocks
in the coming months.
In addition, we currently like Boeing. Boeing's bonds (and stocks) have been
under pressure primarily because of the company's Asian exposure that has
resulted in fewer aircraft orders. Yet we believe Boeing is uniquely positioned
to capitalize on growing global demand for aircraft that has gone on for 10 or
15 years and Boeing's only problems have been production. What they have lost in
Asia is not significant in so far as the overall corporate picture is concerned.
So we added to the Fund's portfolio on this weakness.
We continue to think that select media and cable companies are attractive and we
are participating in this sector through our ownership in Time Warner Inc. We
think cable is the next key growth story during the next 10 or 15 years. Why?
There are very few industries in the U.S. where you can raise prices. Yet the
cable industry for the most part has had no problem in raising prices. Moreover,
there seems to be an almost insatiable consumer demand for entertainment and
cable TV and that has helped to solidify the industry's pricing power.
Outlook
We think that the second quarter 1998 Gross Domestic Product ("GDP") numbers
will enable the Fed to keep monetary policy on hold for a while. In addition,
many corporations have built up inventory and these companies need to work these
inventory levels down. The General Motors/UAW strike should also have a
significant impact on the economy because GM is a big player in the U.S.
economy.
And while consumers have more money because of the booming U.S. economy, some
retail sales numbers indicate that consumer spending is starting to slow down.
We expect that the U.S. economic growth will continue to moderate and the Fed's
monetary policy should stay neutral in the near term. In our view, corporate
bond investing should stay rewarding in the next six months.
- --------------------------------------------------------------------------------
2 1998 Semi-Annual Report to Shareholders
<PAGE>
In closing, thank you for investing in the Smith Barney Investment Grade Bond
Fund. We look forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ George E. Mueller, Jr.
Heath B. McLendon George E. Mueller, Jr.
Chairman Vice President and
Investment Officer
July 21, 1998
Top Ten Holdings* As of June 30, 1998
- --------------------------------------------------------------------------------
1. Boeing Co. 4.2%
- --------------------------------------------------------------------------------
2. Walt Disney Corp. 4.2
- --------------------------------------------------------------------------------
3. NationsBank Corp. 4.1
- --------------------------------------------------------------------------------
4. Republic NY Corp. 4.1
- --------------------------------------------------------------------------------
5. Coca-Cola Enterprises Inc. 3.9
- --------------------------------------------------------------------------------
6. IBM Corp. 3.8
- --------------------------------------------------------------------------------
7. Amgen Inc. 3.8
- --------------------------------------------------------------------------------
8. American General Corp. 3.8
- --------------------------------------------------------------------------------
9. Ford Motor Co. 3.8
- --------------------------------------------------------------------------------
10. Bank One Corp. 3.8
- --------------------------------------------------------------------------------
* As a percentage of total investments.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 3
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $13.19 $13.58 $0.39 $0.00 $0.00 6.01%+
- --------------------------------------------------------------------------------------------------
12/31/97 12.27 13.19 0.80 0.28 0.00 17.10
- --------------------------------------------------------------------------------------------------
12/31/96 13.25 12.27 0.76 0.12 0.00 (0.47)
- --------------------------------------------------------------------------------------------------
12/31/95 10.67 13.25 0.89 0.16 0.00 35.29
- --------------------------------------------------------------------------------------------------
12/31/94 13.01 10.67 0.86 0.31 0.03 (8.95)
- --------------------------------------------------------------------------------------------------
12/31/93 11.89 13.01 0.89 0.14 0.00 18.45
- --------------------------------------------------------------------------------------------------
Inception*--12/31/92 11.67 11.89 0.14 0.00 0.01 3.25+
==================================================================================================
Total $4.73 $1.01 $0.04
==================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $13.19 $13.57 $0.37 $0.00 $0.00 5.76%+
- --------------------------------------------------------------------------------------------------
12/31/97 12.29 13.19 0.75 0.28 0.00 16.44
- --------------------------------------------------------------------------------------------------
12/31/96 13.25 12.29 0.68 0.12 0.00 (0.89)
- --------------------------------------------------------------------------------------------------
12/31/95 10.67 13.25 0.83 0.16 0.00 34.63
- --------------------------------------------------------------------------------------------------
12/31/94 13.01 10.67 0.80 0.31 0.03 (9.41)
- --------------------------------------------------------------------------------------------------
12/31/93 11.89 13.01 0.83 0.14 0.00 18.06
- --------------------------------------------------------------------------------------------------
12/31/92 11.80 11.89 0.83 0.00 0.03 8.36
- --------------------------------------------------------------------------------------------------
12/31/91 10.43 11.80 0.87 0.00 0.00 22.50
- --------------------------------------------------------------------------------------------------
12/31/90 11.01 10.43 0.87 0.00 0.00 2.98
- --------------------------------------------------------------------------------------------------
12/31/89 10.33 11.01 0.87 0.00 0.00 15.57
- --------------------------------------------------------------------------------------------------
12/31/88 10.55 10.33 0.88 0.00 0.00 6.43
- --------------------------------------------------------------------------------------------------
12/31/87 12.91 10.55 1.12 0.89 0.00 (2.83)
==================================================================================================
Total $9.70 $1.90 $0.06
==================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $13.18 $13.56 $0.38 $0.00 $0.00 5.86%+
- --------------------------------------------------------------------------------------------------
12/31/97 12.30 13.18 0.77 0.28 0.00 16.41
- --------------------------------------------------------------------------------------------------
12/31/96 13.26 12.30 0.69 0.12 0.00 (0.83)
- --------------------------------------------------------------------------------------------------
12/31/95 10.67 13.26 0.83 0.16 0.00 34.74
- --------------------------------------------------------------------------------------------------
12/31/94 13.01 10.67 0.80 0.31 0.03 (9.41)
- --------------------------------------------------------------------------------------------------
Inception*--12/31/93 12.56 13.01 0.69 0.14 0.00 10.38+
==================================================================================================
Total $4.16 $1.01 $0.03
==================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
4 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $13.19 $13.58 $0.41 $0.00 $0.00 6.23%+
- --------------------------------------------------------------------------------------------------
12/31/97 12.28 13.19 0.85 0.28 0.00 17.44
- --------------------------------------------------------------------------------------------------
Inception*--12/31/96 13.03 12.28 0.72 0.12 0.00 1.01+
==================================================================================================
Total $1.98 $0.40 $0.00
==================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
-------------------------------------------------
Class A Class B Class L Class Y
================================================================================
Six Months Ended 6/30/98+ 6.01% 5.76% 5.86% 6.23%
- --------------------------------------------------------------------------------
Year Ended 6/30/98 21.03 20.46 20.58 21.54
- --------------------------------------------------------------------------------
Five Years Ended 6/30/98 9.87 9.34 9.38 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/98 N/A 10.97 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 6/30/98 11.62 12.18 9.78 10.14
================================================================================
Without Sales Charge(2)
-------------------------------------------------
Class A Class B Class L Class Y
================================================================================
Six Months Ended 6/30/98+ 1.25% 1.26% 3.83% 6.23%
- --------------------------------------------------------------------------------
Year Ended 6/30/98 15.62 15.96 18.40 21.54
- --------------------------------------------------------------------------------
Five Years Ended 6/30/98 8.86 9.20 9.16 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/98 N/A 10.97 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 6/30/98 10.72 12.18 9.57 10.14
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 6/30/98) 86.11%
- --------------------------------------------------------------------------------
Class B (6/30/88 through 6/30/98) 183.30
- --------------------------------------------------------------------------------
Class L (Inception* through 6/30/98) 64.61
- --------------------------------------------------------------------------------
Class Y (Inception* through 6/30/98) 26.02
================================================================================
(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 and L shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and L
shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum sales charge of 4.50% and 1.00%, respectively; and
Class B shares reflect the deduction of a 4.50% CDSC, which applies if
shares are redeemed within 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 L shares also reflect the deduction of
a 1.00% CDSC, which applies if shares are redeemed within the first year of
purchase.
* Inception dates for Class A, B, L and Y shares are November 6, 1992, January
4, 1982, February 26, 1993 and February 7, 1996, respectively.
+ Total return is not annualized, as it may not be representative of the total
return for the year.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 5
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund at a Glance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class B Shares of the Smith Barney Investment
Grade Bond Fund vs. the Lehman Brothers Long-Term Corporate Bond Index & the
Lipper Corporate Debt A-Rated Average+
- --------------------------------------------------------------------------------
June 1988 -- June 1998
[The following table was depicted as a line chart in the printed material.]
SB Inv Grade Bond Lehman Muni Bond Lipper Cal
6/88 10000 10000 10000
12/88 9767 10606 10418
12/89 11396 12234 12011
12/90 11851 13087 12789
12/91 14681 14483 15473
12/92 16025 16923 16918
12/93 19036 19651 19227
12/94 17242 18901 18119
12/95 23212 22486 23179
12/96 23005 26226 23294
12/97 26230 28429 25430
6/98 28330 29807 27025
+ Hypothetical illustration of $10,000 invested in Class B shares on June
30, 1988, assuming reinvestment of dividends and capital gains, if any, at
net asset value through June 30, 1998. The Lehman Brothers Long-Term
Corporate Bond Index is comprised of all publicly issued, fixed rate,
non-convertible and dollar-denominated investment-grade corporate debt
from a diverse range of industries with an average maturity of
approximately 23 years. The index is unmanaged and is not subject to the
same management and trading expenses as a mutual fund. The Lipper
Corporate Debt A-Rated Average is composed of the Fund's peer group of 150
mutual funds as of June 30, 1998. The performance of the Fund's other
classes may be greater or less than the Class B 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 value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
Industry Diversification*
- --------------------------------------------------------------------------------
Aerospace & Defense 7.9%
Airlines 8.8%
Automotive 11.1%
Banking 12.2%
Beverages 8.7%
Bio - Medical 3.9%
Electronics/Computers 3.9%
Entertainment 6.3%
Insurance 3.9%
Media Group 11.0%
Other 22.3%
* As a percentage of total corporate bonds and notes.
Summary of Investments by Combined Ratings
- --------------------------------------------------------------------------------
Standard Percentage
Moody's &Poor's of Total Investments
- --------------------------------------------------------------------------------
Aaa AAA 3.8%
Aa AA 16.5
A A 44.0
Baa BBB 28.7
Ba BB 5.8
NR NR 1.2
------
100.0%
------
- --------------------------------------------------------------------------------
6 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS SECURITY VALUE
=====================================================================================================
CORPORATE BONDS AND NOTES -- 98.4%
<S> <C> <C> <C>
Aerospace & Defense -- 7.7%
$23,500,000 AA Boeing Co., Debentures, 6.875% due 10/15/43 $ 24,851,250
2,000,000 BBB+ Lockheed Martin Corp., Debentures, 7.750% due 5/1/26 2,302,500
17,500,000 BBB+ Loral Corp., Debentures, 7.000% due 9/15/23 18,353,125
- -----------------------------------------------------------------------------------------------------
45,506,875
- -----------------------------------------------------------------------------------------------------
Airlines -- 8.6%
AMR Corp., Debentures:
12,500,000 BBB- 9.000% due 9/15/16 15,296,875
4,500,000 BBB- 9.880% due 6/15/20 6,024,375
Delta Air Lines, Inc., Debentures:
10,735,000 BBB- 9.000% due 5/15/16 12,949,094
4,500,000 BBB- 9.750% due 5/15/21 6,568,750
7,650,000 Baa3* United Airlines, Inc., Debentures, 9.750% due 8/15/21 9,954,562
- -----------------------------------------------------------------------------------------------------
50,793,656
- -----------------------------------------------------------------------------------------------------
Automotive -- 10.9%
20,000,000 A Chrysler Corp., Debentures, 7.450% due 2/1/2097 21,775,000
19,400,000 A Ford Motor Co., Notes, 7.700% due 5/15/2097 22,188,750
20,000,000 A General Motors Corp., Debentures, 6.750% due 5/1/28 20,275,000
- -----------------------------------------------------------------------------------------------------
64,238,750
- -----------------------------------------------------------------------------------------------------
Banking -- 12.0%
Bank One Corp., Debentures:
8,000,000 A+ 7.750% due 7/15/25 9,240,000
11,500,000 A+ 7.625% due 10/15/26 12,937,500
23,500,000 A NationsBank Corp., Debentures, 6.800% due 3/15/28 24,322,500
20,000,000 AA- Republic NY Corp., Debentures, 7.200% due 7/15/2097 24,035,000
- -----------------------------------------------------------------------------------------------------
70,535,000
- -----------------------------------------------------------------------------------------------------
Beverages -- 8.5%
8,500,000 A+ Anheuser Busch Cos. Inc., Debentures, 6.750% due 12/15/27 8,829,375
Coca - Cola Enterprises Inc., Debentures:
3,000,000 A+ 6.750% due 1/15/38 3,037,500
19,000,000 A+ 7.000% due 5/12/2098 19,665,000
18,300,000 A Seagrams Co., Ltd., Debentures, 6.875% due 9/1/23 18,620,250
- -----------------------------------------------------------------------------------------------------
50,152,125
- -----------------------------------------------------------------------------------------------------
Bio - Medical -- 3.8%
19,000,000 A Amgen Inc., Debentures, 8.125% due 4/1/2097 22,491,250
- -----------------------------------------------------------------------------------------------------
Consumer Products -- 0.9%
6,000,000 BB+ Fruit Of The Loom Corp., Debentures, 7.375% due 11/15/23 5,497,500
- -----------------------------------------------------------------------------------------------------
Electronics/Computers -- 3.9%
21,000,000 A+ IBM Corp., Debentures, 7.125% due 12/1/2096 22,601,250
- -----------------------------------------------------------------------------------------------------
Entertainment -- 6.2%
12,000,000 BB+ Paramount Communications, Inc., Sr. Debentures,
7.500% due 7/15/23 11,685,000
21,500,000 A Walt Disney Corp., Sr. Debentures, 7.550% due 7/15/2093 24,590,625
- -----------------------------------------------------------------------------------------------------
36,275,625
- -----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATINGS SECURITY VALUE
=====================================================================================================
<S> <C> <C> <C>
Finance -- 2.7%
$16,000,000 AA- Merrill Lynch & Co., Debentures, 6.750% due 6/1/28 $ 16,060,000
- -----------------------------------------------------------------------------------------------------
Foods -- 3.2%
16,000,000 A- Ralston Purina Co., Debentures, 8.125% due 2/1/23 18,800,000
- -----------------------------------------------------------------------------------------------------
Health Care -- 2.3%
14,495,000 BBB Columbia/HCA Healthcare, Debentures, 7.500% due 11/15/2095 13,262,925
- -----------------------------------------------------------------------------------------------------
Industrial -- 1.8%
10,000,000 BBB+ Harcourt General Inc., Debentures, 7.300% due 8/1/2097 10,475,000
- -----------------------------------------------------------------------------------------------------
Insurance -- 3.8%
20,000,000 AA- American General Corp., Debentures, 7.500% due 7/15/25 22,250,000
- -----------------------------------------------------------------------------------------------------
Media Group -- 10.8%
17,500,000 BB CBS Inc., Notes, 7.125% due 11/1/23 16,734,375
20,000,000 BBB- News America Holdings Inc., Notes, 7.900% due 12/1/2095 21,600,000
2,500,000 BBB- Time Warner Entertainment, Debentures, 8.375% due 7/15/33 3,006,250
Time Warner Inc., Debentures:
19,000,000 BBB- 7.570% due 2/1/24 20,615,000
1,500,000 A+ 6.950% due 1/15/28 1,518,750
- -----------------------------------------------------------------------------------------------------
63,474,375
- -----------------------------------------------------------------------------------------------------
Oil & Gas -- 1.8%
9,500,000 BBB+ Apache Corp., Debentures, 7.625% due 11/1/2096 10,402,500
- -----------------------------------------------------------------------------------------------------
Publishing -- 0.9%
4,745,000 A+ Times Mirror Co., Debentures, 7.250% due 11/15/2096 5,172,050
- -----------------------------------------------------------------------------------------------------
Retail -- 1.0%
5,000,000 BBB+ Rite Aid Corp., Debentures, 7.700% due 2/15/27 5,581,250
- -----------------------------------------------------------------------------------------------------
Super National Entity -- 3.8%
International Bank of Reconstruction and Development:
42,860,000 AAA Zero coupon due 7/15/29 7,607,650
90,000,000 AAA Zero coupon due 3/11/31 14,512,500
- -----------------------------------------------------------------------------------------------------
22,120,150
- -----------------------------------------------------------------------------------------------------
Telecommunications -- 1.7%
12,500,000 Aa3* Motorola Inc., Debentures, 5.220% due 10/1/2097 9,906,250
- -----------------------------------------------------------------------------------------------------
Transportation -- 2.1%
10,500,000 BBB+ Norfolk Southern Corp., Debentures, 7.900% due 5/15/2097 12,324,375
- -----------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $525,425,339) 577,920,906
=====================================================================================================
U.S. GOVERNMENT OBLIGATION -- 1.3%
7,000,000 NR U.S. Treasury Bond, 6.125% due 11/15/27
(Cost -- $7,232,344) 7,504,910
=====================================================================================================
YANKEE BOND -- 0.3%
1,600,000 A+ Hydro-Quebec, Debentures, Series HE,
8.625% due 6/15/29 (Cost -- $1,435,991) 2,038,000
=====================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $534,093,674**) $587,463,816
=====================================================================================================
</TABLE>
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 9 for definition of ratings.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited)
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Rating Services ("Standard & Poor's")
except those identified by an asterisk (*) are rated by Moody's Investors
Service Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "AA" to "BB" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standings within the major
rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small
degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments.
Moody's -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating
from "Aa" to "Baa", where 1 is the highest and 3 the lowest rating within its
generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds rated "Baa" are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (Cost -- $534,093,674) $ 587,463,816
Interest receivable 10,112,251
Receivable for Fund shares sold 891,662
- ---------------------------------------------------------------------------------------
Total Assets 598,467,729
- ---------------------------------------------------------------------------------------
LIABILITIES:
Payable to bank 6,253,701
Investment advisory fees payable 233,617
Administration fees payable 101,006
Distribution fees payable 64,493
Payable for Fund shares redeemed 23,290
Accrued expenses 32,534
- ---------------------------------------------------------------------------------------
Total Liabilities 6,708,641
- ---------------------------------------------------------------------------------------
Total Net Assets $ 591,759,088
=======================================================================================
NET ASSETS:
Par value of capital shares $ 43,595
Capital paid in excess of par value 521,953,212
Overdistributed net investment income (694,919)
Accumulated net realized gain on investments 17,087,058
Net unrealized appreciation of investments 53,370,142
- ---------------------------------------------------------------------------------------
Total Net Assets $ 591,759,088
=======================================================================================
Shares Outstanding:
Class A 17,756,635
----------------------------------------------------------------------------------
Class B 18,505,428
----------------------------------------------------------------------------------
Class L 869,568
----------------------------------------------------------------------------------
Class Y 6,463,243
----------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 13.58
----------------------------------------------------------------------------------
Class B* $ 13.57
----------------------------------------------------------------------------------
Class L** $ 13.56
----------------------------------------------------------------------------------
Class Y (and redemption price) $ 13.58
----------------------------------------------------------------------------------
Maximum Public Offering Price Per Share
Class A (net asset value plus 4.71% of net asset value per share) $ 14.22
----------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $ 13.70
=======================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if
shares are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L 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.
- --------------------------------------------------------------------------------
10 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended June 30, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 19,146,337
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 1,259,032
Distribution fees (Note 2) 1,246,563
Administration fees (Note 2) 557,296
Shareholder and system servicing fees 182,596
Shareholders communications 95,680
Registration fees 48,380
Audit and legal 16,038
Custody 10,712
Directors' fees 9,917
Other 15,819
- --------------------------------------------------------------------------------
Total Expenses 3,442,033
- --------------------------------------------------------------------------------
Net Investment Income 15,704,304
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 156,644,369
Cost of securities sold 139,558,776
- --------------------------------------------------------------------------------
Net Realized Gain 17,085,593
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 53,028,033
End of period 53,370,142
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 342,109
- --------------------------------------------------------------------------------
Net Gain on Investments 17,427,702
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 33,132,006
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1998 (unaudited)
and the Year Ended December 31, 1997
<TABLE>
<CAPTION>
1998 1997
=====================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 15,704,304 $ 30,113,243
Net realized gain 17,085,593 490,877
Increase in net unrealized appreciation 342,109 46,515,710
- -----------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 33,132,006 77,119,830
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (16,384,960) (30,120,161)
Net realized gains (60,877) (11,863,548)
- -----------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (16,445,837) (41,983,709)
- -----------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 82,240,474 111,670,482
Net asset value of shares issued for reinvestment of dividends 9,646,538 26,895,416
Cost of shares reacquired (67,067,618) (112,679,564)
- -----------------------------------------------------------------------------------------------------
Increase in Net Assets From Fund Share Transactions 24,819,394 25,886,334
- -----------------------------------------------------------------------------------------------------
Increase in Net Assets 41,505,563 61,022,455
NET ASSETS:
Beginning of period 550,253,525 489,231,070
- -----------------------------------------------------------------------------------------------------
End of period* $ 591,759,088 $ 550,253,525
=====================================================================================================
* Includes overdistributed net investment income of: $ (694,919) $ (14,263)
=====================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Investment Grade Bond Fund ("Portfolio"), a separate investment
fund of the Smith Barney Investment Funds Inc. ("Fund"), a Maryland corporation,
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund consists of this
Portfolio and six other separate investment portfolios: Smith Barney Government
Securities Fund, Smith Barney Special Equities Fund, Smith Barney Contrarian
Fund (formerly known as Smith Barney Managed Growth Fund), Concert Peachtree
Growth Fund, Smith Barney Hansberger Global Value Fund and Smith Barney
Hansberger Global Small Cap Value Fund. The financial statements and financial
highlights for the other portfolios are presented in separate semi-annual
reports with the exception of the Smith Barney Hansberger Global Value and Smith
Barney Hansberger Global Small Cap Value Funds whose annual reports are dated
April 30, 1998 and semi-annual reports will be dated October 31, 1998.
