<PAGE>
[PHOTO]
Smith Barney
Special
[PHOTO] Equities Fund
------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1999
[LOGO] Smith Barney
Mutual Fund
<PAGE>
Smith Barney
Special Equities Fund
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The Smith Barney Special Equities Fund ("Portfolio") sought long-term capital
appreciation by investing primarily in equity securities that the manager
expected to experience above average growth. Generally, these companies had
market capitalizations below those of the companies included in the Standard &
Poor's 500 Index.
Smith Barney Special Equities Fund
Average Annual Total Returns
June 30, 1999
Without Sales Charges(1)
---------------------------------------
Class A Class B Class L
================================================================================
Six-Month+ 19.49% 19.00% 19.00%
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One-Year 20.27 19.34 19.34
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Five-Year 16.44 15.58 15.58
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Ten-Year N/A 11.41 N/A
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Since Inception++ 15.71 10.22 8.21
================================================================================
With Sales Charges(2)
---------------------------------------
Class A Class B Class L
================================================================================
Six-Month+ 13.53% 14.00% 16.82%
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One-Year 14.27 14.34 17.16
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Five-Year 15.25 15.47 15.35
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Ten-Year N/A 11.41 N/A
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Since Inception++ 14.82 10.22 8.02
================================================================================
(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 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 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, December
13, 1982 and October 18, 1993, respectively.
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FUND HIGHLIGHT
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On Friday, May 28, 1999, the shareholders of Smith Barney Special Equities Fund
approved the combination of the Portfolio with and into the Salomon Brothers
Small Cap Growth Fund which became effective on July 16, 1999. Please note that
this will be the last Special Equities shareholder report you receive. You will
now receive the Salomon Brothers Small Cap Growth Fund shareholder reports which
is a part of the Salomon Brothers Series Funds. If you have any questions about
this acquisition merger, please contact your Salomon Smith Barney Financial
Consultant.
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NASDAQ SYMBOL
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Class A HSEAX
Class B HSPEX
Class L HSELX
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WHAT'S INSIDE
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Shareholder Letter.......................................................... 1
Historical Performance...................................................... 2
Smith Barney Special Equities Fund at a Glance.............................. 5
Schedule of Investments..................................................... 6
Statement of Assets and Liabilities......................................... 9
Statement of Operations..................................................... 10
Statements of Changes in Net Assets......................................... 11
Notes to Financial Statements............................................... 12
Financial Highlights........................................................ 16
<PAGE>
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Shareholder Letter
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[PHOTO]
HEATH B. MCLENDON
Chairman
Dear Shareholder:
Presented for your review is the semi-annual report for the Smith Barney Special
Equities Fund ("Portfolio") for the period ended June 30, 1999. 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.
Special Shareholder Notice
On Friday, May 28, 1999, the shareholders of Smith Barney Special Equities Fund
approved the combination of the Portfolio with and into the Salomon Brothers
Small Cap Growth Fund which became effective on July 16, 1999. Please note that
this will be the last Special Equities shareholder report you receive. You will
now receive the Salomon Brothers Small Cap Growth Fund shareholder reports. If
you have any questions about this acquisition merger, please contact your
Salomon Smith Barney Financial Consultant.
Performance Update and Investment Strategy
The Smith Barney Special Equities Fund's Class A shares returned 19.49% for the
six months ended June 30, 1999 without sales charges. This compares with the
9.28% return for the Russell 2000 Index, and 9.00% return for the Lipper, Inc.
small-cap funds peer group average (Lipper is a major fund-tracking
organization.)
The Portfolio's manager uses a bottom-up approach to select small-cap companies
that were growing their earnings faster than the overall market. Ideally, the
companies would have been on the verge of a sustainable growth spurt from new
products, technology or consolidation within an industry. The Portfolio invested
in several companies that met this criteria found primarily in four market
sectors: technology, health care, consumer and financial services.
The Portfolio was overweighted in consumer and technology. Many retailers such
as Cost Plus and Dollar Tree are benefiting from the strength in consumer
spending. The Portfolio also had several investments in semiconductor chip
companies that are serving the demand for voice and data over the Internet.
Market Review
The Russell 2000 Index's second quarter of 1999 return of 15.1% outperformed the
S&P 500 Index's return of 7.1% and was the best quarterly performance by
small-cap stocks as measured by the S&P 500 Index since the fourth quarter of
1992. In our view, the outperformance of small-cap stocks versus large-cap ones
was driven by the market's renewed interest in cyclicals as Asian economies
started to show signs of recovery. In fact, this is the first quarter since the
third quarter 1997 that the Russell 2000 Index did better than the S&P 500
Index.
Market Outlook
We believe for small caps to continue to outperform, we need mutual fund cash
inflows into small-cap funds and projected earnings growth to be attained.
Small-cap companies remain undervalued relative to the S&P 500. As of this
writing, we are finding many select opportunities to invest in small companies
with solid fundamental outlooks.
In closing, thank you once again for your investment in Smith Barney Special
Equities Fund. If you remained a shareholder after the combination of the Fund
with and into the Salomon Brothers Small Cap Growth Fund, our hope is that our
returns will justify your continued support.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
July 31, 1999
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Smith Barney Special Equities Fund 1
<PAGE>
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Historical Performance -- Class A Shares
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<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>
6/30/99 $29.29 $35.00 $0.00 $0.00 $0.00 19.49%+
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12/31/98 26.52 29.29 0.00 0.00 0.00 10.44
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12/31/97 28.11 26.52 0.00 0.00 0.00 (5.66)
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12/31/96 30.44 28.11 0.00 0.28 0.36 (5.81)
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12/31/95 19.10 30.44 0.00 0.76 0.00 63.48
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12/31/94 20.23 19.10 0.00 0.00 0.00 (5.59)
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12/31/93 15.47 20.23 0.00 0.33 0.00 32.90
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Inception*--12/31/92 14.13 15.47 0.00 0.00 0.00 9.48+
============================================================================================
Total $0.00 $1.37 $0.36
============================================================================================
</TABLE>
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Historical Performance -- Class B Shares
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<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>
6/30/99 $28.00 $33.32 $0.00 $0.00 $0.00 19.00%+
- --------------------------------------------------------------------------------------
12/31/98 25.54 28.00 0.00 0.00 0.00 9.63
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12/31/97 27.28 25.54 0.00 0.00 0.00 (6.38)
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12/31/96 29.76 27.28 0.00 0.28 0.36 (6.44)
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12/31/95 18.82 29.76 0.00 0.76 0.00 62.30
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12/31/94 20.08 18.82 0.00 0.00 0.00 (6.27)
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12/31/93 15.47 20.08 0.00 0.33 0.00 31.93
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12/31/92 14.18 15.47 0.00 0.00 0.00 9.10
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12/31/91 9.82 14.18 0.00 0.00 0.03 44.76
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12/31/90 13.77 9.82 0.29 0.23 0.02 (24.71)
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12/31/89 12.04 13.77 0.27 0.00 0.24 18.60
======================================================================================
Total $0.56 $1.60 $0.65
======================================================================================
</TABLE>
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2 1999 Semi-Annual Report to Shareholders
<PAGE>
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Historical Performance -- Class L Shares
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<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>
6/30/99 $28.00 $33.32 $0.00 $0.00 $0.00 19.00%+
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12/31/98 25.54 28.00 0.00 0.00 0.00 9.63
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12/31/97 27.28 25.54 0.00 0.00 0.00 (6.38)
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12/31/96 29.77 27.28 0.00 0.28 0.36 (6.44)
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12/31/95 18.82 29.77 0.00 0.76 0.00 62.35
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12/31/94 20.08 18.82 0.00 0.00 0.00 (6.27)
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Inception*--12/31/93 22.62 20.08 0.00 0.33 0.00 (9.77)+
============================================================================================
Total $0.00 $1.37 $0.36
============================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
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Average Annual Total Returns
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Without Sales Charges(1)
------------------------------------------
Class A Class B Class L
================================================================================
Six Months Ended 6/30/99+ 19.49% 19.00% 19.00%
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Year Ended 6/30/99 20.27 19.34 19.34
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Five Years Ended 6/30/99 16.44 15.58 15.58
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Ten Years Ended 6/30/99 N/A 11.41 N/A
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Inception* through 6/30/99 15.71 10.22 8.21
================================================================================
With Sales Charges(2)
------------------------------------------
Class A Class B Class L
================================================================================
Six Months Ended 6/30/99+ 13.53% 14.00% 16.82%
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Year Ended 6/30/99 14.27 14.34 17.16
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Five Years Ended 6/30/99 15.25 15.47 15.35
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Ten Years Ended 6/30/99 N/A 11.41 N/A
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Inception* through 6/30/99 14.82 10.22 8.02
================================================================================
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Smith Barney Special Equities Fund 3
<PAGE>
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Cumulative Total Returns
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Without Sales Charges(1)
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Class A (Inception* through 6/30/99) 163.40%
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Class B (6/30/89 through 6/30/99) 194.54
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Class L (Inception* through 6/30/99) 56.83
================================================================================
(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 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 and L, shares are November 6, 1992,
December 13, 1982 and October 18, 1993, respectively.