The significant accounting policies consistently followed by the Portfolio are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing price on such markets;
securities for which no sales price were reported are valued at bid price, or in
the absence of a recent bid price, at the bid equivalent obtained from one or
more of the major market makers; (c) securities that have a maturity of more
than 60 days are valued at prices based on market quotations for securities of
similar type, yield and maturity; (d) securities maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (e) dividend income is recorded on ex-dividend date and
interest income is recorded on an accrual basis; (f) gains or losses on the sale
of securities are calculated by using the specific identification method; (g)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (h) direct expenses are charged to each class; management fees and general
portfolio expenses are allocated on the basis of relative net assets; (i) the
Portfolio 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 (j) 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. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney Holdings
Inc. ("SSBH"), acts as investment adviser to the Fund. The Portfolio pays MMC an
advisory fee calculated at an annual rate of 0.45% of the average daily net
assets up to $500 million and 0.42% of the average daily net assets thereafter.
This fee is calculated daily and paid monthly.
MMC also acts as the Fund's administrator for which the Portfolio pays a fee
calculated at an annual rate of 0.20% of the average daily net assets up to $500
million and 0.18% of the average daily net assets thereafter. This fee is
calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SSBH, acts as distributor of
Fund shares.
On June 12, 1998, the Portfolio's existing Class C shares were renamed as Class
L shares. Effective June 15, 1998, Class L shares are being sold at net asset
value
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
plus a maximum initial sales charge of 1.00%. Class L shares also have a 1.00%
contingent deferred sales charge ("CDSC"), which applies if redemption occurs
within the first year of purchase.
There is also a CDSC of 4.5% on Class B shares, which applies if redemption
occurs within one year from purchase. This CDSC declines by 0.50% the first year
after purchase and thereafter by 1.00% per year until no CDSC is incurred. In
addition, 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 six months ended June 30, 1998, SB received sales charges of
approximately $166,000 and $4,000 on sales of the Portfolio's Class A and Class
L shares, respectively. In addition, CDSCs paid to SB were approximately:
Class A Class B Class L
================================================================================
CDSCs $15,000 $122,000 $2,000
================================================================================
Pursuant to a Distribution Plan, the Portfolio pays a service fee with respect
to Class A, B and L shares calculated at an annual rate of 0.25% of the average
daily net assets for each respective class. The Portfolio also pays a
distribution fee with respect to Class B and L shares calculated at an annual
rate of 0.50% and 0.45% of the average daily net assets for each class,
respectively. For the six months ended June 30, 1998, total Distribution Plan
fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $287,125 $922,757 $36,681
================================================================================
All officers and one Director of the Fund are employees of SB.
3. Investments
During the six months ended June 30, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $184,321,686
- --------------------------------------------------------------------------------
Sales 156,644,369
================================================================================
At June 30, 1998, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $55,052,449
Gross unrealized depreciation (1,682,307)
- --------------------------------------------------------------------------------
Net unrealized appreciation $53,370,142
================================================================================
4. Repurchase Agreements
The Portfolio purchases (and its 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 Portfolio requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
5. Capital Shares
At June 30, 1998, the Fund had ten billion shares of capital stock authorized
with a par value of $0.001 per share. The Portfolio has the ability to issue
multiple classes of shares. Each share of a class represents an identical
interest and has the same rights, except that each class bears certain direct
expenses, including those specifically related to the distribution of its
shares. Effective June 12, 1998, the Portfolio adopted the renaming of existing
Class C shares as Class L shares.
At June 30, 1998, total paid-in capital amounted to the following for each
class:
Amount
================================================================================
Class A $201,318,682
- --------------------------------------------------------------------------------
Class B 228,317,073
- --------------------------------------------------------------------------------
Class L 10,770,470
- --------------------------------------------------------------------------------
Class Y 81,590,582
================================================================================
- --------------------------------------------------------------------------------
14 1998 Semi-Annual Report to Shareholders
<PAGE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------------------------- -------------------------------
Shares Amount Shares Amount
========================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 2,619,354 $ 34,765,297 2,018,307 $ 25,387,184
Shares issued on reinvestment 381,337 5,059,560 1,047,988 13,225,978
Shares redeemed (2,044,149) (27,084,787) (3,049,019) (37,795,554)
- --------------------------------------------------------------------------------------------------------
Net Increase 956,542 $ 12,740,070 17,276 $ 817,608
========================================================================================================
Class B
Shares sold 2,077,327 $ 27,619,957 2,694,477 $ 33,815,305
Shares issued on reinvestment 329,411 4,368,779 1,037,967 13,118,499
Shares redeemed (2,799,329) (37,072,581) (5,862,166) (72,691,585)
- --------------------------------------------------------------------------------------------------------
Net Decrease (392,591) $ (5,083,845) (2,129,722) $(25,757,781)
========================================================================================================
Class L*
Shares sold 299,142 $ 3,952,185 356,734 $ 4,528,296
Shares issued on reinvestment 16,460 218,199 43,331 550,683
Shares redeemed (218,357) (2,910,250) (174,512) (2,188,857)
- --------------------------------------------------------------------------------------------------------
Net Increase 97,245 $ 1,260,134 225,553 $ 2,890,122
========================================================================================================
Class Y
Shares sold 1,207,324 $ 15,903,035 3,776,693 $ 47,939,697
Shares issued on reinvestment -- -- 20 256
Shares redeemed -- -- (270) (3,568)
- --------------------------------------------------------------------------------------------------------
Net Increase 1,207,324 $ 15,903,035 3,776,443 $ 47,936,385
========================================================================================================
</TABLE>
* On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class A Shares 1998(1) 1997 1996 1995(2) 1994(2) 1993(2)
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 13.19 $ 12.27 $ 13.25 $ 10.67 $ 13.01 $ 11.89
- -----------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.38 0.80 0.80 0.83 0.74 0.88
Net realized and
unrealized gain (loss) 0.40 1.20 (0.90) 2.80 (1.88) 1.27
- -----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.78 2.00 (0.10) 3.63 (1.14) 2.15
- -----------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.39) (0.80) (0.76) (0.89) (0.86) (0.89)
Net realized gains (0.00)* (0.28) (0.12) (0.16) (0.31) (0.14)
Capital -- -- -- -- (0.03) --
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.39) (1.08) (0.88) (1.05) (1.20) (1.03)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 13.58 $ 13.19 $ 12.27 $ 13.25 $ 10.67 $ 13.01
- -----------------------------------------------------------------------------------------------------------------------
Total Return 6.01%++ 17.10% (0.47)% 35.29% (8.95)% 18.45%
- -----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 241 $ 222 $ 206 $ 226 $ 181 $ 10
- -----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.05%+ 1.02% 1.04% 1.11% 1.11% 1.11%
Net investment income 5.73+ 6.43 6.63 7.02 7.35 6.67
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 28% 39% 48% 49% 18% 65%
=======================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(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.
* 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.
- --------------------------------------------------------------------------------
16 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class B Shares 1998(1) 1997 1996 1995(2) 1994(2) 1993(2)
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 13.19 $ 12.29 $ 13.25 $ 10.67 $ 13.01 $ 11.89
- -------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.34 0.75 0.74 0.77 0.82 0.80
Net realized and
unrealized gain (loss) 0.41 1.18 (0.90) 2.80 (2.02) 1.29
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.75 1.93 (0.16) 3.57 (1.20) 2.09
- -------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.37) (0.75) (0.68) (0.83) (0.80) (0.83)
Net realized gains (0.00)* (0.28) (0.12) (0.16) (0.31) (0.14)
Capital -- -- -- -- (0.03) --
- -------------------------------------------------------------------------------------------------------------
Total Distributions (0.37) (1.03) (0.80) (0.99) (1.14) (0.97)
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 13.57 $ 13.19 $ 12.29 $ 13.25 $ 10.67 $ 13.01
- -------------------------------------------------------------------------------------------------------------
Total Return 5.76%++ 16.44% (0.89)% 34.63% (9.41)% 18.06%
- -------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 251 $ 249 $ 258 $ 289 $ 221 $ 476
- -------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.53%+ 1.51% 1.54% 1.61% 1.57% 1.58%
Net investment income 5.25+ 5.95 6.13 6.51 6.89 6.20
- -------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 28% 39% 48% 49% 18% 65%
=============================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(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.
* 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.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class L Shares(1) 1998(2) 1997 1996 1995(3) 1994(3) 1993(3)(4)
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 13.18 $ 12.30 $ 13.26 $ 10.67 $ 13.01 $ 12.56
- --------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.35 0.72 0.75 0.78 0.75 0.63
Net realized and
unrealized gain (loss) 0.41 1.21 (0.90) 2.80 (1.95) 0.65
- --------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.76 1.93 (0.15) 3.58 (1.20) 1.28
- --------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.38) (0.77) (0.69) (0.83) (0.80) (0.69)
Net realized gains (0.00)* (0.28) (0.12) (0.16) (0.31) (0.14)
Capital -- -- -- -- (0.03) --
- --------------------------------------------------------------------------------------------------------------
Total Distributions (0.38) (1.05) (0.81) (0.99) (1.14) (0.83)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 13.56 $ 13.18 $ 12.30 $ 13.26 $ 10.67 $ 13.01
- --------------------------------------------------------------------------------------------------------------
Total Return 5.86%++ 16.41% (0.83)% 34.74% (9.41)% 10.38%++
- --------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 11,782 $ 10,182 $ 6,724 $ 3,769 $ 999 $ 208
- --------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.53%+ 1.49% 1.42% 1.56% 1.57% 1.61%+
Net investment income 5.25+ 5.93 6.28 6.55 6.89 6.17+
- --------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 28% 39% 48% 49% 18% 65%
==============================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) For the six months ended June 30, 1998 (unaudited).
(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 February 26, 1993 (inception date) to December 31,
1993.
* 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.
- --------------------------------------------------------------------------------
18 1998 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each period:
Class Y Shares 1998(1) 1997 1996(2)
================================================================================
Net Asset Value, Beginning of Period $ 13.19 $ 12.28 $ 13.03
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.40 0.83 0.75
Net realized and unrealized gain (loss) 0.40 1.21 (0.66)
- --------------------------------------------------------------------------------
Total Income From Operations 0.80 2.04 0.09
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.41) (0.85) (0.72)
Net realized gains (0.00)* (0.28) (0.12)
- --------------------------------------------------------------------------------
Total Distributions (0.41) (1.13) (0.84)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 13.58 $ 13.19 $ 12.28
- --------------------------------------------------------------------------------
Total Return 6.23%++ 17.44% 1.01%++
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 87,771 $ 69,328 $ 18,174
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.69%+ 0.69% 0.72%+
Net investment income 6.10+ 6.63 7.34+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 28% 39% 48%
================================================================================
(1) For the six months ended June 30, 1998 (unaudited).
(2) For the period from February 7, 1996 (inception date) to December 31,
1996.
* 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.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Additional Shareholder Information (unaudited)
- --------------------------------------------------------------------------------
On March 9, 1998, a special meeting of shareholders of the Fund was held for the
purpose of voting on the following matters:
1. To elect Directors of the Fund; and
2. To approve or disapprove the reclassification, modification and/or
elimination of certain fundamental investment policies.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Voted Percentage Shares Voted Percentage
Name of Directors For Shares Voted Against Shares Voted
======================================================================================
<S> <C> <C> <C> <C>
Paul R. Ades 110,457,871.145 96.547% 3,950,761.251 3.453%
Herbert Barg 110,299,351.998 96.408 4,109,280.398 3.592
Dwight B. Crane 110,443,765.891 96.534 3,964,866.505 3.466
Frank Hubbard 110,456,573.292 96.546 3,952,059.104 3.454
Jerome Miller 110,457,232.652 96.546 3,951,399.744 3.454
Ken Miller 110,449,857.597 96.540 3,958,774.799 3.460
Heath B. McLendon 110,401,492.247 96.498 4,007,140.149 3.502
======================================================================================
</TABLE>
Proposal 2 requested that shareholders approve certain changes to the
fundamental policies of the Portfolio in order to modernize them in view of
certain regulatory, business or industry developments that have occurred since
original adoption of these policies by the Portfolio. The following chart
demonstrates that all proposals were approved by shareholders.
Please note that "M" indicates a modification of the policy; "E" indicates the
elimination of the policy; and "R" indicates the reclassification of the policy
from fundamental (which would require shareholder approval to change) to
non-fundamental (which can be changed by a vote of the Board of Directors).
================================================================================
M Diversification Approved
- --------------------------------------------------------------------------------
M Industry Concentration Approved
- --------------------------------------------------------------------------------
M Borrowing Approved
- --------------------------------------------------------------------------------
M Lending Approved
- --------------------------------------------------------------------------------
R Margin and Short-Sales Approved
- --------------------------------------------------------------------------------
M Real Estate Approved
- --------------------------------------------------------------------------------
R Restricted and Illiquid Securities Approved
- --------------------------------------------------------------------------------
R Unseasoned Issues Approved
- --------------------------------------------------------------------------------
E 5% Ownership of Certain Securities Approved
- --------------------------------------------------------------------------------
R Purchases of Securities of Other Investment Companies Approved
- --------------------------------------------------------------------------------
R Exercising Control or Management Approved
- --------------------------------------------------------------------------------
R Investment in Oil, Gas and Mineral Exploration Approved
- --------------------------------------------------------------------------------
E Limiting Participation in Joint Trading Accounts Approved
- --------------------------------------------------------------------------------
E Limiting Investments to Enumerated Instruments Approved
- --------------------------------------------------------------------------------
R Puts, Calls and Combinations Thereof Approved
================================================================================
The information below reports the lowest percentage of shares voting for the
proposals, the highest percentage of shares voting against and abstaining by
shareholders of the Portfolio on all proposals.
Shares Percentage Shares Percentage Percentage
Voted of Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Abstained
================================================================================
19,913,197.889 90.046% 500,352.756 2.262% 1,700,974.037 7.692%
================================================================================
- --------------------------------------------------------------------------------
20 1998 Semi-Annual Report to Shareholders
<PAGE>
Smith Barney
Investment Grade
Bond Fund
Directors
Paul R. Ades
Herbert Barg
Dwight B. Crane
Frank G. Hubbard
Heath B. McLendon, Chairman
Jerome Miller
Ken Miller
Allan G. Johnson, Emeritus
John F. White, Emeritus
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
George E. Mueller, Jr.
Vice President and Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Adviser
Mutual Management Corp.
Distributor
Smith Barney Inc.
PFS Distributor, Inc.
Custodian
PNC Bank, N.A.
Shareholder Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
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 a current 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 Travelers Group[LOGO]
Smith Barney
Investment Grade Bond Fund
388 Greenwich Street
New York, New York 10013
www.smithbarney.com
FD0317 8/98
<PAGE>
[GRAPHIC]
[GRAPHIC]
Concert
Peachtree
Growth Fund
------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(SM)
<PAGE>
Concert Peachtree
Growth Fund
================================================================================
The Concert Peachtree Growth Fund seeks capital appreciation through investments
in securities believed to have above-average potential for capital appreciation.
Concert Peachtree Growth Fund
Average Annual Total Returns
June 30, 1998
<TABLE>
<CAPTION>
Without Sales Charges(1)
-------------------------------------------------
Class A(2) Class B(2) Class L#
================================================================================
<S> <C> <C> <C>
Six-Month+ 16.80% 16.41% 16.36%
- --------------------------------------------------------------------------------
One-Year 19.56 18.68 18.62
- --------------------------------------------------------------------------------
Since Inception++ 17.11 16.24 14.89
================================================================================
<CAPTION>
With Sales Charges(3)
-------------------------------------------------
Class A(2) Class B(2) Class L#
================================================================================
<S> <C> <C> <C>
Six-Month+ 10.93% 11.41% 14.23%
- --------------------------------------------------------------------------------
One-Year 13.56 13.68 16.46
- --------------------------------------------------------------------------------
Since Inception++ 15.13 15.49 14.50
================================================================================
</TABLE>
(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 and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Performance calculations include the historical return information related
to the Common Sense II Aggressive Opportunity Fund of the Common Sense
Trust, which was the predecessor fund, for the period from May 3, 1994
through June 30, 1995.
# On June 12, 1998, Class C shares were renamed Class L shares.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 5.00% and 1.00%
respectively; and Class B shares reflect the deduction of a 5.00% CDSC,
which applies if shares are redeemed within one year from purchase.
Thereafter, the CDSC declines by 1.00% per year until no CDSC is incurred.
Class L shares reflect the deduction of a 1.00% CDSC which applies if
shares are redeemed within the first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
++ Inception date for Class A and B shares is July 3, 1995. Inception date for
Class L shares is August 8, 1995.
================================================================================
FUND HIGHLIGHT
================================================================================
As stock pickers, we continue to find technology and financial stocks
attractive. In the technology sector, software and service companies are the
most appealing to us at the present time. In the financial sector, insurance
companies are looking increasingly attractive. We've been emphasizing regional
banks, diversified financial services companies and insurance companies.
================================================================================
NASDAQ SYMBOL
================================================================================
Class A SBOAX
Class B SBOBX
================================================================================
What's Inside
================================================================================
Shareholder Letter ............................................................1
Historical Performance.........................................................4
Concert Peachtree Growth Fund
at a Glance ...................................................................6
Schedule of Investments........................................................7
Statement of Assets and Liabilities...........................................10
Statement of Operations.......................................................11
Statements of Changes in Net Assets...........................................12
Notes to Financial Statements.................................................13
Financial Highlights .........................................................18
Additional Shareholder Information ...........................................20
<PAGE>
================================================================================
Shareholder Letter
================================================================================
[PHOTO] [PHOTO]
HEATH B. DENNIS A.
MCLENDON JOHNSON, CFA
Chairman President and
Chief Investment Officer
Peachtree Asset
Management
Dear Shareholder:
We are pleased to present the semi-annual report for Concert Peachtree Growth
Fund ("Fund") for the period ended June 30, 1998. In this report, we summarize
the period's prevailing economic and market conditions and outline our portfolio
strategy. A detailed summary of performance and current holdings can be found in
the appropriate sections that follow. We hope you find this report to be
informative and useful.
A Classic Series Fund
The Concert Peachtree Growth Fund is part of the Classic Series of Smith Barney
Mutual Funds. The Classic Series funds are mutual funds, whose investment
decisions are determined by experienced portfolio managers, based on each fund's
investment objectives and guidelines. Funds in the Smith Barney Classic Series
invest across asset classes and sectors, utilizing a range of strategies in
order to achieve their objectives.
Performance Update
For the six months ended June 30, 1998, the total return of the Fund's Class A,
B and L shares, without sales charges, were 16.80%, 16.41% and 16.36%
respectively. In comparison, the total return for the same time period for the
Russell 1000 Growth Index was 20.38%. (The Russell 1000 Growth Index contains
those securities in the underlying indexes with a greater than average growth
orientation and generally higher price-to-book and price-earnings ratios.
Price-earnings multiple is a widely used gauge of a stock's valuation that
indicates what investors are paying for a company's earnings power at the
current stock price. Price-to-book ratios show the price of a stock compared to
the difference between a company's assets and liabilities.)
Investment Strategy
Our investing approach centers on active management strategies to give our
shareholders the earning power of a wide range of stocks. Our main goal is to
deliver superior long-term performance. Our best investment results are usually
achieved over a full market cycle.
As active, total return-oriented investment managers, our goal is to help
investors preserve and grow their financial assets while controlling risk by
achieving investment returns that outpace inflation and outperform the market
average. Our investment style is growth oriented. To enhance opportunities to
earn above-average returns, we invest in companies with strong or improving
fundamentals to support sustainable growth in earnings, and with reasonable
market valuations.
Our highly disciplined active management approach is distinguished by our
integration of quantitative and fundamental research, and our strict adherence
to uniform buy-and-sell rules. We are not speculators or market timers. We add
value through bottom-up portfolio construction based on a consistently
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 1
<PAGE>
applied strategy of company and credit analysis and active portfolio management.
(A "bottom-up" approach to investing focuses on the potential outstanding
performance of individual companies rather than considering the impact of major
economic trends.)
Finally, we believe the single most important asset of the Fund is its people.
Our senior managers are experienced professionals who are dedicated to achieving
superior investment performance over the long term.
As noted in the "Performance Update" section, for the first six months of 1998,
the Fund's Class A shares total return was 16.80% without sales charges. The
Fund's performance is a reflection of the favorable economic and stock market
conditions that exist and the structure of the Fund's portfolio. Throughout the
reporting period, the Fund's portfolio had a low cash position, averaging 1% to
3%. This has a positive effect on performance considering the significant
difference in returns. While diversified, the Fund's portfolio emphasized three
sectors of the market--technology, financial and consumer cyclical. Although
volatile, our technology holdings have performed well during the reporting
period. We emphasized software companies versus semiconductors and PC
manufacturers.
On average, our financial stock holdings did not perform well relative to the
market. Therefore, our emphasis on this sector did not contribute as much to the
Fund's performance as we had expected. Consumer cyclical stock performance was
outstanding during the first half of the year and our holdings in this sector of
the market, on balance, were no exception. We were emphasizing primarily apparel
manufacturers and retailers. Business conditions were outstanding for these
companies and this was reflected in their stock price performance.
Market Outlook
In our 1997 annual report, we stated there was tremendous concern about the
current earnings outlook and companies that deliver consistent earnings growth
could be rewarded with favorable relative performance. We maintain this
viewpoint for the second half of 1998. While there are exceptions, many
companies appear to be managing their way through the difficulties in Asia.