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4 1999 Semi-Annual Report to Shareholders
<PAGE>
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Smith Barney Special Equities Fund at a Glance (unaudited)
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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 1989 -- June 1999
[LINE GRAPH]
SB Special Russell
Equities Standard & Poor's 2000
Fund 500 Index Index
---------- ----------------- -------
June 1989 $10,000 $10,000 $10,000
Dec 1989 10,802 11,297 10,148
Dec 1990 8,133 10,946 8,171
Dec 1991 11,773 14,274 11,934
Dec 1992 12,844 15,361 14,130
Dec 1993 16,945 16,905 16,798
Dec 1994 15,882 17,128 16,492
Dec 1995 25,776 23,556 21,185
Dec 1996 24,115 28,962 24,680
Dec 1997 22,577 38,624 30,200
Dec 1998 24,751 49,724 29,433
June 1999 29,454 55,818 32,164
+ Hypothetical illustration of $10,000 invested in Class B shares on June
30, 1989, assuming deduction of the maximum 5.00% CDSC and reinvestment of
dividends and capital gains, if any, at net asset value through June 30,
1999. 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*
- --------------------------------------------------------------------------------
[LINE GRAPH]
Basic Industry 0.8%
Capital Goods 0.5%
Communications 14.4%
Computer Services 3.1%
Consumer 30.9%
Energy 0.7%
Financial Services 12.9%
Health Care 7.6%
Technology 29.1%
* As a percentage of total common stock.
Top Ten Holdings*
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1. Metromedia Fiber Network, Inc. 5.2%
- --------------------------------------------------------------------------------
2. Abercrombie & Fitch, Co., Class A Shares 4.2
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3. CMG Information Services, Inc. 4.0
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4. MedQuist, Inc. 3.2
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5. Profit Recovery Group International, Inc. 2.9
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6. Cost Plus, Inc. 2.9
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7. Siebel Systems, Inc. 2.9
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8. DeVry, Inc. 2.7
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9. Fossil, Inc. 2.6
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10. Protective Life Corp. 2.5
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Smith Barney Special Equities Fund 5
<PAGE>
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Schedule of Investments (unaudited) June 30, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 99.6%
Basic Industry -- 0.8%
60,000 The Geon Co. $ 1,935,000
- --------------------------------------------------------------------------------
Capital Goods -- 0.5%
42,500 Matthews International Corp., Class A Shares 1,259,062
- --------------------------------------------------------------------------------
Communications -- 14.3%
52,500 Covad Communications Group, Inc.+ 2,798,906
32,000 Cox Radio, Inc.+ 1,736,000
67,200 Entercom Communications Corp.+ 2,872,800
355,000 Metromedia Fiber Network, Inc.+ 12,757,813
25,000 PanAmSat Corporation+ 973,437
81,300 Pegasus Communications Corp.+ 3,206,269
90,000 Univision Communications Inc.+ 5,940,000
95,000 WinStar Communications, Inc.+ 4,631,250
- --------------------------------------------------------------------------------
34,916,475
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Computer Services -- 3.1%
100,000 Affiliated Computer Services, Inc., Class A Shares+ 5,062,500
135,000 CIBER, Inc.+ 2,581,875
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7,644,375
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Consumer -- 30.8%
30,000 Abacus Direct Corp.+ 2,745,000
215,000 Abercrombie & Fitch Co., Class A Shares+ 10,320,000
80,000 bebe stores, inc.+ 2,720,000
65,000 Beringer Wine Estates Holdings, Inc., Class B Shares+ 2,715,781
40,000 Cinar Corp., Class B Shares+ 980,000
155,000 Cost Plus, Inc.+ 7,052,500
295,000 DeVry, Inc. 6,600,625
120,000 Dollar Tree Stores, Inc.+ 5,280,000
35,000 Dura Automotive Systems, Inc.+ 1,163,750
10,000 FactSet Research Systems Inc.+ 566,250
130,000 Fossil, Inc.+ 6,288,750
35,500 Hannaford Bros. Co. 1,899,250
240,000 Insight Enterprises, Inc.+ 5,940,000
50,000 Lason, Inc.+ 2,481,250
85,000 O'Reilly Automotive, Inc.+ 4,281,875
150,000 The Profit Recovery Group International, Inc.+ 7,096,875
80,000 Station Casinos, Inc.+ 1,630,000
20,000 Steiner Leisure Ltd.+ 606,250
32,500 U.S. Franchise Systems, Inc.+ 753,594
115,000 Williams-Sonoma, Inc.+ 4,003,438
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75,125,188
- --------------------------------------------------------------------------------
Energy -- 0.7%
50,000 Devon Energy Corp. 1,787,500
- --------------------------------------------------------------------------------
Financial Services -- 12.8%
170,000 American Heritage Life Investment Corp. 4,165,000
25,000 Charter One Financial, Inc. 695,313
30,000 Commercial Federal Corp. 695,625
See Notes to Financial Statements.
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6 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Financial Services -- 12.8% (continued)
185,000 Dime Bancorp, Inc. $ 3,723,125
120,000 Legg Mason, Inc. 4,620,000
50,000 Peoples Heritage Financial Group, Inc. 940,625
185,000 Protective Life Corp. 6,105,000
93,200 Reinsurance Co. of America, Inc. 3,285,300
75,000 Reinsurance Co. of America, Inc., Non-Voting Shares 2,512,500
80,000 ReliaStar Financial Corp. 3,500,000
40,500 UICI+ 1,118,813
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31,361,301
- --------------------------------------------------------------------------------
Health Care -- 7.6%
10,000 IDEC Pharmaceuticals Corp.+ 770,625
100,000 IDEXX Laboratories, Inc.+ 2,331,250
180,000 MedQuist Inc.+ 7,875,000
110,000 ResMed Inc.+ 3,650,625
42,000 Sepracor Inc.+ 3,412,500
10,000 Xomed Surgical Products, Inc.+ 486,875
- --------------------------------------------------------------------------------
18,526,875
- --------------------------------------------------------------------------------
Technology -- 29.0%
50,000 Applied Micro Circuits Corp.+ 4,112,500
100,000 AVT Corp.+ 3,787,500
50,000 Carrier Access Corp.+ 2,190,625
85,000 CMGI Inc.+ 9,695,313
60,000 Com21, Inc.+ 1,023,750
80,000 Concord Communications, Inc.+ 3,600,000
9,500 High Speed Access Corp.+ 243,438
25,000 Inktomi Corp.+ 3,264,063
46,200 Latitude Communications, Inc.+ 600,600
60,000 Legato Systems, Inc.+ 3,465,000
20,000 Lycos, Inc.+ 1,837,500
35,000 MMC Networks, Inc.+ 1,566,250
100,000 Network Appliance, Inc.+ 5,587,500
2,300 Network Plus Corp.+ 48,012
115,000 New Era of Networks, Inc.+ 5,052,812
70,000 Oak Industries Inc. 3,058,125
50,000 Polycom, Inc.+ 1,950,000
7,200 Razorfish Inc.+ 266,850
270,000 S3 Inc.+ 2,455,312
105,000 Siebel Systems, Inc.+ 6,969,375
12,000 Silknet Software, Inc.+ 486,000
80,900 Software.com, Inc.+ 1,875,868
20,000 Transaction Systems Architects, Inc., Class A Shares+ 780,000
39,000 TranSwitch Corp.+ 1,847,625
25,000 Uniphase Corp.+ 4,150,000
40,000 Ziff-Davis Inc -- ZDNet+ 1,040,000
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70,954,018
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $157,832,187) 243,509,794
================================================================================
See Notes to Financial Statements.
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Smith Barney Special Equities Fund 7
<PAGE>
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Schedule of Investments (unaudited) (continued) June 30, 1999
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 0.4%
$ 902,000 Goldman Sachs & Co., Inc., 4.800% due 7/1/99;
Proceeds at maturity--$902,120; (Fully
collateralized by U.S. Treasury Bills, U.S.
Treasury Notes and U.S. Treasury Bonds,
0.000% to 8.750% due 3/2/00 to 5/15/17; Market
value--$920,041) (Cost--$902,000) $ 902,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $158,734,187*) $244,411,794
================================================================================
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
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8 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $158,734,187) $244,411,794
Receivable for securities sold 4,525,144
Dividends and interest receivable 5,747
- --------------------------------------------------------------------------------
Total Assets 248,942,685
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 1,786,552
Payable to bank 434,625
Investment advisory fees payable 99,854
Administration fees payable 35,503
Payable for Fund shares purchased 30,721
Distribution fees payable 7,594
Accrued expenses 100,521
- --------------------------------------------------------------------------------
Total Liabilities 2,495,370
- --------------------------------------------------------------------------------
Total Net Assets $246,447,315
================================================================================
NET ASSETS:
Par value of shares of capital shares $ 7,229
Capital paid in excess of par value 98,674,994
Accumulated net investment loss (1,787,492)
Accumulated net realized gain from security transactions 63,874,977
Net unrealized appreciation of investments 85,677,607
- --------------------------------------------------------------------------------
Total Net Assets $246,447,315
================================================================================
Shares Outstanding:
Class A 3,332,749
-----------------------------------------------------------------------------
Class B 3,651,623
-----------------------------------------------------------------------------
Class L 244,386
-----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $35.00
-----------------------------------------------------------------------------
Class B * $33.32
-----------------------------------------------------------------------------
Class L ** $33.32
-----------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $36.84
-----------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $33.66
================================================================================
* 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 Special Equities Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended June 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 242,379
Interest 127,497
- --------------------------------------------------------------------------------
Total Investment Income 369,876
- --------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 845,118
Investment advisory fees (Note 2) 723,197
Administration fees (Note 2) 262,981
Shareholder and system servicing fees 150,555
Shareholder communications 67,370
Registration fees 49,589
Audit and legal 20,456
Directors' fees 17,507
Custody 12,236
Other 6,775
- --------------------------------------------------------------------------------
Total Expenses 2,155,784
- --------------------------------------------------------------------------------
Net Investment Loss (1,785,908)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 174,664,055
Cost of securities sold 121,430,079
- --------------------------------------------------------------------------------
Net Realized Gain 53,233,976
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 90,645,058
End of period 85,677,607
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (4,967,451)
- --------------------------------------------------------------------------------
Net Gain on Investments 48,266,525
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 46,480,617
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1999 (unaudited)
and the Year Ended December 31, 1998
1999 1998
================================================================================
OPERATIONS:
Net investment loss $ (1,785,908) $ (3,605,145)
Net realized gain 53,233,976 61,207,747
Decrease in net unrealized appreciation (4,967,451) (18,090,774)
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 46,480,617 39,511,828
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains -- --
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders -- --
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 258,600,707 1,184,808,924
Cost of shares reacquired (369,265,490) (1,474,248,055)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (110,664,783) (289,439,131)
- --------------------------------------------------------------------------------
Decrease in Net Assets (64,184,166) (249,927,303)
NET ASSETS:
Beginning of period 310,631,481 560,558,784
- --------------------------------------------------------------------------------
End of period* $ 246,447,315 $ 310,631,481
================================================================================
* Includes accumulated net investment loss of: $ (1,787,492) $ (1,584)
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 11
<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 seven other separate investment portfolios: Smith Barney
Government Securities Fund, Smith Barney Contrarian Fund, Smith Barney
Investment Grade Bond Fund, Concert Peachtree Growth Fund, Smith Barney
Hansberger Global Value Fund, Smith Barney Hansberger Global Small Cap Value
Fund and Smith Barney Small Cap Value Fund. The financial statements and
financial highlights for the other portfolios are presented in separate
shareholder reports.
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, 1998, 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 $3,664,212 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
SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), acts as investment
adviser to the Fund. The Portfolio pays SSBC 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.
SSBC 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.
CFBDS, Inc. acts as the Fund's distributor. Salomon Smith Barney Inc. ("SSB"),
another subsidiary of
- --------------------------------------------------------------------------------
12 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
SSBH, as well as certain other broker-dealers, continues to sell Fund shares to
the public as members of the selling group. For the six months ended June 30,
1999, SSB received brokerage commissions of $5,946.
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 purchase and
declines thereafter by 1.00% per year until no CDSC is incurred. Class L shares
also have a 1.00% CDSC, which applies if redemption occurs within the first year
of purchase. 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, 1999, SSB received sales charges of
approximately $11,000 and $1,000 on sales of the Portfolio's Class A and Class L
shares, respectively. In addition, CDSCs paid to SSB were approximately:
Class B Class L
================================================================================
CDSCs $234,000 $1,000
================================================================================
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, 1999, total Distribution Plan fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $156,213 $646,136 $42,769
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the six months ended June 30, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $ 60,654,124
- --------------------------------------------------------------------------------
Sales 174,664,055
================================================================================
At June 30, 1999, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $92,333,895
Gross unrealized depreciation (6,656,288)
- --------------------------------------------------------------------------------
Net unrealized appreciation $85,677,607
================================================================================
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. Futures Contracts
The Portfolio may from time to time enter into futures contracts.
Initial margin deposits made upon entering into futures contracts are recognized
as assets. The initial margin is segregated by the custodian as is noted in the
schedule of investments. During the period the futures contract is open, changes
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
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from 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 (and cost of) the closing transaction 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) and the credit risk should a counterparty fail to
perform under such contracts.
At June 30, 1999, the Portfolio had no open futures contracts.
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.
During the six months ended June 30, 1999, the Portfolio earned income from
securities lending of $1,560. However, at June 30, 1999, the Portfolio did not
have any securities on loan.