The U.S. economy continues to provide the fundamental background necessary for
most companies to remain profitable. Acquisitions appear to be creating
incremental earnings growth for some companies or setting the stage for higher
and more sustainable earnings growth for others. In addition, merger and
acquisition activity seems to be establishing valuation parameters for companies
that are not fully recognized in the market.
As is the case so far in 1998, stock selection should continue to be a key
contributor to Fund performance for the remainder of this year. As stock
pickers, we continue to find technology and financial stocks attractive. In the
technology sector, software and service companies are the most appealing to us
at the present time. In the financial sector, insurance companies are looking
increasingly attractive. We've been emphasizing regional banks, diversified
financial services companies and insurance companies. It's possible our emphasis
in this area can remain high, with increasing exposure to insurance stocks. We
are reducing our exposure to the consumer cyclical sector out of concern for
current valuations on certain companies.
We are confident our disciplined and active-management approach will continue to
deliver competitive returns for our shareholders. Our outlook for the stock
market remains positive which, combined with an environment favoring stock
- --------------------------------------------------------------------------------
2 1998 Semi-Annual Report to Shareholders
<PAGE>
selection should, we believe, continue to move us in the direction of achieving
strong results for the remainder of 1998.
Thank you for your investment in the Concert Peachtree Growth Fund. We look
forward to continuing to help you pursue your financial goals.
Respectfully submitted,
/s/ Heath B. McLendon /s/ Dennis A. Johnson
HEATH B. MCLENDON DENNIS A. JOHNSON, CFA
Chairman President and
Chief Investment Officer
Peachtree Asset
Management
July 7, 1998
<TABLE>
<CAPTION>
================================================================================
Top Ten Holdings* As of June 30, 1998
================================================================================
<S> <C>
1. Tyco International Ltd. 3.1%
- --------------------------------------------------------------------------------
2. General Electric Co. 3.0
- --------------------------------------------------------------------------------
3. Bristol-Myers Squibb Co. 3.0
- --------------------------------------------------------------------------------
4. Schering-Plough Corp. 2.7
- --------------------------------------------------------------------------------
5. American Express Co. 2.7
- --------------------------------------------------------------------------------
6. Crane Co. 2.4
- --------------------------------------------------------------------------------
7. Compuware Corp. 2.4
- --------------------------------------------------------------------------------
8. Paging Network, Inc. 2.3
- --------------------------------------------------------------------------------
9. Pepsico, Inc. 2.3
- --------------------------------------------------------------------------------
10. Tellabs, Inc. 2.2
- --------------------------------------------------------------------------------
</TABLE>
* As a percentage of total common stock.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 3
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
Historical Performance -- Class A Shares
==========================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/98 $13.41 $15.66 $0.00 $0.00 16.80%+
- --------------------------------------------------------------------------------------------------------------------------
12/31/97 13.80 13.41 0.00 1.07 5.18
- --------------------------------------------------------------------------------------------------------------------------
12/31/96 14.31 13.80 0.11 2.26 13.96
- --------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/95 13.36 14.31 0.02 0.93 14.61+
==========================================================================================================================
Total $0.13 $4.26
==========================================================================================================================
<CAPTION>
==========================================================================================================================
Historical Performance -- Class B Shares
==========================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/98 $13.24 $15.41 $0.00 $0.00 16.41%+
- --------------------------------------------------------------------------------------------------------------------------
12/31/97 13.74 13.24 0.00 1.07 4.40
- --------------------------------------------------------------------------------------------------------------------------
12/31/96 14.27 13.74 0.02 2.26 13.12
- --------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/95 13.36 14.27 0.00 0.93 14.15+
==========================================================================================================================
Total $0.02 $4.26
==========================================================================================================================
<CAPTION>
==========================================================================================================================
Historical Performance -- Class L Shares
==========================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/98 $13.28 $15.45 $0.00 $0.00 16.36%+
- --------------------------------------------------------------------------------------------------------------------------
12/31/97 13.78 13.28 0.00 1.07 4.38
- --------------------------------------------------------------------------------------------------------------------------
12/31/96 14.29 13.78 0.02 2.26 13.24
- --------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/95 14.05 14.29 0.00 0.93 8.69+
==========================================================================================================================
Total $0.02 $4.26
==========================================================================================================================
<CAPTION>
==========================================================================================================================
Historical Performance -- Class Y Shares
==========================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/98 $13.42 $15.71 $0.00 $0.00 17.08%+
- --------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/97 14.86 13.42 0.00 1.07 (2.25)+
==========================================================================================================================
Total $0.00 $1.07
==========================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
- --------------------------------------------------------------------------------
4 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================
Average Annual Total Return
=========================================================================================================
Without Sales Charge(1)
----------------------------------------------------------------
Class A(2) Class B(2) Class L Class Y
=========================================================================================================
<S> <C> <C> <C> <C>
Six Months Ended 6/30/98+ 16.80% 16.41% 16.36% 17.08%
- ---------------------------------------------------------------------------------------------------------
Year Ended 6/30/98 19.56 18.68 18.62 N/A
- ---------------------------------------------------------------------------------------------------------
Inception* through 6/30/98 17.11 16.24 14.89 14.46+
=========================================================================================================
<CAPTION>
With Sales Charge(3)
----------------------------------------------------------------
Class A(2) Class B(2) Class L Class Y
=========================================================================================================
<S> <C> <C> <C> <C>
Six Months Ended 6/30/98+ 10.93% 11.41% 14.23% 17.08%
- ---------------------------------------------------------------------------------------------------------
Year Ended 6/30/98 13.56 13.68 16.46 N/A
- ---------------------------------------------------------------------------------------------------------
Inception* through 6/30/98 15.13 15.49 14.50 14.46+
=========================================================================================================
</TABLE>
================================================================================
Cumulative Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
================================================================================
<S> <C>
Class A (May 3, 1994 through 6/30/98)(2) 60.46%
- --------------------------------------------------------------------------------
Class B (May 3, 1994 through 6/30/98)(2) 56.92
- --------------------------------------------------------------------------------
Class L (Inception* through 6/30/98) 49.49
- --------------------------------------------------------------------------------
Class Y (Inception* through 6/30/98) 14.46+
================================================================================
</TABLE>
(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 and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Performance calculations for Class A and B shares include the historical
return information related to the Common Sense II Aggressive Opportunity
Fund of the Common Sense Trust, which was the predecessor fund, for the
period from May 3, 1994 through June 30, 1995.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and Class L shares reflect
the deduction of the maximum initial sales charge of 5.00% and 1.00%,
respectively; and Class B shares reflect the deduction of a 5.00% CDSC,
which applies if shares are redeemed within one year from purchase.
Thereafter, the CDSC declines by 1.00% per year until no CDSC is incurred.
Class L shares also reflect the deduction of a 1.00% CDSC, which applies if
shares are redeemed within the first year of purchase.
* Inception dates for Class A, B, L and Y shares are July 3, 1995, July 3,
1995, August 8, 1995 and October 15, 1997, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 5
<PAGE>
================================================================================
Concert Peachtree Growth Fund at a Glance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A Shares and Class B Shares of the Concert
Peachtree Growth Fund vs. Russell 1000 Growth Index and Russell 2000 Index+
- --------------------------------------------------------------------------------
May 1994--June 1998
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Concert Peachtree Growth Fund Concert Peachtree Growth Fund Russell 1000
-- Class A Shares -- Class B Shares Growth Index++ Russell 2000 Index++
----------------- ----------------- -------------- --------------------
<S> <C> <C> <C> <C>
May 3 1994 $ 9,501 $10,000 $10,000 $10,000
Dec. 1994 $ 9,606 $ 9,619 $10,688 $10,027
Dec. 1995 $12,576 $12,744 $14,663 $12,880
Dec. 1996 $14,331 $14,568 $18,053 $15,005
Dec. 1997 $15,074 $15,322 $23,557 $18,361
June 30 1998 $17,607 $17,970 $28,358 $19,266
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A and B shares on
May 3, 1994 (inception of Common Sense II Aggressive Opportunity Fund of
the Common Sense Trust ("Common Sense") which was the predecessor Fund),
assuming deduction of the maximum 5.00% sales charge at the time of
investment for Class A shares and reinvestment of dividends and capital
gain, if any, at net asset value through June 30, 1998. (Performance
calculations include the historical return information related to Common
Sense for the period from May 3, 1994 through June 30, 1995). The Russell
2000 Index is composed of the 2,000 smallest companies in the Russell 3000
Index. The Russell 3000 Index is composed of 3,000 of the largest U.S.
companies by market capitalization. The Russell 1000 Growth Index is a
capitalization weighted total return index which is comprised of 1,000 of
the largest capitalized U.S. domiciled companies with a
greater-than-average growth orientation whose common stock is traded in the
United States on either the New York Stock Exchange, American Stock
Exchange or Nasdaq. The indexes are unmanaged and are not subject to the
same management and trading expenses as a mutual fund. The performance of
the Fund's other classes may be greater or less than the Class A and B
shares' performance indicated on this chart, depending on whether greater
or lesser sales charges and fees were incurred by shareholders investing in
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.
++ It is the opinion of the Fund's management that the Russell 1000 Growth
Index more accurately reflects the current composition of the Concert
Peachtree Growth Fund than the Russell 2000 Index. In future reporting, the
Russell 1000 Growth Index will be used as a basis of comparison of total
return performance rather than the Russell 2000 Index.
Industry Diversification of Common Stock*
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<S> <C>
Banking 10.5%
Beverages 4.3%
Computer Software & Hardware 19.0%
Consumer Products 3.5%
Entertainment 3.7%
Foods 3.7%
Health Care 9.3%
Insurance 5.4%
Retail/Miscellaneous 6.7%
Telecommunications 11.9%
Other 22.0%
</TABLE>
* As a percentage of total common stock.
Investment Breakdown**
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<S> <C>
Repurchase Agreement 2.5%
Common Stock 97.5%
</TABLE>
** As a percentage of total investments.
- --------------------------------------------------------------------------------
6 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================================
Schedule of Investments (unaudited) June 30, 1998
=======================================================================================================================
SHARES SECURITY VALUE
=======================================================================================================================
<S> <C> <C>
COMMON STOCK -- 97.5%
Advertising -- 2.2%
120,000 Omnicom Group+ $ 5,985,000
- -----------------------------------------------------------------------------------------------------------------------
Apparel -- 2.1%
160,000 Jones Apparel Group, Inc.* 5,850,000
- -----------------------------------------------------------------------------------------------------------------------
Banking -- 10.2%
97,500 AmSouth Bancorp.+ 3,832,969
50,000 Comerica, Inc. 3,312,500
112,500 Commerce Bancshares Inc. 5,491,406
79,500 First American Bank of Tennessee Corp. 3,825,937
32,500 Fleet Financial Group, Inc. 2,713,750
150,000 Keycorp 5,343,750
119,000 MBNA Corp.+ 3,927,000
- -----------------------------------------------------------------------------------------------------------------------
28,447,312
- -----------------------------------------------------------------------------------------------------------------------
Beverages -- 4.2%
140,000 Coca-Cola Enterprises Inc.+ 5,495,000
150,000 Pepsico, Inc. 6,178,125
- -----------------------------------------------------------------------------------------------------------------------
11,673,125
- -----------------------------------------------------------------------------------------------------------------------
Broadcasting - TV, Cable & Radio -- 1.8%
100,000 Chancellor Media Corp.* 4,965,625
- -----------------------------------------------------------------------------------------------------------------------
Computer Software & Hardware -- 18.5%
150,000 Apple Computer, Inc.+ 4,303,125
111,000 BMC Software Inc.* 5,765,062
132,000 Cadence Design Systems, Inc.+* 4,125,000
105,000 Computer Associates International Inc. 5,834,063
125,500 Compuware Corp.* 6,416,187
126,000 HBO & Co. 4,441,500
54,000 Microsoft Corp.* 5,852,250
160,000 Oracle Systems Corp.* 3,930,000
129,000 PeopleSoft, Inc.+* 6,063,000
110,000 Sun Microsystems Inc.+* 4,778,125
- -----------------------------------------------------------------------------------------------------------------------
51,508,312
- -----------------------------------------------------------------------------------------------------------------------
Conglomerates -- 3.0%
90,500 General Electric Co. 8,235,500
- -----------------------------------------------------------------------------------------------------------------------
Construction -- 0.5%
39,500 Centex Corp. 1,491,125
- -----------------------------------------------------------------------------------------------------------------------
Consumer Products -- 3.4%
90,000 Avery Dennison Corp.+ 4,837,500
140,000 Premark International, Inc. 4,515,000
- -----------------------------------------------------------------------------------------------------------------------
9,352,500
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 7
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
=======================================================================================================================
SHARES SECURITY VALUE
=======================================================================================================================
<S> <C> <C>
Entertainment -- 3.6%
142,000 Carnival Corp. $ 5,626,750
75,000 Viacom Inc.+* 4,368,750
- -----------------------------------------------------------------------------------------------------------------------
9,995,500
- -----------------------------------------------------------------------------------------------------------------------
Financial Services -- 2.6%
63,000 American Express Co. 7,182,000
- -----------------------------------------------------------------------------------------------------------------------
Foods -- 3.6%
83,000 Bestfoods 4,819,188
200,000 Sysco Corp. 5,125,000
7,700 Vlasic Foods International Inc.* 154,962
- -----------------------------------------------------------------------------------------------------------------------
10,099,150
- -----------------------------------------------------------------------------------------------------------------------
Health Care -- 9.1%
70,300 Bristol-Myers Squibb Co. 8,080,106
75,000 Eli Lilly & Co. 4,954,687
161,000 Mylan Laboratories+ 4,840,063
80,000 Schering-Plough Corp. 7,330,000
- -----------------------------------------------------------------------------------------------------------------------
25,204,856
- -----------------------------------------------------------------------------------------------------------------------
Insurance -- 5.3%
158,000 AFLAC Inc. 4,789,375
51,000 Allstate Corp. 4,669,687
64,000 Chubb Corp. 5,144,000
- -----------------------------------------------------------------------------------------------------------------------
14,603,062
- -----------------------------------------------------------------------------------------------------------------------
Manufacturing -- 2.3%
133,000 Crane Co. 6,458,813
- -----------------------------------------------------------------------------------------------------------------------
Retail/Miscellaneous -- 6.6%
100,000 Bed Bath & Beyond+* 5,181,250
104,000 Dayton-Hudson Corp. 5,044,000
101,500 General Nutrition Companies, Inc.* 3,159,188
200,000 TJX Cos., Inc. 4,825,000
- -----------------------------------------------------------------------------------------------------------------------
18,209,438
- -----------------------------------------------------------------------------------------------------------------------
Security Systems & Services -- 3.0%
133,000 Tyco International Ltd. 8,379,000
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications -- 11.6%
90,000 AT&T Corp. 5,141,250
94,650 Century Telephone Enterprises Inc. 4,342,069
160,000 Hilton Hotels Corp. 4,560,000
72,000 Lucent Technologies Inc. 5,989,500
442,000 Paging Network, Inc. 6,188,000
85,000 Tellabs, Inc.+* 6,088,125
- -----------------------------------------------------------------------------------------------------------------------
32,308,944
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
=======================================================================================================================
SHARES SECURITY VALUE
=======================================================================================================================
<S> <C> <C>
Tobacco -- 0.7%
50,000 Phillip Morris Cos., Inc. $ 1,968,750
- -----------------------------------------------------------------------------------------------------------------------
Utilities -- 3.2%
130,500 American Water Works Inc.+ 4,045,500
71,000 Coastal Corp. 4,956,688
- -----------------------------------------------------------------------------------------------------------------------
9,002,188
- -----------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $231,792,087) 270,920,200
=======================================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
=======================================================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT -- 2.5%
$6,996,000 Goldman, Sachs & Co., 5.650% due 7/1/98; Proceeds at maturity -- $6,997,098;
(Fully collateralized by U.S. Treasury Notes, 5.375% due 6/30/00;
Market value -- $7,161,826) (Cost -- $6,996,000) 6,996,000
=======================================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $238,788,087**) $277,916,200
=======================================================================================================================
</TABLE>
+ A portion of this security is on loan (See Note 6).
* Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 9
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================
Statement of Assets and Liabilities (unaudited) June 30, 1998
=======================================================================================
<S> <C>
ASSETS:
Investments, at value (Cost-- $238,788,087) $ 277,916,200
Cash 207
Collateral for securities loaned (Note 6) 56,374,895
Receivable for securities sold 2,466,034
Dividends and interest receivable 290,795
Receivable for Fund shares sold 83,313
- --------------------------------------------------------------------------------------
Total Assets 337,131,444
- --------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities loaned (Note 6) 56,374,895
Management fees payable 237,022
Accrued expenses 196,433
- --------------------------------------------------------------------------------------
Total Liabilities 56,808,350
- --------------------------------------------------------------------------------------
Total Net Assets $ 280,323,094
======================================================================================
NET ASSETS:
Par value of capital shares $ 17,921
Capital paid in excess of par value 235,911,581
Accumulated net investment loss (546,768)
Accumulated net realized gain on security transactions 5,812,247
Net unrealized appreciation of investments 39,128,113
- --------------------------------------------------------------------------------------
Total Net Assets $ 280,323,094
======================================================================================
Shares Outstanding:
Class A 4,808,946
---------------------------------------------------------------------------------
Class B 3,177,151
---------------------------------------------------------------------------------
Class L 11,562
---------------------------------------------------------------------------------
Class Y 9,923,602
---------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $15.66
---------------------------------------------------------------------------------
Class B * $15.41
---------------------------------------------------------------------------------
Class L ** $15.45
---------------------------------------------------------------------------------
Class Y (and redemption price) $15.71
---------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $16.48
---------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $15.61
======================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Statement of Operations (unaudited) For the Six Months Ended June 30, 1998
================================================================================
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 1,168,864
Interest 114,522
- -------------------------------------------------------------------------------
Total Investment Income 1,283,386
- -------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 1,271,470
Distribution fees (Note 2) 315,210
Shareholder and system servicing fees 104,907
Registration fees 51,762
Shareholder communications 45,322
Custody 14,873
Directors' fees 10,511
Audit and legal 10,125
Other 1,240
- -------------------------------------------------------------------------------
Total Expenses 1,825,420
- -------------------------------------------------------------------------------
Net Investment Loss (542,034)
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 129,214,835
Cost of securities sold 122,273,891
- -------------------------------------------------------------------------------
Net Realized Gain 6,940,944
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 5,740,372
End of period 39,128,113
- -------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 33,387,741
- -------------------------------------------------------------------------------
Net Gain on Investments 40,328,685
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 39,786,651
===============================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 11
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended June 30, 1998 (unaudited)
and the Year Ended December 31, 1997
<TABLE>
<CAPTION>
1998 1997
===============================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (542,034) $ 17,007
Net realized gain 6,940,944 7,329,771
Increase in net unrealized appreciation 33,387,741 583,993
- -----------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 39,786,651 7,930,771
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- --
Net realized gains (50,134) (11,559,383)
- -----------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (50,134) (11,559,383)
- -----------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 30,674,518 133,291,179
Net asset value of shares issued for reinvestment
of dividends 22,354 8,286,604
Cost of shares reacquired (15,177,807) (28,383,356)
- -----------------------------------------------------------------------------------------------
Increase in Net Assets From Fund Share Transactions 15,519,065 113,194,427
- -----------------------------------------------------------------------------------------------
Increase in Net Assets 55,255,582 109,565,815
NET ASSETS:
Beginning of period 225,067,512 115,501,697
- -----------------------------------------------------------------------------------------------
End of period* $ 280,323,094 $ 225,067,512
===============================================================================================
* Includes accumulated net investment loss of: $(546,768) $(4,734)
===============================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
The Concert Peachtree Growth Fund ("Portfolio"), a separate investment fund of
the Smith Barney Investment Funds Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund consists of this
Portfolio and six other separate investment portfolios: Smith Barney Investment
Grade Bond Fund, Smith Barney Special Equities Fund, Smith Barney Contrarian
Fund (formerly known as Smith Barney Managed Growth Fund), Smith Barney
Government Securities Fund, Smith Barney Hansberger Global Value Fund and Smith
Barney Global Small Cap Value Fund. The financial statements and financial
highlights for the other portfolios are presented in separate semi-annual
reports except for, the Smith Barney Hansberger Global Value Fund and Smith
Barney Global Small Cap Value Fund whose annual reports are dated April 30, 1998
and semiannual reports will be dated October 31, 1998.
The significant accounting policies consistently followed by the Portfolio are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing price on such markets;
securities traded in the over-the-counter market and listed securities for which
no sales price were reported are valued at bid price, or in the absence of a
recent bid price, at the bid equivalent obtained from one or more of the major
market makers; (c) securities that have a maturity of more than 60 days are
valued at prices based on market quotations for securities of similar type,
yield and maturity; (d) securities maturing within 60 days are valued at cost
plus accreted discount, or minus amortized premium, which approximates value;
(e) dividend income is recorded on ex-dividend date and interest income is
recorded on an accrual basis; (f) dividends and distributions to shareholders
are recorded on the ex-dividend date; (g) gains or losses on the sale of
securities are calculated using the specific identification method; (h) the
accounting records are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars on the date
of valuation. Purchases and sales of securities and income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income or expense amounts
recorded and collected or paid are adjusted when reported by the custodian bank;
(i) direct expenses are charged to each class; management fees and general
portfolio expenses are allocated on the basis of relative net assets; (j) the
Portfolio 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; (k) the character of income
and gains distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. At December 31,
1997, reclassifications were made to the Portfolio's capital accounts to reflect
permanent book/tax differences and income and gains available for distributions
under income tax regulations. Net investment income, net realized gains and net
assets were not affected by this change; and (l) 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
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney Holdings
Inc. ("SSBH"), acts
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 13
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
as investment manager of the Fund. Effective May 1, 1998, the Portfolio pays MMC
a management fee calculated at an annual rate of 1.00% of the average daily net
assets up to $250 million and 0.85% of the average daily net assets in excess of
$250 million. Prior to May 1, 1998, the Portfolio paid a management fee of 1.00%
on average daily net assets. This fee is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SSBH, acts as distributor of
Fund shares and primary broker for its portfolio agency transactions. For the
six months ended June 30, 1998, SB received no brokerage commissions.