7. Capital Shares
At June 30, 1999, 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, 1999, total paid-in capital amounted to the following for each
class:
Amount
================================================================================
Class A $16,622,411
- --------------------------------------------------------------------------------
Class B 73,849,102
- --------------------------------------------------------------------------------
Class L 8,210,710
================================================================================
- --------------------------------------------------------------------------------
14 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
---------------------------- -------------------------------
Shares Amount Shares Amount
================================================================================
Class A
Shares sold 8,597,817 $ 256,970,106 43,453,919 $ 1,139,338,291
Shares reacquired (10,473,273) (316,136,905) (44,915,731) (1,184,419,881)
- --------------------------------------------------------------------------------
Net Decrease (1,875,456) $ (59,166,799) (1,461,812) $ (45,081,590)
================================================================================
Class B
Shares sold 45,092 $ 1,296,925 481,144 $ 12,097,414
Shares reacquired (1,685,116) (49,561,954) (4,752,892) (121,948,302)
- --------------------------------------------------------------------------------
Net Decrease (1,640,024) $ (48,265,029) (4,271,748) $ (109,850,888)
================================================================================
Class L*
Shares sold 11,659 $ 333,676 69,754 $ 1,800,409
Shares reacquired (122,240) (3,566,631) (448,046) (11,533,176)
- --------------------------------------------------------------------------------
Net Decrease (110,581) $ (3,232,955) (378,292) $ (9,732,767)
================================================================================
Class Y+
Shares sold -- -- 1,159,135 $ 29,514,653
Shares reacquired -- -- (5,138,794) (138,880,125)
- --------------------------------------------------------------------------------
Net Decrease -- -- (3,979,659) $ (109,365,472)
================================================================================
Class Z++
Shares sold -- -- 76,384 $ 2,058,157
Shares reacquired -- -- (612,326) (17,466,571)
- --------------------------------------------------------------------------------
Net Decrease -- -- (535,942) $ (15,408,414)
================================================================================
* On June 12, 1998, Class C shares were renamed as Class L shares.
+ On December 29, 1998, Class Y shares were fully redeemed.
++ On December 31, 1998, Class Z shares were fully redeemed.
8. Subsequent Event
On Friday, May 28, 1999, the shareholders of Smith Barney Special Equities Fund
approved the acquisition of the Fund by the Salomon Brothers Small Cap Growth
Fund which became effective on July 16, 1999.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 1999(1)(2) 1998(2) 1997 1996(2) 1995 1994(2)
====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $29.29 $26.52 $28.11 $30.44 $19.10 $20.23
- ----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.15) (0.15) (0.21) (0.19) (0.27) (0.13)
Net realized and unrealized gain (loss) 5.86 2.92 (1.38) (1.50) 12.37 (1.00)
- ----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 5.71 2.77 (1.59) (1.69) 12.10 (1.13)
- ----------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- -- (0.28) (0.76) --
Capital -- -- -- (0.36) -- --
- ----------------------------------------------------------------------------------------------------
Total Distributions -- -- -- (0.64) (0.76) --
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $35.00 $29.29 $26.52 $28.11 $30.44 $19.10
- ----------------------------------------------------------------------------------------------------
Total Return 19.49%++ 10.44% (5.66)% (5.81)% 63.48% (5.59)%
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $117 $153 $177 $237 $159 $101
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.24%+ 1.24% 1.20% 1.17% 1.43% 1.49%
Net investment loss (0.96)+ (0.58) (0.67) (0.61) (1.05) (0.94)
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 23% 157% 145% 118% 113% 123%
====================================================================================================
<CAPTION>
Class B Shares 1999(1)(2) 1998(2) 1997 1996(2) 1995 1994(2)
====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $28.00 $25.54 $27.28 $29.76 $18.82 $20.08
- ----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.25) (0.34) (0.45) (0.41) (0.37) (0.27)
Net realized and unrealized gain (loss) 5.57 2.80 (1.29) (1.43) 12.07 (0.99)
- ----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 5.32 2.46 (1.74) (1.84) 11.70 (1.26)
- ----------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- -- (0.28) (0.76) --
Capital -- -- -- (0.36) -- --
- ----------------------------------------------------------------------------------------------------
Total Distributions -- -- -- (0.64) (0.76) --
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $33.32 $28.00 $25.54 $27.28 $29.76 $18.82
- ----------------------------------------------------------------------------------------------------
Total Return 19.00%++ 9.63% (6.38)% (6.44)% 62.30% (6.27)%
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $122 $148 $244 $362 $171 $94
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.01%+ 1.99% 1.94% 1.91% 2.04% 2.21%
Net investment loss (1.73)+ (1.33) (1.41) (1.36) (1.61) (1.66)
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 23% 157% 145% 118% 113% 123%
====================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
16 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 1999(1)(2) 1998(2)(3) 1997 1996(2) 1995 1994(2)
============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $28.00 $25.54 $27.28 $29.77 $18.82 $20.08
- ------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.26) (0.34) (0.45) (0.41) (0.42) (0.25)
Net realized and unrealized gain (loss) 5.58 2.80 (1.29) (1.44) 12.13 (1.01)
- ------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 5.32 2.46 (1.74) (1.85) 11.71 (1.26)
- ------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- -- (0.28) (0.76) --
Capital -- -- -- (0.36) -- --
- ------------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- (0.64) (0.76) --
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $33.32 $28.00 $25.54 $27.28 $29.77 $18.82
- ------------------------------------------------------------------------------------------------------------
Total Return 19.00%++ 9.63% (6.38)% (6.44)% 62.35% (6.27)%
- ------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $8,142 $9,938 $18,730 $26,480 $9,417 $1,528
- ------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.05%+ 1.99% 1.95% 1.90% 2.25% 2.15%
Net investment loss (1.77)+ (1.33) (1.42) (1.34) (1.79) (1.60)
- ------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 23% 157% 145% 118% 113% 123%
============================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On June 12, 1998, Class C shares were renamed Class L shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Special Equities Fund 17
<PAGE>
Smith Barney
Special Equities Fund
Directors
Paul R. Ades
Herbert Barg
Dwight B. Crane
Frank G. Hubbard
Heath B. McLendon, Chairman
Jerome Miller
Ken Miller
John F. White, Emeritus
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
Pamela P. Milunovich
Vice President and Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Manager
SSBC Fund Management Inc.
Distributor
CFBDS, 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 shareholders of Smith
Barney Special Equities Fund. It is not for distribution to prospective
investors unless accompanied by a current Prospectus for the Fund, which
contains information concerning the Fund's investment policies and expenses as
well as other pertinent information.
SALOMON SMITH BARNEY
- ---------------------------
A member of citigroup[LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney Special Equities Fund
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com
FD0405 8/99
<PAGE>
Smith Barney
Government
Securities Fund
------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1999
[LOGO] Smith Barney
Mutual Funds
<PAGE>
Smith Barney
Government
Securities Fund [GRAPHIC] [GRAPHIC]
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, 1999. We hope you find
this report to be useful and informative. 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, 1999, the Fund posted a total return of a
negative 3.87% for Class A shares, excluding the effects of sales charges. In
comparison, the peer group average for general U.S. government funds posted a
negative 2.56% for the same period according to Lipper Inc. (Lipper is an
independent fund-tracking organization.) In addition, during the past six
months, the Fund distributed income dividends totaling $0.25 per Class A share.
For performance information on the Fund's other share classes, please turn to
page five.
Market Update and Outlook
The first half of 1999 was a period of sustained economic growth at home and
recovery abroad. Following the events surrounding the Russian debt default in
August of 1998 -- which included a decline in bond yields and a 0.75% fall in
the federal-funds rate -- yields have risen. Investor optimism, however, was
tempered by concerns about inflation and continued economic growth. In addition,
both Russia and Argentina remain economic hot spots and deserve close
monitoring. The reconstruction of Kosovo and peacekeeping efforts in that
war-torn country will also be an ongoing challenge.
Another issue facing the bond market is Y2K, a phrase referring to the fact that
some dates were coded into computers using only the last two digits of the year,
assuming the first two digits were "19." On or after January 1, 2000, some
computers may misread or not recognize dates and cause potential dislocations.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 1
<PAGE>
And while the extent of the Y2K problem is impossible to predict, it is safe to
say the immediate future promises to be interesting.