On June 12, 1998, the Fund's existing Class C shares were renamed as Class L
shares. Effective June 15, 1998, Class L shares are being sold at net asset
value plus a maximum initial sales charge of 1.00%. Class L shares also have a
1.00% contingent deferred sales charge ("CDSC"), which applies if redemption
occurs within the first year of purchase.
There is a CDSC of 5.00% on Class B shares, which applies if redemption occurs
within one year from initial purchase and declines thereafter by 1.00% per year
until no CSDC is incurred. In addition, 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 six months ended June 30, 1998, SB received sales charges of
approximately $415,000 and $7,000 on Class A and Class L shares, respectively.
In addition, CDSCs paid to SB were approximately:
<TABLE>
<CAPTION>
Class A Class B Class L
================================================================================
<S> <C> <C> <C>
CDSCs $1,000 $180,000 $5,000
================================================================================
</TABLE>
Pursuant to a Distribution Plan, the Portfolio pays a service fee with respect
to Class A, B and L shares calculated at the annual rate of 0.25% of the average
daily net assets for each respective class. The Portfolio also pays a
distribution fee with respect to Class B and L shares calculated at an annual
rate of 0.75% of the average daily net assets of each class, respectively.
For the six months ended June 30, 1998, total Distribution Plan fees incurred by
the Portfolio were:
<TABLE>
<CAPTION>
Class A Class B Class L
================================================================================
<S> <C> <C> <C>
Distribution Plan Fees $88,243 $226,008 $959
================================================================================
</TABLE>
All officers and one Director of the Fund are employees of SB.
3. Investments
During the six months ended June 30, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $142,304,774
- --------------------------------------------------------------------------------
Sales 129,214,835
================================================================================
</TABLE>
At June 30, 1998, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
================================================================================
<S> <C>
Gross unrealized appreciation $41,789,200
Gross unrealized depreciation (2,661,087)
- --------------------------------------------------------------------------------
Net unrealized appreciation $39,128,113
================================================================================
</TABLE>
4. Repurchase Agreements
The Portfolio purchases (and its 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 Portfolio requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
- --------------------------------------------------------------------------------
14 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
5. Option Contracts
Premiums paid when put or call options are purchased by the Portfolio, represent
investments, which are marked-to-market daily. When a purchased option expires,
the Portfolio will realize a loss in the amount of the premium paid. When the
Portfolio enters into a closing sales transaction, the Portfolio will realize a
gain or loss depending on whether the sales proceeds from the closing sales
transaction are greater or less than the premium paid for the option. When the
Portfolio exercises a put option, it will realize a gain or loss from the sale
of the underlying security and the proceeds from such sale will be decreased by
the premium originally paid. When the Portfolio exercises a call option, the
cost of the security which the Portfolio purchases upon exercise will be
increased by the premium originally paid.
At June 30, 1998, the Portfolio had no purchased call or put options.
When a Portfolio writes a covered call or put option, an amount equal to the
premium received by the Portfolio is recorded as a liability, the value of which
is marked-to-market daily. When a written option expires, the Portfolio realizes
a gain equal to the amount of the premium received. When the Portfolio enters
into a closing purchase transaction, the Portfolio realizes a gain or loss
depending upon whether the cost of the closing transaction is greater or less
than the premium originally received, without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
eliminated. When a written call option is exercised, the cost of the security
sold will be decreased by the premium originally received. When a written put
option is exercised, the amount of the premium originally received will reduce
the cost of the security which the Portfolio purchased upon exercise. When a
written index option is exercised, settlement is made in cash. The risk
associated with purchasing options is limited to the premium originally paid.
The Portfolio enters into options for hedging purposes. The risk in writing a
covered call option is that the Portfolio gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Portfolio is
exposed to the risk of loss if the market price of the underlying security
declines.
During the six months ended June 30, 1998, the Portfolio did not write any call
or put options.
6. Lending of Portfolio Securities
The Portfolio has an agreement with its custodian whereby the custodian may lend
securities owned by the Portfolio to brokers, dealers and other financial
organizations. Fees earned by the Portfolio on securities lending are recorded
as interest income. Loans of securities by the Portfolio are collateralized by
cash, U.S. government securities or high quality money market instruments that
are maintained at all times in an amount at least equal to the current market
value of the loaned securities, plus a margin which may vary depending on the
type of securities loaned. The custodian establishes and maintains the
collateral in a segregated account. The Portfolio maintains exposure for the
risk of any losses in the investment of amounts received as collateral.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 15
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
At June 30, 1998, the Portfolio loaned common stocks having a value of
approximately $53,168,939 and holds the following collateral for loaned
securities:
<TABLE>
<CAPTION>
Security Description Value
================================================================================
<S> <C>
Time Deposits:
Banque Paribas, 6.500% due 7/1/98 $12,590,655
Deutsche Bank, 7.000% due 7/1/98 10,236,305
Svenska Handelsbank, 6.500% due 7/1/98 10,236,305
Toronto Dominion, 6.500% due 7/1/98 10,236,305
Repurchase Agreements:
Goldman, Sachs & Co., 6.250% due 7/1/98 6,421,727
Morgan Stanley, 6.250% due 7/1/98 6,653,598
- --------------------------------------------------------------------------------
Total $56,374,895
================================================================================
</TABLE>
7. Capital Shares
At June 30, 1998, the Fund had ten billion shares of capital stock authorized
with a par value of $0.001 per share. The Portfolio has the ability to issue
multiple classes of shares. Each share of a class represents an identical
interest and has the same rights, except that each class bears certain direct
expenses, including those specifically related to the distribution of its
shares. Effective June 12, 1998, the Portfolio adopted the renaming of existing
Class C shares as Class L shares.
At June 30, 1998, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
====================================================================================================
<S> <C> <C> <C> <C>
Total Paid-in Capital $59,915,127 $41,022,510 $157,306 $134,834,559
====================================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------------------- ---------------------------
Shares Amount Shares Amount
============================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 486,926 $ 7,256,664 823,568 $ 11,212,798
Shares issued on reinvestment 860 13,443 392,203 5,090,795
Shares redeemed (702,726) (10,286,617) (1,422,997) (19,747,407)
- --------------------------------------------------------------------------------------------
Net Decrease (214,940) $ (3,016,510) (207,226) $ (3,443,814)
============================================================================================
Class B
Shares sold 325,324 $ 4,778,691 412,466 $ 5,613,217
Shares issued on reinvestment 577 8,878 248,022 3,182,124
Shares redeemed (334,307) (4,825,755) (615,046) (8,397,187)
- --------------------------------------------------------------------------------------------
Net Increase (Decrease) (8,406) $ (38,186) 45,442 $ 398,154
============================================================================================
Class L+
Shares sold 587 $ 8,078 6,939 $ 94,859
Shares issued on reinvestment 2 33 1,063 13,685
Shares redeemed (4,342) (65,435) (5,306) (71,932)
- --------------------------------------------------------------------------------------------
Net Increase (Decrease) (3,753) $ (57,324) 2,696 $ 36,612
============================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
16 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997*
-------------------------- ---------------------------
Shares Amount Shares Amount
==============================================================================================
<S> <C> <C> <C> <C>
Class Y
Shares sold 1,325,637 $ 18,631,085 8,609,967 $ 116,370,305
Shares issued on reinvestment -- -- -- --
Shares redeemed -- -- (12,002) (166,830)
- ----------------------------------------------------------------------------------------------
Net Increase 1,325,637 $ 18,631,085 8,597,965 $ 116,203,475
==============================================================================================
</TABLE>
* Transactions for Class Y shares, for the period from October 15, 1997
(inception date) to December 31, 1997.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 17
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class A Shares 1998(1) 1997 1996 1995(2)
================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.41 $13.80 $14.31 $13.36
- ------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (loss) (0.03) 0.03 0.01 0.03
Net realized and unrealized gain 2.28 0.65 1.85 1.87
- ------------------------------------------------------------------------------------------------
Total Income From Operations 2.25 0.68 1.86 1.90
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.11) (0.02)
Net realized gains (0.00)* (1.07) (2.26) (0.93)
- ------------------------------------------------------------------------------------------------
Total Distributions (0.00) (1.07) (2.37) (0.95)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.66 $13.41 $13.80 $14.31
- ------------------------------------------------------------------------------------------------
Total Return 16.80%++ 5.18% 13.96% 14.61%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $75,304 $67,349 $72,180 $57,693
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.57%+ 1.67% 1.78% 1.72%+
Net investment income (loss) (0.57)+ 0.22 0.13 0.46+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 51% 227% 183% 51%
- ------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.05 $0.05 $0.06 $0.06
================================================================================================
<CAPTION>
Class B Shares 1998(1) 1997 1996 1995(2)
================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.24 $13.74 $14.27 $13.36
- ------------------------------------------------------------------------------------------------
Income From Operations:
Net investment loss (0.09) (0.07) (0.09) (0.02)
Net realized and unrealized gain 2.26 0.64 1.84 1.86
- ------------------------------------------------------------------------------------------------
Total Income From Operations 2.17 0.57 1.75 1.84
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.02) --
Net realized gains (0.00)* (1.07) (2.26) (0.93)
- ------------------------------------------------------------------------------------------------
Total Distributions (0.00) (1.07) (2.28) (0.93)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.41 $13.24 $13.74 $14.27
- ------------------------------------------------------------------------------------------------
Total Return 16.41%++ 4.40% 13.12% 14.15%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $48,950 $42,172 $43,148 $32,685
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.31%+ 2.42% 2.53% 2.46%+
Net investment loss (1.31)+ (0.53) (0.63) (0.27)+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 51% 227% 183% 51%
- ------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.05 $0.05 $0.06 $0.06
================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(2) For the period from July 3, 1995 (inception date) to December 31, 1995.
* 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.
- --------------------------------------------------------------------------------
18 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class L Shares(1) 1998(2) 1997 1996 1995(3)
================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.28 $13.78 $14.29 $14.05
- ------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (loss) (0.12) (0.05) (0.08) 0.01
Net realized and unrealized gain 2.29 0.62 1.85 1.16
- ------------------------------------------------------------------------------------------------
Total Income From Operations 2.17 0.57 1.77 1.17
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.02) --
Net realized gains (0.00)* (1.07) (2.26) (0.93)
- ------------------------------------------------------------------------------------------------
Total Distributions (0.00) (1.07) (2.28) (0.93)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.45 $13.28 $13.78 $14.29
- ------------------------------------------------------------------------------------------------
Total Return 16.36%++ 4.38% 13.24% 8.69%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $178 $203 $174 $88
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.32%+ 2.41% 2.40% 2.29%+
Net investment income (loss) (1.33)+ (0.53) (0.48) 0.13+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 51% 227% 183% 51%
- ------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.05 $0.05 $0.06 $0.06
================================================================================================
<CAPTION>
Class Y Shares 1998(2) 1997(4)
================================================================================================
<S> <C> <C>
Net Asset Value, Beginning of Period $13.42 $14.86
- ------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.01 0.01
Net realized and unrealized
gain (loss) 2.28 (0.38)
- ------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.29 (0.37)
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains (0.00)* (1.07)
- ------------------------------------------------------------------------------------------------
Total Distributions (0.00) (1.07)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.71 $13.42
- ------------------------------------------------------------------------------------------------
Total Return 17.08%++ (2.25)%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $155,891 $115,343
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.07%+ 1.10%+
Net investment income (loss) (0.06)+ 0.62+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 51% 227%
- ------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.05 $0.05
================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) For the six months ended June 30, 1998 (unaudited).
(3) For the period from August 8, 1995 (inception date) to December 31, 1995.
(4) For the period from October 15, 1997 (inception date) to December 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.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 19
<PAGE>
================================================================================
Additional Shareholder Information (unaudited)
================================================================================
On March 9, 1998, a special meeting of shareholders of the Fund was held for the
purpose of voting on the following matters:
1. To elect Directors of the Fund; and
2. To approve or disapprove the reclassification, modification and/or
elimination of certain fundamental investment policies.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Voted Percentage Shares Voted Percentage
Name of Directors For Shares Voted Against Shares Voted
====================================================================================================================================
<S> <C> <C> <C> <C>
Paul R. Ades 110,457,871.145 96.547% 3,950,761.251 3.453%
Herbert Barg 110,299,351.998 96.408 4,109,280.398 3.592
Dwight B. Crane 110,443,765.891 96.534 3,964,866.505 3.466
Frank G. Hubbard 110,456,573.292 96.546 3,952,059.104 3.454
Jerome Miller 110,457,232.652 96.546 3,951,399.744 3.454
Ken Miller 110,449,857.597 96.540 3,958,774.799 3.460
Heath B. McLendon 110,401,492.247 96.498 4,007,140.149 3.502
====================================================================================================================================
</TABLE>
Proposal 2 requested that shareholders approve certain changes to the
fundamental policies of the Portfolio in order to modernize them in view of
certain regulatory, business or industry developments that have occurred since
original adoption of these policies by the Portfolio. The following chart
demonstrates that all proposals were approved by shareholders.
Please note that "M" indicates a modification of the policy; "E" indicates the
elimination of the policy; and "R" indicates the reclassification of the policy
from fundamental (which would require shareholder approval to change) to
non-fundamental (which can be changed by a vote of the Board of Directors).
<TABLE>
====================================================================================================================================
<S> <C> <C>
M Diversification Approved
M Industry Concentration Approved
M Borrowing Approved
M Lending by the Portfolio Approved
R Purchase of Securities on Margin Approved
M Purchase or Sale of Real Estate Approved
R Investment in Restricted and Illiquid Securities Approved
R Investments in Unseasoned Issuers Approved
E Restricting the Purchase of Securities of an Issuer Approved
R Purchase of Securities of Other Investment Companies Approved
R Exercising Control or Management Approved
R Investments in Oil, Gas or Other Mineral Exploration Approved
E Participation in Joint Trading Accounts Approved
R Purchase or Sale of Puts, Calls and Combinations Thereof Approved
====================================================================================================================================
</TABLE>
The information below reports the lowest percentage of shares voting for the
proposals, the highest percentage of shares voting against and abstaining by
shareholders of the Portfolio on all proposals.
<TABLE>
<CAPTION>
Percentage Percentage Percentage
Shares Voted of Shares Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Voted
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
11,840,303.286 89.243% 515,518.524 3.886% 991,668.917 6.871%
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
20 1998 Semi-Annual Report to Shareholders
<PAGE>
Concert Peachtree
Growth Fund
Directors Investment Manager
Paul R. Ades Mutual Management Corp.
Herbert Barg
Dwight B. Crane Distributor
Frank G. Hubbard Smith Barney Inc.
Heath B. McLendon, Chairman PFS Distributor, Inc.
Jerome Miller
Ken Miller Custodian
PNC Bank, N.A.
Allan G. Johnson, Emeritus
John F. White, Emeritus Shareholder Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Officers Boston, MA 02205-9134
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer This report is submitted for the
general information of shareholders of
Dennis A. Johnson Concert Peachtree Growth Fund. It is
President and Chief Investment Officer not for distribution to prospective
Peachtree Asset Management investors unless accompanied by a
current Prospectus for the Fund, which
Thomas M. Reynolds contains information concerning the
Controller Fund's investment policies and
expenses as well as other pertinent
Christina T. Sydor information.
Secretary
SMITH BARNEY
------------
A Member of TravelersGroup[LOGO]
Concert Peachtree
Growth Fund
388 Greenwich Street
New York, New York 10013
www.smithbarney.com
FD01155 8/98
<PAGE>
[GRAPHIC]
Smith Barney
Government
Securities Fund
------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Everday.(SM)
<PAGE>
Smith Barney [PHOTO] [PHOTO]
Government
Securities Fund HEATH B. JAMES E.
MCLENDON CONROY
Chairman Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Government
Securities Fund ("Fund") for the period ended June 30, 1998. In this report, we
summarize the period's prevailing economic and market conditions and outline our
portfolio strategy. A more detailed summary of performance can be found in the
appropriate sections that follow.
Performance Update
For the six months ended June 30, 1998, the Fund posted a total return of 3.38%
for Class A shares without sales charges. In comparison, the Fund's performance
was roughly in line with the 3.62% average return for general U.S. government
funds for the same period according to Lipper Analytical Services, Inc. (Lipper
is an independent fund-tracking organization.) In addition, during the six
months ended June 30, 1998, the Fund distributed dividends totaling $0.28 per
Class A share. For performance information on the Fund's other share classes,
please turn to page five.
Investment Strategy
The Fund seeks high current return by investing primarily in obligations of, or
guaranteed, by the U.S. government, its agencies or instrumentalities. We are
concerned about income from the standpoint of paying dividends to shareholders,
but our overriding concern is doing what's right for shareholders in the context
of current market conditions. For example, if interest rates are going lower, we
are not going to defy the market and buy high-income coupon securities that
typically do not perform well when interest rates are going down. Rather, we
would buy securities that reflect lower interest rates.
To this end, we have shifted the Fund's emphasis toward mortgage-backed
securities ("MBS") and away from U.S. Treasury securities. As of June 30, 1998,
MBS represented approximately 61% of the Fund's holdings (with U.S. Treasury
securities making up the remaining roughly 39%) compared to 23% as of December
31, 1997. In our view, there currently is little relative value to be found in
U.S. Treasury securities due to the flatness of the yield curve. (The yield
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 1
<PAGE>
curve shows the difference in yields between short-term and long-term
fixed-income securities.)
Instead, we have adopted an interest rate strategy incorporating our expectation
of further interest rate declines. We believe that the Fund's MBS holdings
should help to maximize its income potential. In the coming months, we will
continue to closely monitor prepayment trends and will make further adjustments
if warranted.
Market Update and Outlook
During the reporting period, two distinct themes dominated bond markets: ongoing
economic turmoil in Asia and steady U.S. economic growth with low inflation.
Both of these developments have provided quite favorable conditions for bonds
and helped send U.S. interest rates to historical lows.
As can be seen from the chart below, interest rates have continued to decline
during the past six months:
Yields from U.S. Treasuries
<TABLE>
<CAPTION>
12/31/97 6/30/98
-------- -------
<S> <C> <C>
90-Day U.S. Treasury Bill 5.34% 5.09%
2-Year U.S. Treasury Note 5.64 5.47
5-Year U.S. Treasury Note 5.70 5.46
10-Year U.S. Treasury Bond 5.74 5.45
30-Year U.S. Treasury Bond 5.92 5.62
</TABLE>
It has been more than a year since the first signs of trouble in Asia began to
surface and, so far, no clear resolution has emerged. The U.S. dollar has
strengthened considerably in response to weakening economies in the region, and
as the crisis drags on, fears of another round of currency devaluations has
heightened. Moreover, major Asian banks could soon find themselves enveloped in
a crisis of their own as they face mounting numbers of non-performing loans.
One result of the Asian crisis has been a flight of capital to U.S. financial
markets as many investors sought out a "safe haven" from the tumult surrounding
many global markets. We believe that foreign investors, whose holdings of U.S.
Treasury securities has nearly doubled in the last three years, have been
attracted to Treasurys because of a strong U.S. dollar as well as the
competitive yields that they currently offer.
In addition, a robust U.S. economy has dramatically increased tax receipts,
enabling government officials to project a federal budget surplus for the first
time in years and reducing the need for federal borrowing. Issuance of U.S.
Treasury
- --------------------------------------------------------------------------------
2 1998 Semi-Annual Report to Shareholders
<PAGE>
securities in 1998 is expected to be substantially less than in 1997
and auctions of 3-year U.S. Treasury notes have been eliminated altogether. This
decreased supply combined with a burgeoning demand has helped sustain a U.S.
Treasury market rally, driving the yield on the benchmark 30-year U.S. Treasury
bond to new historic lows.
For its part, the Federal Reserve Board ("Fed") has chosen to remain on the
sidelines. At its meetings in March 1998 and May 1998, the Federal Open Market
Committee ("FOMC"), the Fed's policy-making panel, elected to leave short-term
interest rates unchanged. However, the FOMC did indicate a bias toward
tightening monetary policy on fears that persistent strength in the U.S. economy
would soon lead to a pick-up in inflationary pressures. The FOMC also ended its
July 1998 meeting without action but has not yet released details of its
decision.
Fed Chairman Alan Greenspan has cited a number of crosscurrents in the U.S.
economy that has led the FOMC to adopt a wait-and-see attitude. By many
traditional measures, U.S. economic growth has been quite robust. The U.S.
economy grew at an annualized rate of 5.4% in the first quarter of 1998 compared
to the 3.7% annual rate for 1997 and unemployment dropped to a mere 4.3% in
April 1998, the lowest level in decades. This vigorous growth has led to
increased concern that demand might soon outpace capacity and lead to price
increases.
However, we share the view of some FOMC members who have suggested that
continued weakness in most Asian economies should help to dampen inflationary
pressures in the U.S. economy. Clearly, the Asian crisis has had an adverse
effect on a number of U.S. industries. Moreover, in recent months, conditions in
Asian financial markets have deteriorated even further since the crisis began.
Of special concern has been the floundering Japanese economy because of its
status as the economic linchpin for Asia and a key U.S. trading partner. Many
economists have projected U.S. economic growth to be substantially lower in the
second quarter of 1998, due in large part to softening Asian demand.
Looking ahead, we view the U.S. bond market as very attractive. With currently
low interest rates and mortgage prepayments at their highest since 1993, some
would argue that interest rates should not decline further. In our view, there
is evidence that suggests interest rates could drop even more. Real interest
rates (the interest rate after subtracting the effects of inflation) are
approaching 4% compared to a historical norm of 2.75%.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 3
<PAGE>
Moreover, there are a number of reasons to expect a slowdown in U.S. economic
growth and therefore diminishing the threat of higher inflation. We believe that
the U.S. has yet to feel the full impact of the Asian crisis and the
accompanying narrowing of corporate profit margins. In addition, we do not
believe that business investment and home building can sustain their recent
energetic pace. For all of the above reasons, we remain very positive on the
prospects for U.S. government agency securities.
In closing, thank you for investing in the Smith Barney Government Securities
Fund. We look forward to continuing to help you pursue your financial goals.
Sincerely,
/s/ HEATH B. MCLENDON /s/ JAMES E. CONROY
Heath B. McLendon James E. Conroy
Chairman Vice President and
Investment Officer
July 14, 1998
- --------------------------------------------------------------------------------
4 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Historical Performance -- Class A Shares
====================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $9.75 $9.79 $0.28 $0.00 $0.00 3.38%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 9.34 9.75 0.60 0.00 0.00 11.23
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/96 9.77 9.34 0.59 0.00 0.01 1.96
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/95 9.17 9.77 0.69 0.00 0.00 14.50
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/94 10.01 9.17 0.49 0.00 0.07 (2.76)
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/93 9.69 10.01 0.72 0.00 0.00 10.87
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* - 12/31/92 9.56 9.69 0.08 0.00 0.02 2.41+
====================================================================================================================================
Total $3.45 $0.00 $0.10
====================================================================================================================================
<CAPTION>
====================================================================================================================================
Historical Performance -- Class B Shares
====================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $9.79 $9.81 $0.27 $0.00 $0.00 3.05%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 9.38 9.79 0.57 0.00 0.00 10.82
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/96 9.81 9.38 0.54 0.00 0.01 1.42
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/95 9.17 9.81 0.60 0.00 0.00 13.87
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/94 10.01 9.17 0.45 0.00 0.07 (3.25)
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/93 9.68 10.01 0.67 0.00 0.00 10.45
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/92 9.81 9.68 0.53 0.00 0.11 5.45
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/91 9.11 9.81 0.63 0.00 0.08 16.28
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/90 9.25 9.11 0.68 0.00 0.06 6.99
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/89 8.75 9.25 0.70 0.00 0.03 14.58
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/88 8.90 8.75 0.74 0.00 0.00 6.75
====================================================================================================================================
Total $6.38 $0.00 $0.36
====================================================================================================================================
<CAPTION>
====================================================================================================================================
Historical Performance -- Class L Shares
====================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $9.78 $9.80 $0.27 $0.00 $0.00 3.06%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 9.38 9.78 0.57 0.00 0.00 10.75
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/96 9.81 9.38 0.55 0.00 0.01 1.47
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/95 9.17 9.81 0.61 0.00 0.00 13.93
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/94 10.01 9.17 0.45 0.00 0.07 (3.25)
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* - 12/31/93 9.90 10.01 0.61 0.00 0.00 7.36+
====================================================================================================================================
Total $3.06 $0.00 $0.08
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 5
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Historical Performance -- Class Y Shares
====================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $9.76 $9.79 $0.30 $0.00 $0.00 3.47%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 9.34 9.76 0.63 0.00 0.00 11.73
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* - 12/31/96 9.71 9.34 0.56 0.00 0.01 2.30+
====================================================================================================================================
Total $1.49 $0.00 $0.01
====================================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and
capital gains, if any, annually.
<TABLE>
<CAPTION>
====================================================================================================================================
Average Annual Total Return
====================================================================================================================================
Without Sales Charge(1)
----------------------------------------------------------------
Class A Class B Class L Class Y
====================================================================================================================================
<S> <C> <C> <C> <C>
Six Months Ended 6/30/98+ 3.38% 3.05% 3.06% 3.47%
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended 6/30/98 11.21 10.70 10.61 11.51
- ------------------------------------------------------------------------------------------------------------------------------------
Five Years Ended 6/30/98 6.11 5.60 5.65 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 6/30/98 N/A 7.97 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/98 7.23 8.16 6.06 7.26
====================================================================================================================================
<CAPTION>
Without Sales Charge(2)
----------------------------------------------------------------
Class A Class B Class L Class Y
====================================================================================================================================
<S> <C> <C> <C> <C>
Six Months Ended 6/30/98+ (1.28)% (1.45)% 1.02% 3.47%
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended 6/30/98 6.21 6.20 8.56 11.51
- ------------------------------------------------------------------------------------------------------------------------------------
Five Years Ended 6/30/98 5.13 5.44 5.44 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 6/30/98 N/A 7.97 N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/98 6.36 8.16 5.86 7.26
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
6 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Cumulative Total Return
====================================================================================================================================
Without Sales Charge(1)
====================================================================================================================================
<S> <C>
Class A (Inception* through 6/30/98) 48.34%
- ------------------------------------------------------------------------------------------------------------------------------------
Class B (6/30/88 through 6/30/98) 115.33
- ------------------------------------------------------------------------------------------------------------------------------------
Class L (Inception* through 6/30/98) 37.42
- ------------------------------------------------------------------------------------------------------------------------------------
Class Y (Inception* through 6/30/98) 18.27
====================================================================================================================================
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect deduction of the applicable
sales charges with respect to Class A and L shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and L
shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 4.50% and 1.00%,
respectively; Class B shares reflect the deduction of a 4.50% CDSC, which
applies if shares are redeemed within 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 L shares reflect the
deduction of a 1.00% CDSC, which applies if shares are redeemed within the
first year of purchase.
* Inception dates for Class A, B, L and Y shares are November 6, 1992, March
20, 1984, February 4, 1993, and February 7, 1996, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 7
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Class B Shares of
the Smith Barney Government Securities Fund
vs. Lehman Brothers Government Bond Index
and Lipper General U.S. Government Peer Group Average+
- --------------------------------------------------------------------------------
June 1988 -- June 1998
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Smith Barney Lehman Brothers Lipper General U.S.
Government Securities Government Bond Government Peer
Fund Index Group Average
--------------------- --------------- -------------------
<S> <C> <C> <C>
6/88 $10,000 $10,000 $10,000
12/88 $ 9,719 $10,265 $10,221
12\89 $11,238 $11,725 $11,487
12\90 $12,151 $12,746 $12,412
12\91 $14,278 $14,698 $14,220
12\92 $15,167 $15,760 $15,123
12\93 $16,863 $17,440 $16,526
12\94 $16,326 $16,850 $15,796
12\95 $18,592 $19,941 $18,609
12\96 $18,855 $20,494 $18,926
12\97 $20,895 $22,459 $20,620
6\98 $21,533 $23,398 $21,366
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class B shares on June 30,
1988, assuming reinvestment of dividends and capital gains, if any, at net
asset value through June 30, 1998. The Lehman Brothers Government Bond
Index is a broad-based index of all public debt obligations of the U.S.
Government and its agencies and has an average maturity of approximately
nine years. The Lipper General U.S. Government Peer Group Average is
composed of the Fund's peer group of 194 mutual funds investing in U.S.
Government securities as of June 30, 1998. The index is unmanaged and is
not subject to the same management and trading expenses as a mutual fund.
The performance of the Fund's other classes may be greater or less than the
Class B shares' performance indicated on this chart, depending on whether
greater or lesser sales charges and fees were incurred by shareholders
investing in other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
- --------------------------------------------------------------------------------
8 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Portfolio Highlights (unaudited) June 30, 1998
================================================================================
Portfolio Breakdown
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Percentage
----------
<S> <C>
Cash Equivalent 0.6%
U.S. Governement and
Agency Obligations 38.7%
Mortgage-Backed Securities 60.7%
</TABLE>
U.S. Government and Agency Obligations are obligations of, or guaranteed by, the
United States Government, its agencies or instrumentalities and include such
instruments as Treasury notes, bills and bonds.
Mortgage-Backed Securities are debt securities issued by the U.S. Government
agencies such as the Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA) and Government National Mortgage
Association (GNMA). They represent thousands of individual home mortgages that
are pooled to form securities. As homeowners pay interest and principal each
month, these payments are passed on to investors. Mortgage-backed securities are
backed by the full faith and credit of the issuing agency.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 9
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited) June 30, 1998
====================================================================================================================================
FACE
AMOUNT SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES -- 60.7%
$113,436,814 FNMA Balloon, 7 Year, 6.000% due 5/1/05+ $113,188,388
742 FNMA 30 Year, 8.000% due 6/1/07 766
54,450,003 FNMA Dwarf, 15 Year, 6.000% due 7/1/13+ 53,905,504
61,972,889 FNMA 30 Year, 6.000% due 4/1/28 60,365,312
106,257 GNMA 30 Year, 11.000% due 10/15/10+ 119,240
21,832 GNMA 30 Year, 10.000% due 3/15/16 23,865
60,721 GNMA 30 Year, 10.500% due 3/15/16 66,547
70,357,257 GNMA 30 Year, 9.000% due 12/15/17 76,117,406
224,661 GNMA 30 Year, 9.500% due 5/15/20+ 242,773
1,025,399 GNMA 30 Year, 8.000% due 9/15/26+ 1,063,206
57,219,831 GNMA 30 Year, 6.500% due 4/15/28+ 57,129,997
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost-- $356,427,770) 362,223,004
====================================================================================================================================
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 38.7%
157,000,000 U.S. Treasury Strips, zero coupon due 5/15/03 120,641,940
80,000,000 U.S. Treasury Strips, zero coupon due 5/15/09 42,404,800
5,000,000 FNMA Global Bond, 6.350% due 11/23/01 5,033,900
161,000,000 FNMA P-Strips, zero coupon due 7/5/14 63,063,700
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- $227,576,440) 231,144,340
====================================================================================================================================
REPURCHASE AGREEMENT -- 0.6%
3,293,000 Goldman, Sachs & Co., 5.645% due 7/1/98; Proceeds at maturity --
$3,293,516 (Fully collateralized by U.S. Treasury Note, 5.375% due
6/30/00; Market value -- $3,360,426) (Cost -- $3,293,000) 3,293,000
====================================================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $587,297,210*) $596,660,344
====================================================================================================================================
</TABLE>
+ Date shown represents the last in range of maturity dates of mortgage
certificates owned.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
Statement of Assets and Liabilities (unaudited) June 30, 1998
=====================================================================================
<S> <C> <C>
ASSETS:
Investments, at value (Cost--$587,297,210) $ 596,660,344
Cash 157
Receivable for Fund shares sold 2,416,399
Dividends and interest receivable 2,032,433
- -------------------------------------------------------------------------------------
Total Assets 601,109,333
- -------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable 184,752
Administration fees payable 109,124
Distribution fees payable 54,042
Accrued expenses 86,631
- -------------------------------------------------------------------------------------
Total Liabilities 434,549
- -------------------------------------------------------------------------------------
Total Net Assets $600,674,784
=====================================================================================
NET ASSETS:
Par value of capital shares $ 61,347
Capital paid in excess of par value 644,643,045
Overdistributed net investment income (1,681,566)
Accumulated net realized loss from
security transactions and futures contracts (51,711,176)
Net unrealized appreciation of investments 9,363,134
- -------------------------------------------------------------------------------------
Total Net Assets $600,674,784
=====================================================================================
Shares Outstanding:
Class A 35,708,666
- -------------------------------------------------------------------------------------
Class B 9,014,778
- -------------------------------------------------------------------------------------
Class L 257,566
- -------------------------------------------------------------------------------------
Class Y 16,365,654
- -------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $9.79
- -------------------------------------------------------------------------------------
Class B* $9.81
- -------------------------------------------------------------------------------------
Class L** $9.80
- -------------------------------------------------------------------------------------
Class Y (and redemption price) $9.79
- -------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $10.25
- -------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $9.90
=====================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 11
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================
Statement of Operations (unaudited)
==============================================================================================
For the Six Months Ended June 30, 1998
<S> <C>
INVESTMENT INCOME:
Interest $18,651,926
Less: Interest expense (494,939)
- ----------------------------------------------------------------------------------------------
Total Investment Income 18,156,987
- ----------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 1,013,845
Distribution fees (Note 2) 799,667
Administration fees (Note 2) 579,340
Shareholder and system servicing fees 182,865
Directors' fees 26,638
Registration fees 18,019
Audit and legal 17,132
Custody 11,961
Other 8,931
- ----------------------------------------------------------------------------------------------
Total Expenses 2,658,398
- ----------------------------------------------------------------------------------------------
Net Investment Income 15,498,589
- ----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 3 AND 7):
Realized Gain From:
Security transactions (excluding short-term securities) 3,757,938
Futures contracts 345,133
- ----------------------------------------------------------------------------------------------
Net Realized Gain 4,103,071
- ----------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
of Investments:
Beginning of period 9,817,165
End of period 9,363,134
- ----------------------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (454,031)
- ----------------------------------------------------------------------------------------------
Net Gain on Investments and Futures Contracts 3,649,040
- ----------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $19,147,629
==============================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended June 30, 1998 (unaudited)
and the Year Ended December 31, 1997
<TABLE>
<CAPTION>
1998 1997
=========================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $15,498,589 $33,459,221
Net realized gain 4,103,071 13,136,258
Increase (decrease) in net unrealized appreciation (454,031) 11,264,896
- -----------------------------------------------------------------------------------------
Increase in Net Assets From Operations 19,147,629 57,860,375
- -----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (17,164,506) (34,333,513)
- -----------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (17,164,506) (34,333,513)
- -----------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 70,419,944 90,813,629
Net asset value of shares issued for
reinvestment of dividends 8,677,317 19,911,054
Cost of shares reacquired (55,022,153) (111,201,650)
- -----------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions 24,075,108 (476,967)
- -----------------------------------------------------------------------------------------
Increase in Net Assets 26,058,231 23,049,895
NET ASSETS:
Beginning of period 574,616,553 551,566,658
- -----------------------------------------------------------------------------------------
End of period* $600,674,784 $574,616,553
=========================================================================================
* Includes overdistributed net investment income of: $(1,681,566) $(15,649)
=========================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 13
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
The Smith Barney Government Securities Fund ("Portfolio"), a separate investment
fund of Smith Barney Investment Funds Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund consists of this
Portfolio and six other separate investment portfolios: Smith Barney Investment
Grade Bond, Smith Barney Special Equities, Smith Barney Contrarian (formerly
known as Smith Barney Managed Growth Fund), Concert Peachtree Growth, Smith
Barney Hansberger Global Value and Smith Barney Hansberger Global Small Cap
Value Funds. The financial statements and financial highlights for the other
portfolios are presented in separate semi-annual reports with the exception of
the Smith Barney Hansberger Global Value and Smith Barney Hansberger Global
Small Cap Value Funds whose annual reports are dated April 30, 1998 and
semi-annual reports will be dated October 31, 1998.
The significant accounting policies consistently followed by the Portfolio are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing price on such markets;
securities traded in the over-the-counter market and listed securities for which
no sales price was reported and U.S. Government and Government Agency
obligations are valued at bid price, or in the absence of a recent bid price, at
the bid equivalent obtained from one or more of the major market makers; (c)
securities maturing within 60 days are valued at cost plus accreted discount, or
minus amortized premium, which approximates value; (d) interest income, adjusted
for accretion of original issue discount, is recorded on the accrual basis; (e)
gains or losses on the sale of securities are calculated by using the specific
identification method; (f) dividends and distributions to shareholders are
recorded on the ex-dividend date; (g) direct expenses are charged to each
portfolio and each class; management fees and general expenses are allocated on
the basis of the relative net assets; (h) the Portfolio 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; (i) the character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At December 31, 1997,
reclassifications were made to the Portfolio's capital accounts to reflect
permanent book/tax differences and income and gains available for distributions
under income tax regulations. Accordingly, a portion of overdistributed net
investment income amounting to $858,643 was reclassified to paid-in capital. Net
investment income, net realized gains and net assets were not affected by this
- --------------------------------------------------------------------------------
14 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
change; and (j) 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. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney Holdings
Inc. ("SSBH"), acts as investment adviser to the Portfolio. The Portfolio pays
MMC an advisory fee calculated at the following annual rates of average daily
net assets: 0.35% up to $2 billion, 0.30% of the next $2 billion, 0.25% of the
next $2 billion, 0.20% of the next $2 billion and then 0.15% of the remaining
average daily net assets. This fee is calculated daily and paid monthly.
MMC also acts as the Portfolio's administrator for which the Portfolio pays a
fee calculated at an annual rate of 0.20% of the average daily net assets. This
fee is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SSBH, acts as distributor of
Fund shares.
On June 12, 1998, the Portfolio's existing Class C shares were renamed as Class
L shares. Effective June 15, 1998, Class L shares are being sold at net asset
value plus a maximum initial sales charge of 1.00%. Class L shares also have a
1.00% contingent deferred sales charge ("CDSC"), which applies if redemption
occurs within the first year of purchase.
There is also a contingent deferred sales charge ("CDSC") of 4.50% on Class B
shares, which applies if redemption occurs 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. In addition, Class A
shares 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 six months ended June 30, 1998, SB received sales charges of $49,000
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 15
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
and $1,000 on sales of the Fund's Class A and L shares, respectively. In
addition, CDSCs paid to SB were:
<TABLE>
<CAPTION>
Class A Class B
================================================================================
<S> <C> <C>
CDSCs $4,000 $43,000
================================================================================
</TABLE>
Pursuant to a Distribution Plan, the Portfolio pays a service fee with respect
to Class A, B and L shares calculated at the annual rate of 0.25% of the average
daily net assets for each respective class. The Portfolio also pays a
distribution fee with respect to Class B and L shares calculated at the annual
rate of 0.50% and 0.45% of the average daily net assets for each class,
respectively. For the six months ended June 30, 1998, total Distribution Plan
fees incurred were:
<TABLE>
<CAPTION>
Class A Class B Class L
================================================================================
<S> <C> <C> <C>
Distribution Plan Fees $441,828 $349,853 $7,986
================================================================================
</TABLE>
All officers and one Director of the Fund are employees of SB.
3. Investments
During the six months ended June 30, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
================================================================================
<S> <C>
Purchases $1,042,046,979
- --------------------------------------------------------------------------------
Sales 1,008,295,258
================================================================================
</TABLE>
At June 30, 1998, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
<TABLE>
<CAPTION>
================================================================================
<S> <C>
Gross unrealized appreciation $9,363,134
Gross unrealized depreciation --
- --------------------------------------------------------------------------------
Net unrealized appreciation $9,363,134
================================================================================
</TABLE>
4. Capital Loss Carryforward
At December 31, 1997, the Portfolio had, for Federal tax purposes, approximately
$55,814,000 of unused capital loss carryforwards available to offset future
capital gains. To the extent that these carryforward losses are used to offset
capital gains, it is probable that the gains so offset will not be distributed.
The amount and
- --------------------------------------------------------------------------------
16 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
expiration of the carryforwards are indicated below. Expiration occurs on
December 31 of the year indicated:
<TABLE>
<CAPTION>
2002 2003
================================================================================
<S> <C> <C>
Capital Loss Carryforward $55,619,000 $195,000
================================================================================
</TABLE>
5. Repurchase Agreements
The Portfolio purchases (and its 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 Portfolio requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
6. Reverse Repurchase Agreements
The Portfolio may enter into reverse repurchase agreement transactions for
leveraging purposes. A reverse repurchase agreement involves a sale by the
Portfolio of securities that it holds with an agreement by the Portfolio to
repurchase the same securities at an agreed upon price and date. A reverse
repurchase agreement involves the risk that the market value of the securities
sold by the Portfolio may decline below the repurchase price of the securities.
The Portfolio will establish a segregated account with its custodian, in which
the Portfolio will maintain cash, U.S. government securities or other liquid
high grade debt obligations equal in value to its obligations with respect to
reverse repurchase agreements.
During the six months ended June 30, 1998, the maximum and average amount of
reverse repurchase agreements outstanding were as follows:
<TABLE>
<CAPTION>
================================================================================
<S> <C>
Maximum amount outstanding $149,940,000
- --------------------------------------------------------------------------------
Average amount outstanding $ 91,556,875
================================================================================
</TABLE>
Interest rates on reverse repurchase agreements ranged from 3.98% to 5.02%
during the period. Interest expense on reverse repurchase agreements totalled
$494,939. The Portfolio had no open reverse repurchase agreements at June 30,
1998.
7. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. The initial margin is segregated by the custodian and is noted in the
schedule of investments. During the period the futures contract is open, changes
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 17
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
in the value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the contract
at the end of each day's trading. Variation margin payments are made or received
and recognized as assets due from or liabilities due to broker, depending upon
whether unrealized gains or losses are incurred. When the contract is closed,
the Portfolio records a realized gain or loss equal to the difference between
the proceeds from (or cost of) the closing transactions and the Portfolio's
basis in the contract.
The Portfolio enters into such contracts to hedge a portion of its portfolio.
The Portfolio bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At June 30, 1998, the Portfolio had no open futures contracts.
8. Options Contracts
Premiums paid when put or call options are purchased by the Portfolio represent
investments, which are marked-to-market daily and are included in the schedule
of investments. When a purchased option expires, the Portfolio will realize a
loss in the amount of the premium paid. When the Portfolio enters into a closing
sales transaction, the Portfolio will realize a gain or loss depending on
whether the proceeds from the closing sales transaction are greater or less than
the premium paid for the option. When the Portfolio exercises a put option, it
will realize a gain or loss from the sale of the underlying security and the
proceeds from such sale will be decreased by the premium originally paid. When
the Portfolio exercises a call option, the cost of the security which the
Portfolio purchases upon exercise will be increased by the premium originally
paid.
At June 30, 1998, the Portfolio had no purchased put or call options.