During the first half of 1999, U.S. economic growth continued at a robust pace,
posting a 4.3% annualized Gross Domestic Product ("GDP") growth rate for the
first quarter. Furthermore, the labor market continued to be tight, as the
unemployment rate fell to a 29-year low of 4.2% in March. Defying the
expectations of many economists, inflation -- as measured by the Consumer Price
Index ("CPI") -- was virtually absent. Productivity gains and sagging global
demand were credited with keeping inflation under control. However, in the month
of April, the CPI rose by 0.7%, its largest monthly increase in nine years.
This, coupled with signs that many world economies were in the nascent stages of
growth and recovery, deepened fears that inflationary pressures were reaching a
breaking point. These concerns brought about an increase in the yield of the
benchmark 30-year U.S. Treasury Bond, which gained 71 basis points between April
8 and June 24 to close at 6.16%.
To counter these inflationary pressures, the Federal Reserve Board ("Fed")
raised short-term interest rates by 0.25% in late June, and subsequently adopted
a neutral stance on monetary policy. Meanwhile, during the months of May and
June, the CPI remained constant, generating considerable optimism that inflation
had retreated. Further reports of rising U.S. jobless claims added to the
optimism. This sparked a rise in demand for fixed-income investments,
effectively lowering the 30-year U.S. Treasury yield to 5.89% on July 19.
However, the Fed has signaled its willingness to raise rates if there are any
signs of inflationary pressures.
Investment Strategy
The Fund seeks high current return. The Fund invests primarily in debt
securities issued or guaranteed, by the U.S. government, its agencies or
instrumentalities. These securities include U.S. Treasury securities and
mortgage-related securities. Mortgage-related securities issued by federal
agencies or instrumentalities may be backed by the full faith and credit of the
U.S. Treasury, by the right of the issuer to borrow from the U.S.
government or only by the credit of the issuer itself.
During the first half of 1999, the Fund's income orientation during the
reporting period was successful because of our holdings in mortgage-backed
securities (approximately 70%). U.S. Treasuries with a maturity of 10 to 15
years comprised the remainder of the Fund's assets. While U.S. Treasuries did
not help Fund performance to date, we believe our strategy is a good strategy
for the second half of 1999.
The chart on the next page shows the yields from U.S. Treasuries during the
period under review.
- --------------------------------------------------------------------------------
2 1999 Semi-Annual Report to Shareholders
<PAGE>
Yields from U.S. Treasuries
12/31/98 6/30/99
-------- -------
90-Day U.S. Treasury Bill 4.46% 4.76%
2-Year U.S. Treasury Note 4.53 5.52
5-Year U.S. Treasury Note 4.54 5.65
10-Year U.S. Treasury Bond 4.65 5.79
30-Year U.S. Treasury Bond 5.09 5.97
Market Outlook
We anticipate that interest rates will decline as the end of 1999 approaches. In
our view, the potential for more moderate economic growth will assuage current
inflation concerns. We should remain in a period in which economic growth can
coexist with relatively low levels of inflation.
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 21, 1999
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 3
<PAGE>
- --------------------------------------------------------------------------------
Principal Risks of Investing in the
Smith Barney Government Securities Fund
Investors could lose money on their investment in the Smith Barney Government
Securities Fund ("Fund"), or the Fund may not perform as well as other
investments, if:
o Interest rates increase, causing the prices of fixed income securities to
decline and reducing the value of the Fund's portfolio
o As interest rates decline, the issuers of mortgage-related securities held
by the Fund may pay principal earlier than scheduled or exercise a right
to call the securities, forcing the Fund to reinvest in lower yielding
securities. This is known as prepayment or call risk.
o As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities, locking in
below-market interest rates and reducing the value of these securities.
This is known as extension risk.
o The manager's judgement about interest rates or the attractiveness, value
or income potential of a particular security proves incorrect.
o The Fund may engage in active and frequent trading, resulting in high
portfolio turnover. This may lead to the realization and distribution to
shareholders of higher capital gains, increasing their tax liability.
Frequent trading also increases transaction costs, which could detract
from the Fund's performance.
Payments of principal and interest on mortgage pools issued by instrumentalities
of the U.S. government are not guaranteed by the U.S. government. Although
mortgage pools issued by U.S. agencies are guaranteed with respect to payments
of principal and interest, this guarantee does not apply to losses resulting
from declines in the market value of these securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Period Beginning End Income Capital Gain Return Total
Ended of Period of Period Dividends Distributions of Capital Returns(1)
================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/99 $ 9.97 $ 9.34 $0.25 $0.00 $0.00 (3.87)%+
- ------------------------------------------------------------------------------------------------
12/31/98 9.75 9.97 0.55 0.00 0.00 8.12
- ------------------------------------------------------------------------------------------------
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 $3.97 $0.00 $0.10
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Period Beginning End Income Capital Gain Return Total
Ended of Period of Period Dividends Distributions of Capital Returns(1)
================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/99 $ 9.97 $ 9.34 $0.23 $0.00 $0.00 (4.10)%+
- ------------------------------------------------------------------------------------------------
12/31/98 9.79 9.97 0.53 0.00 0.00 7.44
- ------------------------------------------------------------------------------------------------
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
================================================================================================
Total $6.13 $0.00 $0.36
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 5
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Period Beginning End Income Capital Gain Return Total
Ended of Period of Period Dividends Distributions of Capital Returns(1)
================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/99 $ 9.97 $ 9.34 $0.23 $0.00 $0.00 (4.08)%+
- ------------------------------------------------------------------------------------------------
12/31/98 9.78 9.97 0.53 0.00 0.00 7.56
- ------------------------------------------------------------------------------------------------
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 $3.55 $0.00 $0.08
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Period Beginning End Income Capital Gain Return Total
Ended of Period of Period Dividends Distributions of Capital Returns(1)
================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/99 $9.97 $9.34 $0.27 $0.00 $0.00 (3.69)%+
- ------------------------------------------------------------------------------------------------
12/31/98 9.76 9.97 0.59 0.00 0.00 8.42
- ------------------------------------------------------------------------------------------------
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 $2.05 $0.00 $0.01
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Z Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Period Beginning End Income Capital Gain Return Total
Ended of Period of Period Dividends Distributions of Capital Returns(1)
================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Inception* - 6/30/99 $9.97 $9.34 $0.27 $0.00 $0.00 (3.69)%+
================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
6 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge(1)
---------------------------------------------------------
Class A Class B Class L Class Y Class Z
============================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 6/30/99+ (3.87)% (4.10)% (4.08)% (3.69)% N/A
- --------------------------------------------------------------------------------------------
Year Ended 6/30/99 0.54 (0.02) 0.11 0.91 N/A
- --------------------------------------------------------------------------------------------
Five Years Ended 6/30/99 6.46 5.91 5.99 N/A N/A
- --------------------------------------------------------------------------------------------
Ten Years Ended 6/30/99 N/A 6.82 N/A N/A N/A
- --------------------------------------------------------------------------------------------
Inception* through 6/30/99 6.20 7.61 5.11 5.35 (3.69)%+
============================================================================================
<CAPTION>
With Sales Charge(2)
---------------------------------------------------------
Class A Class B Class L Class Y Class Z
============================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 6/30/99+ (8.20)% (8.32)% (5.96)% (3.69)% N/A
- --------------------------------------------------------------------------------------------
Year Ended 6/30/99 (3.97) (4.30) (1.84) 0.91 N/A
- --------------------------------------------------------------------------------------------
Five Years Ended 6/30/99 5.48 5.75 5.78 N/A N/A
- --------------------------------------------------------------------------------------------
Ten Years Ended 6/30/99 N/A 6.82 N/A N/A N/A
- --------------------------------------------------------------------------------------------
Inception* through 6/30/99 5.46 7.61 4.94 5.35 (3.69)%+
============================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 6/30/99) 49.14%
- --------------------------------------------------------------------------------
Class B (6/30/89 through 6/30/99) 93.35
- --------------------------------------------------------------------------------
Class L (Inception* through 6/30/99) 37.58
- --------------------------------------------------------------------------------
Class Y (Inception* through 6/30/99) 19.34
- --------------------------------------------------------------------------------
Class Z (Inception* through 6/30/99) (3.69)
================================================================================
(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 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, Y and Z shares are November 6, 1992,
March 20, 1984, February 4, 1993, February 7, 1996 and January 4, 1999,
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 U.S. Government Peer Group Average+
- --------------------------------------------------------------------------------
June 1989 -- June 1999
[LINE CHART]
Line Chart Plot Points:
Smith Barney Lehman Brothers Lipper U.S.
Government Securities Government Government Peer
Fund Bond Index Group Average
---- ---------- -------------
6/89 10,000 10,000 10,000
12/89 10,002 10,461 10,418
12/90 10,787 11,372 11,257
12/91 12,704 13,114 12,896
12/92 13,512 14,061 13,715
12/93 15,046 15,560 14,988
12/94 14,663 15,034 14,326
12/95 16,698 17,791 16,877
12/96 16,934 18,285 17,165
12/97 18,767 20,038 18,700
12/98 20,162 22,011 20,204
6/99 19,335 21,512 19,665
+ Hypothetical illustration of $10,000 invested in Class B shares on June
30, 1989, assuming reinvestment of dividends and capital gains, if any, at
net asset value through June 30, 1999. 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 U.S. Government Peer Group Average is composed of
the Fund's peer group of 186 mutual funds investing in U.S. Government
securities as of June 30, 1999. 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 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Highlights (unaudited) June 30, 1999
- --------------------------------------------------------------------------------
Portfolio Breakdown
[PIE CHART]
Pie Chart Plot Points:
Mortgage-Backed Securities 69.4%
U.S. Government and
Agency Obligations 30.6%
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>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 1999
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 30.6%
$394,125,000 U.S. Treasury Strips, zero coupon due 11/15/09 $209,000,546
3,810,000 FNMA Global Bond, 6.350% due 11/23/01++ 3,812,896
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- $ 222,122,044) 212,813,442
================================================================================
MORTGAGE-BACKED SECURITIES -- 69.4%
8,917 FNMA Balloon 7 Year, 6.000% due 3/1/05 8,678
426 FNMA 30 Year, 8.000% due 6/1/07 440
1,271,371 FNMA 30 Year, 6.000% due 3/1/29 1,199,062
199,339 FNMA 30 Year, 6.500% due 3/1/29+ 193,172
535,990 FNMA 30 year, 7.000% due 3/1/29 531,804
77,365 GNMA 30 Year, 11.000% due 10/15/10+ 85,610
14,746 GNMA 30 Year, 10.000% due 3/15/16 16,064
45,827 GNMA 30 Year, 10.500% due 3/15/16 46,866
146,122 GNMA 30 Year, 9.500% due 5/15/20+ 157,492
98,642,910 GNMA 30 Year, 6.500% due 8/15/28+ 95,344,292
101,290,000 GNMA 30 Year, 7.500% due 12/15/28+@ 102,556,125
98,215,000 GNMA 30 Year, 7.000% due 2/22/29+@ 97,232,850
91,410,969 GNMA 30 Year, 6.000% due 3/15/29+ 85,897,060
99,839,101 GNMA 30 Year, 7.000% due 5/15/29+ 98,902,611
- --------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost -- $489,076,351) 482,172,126
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $711,198,395*) $694,985,568
================================================================================
++ Security is segregated by Custodian for "to-be-announced" trades.
+ Date shown represents the last in range of maturity dates of mortgage
certificates owned.
@ Security is traded on a "to-be-announced" basis (See Note 9).
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (Cost -- $711,198,395) $ 694,985,568
Receivable for securities sold 283,677,639
Receivable for Fund shares sold 2,304,355
Interest receivable 3,371,543
- --------------------------------------------------------------------------------------------
Total Assets 984,339,105
- --------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 301,001,268
Payable to bank 6,249,549
Investment advisory fees payable 215,285
Distribution fees payable 166,184
Administration fees payable 126,571
Accrued expenses 210,403
- --------------------------------------------------------------------------------------------
Total Liabilities 307,969,260
- --------------------------------------------------------------------------------------------
Total Net Assets $676,369,845
- --------------------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 72,394
Capital paid in excess of par value 751,796,630
Overdistributed net investment income (774,230)
Accumulated net realized loss from
security transactions and futures contracts (58,512,122)
Net unrealized depreciation of investments (16,212,827)
- --------------------------------------------------------------------------------------------
Total Net Assets $676,369,845
============================================================================================
Shares Outstanding:
Class A 33,822,791
-----------------------------------------------------------------------------------------
Class B 8,469,802
-----------------------------------------------------------------------------------------
Class L 702,427
-----------------------------------------------------------------------------------------
Class Y 21,832,168
-----------------------------------------------------------------------------------------
Class Z 7,566,333
-----------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $9.34
-----------------------------------------------------------------------------------------
Class B* $9.34
-----------------------------------------------------------------------------------------
Class L** $9.34
-----------------------------------------------------------------------------------------
Class Y (and redemption price) $9.34
-----------------------------------------------------------------------------------------
Class Z (and redemption price) $9.34
-----------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $9.78
-----------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $9.43
=========================================================================================
</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>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1999
INVESTMENT INCOME:
Interest $ 20,534,344
Less: Interest expense (Note 6) (48,059)
- --------------------------------------------------------------------------------
Total Investment Income 20,486,285
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 1,214,093
Distribution fees (Note 2) 756,970
Administration fees (Note 2) 693,768
Shareholder and system servicing fees 171,092
Shareholder communications 26,413
Custody 20,580
Audit and legal 18,844
Registration fees 12,397
Directors' fees 10,413
Other 17,147
- --------------------------------------------------------------------------------
Total Expenses 2,941,717
- --------------------------------------------------------------------------------
Net Investment Income 17,544,568
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 3 AND 7):
Realized Loss From:
Security transactions (excluding short-term securities) (22,852,341)
Futures contracts (2,745,000)
- --------------------------------------------------------------------------------
Net Realized Loss (25,597,341)
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of period 2,976,072
End of period (16,212,827)
- --------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (19,188,899)
- --------------------------------------------------------------------------------
Net Loss on Investments and Futures Contracts (44,786,240)
- --------------------------------------------------------------------------------
Decrease in Net Assets From Operations $(27,241,672)
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1999 (unaudited) and the Year Ended December
31, 1998
<TABLE>
<CAPTION>
1999 1998
======================================================================================
OPERATIONS:
<S> <C> <C>
Net investment income $ 17,544,568 $ 30,951,647
Net realized gain (loss) (25,597,341) 22,883,384
Increase in net unrealized depreciation (19,188,899) (6,841,093)
- --------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (27,241,672) 46,993,938
- --------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (18,316,495) (33,878,439)
- --------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (18,316,495) (33,878,439)
- --------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 241,916,184 163,735,064
Net asset value of shares issued for
reinvestment of dividends 9,217,392 16,427,262
Cost of shares reacquired (164,573,585) (132,526,357)
- --------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 86,559,991 47,635,969
- --------------------------------------------------------------------------------------
Increase in Net Assets 41,001,824 60,751,468
NET ASSETS:
Beginning of period 635,368,021 574,616,553
- --------------------------------------------------------------------------------------
End of period* $ 676,369,845 $ 635,368,021
======================================================================================
* Includes overdistributed net investment income of: $(774,230) $(2,303)
======================================================================================
</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 seven other separate investment portfolios: Smith Barney
Investment Grade Bond, Smith Barney Special Equities, Smith Barney Contrarian,
Concert Peachtree Growth, Smith Barney Hansberger Global Value, Smith Barney
Hansberger Global Small Cap Value and Smith Barney Small Cap Value Funds. The
financial statements and financial highlights for the other portfolios are
presented in separate semi-annual reports.