When a Portfolio writes a covered call or put option, an amount equal to the
premium received by the Portfolio is recorded as a liability, the value of which
is marked-to-market daily. When a written option expires, the Portfolio realizes
a gain equal to the amount of the premium received. When the Portfolio enters
into a closing purchase transaction, the Portfolio realizes a gain or loss
depending upon whether the cost of the closing transaction is greater or less
than the premium originally received, without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
eliminated. When a written call option is exercised, the cost of the security
sold will be decreased by the premium originally received. When a put option is
exercised, the amount of the premium originally received will reduce the cost of
the security which the
- --------------------------------------------------------------------------------
18 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Portfolio purchased upon exercise. When written index options are exercised,
settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Portfolio enters into options for hedging purposes. The risk in
writing a covered call option is that the Portfolio gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Portfolio is
exposed to the risk of a loss if the market price of the underlying security
declines.
During the six months ended June 30, 1998, the Portfolio did not write any
options.
9. Securities Traded on a When-Issued or
To-Be-Announced Basis
The Portfolio may trade securities on a "to-be-announced" ("TBA") basis. In a
TBA transaction, the Portfolio commits to purchasing or selling securities for
which specific information is not yet known at the time of the trade,
particularly the face amount and maturity date. Securities purchased on a TBA
basis are not settled until they are delivered to the Portfolio, normally 15 to
45 days later. These transactions are subject to market fluctuations and their
current value is determined in the same manner as for other portfolio
securities.
At June 30, 1998, the Portfolio held no TBA securities.
10. Lending of Portfolio Securities
The Portfolio has an agreement with its custodian whereby the custodian may lend
securities owned by the Portfolio to brokers, dealers and other financial
organizations, and receives a lenders fee. Fees earned by the Portfolio on
securities lending are recorded in interest income. Loans of securities by the
Portfolio are collateralized by cash, U.S. Government securities or high quality
money market instruments that are maintained at all times in an amount at least
equal to the current market value of the loaned securities, plus a margin which
may vary depending on the type of securities loaned. The custodian establishes
and maintains the collateral in a segregated account. The Fund maintains
exposure for the risk of any losses in the investment of amounts received as
collateral.
At June 30, 1998, the Portfolio had no securities on loan.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 19
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
11. Capital Shares
At June 30, 1998, the Fund had ten billion shares of capital stock authorized
with a par value of $0.001 per share. The Portfolio has the ability to issue
multiple classes of shares. Each share of a class represents an identical
interest and has the same rights, except that each class bears certain direct
expenses, including those specifically related to the distribution of its
shares.
At June 30, 1998, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
==============================================================================================
<S> <C> <C> <C> <C>
Total Paid-in Capital $323,896,707 $162,597,487 $2,457,189 $155,753,009
==============================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
---------------------------- -----------------------------
Shares Amount Shares Amount
========================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 1,470,636 $ 14,377,503 1,119,519 $ 9,991,176
Shares issued on reinvestment 705,654 6,878,097 1,638,302 15,427,205
Shares redeemed (3,489,450) (34,069,836) (7,351,627) (69,285,225)
- --------------------------------------------------------------------------------------------------------
Net Decrease (1,313,160) $(12,814,236) (4,593,806) $(43,866,844)
========================================================================================================
Class B
Shares sold 542,315 $5,315,786 1,269,883 $ 12,706,909
Shares issued on reinvestment 179,771 1,756,812 467,262 4,418,693
Shares redeemed (2,056,431) (20,128,392) (4,379,419) (41,471,631)
- --------------------------------------------------------------------------------------------------------
Net Decrease (1,334,345) $(13,055,794) (2,642,274) $(24,346,029)
========================================================================================================
Class L+
Shares sold 101,193 $989,970 122,793 $ 1,172,773
Shares issued on reinvestment 4,343 42,408 6,863 65,156
Shares redeemed (84,258) (823,925) (47,246) (444,794)
- --------------------------------------------------------------------------------------------------------
Net Increase 21,278 $208,453 82,410 $ 793,135
========================================================================================================
Class Y
Shares sold 5,107,421 $ 49,736,685 7,012,847 $ 66,942,771
Shares issued on reinvestment -- -- -- --
Shares redeemed -- -- -- --
- --------------------------------------------------------------------------------------------------------
Net Increase 5,107,421 $ 49,736,685 7,012,847 $ 66,942,771
========================================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
20 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class A Shares 1998(1) 1997 1996 1995(2) 1994 1993(2)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.75 $9.34 $9.77 $9.17 $10.01 $9.69
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (3) 0.26 0.59 0.61 0.67 0.52 0.81
Net realized and
unrealized gain (loss) 0.06 0.42 (0.44) 0.62 (0.80) 0.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From
Operations 0.32 1.01 0.17 1.29 (0.28) 1.04
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.28) (0.60) (0.59) (0.69) (0.49) (0.72)
Capital -- -- (0.01) -- (0.07) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.28) (0.60) (0.60) (0.69) (0.56) (0.72)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $9.79 $9.75 $9.34 $9.77 $9.17 $10.01
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 3.38%++ 11.23% 1.96% 14.50% (2.76)% 10.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $349,491 $361,124 $388,563 $453,378 $482,404 $7,067
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3)(4) 0.91%+ 0.92% 0.93% 0.94% 1.00% 0.92%
Net investment income 5.36+ 6.24 6.16 6.70 6.18 7.76
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 179% 274% 420% 294% 276% 540%
====================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(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) The Investment adviser waived a portion of its fees for the year ended
December 31, 1993. If such fees were not waived, the per share decrease of
net investment income would have been $0.10 and the expense ratio would
have been 1.12%.
(4) For the years ended December 31, 1994 and December 31, 1993, the expense
ratios were calculated excluding interest expense. The expense ratios
including interest expense would have been 1.26% and 1.07%, respectively.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 21
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class B Shares 1998(1) 1997 1996 1995(2) 1994 1993(2)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.79 $9.38 $9.81 $9.17 $10.01 $9.68
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (3) 0.24 0.54 0.56 0.59 0.46 0.73
Net realized and
unrealized gain (loss) 0.05 0.44 (0.44) 0.65 (0.78) 0.27
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From
Operations 0.29 0.98 0.12 1.24 (0.32) 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.27) (0.57) (0.54) (0.60) (0.45) (0.67)
Capital -- -- (0.01) -- (0.07) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.27) (0.57) (0.55) (0.60) (0.52) (0.67)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $9.81 $9.79 $9.38 $9.81 $9.17 $10.01
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 3.05%++ 10.82% 1.42% 13.87% (3.25)% 10.45%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $88,391 $101,273 $121,894 $158,459 $172,705 $851,350
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3)(4) 1.44%+ 1.44% 1.45% 1.45% 1.48% 1.40%
Net investment income 4.85+ 5.73 5.64 6.19 5.69 7.28
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 179% 274% 420% 294% 276% 540%
====================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(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) The Investment adviser waived a portion of its fees for the year ended
December 31, 1993. If such fees were not waived, the per share decrease of
net investment income would have been $0.01 and the expense ratio would
have been 1.61%.
(4) For the years ended December 31, 1994 and December 31, 1993, the expense
ratios were calculated excluding interest expense. The expense ratios
including interest expense would have been 1.74% and 1.55%, respectively.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
22 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class L Shares(1) 1998(2) 1997 1996 1995(3) 1994 1993(3)(4)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.78 $9.38 $9.81 $9.17 $10.01 $9.90
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (5) 0.24 0.54 0.57 0.60 0.49 0.68
Net realized and unrealized gain (loss) 0.05 0.43 (0.44) 0.65 (0.81) 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.29 0.97 0.13 1.25 (0.32) 0.72
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.27) (0.57) (0.55) (0.61) (0.45) (0.61)
Capital -- -- (0.01) -- (0.07) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.27) (0.57) (0.56) (0.61) (0.52) (0.61)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.80 $9.78 $9.38 $9.81 $9.17 $10.01
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 3.06%++ 10.75% 1.47% 13.93% (3.25)% 7.36%++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $2,524 $2,311 $1,443 $1,039 $646 $213
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (5)(6) 1.38%+ 1.39% 1.38% 1.37% 1.47% 1.40%+
Net investment income 4.89+ 5.70 5.71 6.27 5.71 7.28+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 179% 274% 420% 294% 276% 540%
====================================================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) For the six months ended June 30, 1998 (unaudited).
(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 February 4, 1993 (inception date) to December 31, 1993.
(5) The Investment adviser waived a portion of its fees for the period ended
December 31, 1993. If such fees were not waived, the per share decrease of
net investment income would have been $0.13 and the expense ratio would
have been 1.61% (annualized).
(6) For the year ended December 31, 1994 and the period ended December 31,
1993, the expense ratios were calculated excluding interest expense. The
expense ratios including interest expense would have been 1.72% and 1.55%
(annualized), repectively.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 23
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class Y Shares 1998(1) 1997 1996(2)
============================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $9.76 $9.34 $9.71
- --------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.28 0.61 0.57
Net realized and unrealized gain (loss) 0.05 0.44 (0.37)
- --------------------------------------------------------------------------------------------
Total Income From Operations 0.33 1.05 0.20
- --------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.30) (0.63) (0.56)
Capital -- -- (0.01)
- --------------------------------------------------------------------------------------------
Total Distributions (0.30) (0.63) (0.57)
- --------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.79 $9.76 $9.34
- --------------------------------------------------------------------------------------------
Total Return 3.47%++ 11.73% 2.30%++
- --------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $160,269 $109,909 $39,667
- --------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.56%+ 0.58% 0.44%+
Net investment income 5.67+ 6.46 6.49+
- --------------------------------------------------------------------------------------------
Portfolio Turnover Rate 179% 274% 420%
============================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(2) For the period from February 7, 1996 (inception date) to December 31, 1996.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
24 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Additional Shareholder Information (unaudited)
================================================================================
On February 6, 1998, a special meeting of shareholders of the Fund was held for
the purpose of voting on the following matters:
1. To elect Directors of the Fund; and
2. To approve or disapprove the reclassification, modification and/or
elimination of certain fundamental investment policies.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Voted Percentage Shares Voted Percentage
Name of Directors For Shares Voted Against Shares Voted
================================================================================================
<S> <C> <C> <C> <C>
Paul R. Ades 110,457,871.145 96.547% 3,950,761.251 3.453%
Herbert Barg 110,299,351.998 96.408 4,109,280.398 3.592
Dwight B. Crane 110,443,765.891 96.534 3,964,866.505 3.466
Frank Hubbard 110,456,573.292 96.546 3,952,059.104 3.454
Jerome Miller 110,457,232.652 96.546 3,951,399.744 3.454
Ken Miller 110,449,857.597 96.540 3,958,774.799 3.460
Heath B. McLendon 110,401,492.247 96.498 4,007,140.149 3.502
================================================================================================
</TABLE>
Proposal 2 requested that shareholders approve certain changes to the
fundamental investment policies of the Portfolio in order to modernize them in
view of certain regulatory, business or industry developments that have occurred
since original adoption of these policies by the Portfolio. The following chart
demonstrates that all proposals were approved by the shareholders.
Please note that "M" indicates a modification of the policy; "E" indicates the
elimination of the policy; and "R" indicates the reclassification of the policy
from fundamental (which would require shareholder approval to change) to
non-fundamental (which can be changed by a vote of the Board of Directors).
<TABLE>
<CAPTION>
================================================================================================
<S> <C> <C>
"M" Diversification Approved
- ------------------------------------------------------------------------------------------------
"M" Industry Concentration Approved
- ------------------------------------------------------------------------------------------------
"R" Restricted and Illiquid Securities Approved
- ------------------------------------------------------------------------------------------------
"R" Unseasoned Issues Approved
- ------------------------------------------------------------------------------------------------
"M" Lending Approved
- ------------------------------------------------------------------------------------------------
"R" Margin and Short Sales Approved
- ------------------------------------------------------------------------------------------------
"M" Real Estate Approved
- ------------------------------------------------------------------------------------------------
"R" Purchases of Securities of Other Investment Companies Approved
- ------------------------------------------------------------------------------------------------
"R" Investments in Oil, Gas and Mineral Exploration Approved
- ------------------------------------------------------------------------------------------------
"R" Exercising Control or Management Approved
- ------------------------------------------------------------------------------------------------
"E" 5% Ownership of Certain Securities Approved
- ------------------------------------------------------------------------------------------------
"E" Limiting Participation in Joint Trading Accounts Approved
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 23
<PAGE>
================================================================================
Additional Shareholder Information (unaudited) (continued)
================================================================================
The information below reports the lowest percentage of shares voting for the
proposals, the highest percentage of shares voting against and abstaining by
shareholders of the Portfolio on all proposals.
<TABLE>
<CAPTION>
Percentage Percentage Percentage
Shares Voted of Shares Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Abstained
================================================================================
<S> <C> <C> <C> <C> <C>
28,832,744.562 89.734% 762,972.958 2.374% 2,535,744.436 7.892%
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
26 1998 Semi-Annual Report to Shareholders
<PAGE>
[This page intentionally left blank]
<PAGE>
[This page intentionally left blank]
<PAGE>
Smith Barney SMITH BARNEY
Government ------------
Securities Fund A Member of TravelersGroup[LOGO]
Directors Investment Adviser
Mutual Management Corp.
Paul R. Ades
Herbert Barg
Dwight B. Crane Distributor
Frank J. Hubbard Smith Barney Inc.
Heath B. McLendon, Chairman
Jerome Miller
Ken Miller
Allen R. Johnson, Emeritus Custodian
John F. White, Emeritus PNC Bank, N.A.
Officers
Heath B. McLendon Shareholder Servicing Agent
President and First Data Investor Services Group, Inc.
Chief Executive Officer P.O. Box 9134
Boston, MA 02205-9134
Lewis E. Daidone
Senior Vice President and Treasurer
This report is submitted for the
James E. Conroy general information of the
Vice President and shareholders of Smith Barney
Investment Officer Investment Funds -- Smith Barney
Government Securities Fund. It is not
Thomas M. Reynolds authorized for distribution to
Controller prospective investors unless accompanied
or preceded by a current Prospectus for
Christina T. Sydor the Fund, which contains information
Secretary concerning the Fund's investment
policies and expenses as well as other
pertinent information.
Smith Barney
Government Securities Fund
388 Greenwich Street
New York, New York 10013
www.smithbarney.com
FD0408 8/98
<PAGE>
[GRAPHIC]
[GRAPHIC]
Smith Barney
Contrarian Fund
------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(SM)
<PAGE>
Smith Barney
Contrarian Fund
================================================================================
The Smith Barney Contrarian Fund ("Fund") seeks long-term growth of capital
through a contrarian approach to stock investing. The Fund invests primarily in
the stocks of companies that are currently out of favor, price depressed or
undervalued.
Smith Barney Contrarian Fund's
Average Annual Total Returns Ended
June 30, 1998
<TABLE>
<CAPTION>
Without Sales Charges*
-----------------------------------
Class A Class B Class L#
===============================================================================
<S> <C> <C> <C>
Six-Months+ 3.36% 2.96% 2.89%
- -------------------------------------------------------------------------------
One-Year 6.86 6.06 5.98
- -------------------------------------------------------------------------------
Since Inception++ 11.53 10.69 10.69
===============================================================================
<CAPTION>
With Sales Charges**
-------------------------------------
Class A Class B Class L#
===============================================================================
<S> <C> <C> <C>
Six-Months+ (1.82)% (2.04)% 0.88%
- -------------------------------------------------------------------------------
One-Year 1.49 1.19 3.95
- -------------------------------------------------------------------------------
Since Inception++ 9.65 10.14 10.32
===============================================================================
</TABLE>
* 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 and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
# On June 12, 1998, the Class C shares were renamed Class L shares.
** Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from initial purchase.
Thereafter, the CDSC declines by 1.00% per year until no CDSC is incurred.
Class L shares reflect the deduction of a 1.00% CDSC which applies if
shares are redeemed within the first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+ Total return is not annualized as it may not be representative of the total
return for the year.
++ The inception date for Class A, B and L shares is June 30, 1995.
================================================================================
FUND HIGHLIGHT
================================================================================
In our opinion, the U.S. stock market is likely to exhibit greater volatility as
it assesses the implications of the Asian crisis on the U.S. economy and U.S.
companies. Nevertheless, the strength of the U.S. economy, coupled with low
inflation, should provide a positive backdrop for stocks over the long term.
================================================================================
NASDAQ SYMBOL
================================================================================
Class A SBMGX
Class B SBMBX
Class L SBMCX
================================================================================
WHAT'S INSIDE
================================================================================
Shareholder Letter ......................................................... 1
Historical Performance ..................................................... 4
Smith Barney Contrarian Fund at a Glance ................................... 6
Schedule of Investments .................................................... 7
Statement of Assets and Liabilities ........................................ 11
Statement of Operations .................................................... 12
Statements of Changes in Net Assets ........................................ 13
Notes to Financial Statements .............................................. 14
Financial Highlights ....................................................... 18
Additional Shareholder Information ......................................... 23
<PAGE>
================================================================================
Shareholder Letter
================================================================================
[PHOTO] [PHOTO]
HEATH B. JOHN F.
MCLENDON STOESER, CFA
Chairman Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Contrarian
Fund ("Fund"), formerly known as the Smith Barney Managed Growth Fund, as of
June 30, 1998. For your convenience, we have outlined the investment philosophy
of the Fund and its current portfolio strategy. A detailed summary of
performance and current holdings for the Fund can be found in the appropriate
sections that follow.
Special Shareholder Notice
As you know, John F. Stoeser, CFA, became the Fund's portfolio manager on April
14, 1998. John has successfully managed both equity and bond portfolios for
trust accounts and employee benefit plans. In addition, John's six years
experience as a research analyst includes coverage of a broad range of
industries. Before joining Salomon Smith Barney in 1997, John worked at Safeco,
where he implemented a similar contrarian investment style to that used in the
Smith Barney Contrarian Fund.
A Classic Series Fund
The Smith Barney Contrarian Fund is part of the Classic Series of Smith Barney
Mutual Fund. The Classic Series funds are mutual funds whose investment
decisions are determined by experienced portfolio managers, based on each fund's
investment objectives and guidelines. Funds in the Smith Barney Classic Series
invest across asset classes and sectors, utilizing a range of strategies in
order to achieve their objectives.
Performance and Market Update
For the six months ended June 30, 1998, the Class A shares of the Smith Barney
Contrarian Fund provided a total return of 3.36% without sales charges, compared
with the 15.01% return for the Russell 3000 Stock Index, an index that measures
the performance of the broad stock market and is heavily influenced by large
company stocks. The small- and mid-capitalization companies held by the Fund
penalized its performance during the reporting period.
The stock market continues to be driven higher, in part, by the large purchases
of mutual fund shares by individual investors. In turn, money managers, faced
with $20 billion of monthly cash inflows, have preferred to buy large company
stocks for their better liquidity despite their high valuation levels.
In contrast, the Russell 2000 Stock Index, an index that measures the
performance of small companies, provided a total return of 5.27% for the six
months ended June 30, 1998. We continue to believe that small- and mid-sized
company stocks currently offer better value relative to the high prices of many
large company stocks. Moreover, smaller companies may also be less impacted by
the weakening economies in Asia due to their higher proportion of domestic
sales. The larger companies are facing less demand for their products in weak
Asian markets, and must also compete more aggressively against lower-priced
goods
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 1
<PAGE>
produced in Asian countries and sold in markets outside of Asia. We will
continue to take advantage of the opportunities to buy large-sized companies
when they become out-of-favor with investors and the stock prices become
attractive. This is consistent with our overall strategy of providing a more
even balance of small, medium and large companies in the Fund.
Investment Strategy
The Smith Barney Contrarian Fund seeks long-term growth of capital through a
contrarian approach to stock investing. The Fund invests primarily in the stocks
of companies that are currently out of favor, price depressed, or undervalued.
We use a disciplined approach to identify undervalued stocks that meet our
liquidity and financial strength criteria. We then use fundamental analysis of
the company as the basis for making our final investment decision. In selecting
investments for the Fund, we look for leading companies with strong balance
sheets and ample cash flow. While this "bottom-up" fundamental approach drives
the majority of the investment decision making process, we also give
consideration to "top down" factors. (Top down investors first look at general
economic trends and then select those industries and companies that should
benefit from these trends.) Specifically, we try to reduce portfolio risk by
diversifying the portfolio across all economic sectors and company sizes.
To summarize our strategy, we are literally "buying low and selling high." By
identifying stocks of quality companies that have declined substantially for
industry or company specific reasons, we are often times able to capitalize on
the emotional reactions of previous stock owners who act irrationally and sell
the stock at low prices when faced with negative news. Comparing stock price
levels to earnings, cash flow, book value, and sales growth, both on a
historical basis and relative to similar companies, enables us to determine a
future target price for each stock at which we believe it is fairly valued. When
the stock price appreciates to the sell target, we will sell our position in
that stock.
Portfolio Update
During the reporting period, your Fund benefited from the ongoing consolidation
trend in the financial services industry. For example, we purchased Green Tree
Financial, a residential lender, when investors became concerned about
accelerating mortgage prepayments and asset write-offs. The stock, purchased
after the bad news was out, gained roughly 125% after Conseco Insurance agreed
to buy Green Tree Financial. We maintained our discipline and sold our position
in Green Tree after the good news was reflected in the stock price and our sell
target was reached. This is just one example of buying out-of-favor companies
and selling at our price targets when they are back in favor with investors.
We believe the Asian economy is still a significant issue for the U.S. stock
market, especially for technology companies. Accordingly, we have reduced our
exposure to technology as a percentage of the Fund's portfolio from 19% to 16%
by selling some of the small companies in the semiconductor related industry
given the weak fundamental outlook for this group.
In our view, the Asian crisis also presents opportunities for investing in
quality companies shunned by investors because of their exposure to Asia. For
example, when the stock of Callaway Golf, a leading golf club manufacturer with
significant sales to Asian customers, declined 50% from its former highs, we
purchased the stock. Callaway Golf is a leading franchise that maintains a solid
balance sheet, enjoys a strong brand name, and has a number of new products in
the pipeline. Currently, the stock is selling at nearly a 50% discount relative
to the overall stock market despite its superior growth prospects.