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, 1998,
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 $2,956,220 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.
- --------------------------------------------------------------------------------
14 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSBC Fund Management Inc. ("SSBC") formerly known as Mutual Management Corp., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), acts as investment
adviser to the Portfolio. The Portfolio pays SSBC 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.
SSBC 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.
CFBDS, Inc. acts as the Fund's distributor. Salomon Smith Barney Inc. ("SSB"),
another subsidiary of SSBH, as well as certain other broker-dealers, continues
to sell Fund shares to the public as a member of the selling group.
There is a contingent deferred sales charge ("CDSC") of 4.50% 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. Class L shares also have a 1.00% CDSC, which applies
if redemption occurs within the first year of purchase. 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, 1999, CFBDS received sales charges of $113,000
and $23,000 on sales of the Fund's Class A and L shares, respectively. In
addition, CDSCs paid to CFBDS were approximately:
Class A Class B Class L
================================================================================
CDSCs $3,000 $47,000 $1,000
================================================================================
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
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, 1999, total Distribution Plan
fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $415,202 $320,783 $20,985
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the six months ended June 30, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $959,763,429
- --------------------------------------------------------------------------------
Sales 643,958,893
================================================================================
At June 30, 1999, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 894,467
Gross unrealized depreciation (17,107,294)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(16,212,827)
================================================================================
4. Capital Loss Carryforward
At December 31, 1998, the Portfolio had, for Federal tax purposes, approximately
$31,871,000 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 expiration of the carryforwards are indicated below. Expiration
occurs on December 31 of the year indicated:
2002 2003
================================================================================
Capital Loss Carryforward $31,676,000 $195,000
================================================================================
- --------------------------------------------------------------------------------
16 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
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, 1999, the maximum and average amount of
reverse repurchase agreements outstanding were as follows:
================================================================================
Maximum amount outstanding $53,000,000
- --------------------------------------------------------------------------------
Average amount outstanding 41,000,000
================================================================================
Interest rates on reverse repurchase agreements were all at 4.75% during the
period. Interest expense on reverse repurchase agreements totaled $48,059. The
Portfolio had no open reverse repurchase agreements at June 30, 1999.
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
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
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
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, 1999, 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, 1999, 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 Portfolio purchased upon exercise. When written index
options are exercised, settlement is made in cash.
- --------------------------------------------------------------------------------
18 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
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, 1999, 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, 1999, the Portfolio held two TBA securities with a total cost of
$198,711,034.
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, 1999, 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, 1999, 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, 1999, 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 $303,881,442 $157,103,692 $6,855,728 $208,513,500 $75,514,662
=============================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
----------------------------- ----------------------------
Shares Amount Shares Amount
=================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 12,197,060 $ 117,465,490 5,977,934 $ 59,386,468
Shares issued on reinvestment 596,568 5,729,550 1,327,067 13,040,346
Shares reacquired (13,834,252) (133,108,992) (9,463,412) (93,606,842)
- -------------------------------------------------------------------------------------------------
Net Decrease (1,040,624) $ (9,913,952) (2,158,411) $ (21,180,028)
=================================================================================================
Class B
Shares sold 1,232,231 $ 11,997,740 2,353,261 $ 23,496,336
Shares issued on reinvestment 138,412 1,330,882 334,301 3,291,162
Shares reacquired (2,132,547) (20,689,398) (3,804,979) (37,524,683)
- -------------------------------------------------------------------------------------------------
Net Decrease (761,904) $ (7,360,776) (1,117,417) $ (10,737,185)
=================================================================================================
Class L(1)
Shares sold 430,768 $ 4,190,618 337,917 $ 3,359,379
Shares issued on reinvestment 10,641 101,961 9,720 95,754
Shares reacquired (181,440) (1,732,070) (141,467) (1,394,832)
- -------------------------------------------------------------------------------------------------
Net Increase 259,969 $ 2,560,509 206,170 $ 2,060,301
=================================================================================================
Class Y
Shares sold 2,679,872 $ 25,973,581 7,915,587 $ 77,492,881
Shares issued on reinvestment -- -- -- --
Shares reacquired (21,524) (214,033) -- --
- -------------------------------------------------------------------------------------------------
Net Increase 2,658,348 $ 25,759,548 7,915,587 $ 77,492,881
=================================================================================================
Class Z(2)
Shares sold 8,273,242 $ 82,288,755 -- --
Shares issued on reinvestment 213,986 2,054,999 -- --
Shares reacquired (920,895) (8,829,092) -- --
- -------------------------------------------------------------------------------------------------
Net Increase 7,566,333 $ 75,514,662 -- --
=================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) For Class Z shares, transactions are for the period from January 4, 1999
(inception date) to June 30, 1999.
- --------------------------------------------------------------------------------
20 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 1999(1)(2) 1998(2) 1997 1996 1995(2) 1994
==========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 9.97 $ 9.75 $ 9.34 $ 9.77 $ 9.17 $ 10.01
- ----------------------------------------------------------------------------------------------------------
Income (Loss)
From Operations:
Net investment income 0.24 0.51 0.59 0.61 0.67 0.52
Net realized and
unrealized gain (loss) (0.62) 0.26 0.42 (0.44) 0.62 (0.80)
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.38) 0.77 1.01 0.17 1.29 (0.28)
- ----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.25) (0.55) (0.60) (0.59) (0.69) (0.49)
Capital -- -- -- (0.01) -- (0.07)
- ----------------------------------------------------------------------------------------------------------
Total Distributions (0.25) (0.55) (0.60) (0.60) (0.69) (0.56)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 9.34 $ 9.97 $ 9.75 $ 9.34 $ 9.77 $ 9.17
- ----------------------------------------------------------------------------------------------------------
Total Return (3.87)%++ 8.12% 11.23% 1.96% 14.50% (2.76)%
- ----------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $315,977 $347,622 $361,124 $388,563 $453,378 $482,404
- ----------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Other expenses 0.92%+ 0.92% 0.92% 0.93% 0.94% 1.00%
Interest expense -- 0.08 0.85 0.84 0.43 0.26
Net investment income 4.99+ 5.15 6.24 6.16 6.70 6.18
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 87% 334% 274% 420% 294% 276%
==========================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
++ 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 (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class B Shares 1999(1)(2) 1998(2) 1997 1996 1995(2) 1994
========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 9.97 $ 9.79 $ 9.38 $ 9.81 $ 9.17 $ 10.01
- --------------------------------------------------------------------------------------------------------
Income (Loss)
From Operations:
Net investment income 0.21 0.45 0.54 0.56 0.59 0.46
Net realized and
unrealized gain (loss) (0.61) 0.26 0.44 (0.44) 0.65 (0.78)
- --------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.40) 0.71 0.98 0.12 1.24 (0.32)
- --------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.23) (0.53) (0.57) (0.54) (0.60) (0.45)
Capital -- -- -- (0.01) -- (0.07)
- --------------------------------------------------------------------------------------------------------
Total Distributions (0.23) (0.53) (0.57) (0.55) (0.60) (0.52)
- --------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 9.34 $ 9.97 $ 9.79 $ 9.38 $ 9.81 $ 9.17
- --------------------------------------------------------------------------------------------------------
Total Return (4.10)%++ 7.44% 10.82% 1.42% 13.87% (3.25)%
- --------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $79,144 $92,082 $101,273 $121,894 $158,459 $172,705
- --------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Other expenses 1.44%+ 1.43% 1.44% 1.45% 1.45% 1.48%
Interest expense -- 0.08 0.85 0.84 0.43 0.26
Net investment income 4.48+ 4.64 5.73 5.64 6.19 5.69
- --------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 87% 334% 274% 420% 294% 276%
========================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