When oil prices hit historic lows recently, energy company stocks declined
dramatically on the short-term fears related to low energy prices and the
prospects of lower earnings from energy-related companies. We viewed this bad
short-term news as an opportunity to buy Unocal (the largest independent oil
exploration and production company in the U.S.) after
- --------------------------------------------------------------------------------
2 1998 Semi-Annual Report to Shareholders
<PAGE>
the price of the stock declined 24%. Since then, the company has announced a
significant restructuring program that will involve the sale of non-core assets
which is expected to generate over $1 billion that can be used to buy back stock
or reinvest in promising exploration activities.
We will continue to invest in companies that are leaders in their industries
when their stocks become out-of-favor with investors and become attractively
priced. Additional stocks purchased for the Fund fitting this theme include:
Union Pacific Railroad (the number one railroad in the U.S.), Philip Morris (the
number one food and tobacco company), 3M (a leading diversified manufacturing
company), AMP (a top-rated electronic conductor company), Kimberly Clark (a
leading household products company), and Motorola (a leading cellular
telecommunications manufacturer).
Sales during the period included HMO stocks that were purchased last year when
this group was out of favor due to higher-than-expected health-care expenses and
earnings shortfalls. We sold many of these stocks as the group came back into
favor early this year when companies implemented better pricing and experienced
lower health care claims. Pacificare Health Systems, Wellpoint Health Networks,
and United Healthcare, were all sold at a significant profit. In addition, we
sold our position in Humana when it reached our target price as a result of
United Healthcare's buyout offer.
Also, some thinly traded stocks of very small companies were sold in an effort
to improve the liquidity characteristics of your Fund. Stocks sold for this
reason included: Crown Vantage (paper manufacturer), Ansaldo Signal (railroad
infrastructure), Stride Rite (shoe manufacturer), Flexsteel Industries
(furniture manufacturer), Norton McNaughton (women's apparel), Neuromedical
Systems (medical products), Exabyte (data storage), Wandel/Golterman (data
networking), ECC International (military training systems), Wizer Oil (Oil &
Gas), Texas Micro (computers) and Lawson Products (industrial supplies).
Market Outlook
In our opinion, the U.S. stock market is likely to exhibit greater volatility as
it assesses the implications of the Asian crisis on the U.S. economy and U.S.
companies. Nevertheless, the strength of the U.S. economy, coupled with low
inflation, should provide a positive backdrop for stocks over the long term.
Consumer confidence is high, driven by lower interest rates (lower mortgage
payments), high employment level (jobs create paychecks), low inflation (low
prices for goods and services purchased), and the wealth effect created by
strong financial markets over the last few years (higher balances in 401(k)
retirement plans and mutual funds). For these reasons, we expect continued
strong cash inflows into the stock market.
What remains to be seen is whether investors will begin to purchase the
presently undervalued small- and mid-sized company stocks such as those held by
the Fund, or will they continue to bid up the prices of a few select large
company stocks to even higher valuation levels. Whatever the outcome, we will
remain committed to our contrarian investment discipline, seeking to invest in
undervalued and out-of-favor companies and wait patiently for the market to
recognize these values.
We appreciate your support and confidence in our investment approach. We look
forward to continuing to serve your investment needs in the years ahead.
Sincerely,
/s/ HEATH B. MCCLENDON /s/ JOHN F. STOESER
Heath B. McClendon John F. Stoeser, CFA
Chairman Vice President
July 2, 1998
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 3
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Historical Performance -- Class A Shares
====================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/98 $14.21 $14.46 $0.00 $0.23 3.36%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 13.42 14.21 0.02 1.04 13.70
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/96 12.03 13.42 0.09 0.46 16.33
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/95 12.00 12.03 0.15 0.00 1.53+
====================================================================================================================================
Total $0.26 $1.73
====================================================================================================================================
<CAPTION>
====================================================================================================================================
Historical Performance -- Class B Shares
====================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/98 $14.11 $14.30 $0.00 $0.23 2.96%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 13.41 14.11 0.00 1.04 12.84
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/96 12.02 13.41 0.00 0.46 15.55
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/95 12.00 12.02 0.11 0.00 1.16+
====================================================================================================================================
Total $0.11 $1.73
====================================================================================================================================
====================================================================================================================================
Historical Performance -- Class L Shares
====================================================================================================================================
<CAPTION>
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/98 $14.12 $14.30 $0.00 $0.23 2.89%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 13.41 14.12 0.00 1.04 12.91
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/96 12.03 13.41 0.00 0.46 15.45
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/95 12.00 12.03 0.11 0.00 1.16+
====================================================================================================================================
Total $0.11 $1.73
====================================================================================================================================
====================================================================================================================================
Historical Performance -- Class Y Shares
====================================================================================================================================
<CAPTION>
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/98 $14.24 $14.51 $0.00 $0.23 3.50%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 13.43 14.24 0.08 1.04 14.23
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/96 12.21 13.43 0.13 0.46 14.97+
====================================================================================================================================
Total $0.21 $1.73
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
4 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Historical Performance -- Class Z Shares
====================================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
6/30/98 $14.24 $14.50 $0.00 $0.23 3.43%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 13.43 14.24 0.07 1.04 14.21
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/96 12.03 13.43 0.13 0.46 16.69
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/95 11.83 12.03 0.16 0.00 3.06+
====================================================================================================================================
Total $0.36 $1.73
====================================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
<TABLE>
<CAPTION>
====================================================================================================================================
Average Annual Total Return
====================================================================================================================================
Without Sales Charge(1)
------------------------------------------------------------------------------
Class A Class B Class L Class Y Class Z
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 6/30/98+ 3.36% 2.96% 2.89% 3.50% 3.43%
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended 6/30/98 6.86 6.06 5.98 7.21 7.19
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/98 11.53 10.69 10.69 13.54 13.65
====================================================================================================================================
<CAPTION>
Without Sales Charge(1)
------------------------------------------------------------------------------
Class A Class B Class L Class Y Class Z
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 6/30/98+ (1.82)% (2.04)% 0.88% 3.50% 3.43%
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended 6/30/98 1.49 1.19 3.95 7.21 7.19
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/98 9.65 10.14 10.32 13.54 13.65
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Cumulative Total Return
====================================================================================================================================
Without Sales Charge(1)
====================================================================================================================================
<S> <C>
Class A (Inception* through 6/30/98) 38.82%
- ------------------------------------------------------------------------------------------------------------------------------------
Class B (Inception* through 6/30/98) 35.69
- ------------------------------------------------------------------------------------------------------------------------------------
Class L (Inception* through 6/30/98) 35.68
- ------------------------------------------------------------------------------------------------------------------------------------
Class Y (Inception* through 6/30/98) 35.92
- ------------------------------------------------------------------------------------------------------------------------------------
Class Z (Inception* through 6/30/98) 42.05
====================================================================================================================================
</TABLE>
(1) Assumes reinvestment of all dividend 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 and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividend and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; 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 L
shares reflect the deduction of a 1.00% CDSC, which applies if shares are
redeemed within the first year of purchase.
* Inception date for Class A, B and L shares is June 30, 1995. Inception
dates for Class Y and Z shares are January 31, 1996 and October 2, 1995,
respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 5
<PAGE>
================================================================================
Smith Barney Contrarian Fund at a Glance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A, B and C Shares of the
Smith Barney Contrarian Fund vs. the Standard & Poor's 500 Index+
- --------------------------------------------------------------------------------
June 1995 -- June 1998
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Smith Barney Smith Barney Smith Barney
Contrarian Fund Contrarian Fund Contrarian Fund Standard & Poor's
Class A Class B Class L 500 Index
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
June 1995 $ 9,501 $10,000 $10,000 $10,000
Dec 1995 $ 9,647 $ 9,608 $ 9,917 $11,443
June 1996 $10,505 $10,574 $10,865 $12,598
Dec 1996 $11,222 $11,279 $11,563 $14,069
June 1997 $12,343 $12,394 $12,676 $16,967
Dec 1997 $12,760 $12,879 $13,057 $18,762
June 1998 $13,189 $13,369 $13,434 $22,087
</TABLE>
+ The above chart represents a hypothetical illustration of $10,000 invested
in Class A, B and L shares at inception on June 30, 1995, assuming
deduction of the maximum 5.00% and 1.00% sales charges at the time of
investment for Class A and L shares, respectively, the deduction of the
maximum 5.00% CDSC for Class B shares and the deduction of the 1.00% CDSC
for Class L shares. The Standard & Poor's 500 Index is composed of widely
held common stocks listed on the New York Stock Exchange, American Stock
Exchange and over-the-counter market. Figures for the index include
reinvestment of dividends. The Index is unmanaged and is not subject to the
same management and trading expenses as a mutual fund. The performance of
the Fund's other classes may be greater or less than the Class A shares'
performance indicated on this chart, depending on whether greater or lesser
sales charges and fees were incurred by shareholders investing in other
classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and the
redemption value may be more or less than the original cost. No adjustment
has been made for shareholders tax liability on dividends or capital gains.
Industry Diversification of Common Stock*
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Industry Percentage
- -------- ----------
<S> <C>
Pharmaceutical 12.8%
Computer Software 5.6%
Tobacco 5.3%
Publishing and Printing 4.9%
Retail-Apparel 4.8%
Consumer Products-Distributors 4.7%
Chemicals 4.4%
Food and Beverages 4.0%
Financial Services 3.6%
Oil-Exploration and Production 3.5%
Other 46.4%
</TABLE>
* As a percentage of total common stock.
Investment Breakdown
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Percentage
----------
<S> <C>
Cash Equivalent 3.7%
Common Stock 96.3%
</TABLE>
- --------------------------------------------------------------------------------
6 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited) June 30, 1998
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
COMMON STOCK -- 96.3%
Auto/Truck Parts and Equipment -- 2.6%
550,000 OEA, Inc.++ $ 8,800,000
650,000 Pep Boys -- Manny, Moe & Jack 12,309,375
- ------------------------------------------------------------------------------------------------------------------------------------
21,109,375
- ------------------------------------------------------------------------------------------------------------------------------------
Casino Hotels -- 0.0%
10,000 MGM Grand, Inc.++ 315,625
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals -- 4.2%
260,000 A. Schulman, Inc. 5,086,250
300,000 Engelhard Corp. 6,075,000
310,000 Great Lakes Chemical Corp.++ 12,225,625
100,000 Morton International, Inc. 2,500,000
263,000 Penford Corp. 7,955,750
- ------------------------------------------------------------------------------------------------------------------------------------
33,842,625
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Services -- 0.0%
10,000 Cendant Corp.+ 208,750
- ------------------------------------------------------------------------------------------------------------------------------------
Communications - Equipment and Software -- 1.0%
503,700 Network Equipment Technologies, Inc.+ 7,901,794
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Software -- 5.4%
575,000 Broderbund Software, Inc.+ 13,117,188
1,530,000 Intergraph Corp.+ 13,100,625
1,200,000 Mentor Graphics Corp.+ 12,675,000
610,000 Quickturn Design Systems, Inc.+ 4,460,625
- ------------------------------------------------------------------------------------------------------------------------------------
43,353,438
- ------------------------------------------------------------------------------------------------------------------------------------
Computers - Systems -- 2.4%
725,000 Silicon Graphics, Inc.+ 8,790,625
425,000 Stratus Computer, Inc.+ 10,757,813
- ------------------------------------------------------------------------------------------------------------------------------------
19,548,438
- ------------------------------------------------------------------------------------------------------------------------------------
Cosmetics -- 0.1%
10,000 Kimberly-Clark Corp. 458,750
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Products - Distributors -- 4.5%
455,500 Amway Asia Pacific Ltd.++ 5,949,969
397,500 Swiss Army Brands, Inc.+ 4,571,250
925,000 Tupperware Corp. 26,015,625
- ------------------------------------------------------------------------------------------------------------------------------------
36,536,844
- ------------------------------------------------------------------------------------------------------------------------------------
Data Processing/Management -- 2.0%
480,000 First Data Corp. 15,990,000
- ------------------------------------------------------------------------------------------------------------------------------------
Electric - Major -- 2.6%
485,000 Cherry Corp., Class A Shares+ 7,638,750
600,000 Lincoln Electric Co., Class A Shares 13,275,000
- ------------------------------------------------------------------------------------------------------------------------------------
20,913,750
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 7
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1998
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
Electronics -- 3.0%
300,000 AMP Inc. $10,312,500
327,200 AVX Corp.++ 5,255,650
170,000 Motorola, Inc. 8,935,625
- ------------------------------------------------------------------------------------------------------------------------------------
24,503,775
- ------------------------------------------------------------------------------------------------------------------------------------
Environmental Control -- 0.8%
294,600 Wellman, Inc. 6,683,738
- ------------------------------------------------------------------------------------------------------------------------------------
Filtration -- 0.5%
200,000 Pall Corp.++ 4,100,000
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services -- 3.5%
306,000 First Savings Bank of Washington Bancorp, Inc. 7,726,500
1,160,500 Phoenix Investment Partners, Ltd. 10,081,844
666,200 United Companies Financial Corp.++ 10,409,375
- ------------------------------------------------------------------------------------------------------------------------------------
28,217,719
- ------------------------------------------------------------------------------------------------------------------------------------
Foods and Beverages -- 3.9%
45,500 Golden Enterprises, Inc. 287,219
275,000 Lance, Inc. 6,153,125
600,000 Seagram Co., Ltd.++ 24,562,500
- ------------------------------------------------------------------------------------------------------------------------------------
31,002,844
- ------------------------------------------------------------------------------------------------------------------------------------
Golf -- 0.7%
269,000 Callaway Golf Co.++ 5,295,937
- ------------------------------------------------------------------------------------------------------------------------------------
Healthcare -- 1.2%
842,600 Mid Atlantic Medical Services, Inc.+ 9,689,900
- ------------------------------------------------------------------------------------------------------------------------------------
Household Furnishings and Appliances -- 0.8%
125,600 National Presto Industries, Inc. 4,890,550
186,600 Singer Co. N.V.++ 1,329,525
- ------------------------------------------------------------------------------------------------------------------------------------
6,220,075
- ------------------------------------------------------------------------------------------------------------------------------------
Life Insurance -- 0.8%
300,000 PennCorp Financial Group, Inc.++ 6,150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Machinery - Diversified -- 3.1%
528,000 Lawson Products, Inc. 13,596,000
600,000 Stewart & Stevenson Services, Inc. 10,800,000
10,000 Thermo Electron Corp.+ 341,875
- ------------------------------------------------------------------------------------------------------------------------------------
24,737,875
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturing -- 0.6%
225,000 Watts Industries, Inc., Class A Shares 4,696,875
- ------------------------------------------------------------------------------------------------------------------------------------
Medical Products and Supplies -- 1.1%
10,000 Mallinckrodt, Inc. 296,875
450,000 The York Group, Inc. 8,550,000
- ------------------------------------------------------------------------------------------------------------------------------------
8,846,875
- ------------------------------------------------------------------------------------------------------------------------------------
Metal Manufacturing -- 1.4%
359,600 Century Aluminum Co. 5,304,100
150,000 Trinity Industries, Inc. 6,225,000
- ------------------------------------------------------------------------------------------------------------------------------------
11,529,100
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1998
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
Metals and Mining -- 0.9%
300,000 Arch Coal, Inc. $ 7,462,500
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Line Insurance -- 0.8%
150,000 SAFECO Corp. 6,815,625
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Hazardous Waste Disposal -- 1.7%
392,000 Waste Management, Inc.++ 13,720,000
- ------------------------------------------------------------------------------------------------------------------------------------
Office Equipment and Supplies -- 0.9%
472,800 A.T. Cross Co., Class A Shares 7,032,900
- ------------------------------------------------------------------------------------------------------------------------------------
Oil - Drilling and Services -- 0.3%
126,000 Offshore Logistics, Inc.+ 2,236,500
- ------------------------------------------------------------------------------------------------------------------------------------
Oil - Exploration and Production -- 3.4%
300,000 Holly Corp. 7,725,000
600,000 Union Pacific Resources Group 10,537,500
250,000 Unocal Corp. 8,937,500
- ------------------------------------------------------------------------------------------------------------------------------------
27,200,000
- ------------------------------------------------------------------------------------------------------------------------------------
Pharmaceutical -- 12.3%
500,000 Amgen Inc.+ 32,687,500
1,000,000 Forest Labs Inc., Class A Shares+ 35,750,000
798,600 Mylan Laboratories++ 24,007,912
656,500 Perrigo Co.+ 6,606,031
- ------------------------------------------------------------------------------------------------------------------------------------
99,051,443
- ------------------------------------------------------------------------------------------------------------------------------------
Photography/Imaging -- 1.3%
790,000 Scitex Corp.+ 10,319,375
- ------------------------------------------------------------------------------------------------------------------------------------
Property/Casualty Insurance -- 1.7%
600,000 TIG Holdings, Inc. 13,800,000
- ------------------------------------------------------------------------------------------------------------------------------------
Publishing and Printing -- 4.7%
327,000 Houghton Mifflin Co. 10,382,250
425,000 Scholastic Corp.+ 16,946,875
338,800 Torstar Corp., Class B Shares 10,827,961
- ------------------------------------------------------------------------------------------------------------------------------------
38,157,086
- ------------------------------------------------------------------------------------------------------------------------------------
Recycling -- 1.0%
2,000,485 Philip Services Corp.+ 8,252,001
- ------------------------------------------------------------------------------------------------------------------------------------
Retail - Apparel -- 4.6%
425,000 Gucci Group NV-NY Registered Shares++ 22,525,000
550,000 Talbots Inc.++ 14,403,125
- ------------------------------------------------------------------------------------------------------------------------------------
36,928,125
- ------------------------------------------------------------------------------------------------------------------------------------
Retail - Specialty -- 0.4%
10,000 IKON Office Solutions, Inc. 145,625
410,000 TBC Corp.+ 2,716,250
- ------------------------------------------------------------------------------------------------------------------------------------
2,861,875
- ------------------------------------------------------------------------------------------------------------------------------------
Semiconductors and Semiconductor Equipment -- 2.5%
1,050,000 Actel Corp.+ 11,287,500
492,000 Bell Microproducts, Inc.+ 3,920,625
145,000 Quality Semiconductor, Inc.+ 344,375
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 9
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Schedule of Investments (unaudited) (continued) June 30, 1998
====================================================================================================================================
SHARES SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
Semiconductors and Semiconductor Equipment -- 2.5% (continued)
552,500 Standard Microsystems Corp.+ $ 4,868,906
- ------------------------------------------------------------------------------------------------------------------------------------
20,421,406
- ------------------------------------------------------------------------------------------------------------------------------------
Specialized Services -- 1.0%
400,000 Rollins, Inc. 8,200,000
- ------------------------------------------------------------------------------------------------------------------------------------
Steel and Iron -- 2.2%
800,000 LTV Corp. 7,650,000
660,000 Worthington Industries, Inc. 9,941,250
- ------------------------------------------------------------------------------------------------------------------------------------
17,591,250
- ------------------------------------------------------------------------------------------------------------------------------------
Telephone -- 1.4%
285,900 Telephone & Data Systems, Inc. 11,257,312
- ------------------------------------------------------------------------------------------------------------------------------------
Textiles - Apparel Manufacturers -- 0.6%
353,000 Haggar Corp. 4,500,750
- ------------------------------------------------------------------------------------------------------------------------------------
Tobacco -- 5.1%
595,000 UST, Inc. 16,065,000
250,000 Philip Morris Cos., Inc. 9,843,750
300,000 RJR Nabisco Holdings Corp. 7,125,000
970,500 Swisher International Group Inc.+ 7,764,000
- ------------------------------------------------------------------------------------------------------------------------------------
40,797,750
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation -- 2.9%
542,600 Pittston BAX Group 8,444,212
174,200 Pittston Brink's Group Inc. 6,423,625
310,000 Teekay Shipping Corp. 7,769,375
10,000 Union Pacific Corp. 441,250
- ------------------------------------------------------------------------------------------------------------------------------------
23,078,462
- ------------------------------------------------------------------------------------------------------------------------------------
Truckers -- 0.4%
365,000 Frozen Foods Express Industries, Inc. 3,604,375
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $709,216,112) 775,142,837
====================================================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
====================================================================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT --- 3.7%
$ 29,827,000 Goldman, Sachs & Co., 5.645% due 7/1/98;
Proceeds at maturity -- $29,831,677; (Fully
collateralized by U.S. Treasury Notes, 5.375% due 6/30/00;
Market value -- $30,437,723) (Cost -- $29,827,000) 29,827,000
====================================================================================================================================
TOTAL INVESTMENTS --- 100%
(Cost -- $739,043,112*) $804,969,837
====================================================================================================================================
</TABLE>
+ Non-income producing security.
++ A portion of this security is on loan (See Note 6).
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
Statement of Assets and Liabilities (unaudited) June 30, 1998
=====================================================================================
<S> <C>
ASSETS:
Investments, at value (Cost -- $739,043,112) $804,969,837
Cash 696
Collateral for securities on loan (Note 6) 79,722,274
Receivable for securities sold 10,084,510
Receivable for Fund shares sold 1,328,679
Dividends and interest receivable 873,522
Other assets 73,418
- -------------------------------------------------------------------------------------
Total Assets 897,052,936
- -------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 79,722,274
Management fees payable 645,226
Distribution fees payable 177,148
Payable for Fund shares purchased 59,113
- -------------------------------------------------------------------------------------
Total Liabilities 80,603,761
- -------------------------------------------------------------------------------------
Total Net Assets $816,449,175
=====================================================================================
NET ASSETS:
Par value of capital shares $ 56,862
Capital paid in excess of par value 669,764,313
Accumulated net investment loss (1,059,068)
Accumulated net realized gain
from security transactions and options 81,760,343
Net unrealized appreciation
of investments 65,926,725
- -------------------------------------------------------------------------------------
Total Net Assets $816,449,175
=====================================================================================
Shares Outstanding:
Class A 12,678,316
--------------------------------------------------------------------------------
Class B 33,076,944
--------------------------------------------------------------------------------
Class L 4,256,259
--------------------------------------------------------------------------------
Class Y 5,082,410
--------------------------------------------------------------------------------
Class Z 1,767,900
--------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $14.46
--------------------------------------------------------------------------------
Class B * $14.30
--------------------------------------------------------------------------------
Class L ** $14.30
--------------------------------------------------------------------------------
Class Y (and redemption price) $14.51
--------------------------------------------------------------------------------
Class Z (and redemption price) $14.50
--------------------------------------------------------------------------------
Maximum Public Offering Price Per Share
Class A (net asset value plus 5.26% of net asset value per share) $15.22
--------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $14.44
=====================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 11
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================
Statement of Operations (unaudited) For the Six Months Ended June 30, 1998
==============================================================================================
<S> <C>
INVESTMENT INCOME:
Dividends $ 4,984,122
Interest 1,943,865
Less: Foreign withholding tax (48,204)
- ----------------------------------------------------------------------------------------------
Total Investment Income 6,879,783
- ----------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 3,930,891
Distribution fees (Note 2) 3,297,800
Shareholder and system servicing fees 456,246
Registration fees 89,260
Shareholder communications 55,469
Directors' fees 29,257
Custody 21,423
Audit and legal 17,356
Other 7,903
- ----------------------------------------------------------------------------------------------
Total Expenses 7,905,605
- ----------------------------------------------------------------------------------------------
Net Investment Loss (1,025,822)
- ----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND OPTIONS (NOTES 3 AND 5):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) 82,762,753
Options purchased (947,341)
- ----------------------------------------------------------------------------------------------
Net Realized Gain 81,815,412
- ----------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 111,088,201
End of period 65,926,725
- ----------------------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (45,161,476)
- ----------------------------------------------------------------------------------------------
Net Gain on Investments and Options 36,653,936
- ----------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 35,628,114
==============================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended June 30, 1998 (unaudited)
and the Year Ended December 31, 1997
<TABLE>
<CAPTION>
1998 1997
======================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (1,025,822) $ 427,368
Net realized gain 81,815,412 84,815,377
Increase (decrease) in net unrealized appreciation (45,161,476) 31,194,186
- --------------------------------------------------------------------------------------
Increase in Net Assets From Operations 35,628,114 116,436,931
- --------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (693,882)
Net realized gains (12,858,826) (68,311,344)
- --------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (12,858,826) (69,005,226)
- --------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 34,674,210 156,608,116
Net asset value of shares issued for
reinvestment of dividends 11,468,438 59,714,842
Cost of shares reacquired (213,094,584) (162,857,832)
- --------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions (166,951,936) 53,465,126
- --------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (144,182,648) 100,896,831
NET ASSETS:
Beginning of period 960,631,823 859,734,992
- --------------------------------------------------------------------------------------
End of period* $816,449,175 $960,631,823
======================================================================================
* Includes accumulated net investment loss of: $(1,059,068) $(33,246)
======================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 13
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
The Smith Barney Contrarian Fund ("Portfolio"), formerly known as the Smith
Barney Managed Growth Fund, a separate investment fund of the Smith Barney
Investment Funds Inc. ("Fund"), is a Maryland corporation, registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund consists of the Portfolio and six other
separate investment portfolios: Smith Barney Government Securities Fund, Smith
Barney Special Equities Fund, Smith Barney Investment Grade Bond Fund, Concert
Peachtree Growth Fund, Smith Barney Hansberger Global Value Fund and Smith
Barney Hansberger Global Small Cap Value Fund. The financial statements and
financial highlights for the other portfolios are presented in separate
semi-annual reports with the exception of Smith Barney Hansberger Global Value
Fund and Smith Barney Hansberger Global Small Cap Value Fund whose annual
reports are dated April 30, 1998 and semi-annual reports will be dated October
31, 1998.
The significant accounting policies consistently followed by the Portfolio are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing price on such markets;
securities for which no sales price were reported are valued at bid price, or in
the absence of a recent bid price, at the bid equivalent obtained from one or
more of the major market makers; (c) securities maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (d) dividend income is recorded on the ex-dividend date;
foreign dividends are recorded on the earlier of the ex-dividend date or as soon
as practical after the Fund determines the existence of a dividend declaration
after exercising reasonable due diligence; (e) interest income is recorded on
the accrual basis; (f) gains or losses on the sale of securities are calculated
by using the specific identification method; (g) direct expenses are charged to
each class; management fees and general portfolio expenses are allocated on the
basis of relative net assets; (h) dividends and distributions to shareholders
are recorded on the ex-dividend date; (i) the character of income and gains to
be distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. At December 31, 1997,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Net invesment income, net realized gains and net assets
were not affected by this change; (j) the Portfolio 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 (k) 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
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney Holdings
Inc. ("SSBH"), acts as investment manager to the Fund. The Portfolio pays MMC a
management fee calculated at an annual rate of 0.85% of the average daily net
assets. This fee is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SSBH, acts as distributor of
Fund shares and primary broker for its portfolio agency transactions. For the
six months ended June 30, 1998, SB received brokerage commissions of $48,150.
On June 12, 1998, the Portfolio's existing Class C shares were renamed as Class
L shares. Effective June 15, 1998,
- --------------------------------------------------------------------------------
14 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Class L shares are being sold at net asset value plus a maximum initial sales
charge of 1.00%. Class L shares also have a 1.00% contingent deferred sales
charge ("CDSC"), which applies if redemption occurs within the first year of
purchase.
There is also a contingent deferred sales charge ("CDSC") of 5.00% on Class B
shares, which applies if redemption occurs within one year from initial purchase
and declines thereafter by 1.00% per year until no CDSC is incurred.
For the six months ended June 30, 1998, SB received sales charges of $119,000 on
sales of the Fund's Class A shares. In addition, CDSCs paid to SB were
approximately:
<TABLE>
<CAPTION>
Class B Class L
================================================================================
<S> <C> <C>
CDSCs $655,000 $5,000
================================================================================
</TABLE>
Pursuant to a Distribution Plan, the Portfolio pays a service fee with respect
to Class A, B and L shares calculated at the annual rate of 0.25% of the average
daily net assets for each respective class. The Portfolio also pays a
distribution fee with respect to Class B and L shares calculated at the annual
rate of 0.75% of the average daily net assets of each class, respectively. For
the six months ended June 30, 1998, total Distribution Plan fees incurred were:
<TABLE>
<CAPTION>
Class A Class B Class L
================================================================================
<S> <C> <C> <C>
Distribution Plan Fees $276,285 $2,659,288 $362,227
================================================================================
</TABLE>
All officers and one Director of the Fund are employees of SB.
3. Investments
During the six months ended June 30, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $202,267,342
- --------------------------------------------------------------------------------
Sales 320,242,646
================================================================================
</TABLE>
At June 30, 1998, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
===============================================================================
<S> <C>
Gross unrealized appreciation $117,193,060
Gross unrealized depreciation (51,266,335)
- -------------------------------------------------------------------------------
Net unrealized appreciation $65,926,725
===============================================================================
</TABLE>
4. Repurchase Agreements
The Portfolio purchases (and its 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 Portfolio requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
5. Options Contracts
Premiums paid when put or call options are purchased by the Portfolio, represent
investments, which are marked-to-market daily. When a purchased option expires,
the Portfolio will realize a loss in the amount of the premium paid. When the
Portfolio enters into closing sales transaction, the Portfolio will realize a
gain or loss depending on whether the sales proceeds from the closing sales
transaction are greater or less than the premium paid for the option. When the
Portfolio exercises a put option, it will realize a gain or loss from the sale
of the underlying security and the proceeds from such sale will be decreased by
the premium originally paid. When the Portfolio exercises a call option, the
cost of the security which the Portfolio purchases upon exercise will be
increased by the premium originally paid.
At June 30, 1998, the Portfolio had no open purchased call or put options.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 15
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
When a Portfolio writes a call or put option, an amount equal to the premium
received by the Portfolio is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Portfolio realizes a
gain equal to the amount of the premium received. When the Portfolio enters into
a closing purchase transaction, the Portfolio realizes a gain or loss depending
upon whether the cost of the closing transaction is greater or less than the
premium originally received, without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is eliminated.
When a written call option is exercised the cost of the security sold will be
decreased by the premium originally received. When a written put option is
exercised, the amount of the premium received will reduce the cost of the
security which the Portfolio purchased upon exercise. When written index option
is exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Portfolio enters into options for hedging purposes. The risk in
writing a covered call option is that the Portfolio gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Portfolio is
exposed to the risk of loss if the market price of the underlying security
declines.
During the six months ended June 30, 1998, the Portfolio did not write any
options.
6. Lending of Portfolio Securities
The Portfolio has an agreement with its custodian whereby the custodian may lend
securities owned by the Portfolio to brokers, dealers and other financial
organizations, and receives a lenders fee. Fees earned by the Portfolio on
securities lending are recorded in interest income. Loans of securities by the
Portfolio are collateralized by cash, U.S. Government securities or high quality
money market instruments that are maintained at all times in an amount at least
equal to the current market value of the loaned securities, plus a margin which
may vary depending on the type of securities loaned. The custodian establishes
and maintains the collateral in a segregated account. The Fund maintains
exposure for the risk of any losses in the investment of amounts received as
collateral.
At June 30, 1998, the Portfolio had loaned common stocks having a value of
approximately $74,876,046 and holds the following collateral for loaned
securities:
<TABLE>
<CAPTION>
Security Description Value
================================================================================
<S> <C>
Time Deposits:
Banque Paribas, 6.500% due 7/1/98 $17,805,011
Svenska Handelbank, 6.500% due 7/1/98 14,475,619
Deutsche Bank G.C., 7.000% due 7/1/98 14,475,619
Toronto Dominion, 6.500% due 7/1/98 14,475,619
Repurchase Agreements:
Goldman, Sachs, 6.250% due 7/1/98 9,081,254
Morgan Stanley, 6.250% due 7/1/98 9,409,152
- --------------------------------------------------------------------------------
Total $79,722,274
================================================================================
</TABLE>
7. Capital Shares
At June 30, 1998, the Fund had ten billion shares of capital stock authorized
with a par value of $0.001 per share. The Portfolio has the ability to issue
multiple classes of shares. Each share of a class represents an identical
interest and has the same rights, except that each class bears certain direct
expenses, including those specifically related to the distribution of its
shares.
- --------------------------------------------------------------------------------
16 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
At June 30, 1998, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class L Class Y Class Z
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Total Paid-in Capital $141,537,562 $391,809,137 $49,201,009 $65,980,369 $21,293,098
====================================================================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------------------------ ------------------------------
Shares Amount Shares Amount
===================================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 598,449 $ 8,856,137 2,094,216 $29,816,336
Shares issued on reinvestment 192,581 2,778,952 1,078,575 15,973,192
Shares redeemed (4,656,851) (70,992,135) (2,945,836) (42,357,215)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (3,865,821) $(59,357,046) 226,955 $ 3,432,313
===================================================================================================================================
Class B
Shares sold 733,929 $ 10,717,466 5,258,228 $75,511,911
Shares issued on reinvestment 503,220 7,180,943 2,549,007 36,450,796
Shares redeemed (6,949,580) (104,197,105) (5,169,369) (74,524,282)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (5,712,431) $(86,298,696) 2,637,866 $37,438,425
===================================================================================================================================
Class L+
Shares sold 176,056 $ 2,582,223 908,680 $12,998,817
Shares issued on reinvestment 67,015 956,969 362,748 5,190,919
Shares redeemed (1,427,350) (21,298,294) (926,969) (13,287,096)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (1,184,279) $(17,759,102) 344,459 $ 4,902,640
===================================================================================================================================
Class Y
Shares sold 680,184 $ 10,182,294 2,271,061 $32,334,023
Shares issued on reinvestment -- -- -- --
Shares redeemed (626,132) (8,800,000) (2,118,791) (30,538,243)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 54,052 $ 1,382,294 152,270 $ 1,795,780
===================================================================================================================================
Class Z
Shares sold 159,285 $ 2,336,090 420,890 $ 5,947,029
Shares issued on reinvestment 38,290 551,574 145,110 2,099,935
Shares redeemed (506,175) (7,807,050) (149,503) (2,150,996)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (308,600) $ (4,919,386) 416,497 $ 5,895,968
===================================================================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 17
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class A Shares 1998(1) 1997 1996(2) 1995(2)(3)
======================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $14.21 $13.42 $12.03 $12.00
- ------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.04 0.08 0.10 0.16
Net realized and unrealized gain 0.44 1.77 1.84 0.02
- ------------------------------------------------------------------------------------------------------
Total Income From Operations 0.48 1.85 1.94 0.18
- ------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.02) (0.09) (0.15)
Net realized gains (0.23) (1.04) (0.46) --
- ------------------------------------------------------------------------------------------------------
Total Distributions (0.23) (1.06) (0.55) (0.15)
- ------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.46 $14.21 $13.42 $12.03
- ------------------------------------------------------------------------------------------------------
Total Return 3.36%++ 13.70% 16.33% 1.53%++
- ------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $183,283 $235,172 $218,927 $160,487
- ------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.26%+ 1.28% 1.27% 1.19%+
Net investment income 0.24+ 0.55 0.84 2.74+
- ------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 35% 34% 6%
- ------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.05 $0.06 $0.06 $0.06
======================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(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) For the period from June 30, 1995 (inception date) to December 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
18 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class B Shares 1998(1) 1997 1996(2) 1995(2)(3)
======================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $14.11 $13.41 $12.02 $12.00
- ------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (loss) (0.04) (0.03) 0.01 0.11
Net realized and unrealized gain 0.46 1.77 1.84 0.02
- ------------------------------------------------------------------------------------------------------
Total Income From Operations 0.42 1.74 1.85 0.13
- ------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.11)
Net realized gains (0.23) (1.04) (0.46) --
- ------------------------------------------------------------------------------------------------------
Total Distributions (0.23) (1.04) (0.46) (0.11)
- ------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.30 $14.11 $13.41 $12.02
- ------------------------------------------------------------------------------------------------------
Total Return 2.96%++ 12.84% 15.55% 1.16%++
- ------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $472,908 $547,481 $484,673 $300,000
- ------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.03%+ 2.05% 2.03% 1.94%+
Net investment income (loss) (0.53)+ (0.22) 0.08 1.99+
- ------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 35% 34% 6%
- ------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.05 $0.06 $0.06 $0.06
======================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(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) For the period from June 30, 1995 (inception date) to December 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 19
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class L Shares(1) 1998(2) 1997 1996(3) 1995(3)(4)
=====================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period: $14.12 $13.41 $12.03 $12.00
- -----------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (loss) (0.04) (0.03) 0.00* 0.11
Net realized and unrealized gain 0.45 1.78 1.84 0.03
- -----------------------------------------------------------------------------------------------------
Total Income From Operations 0.41 1.75 1.84 0.14
- -----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.11)
Net realized gains (0.23) (1.04) (0.46) --
- -----------------------------------------------------------------------------------------------------
Total Distributions (0.23) (1.04) (0.46) (0.11)
- -----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.30 $14.12 $13.41 $12.03
- -----------------------------------------------------------------------------------------------------
Total Return 2.89%++ 12.91% 15.45% 1.16%++
- -----------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $60,882 $76,819 $68,340 $42,530
- -----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.01%+ 2.04% 2.03% 1.91%+
Net investment income (loss) (0.51)+ (0.21) 0.08 2.02+
- -----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 35% 34% 6%
- -----------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.05 $0.06 $0.06 $0.06
=====================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) For the six months ended June 30, 1998 (unaudited).
(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 June 30, 1995 (inception date) to December 31, 1995.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
20 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class Y Shares 1998(1) 1997 1996(2)(3)
=====================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $14.24 $13.43 $12.21
- -------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.03 0.16 0.12
Net realized and unrealized gain 0.47 1.77 1.69
- -------------------------------------------------------------------------------------
Total Income From Operations 0.50 1.93 1.81
- -------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.08) (0.13)
Net realized gains (0.23) (1.04) (0.46)
- -------------------------------------------------------------------------------------
Total Distributions (0.23) (1.12) (0.59)
- -------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.51 $14.24 $13.43
- -------------------------------------------------------------------------------------
Total Return 3.50%++ 14.23% 14.97%++
- -------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $73,734 $71,599 $65,499
- -------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.90%+ 0.90% 0.92%+
Net investment income 0.60+ 0.92 1.12+
- -------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 35% 34%
- -------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.05 $0.06 $0.06
=====================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(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) For the period from January 31, 1996 (inception date) to December 31, 1996.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 21
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Class Z Shares 1998(1) 1997 1996(2) 1995(2)(3)
====================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $14.24 $13.43 $12.03 $11.83
- ----------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.03 0.13 0.15 0.04
Net realized and unrealized gain 0.46 1.79 1.84 0.32
- ----------------------------------------------------------------------------------------------------
Total Income From Operations 0.49 1.92 1.99 0.36
- ----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.07) (0.13) (0.16)
Net realized gains (0.23) (1.04) (0.46) --
- ----------------------------------------------------------------------------------------------------
Total Distributions (0.23) (1.11) (0.59) (0.16)
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.50 $14.24 $13.43 $12.03
- ----------------------------------------------------------------------------------------------------
Total Return 3.43%++ 14.21% 16.69% 3.06%++
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $25,642 $29,561 $22,296 $10,040
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.91%+ 0.92% 0.97% 0.90%+
Net investment income 0.59+ 0.90 1.12 2.30+
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 35% 34% 6%
- ----------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.05 $0.06 $0.06 $0.06
====================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(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) For the period from October 2, 1995 (inception date) to December 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
22 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Additional Shareholder Information (unaudited)
================================================================================
On February 20, 1998, the Annual Meeting of shareholders of the Fund was held
for the purpose of voting on the following matters:
1. To elect Directors of the Fund; and
2. To approve or disapprove the reclassification, modification and/or
elimination of certain fundamental investment policies.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Voted Percentage Shares Voted Percentage
Name of Director For Shares Voted Against Shares Voted
====================================================================================================================================
<S> <C> <C> <C> <C>
Paul R. Ades 110,457,871.145 96.547% 3,950,761.251 3.453%
Herbert Barg 110,299,351.998 96.408 4,109,280.398 3.592
Dwight B. Crane 110,443,765.891 96.534 3,964,866.505 3.466
Frank Hubbard 110,456,573.292 96.546 3,952,059.104 3.454
Jerome Miller 110,457,232.652 96.546 3,951,399.744 3.454
Ken Miller 110,449,857.597 96.540 3,958,774.799 3.460
Heath B. McLendon 110,401,492.247 96.498 4,007,140.149 3.502
====================================================================================================================================
</TABLE>
Proposal 2 requested that shareholders approve certain changes to the
fundamental policies of the Portfolio in order to modernize them in view of
certain regulatory, business or industry developments that have occurred since
original adoption of these policies by the Portfolio. The following chart
demonstrates that all proposals were approved by shareholders.
Please note that "M" indicates a modification of the policy; "E" indicates the
elimination of the policy; and "R" indicates the reclassification of the policy
from fundamental (which would require shareholder approval to change) to
non-fundamental (which can be changed by a vote of the Board of Directors).
<TABLE>
====================================================================================================================================
<S> <C> <C>
"M" Diversification Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"M" Industry Concentration Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"M" Borrowing Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"M" Lending Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"R" Margin and Short-Sales Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"M" Real Estate Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"R" Restricted and Illiquid Securities Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"R" Unseasoned Securities Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"E" 5% Ownership of Certain Securities Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"R" Purchases of Securities of Other Investment Companies Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"R" Exercising Control or Management Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"R" Investments in Oil, Gas or Mineral Exploration Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"E" Limiting Participation in Joint Trading Accounts Approved
- ------------------------------------------------------------------------------------------------------------------------------------
"R" Puts, Calls and Combinations Thereof Approved
====================================================================================================================================
</TABLE>
The information below reports the lowest percentage of shares voting for the
proposals, the highest percentage of shares voting against and abstaining by
shareholders of the Portfolio on all of the items in Proposal 2.
<TABLE>
<CAPTION>
Percentage Percentage Percentage
Shares Voted of Shares Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Voted
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
31,907,897.745 90.980% 736,353.551 2.100% 2,427,088.379 6.920%
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 23
<PAGE>
[This page intentionally left blank]
<PAGE>
Smith Barney
Contrarian Fund
Directors Investment Manager
Mutual Management Corp.
Paul R. Ades
Herbert Barg
Dwight B. Crane Distributor
Frank G. Hubbard Smith Barney Inc.
Heath B. McLendon, Chairman
Jerome Miller
Ken Miller Custodian
PNC Bank, N.A.
Allen R. Johnson, Emeritus
John F. White, Emeritus
Shareholder Servicing Agent
Officers First Data Investor Services Group, Inc.
P.O. Box 9134
Heath B. McLendon Boston, MA 02205-9134
President and
Chief Executive Officer
This report is submitted for the
Lewis E. Daidone general information of the
Senior Vice President and Treasurer shareholders of Smith Barney
Investment Funds -- Smith Barney
John F. Stoeser Contrarian Fund. It is not authorized
Vice President and Investment Officer for distribution to prospective
investors unless accompanied or
Thomas M. Reynolds preceded by a current Prospectus for
Controller the Fund, which contains information
concerning the Fund's investment
Christina T. Sydor policies and expenses as well as other
Secretary pertinent information.
SMITH BARNEY
------------
A Member of TravelersGroup[LOGO]
Smith Barney Contrarian Fund
Smith Barney Mutual Funds
388 Greenwich Street
New York, New York 10013
www.smithbarney.com
FD01005 8/98