22 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 1999(1)(2) 1998(2) 1997 1996 1995(2) 1994
===============================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 9.97 $ 9.78 $ 9.38 $ 9.81 $ 9.17 $10.01
- -----------------------------------------------------------------------------------------------
Income (Loss)
From Operations:
Net investment income 0.22 0.45 0.54 0.57 0.60 0.49
Net realized and
unrealized gain (loss) (0.62) 0.27 0.43 (0.44) 0.65 (0.81)
- -----------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.40) 0.72 0.97 0.13 1.25 (0.32)
- -----------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.23) (0.53) (0.57) (0.55) (0.61) (0.45)
Capital -- -- -- (0.01) -- (0.07)
- -----------------------------------------------------------------------------------------------
Total Distributions (0.23) (0.53) (0.57) (0.56) (0.61) (0.52)
- -----------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 9.34 $ 9.97 $ 9.78 $ 9.38 $ 9.81 $ 9.17
- -----------------------------------------------------------------------------------------------
Total Return (4.08)%++ 7.56% 10.75% 1.47% 13.93% (3.25)%
- -----------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $6,562 $4,411 $2,311 $1,443 $1,039 $ 646
- -----------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Other expenses 1.40%+ 1.40% 1.39% 1.38% 1.37% 1.47%
Interest expense -- 0.08 0.85 0.84 0.43 0.26
Net investment income 4.50+ 4.63 5.70 5.71 6.27 5.71
- -----------------------------------------------------------------------------------------------
Portfolio Turnover Rate 87% 334% 274% 420% 294% 276%
===============================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
++ 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 year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class Y Shares 1999(1)(2) 1998(2) 1997 1996(3)
================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.97 $ 9.76 $ 9.34 $ 9.71
- ------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.26 0.54 0.61 0.57
Net realized and unrealized gain (loss) (0.62) 0.26 0.44 (0.37)
- ------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.36) 0.80 1.05 0.20
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.27) (0.59) (0.63) (0.56)
Capital -- -- -- (0.01)
- ------------------------------------------------------------------------------------------------
Total Distributions (0.27) (0.59) (0.63) (0.57)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.34 $ 9.97 $ 9.76 $ 9.34
- ------------------------------------------------------------------------------------------------
Total Return (3.69)%++ 8.42% 11.73% 2.30%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $204,008 $191,253 $109,909 $39,667
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Other expenses 0.58%+ 0.59% 0.58% 0.44%+
Interest expense -- 0.08 0.85 0.84+
Net investment income 5.24+ 5.43 6.46 6.49+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 87% 334% 274% 420%
================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) 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 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
Class Z Shares 1999(1)(2)
================================================================================
Net Asset Value, Beginning of Period $ 9.97
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.25
Net realized and unrealized loss (0.61)
- --------------------------------------------------------------------------------
Total Loss From Operations (0.36)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.27)
- --------------------------------------------------------------------------------
Total Distributions (0.27)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.34
- --------------------------------------------------------------------------------
Total Return (3.69)%++
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $70,678
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Other expenses 0.58%+
Interest expense --
Net investment income 5.24+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 87%
================================================================================
(1) For the period from January 4, 1999 (inception date) to June 30, 1999
(unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 25
<PAGE>
SALOMON SMITH BARNEY
---------------------------
A member of citigroup[LOGO]
Directors
Paul R. Ades
Herbert Barg
Dwight B. Crane
Frank J. Hubbard
Heath B. McLendon, Chairman
Jerome Miller
Ken Miller
John F. White, Emeritus
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
James E. Conroy
Vice President and
Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser
SSBC Fund Management Inc.
Distributor
CFBDS, 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 Funds -- Smith Barney Government Securities 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.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney
Government Securities Fund
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com
FD0408 8/99
<PAGE>
[PHOTO]
[PHOTO] Smith Barney
Contrarian Fund
------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1999
[LOGO] Smith Barney
Mutual Funds
<PAGE>
Smith Barney
Contrarian Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Smith Barney Contrarian Fund ("Fund") seeks long-term growth of capital
through a "contrarian" approach to stock selection, which means that the Fund,
which invests primarily in common stocks and other equity securities, seeks
stocks of companies that are currently out of favor, price depressed or
undervalued.
Smith Barney Contrarian Fund
Average Annual Total Returns Ended
June 30, 1999
Without Sales Charges(1)
----------------------------------------
Class A Class B Class L
================================================================================
Six Months+ 12.29% 11.79% 11.86%
- --------------------------------------------------------------------------------
One-Year 7.42 6.57 6.64
- --------------------------------------------------------------------------------
Since Inception++ 10.49 9.65 9.66
================================================================================
With Sales Charges(2)
----------------------------------------
Class A Class B Class L
================================================================================
Six Months+ 6.65% 6.79% 9.70%
- --------------------------------------------------------------------------------
One-Year 2.06 1.57 4.61
- --------------------------------------------------------------------------------
Since Inception++ 9.09 9.46 9.39
================================================================================
(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 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 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.
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
- --------------------------------------------------------------------------------
Our strategy is basically "buying low and selling high." By identifying stocks
of quality companies that have declined substantially due to industry or company
specific reasons, we are able to capitalize on the emotional reactions of
previous stockholders who act irrationally and sell the stock at low prices when
faced with negative news. By not owning the stock prior to its decline, we are
in a position to make a rational long-term investment decision when the bad news
is known and reflected in the stock price. Our sell discipline is simple. When a
stock price achieves our sell target, it will be sold. Otherwise, it will be
held until a better investment opportunity arises.
- --------------------------------------------------------------------------------
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...........................................10
Statement of Operations.......................................................11
Statements of Changes in Net Assets...........................................12
Notes to Financial Statements.................................................13
Financial Highlights .........................................................17
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Letter
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
HEATH B. MCLENDON JOHN F.
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") for the period ended June 30, 1999. We hope you find this report
to be useful and informative. 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.
Performance and Market Update
For the six months ended June 30, 1999, the Class A shares of the Fund provided
a total return of 12.29% without sales charges. This return compares favorably
with the 11.48% total return for the Russell 3000 Index. (The Russell 3000 Index
measures the return for approximately 98% of all U.S. stocks and serves as a
long-term benchmark for the Fund.)
In our view, the Fund's strong returns during the reporting period reflect
continued investor enthusiasm for stocks. Investor confidence is high, and
justified by the high employment rate and the significant accumulated wealth in
savings plans that have appreciated significantly during this long bull market.
The economic backdrop has been positive for equities, with the domestic economy
growing in excess of 4%, and global economies poised for economic recovery. This
bodes well for near term corporate earnings growth and will likely remain a
positive catalyst for the stock market. Perhaps the most interesting event
within the stock market during the first half of this year was the dramatic
shift in investor psychology that favored value stocks over growth stocks during
the period April 8, 1999 through May 31, 1999. Investors realized they could
essentially buy earnings growth at a cheaper price in this environment, and they
flocked to value stocks. The participation was broad across all capitalization
sizes.
Investment Strategy
The Fund seeks long term growth of capital by investing primarily in common
stocks of companies that are currently out of favor, price depressed, or
undervalued. Our approach involves identifying potentially undervalued
securities that meet our liquidity and financial strength criteria. However,
fundamental analysis of the company is always the basis for making our final
investment decision. In selecting investments for the Fund, we seek leading
companies with solid balance sheets and strong cash flow from operations. This
bottom-up fundamental approach is complemented with a top-down perspective that
helps shape the portfolio structure. Specifically, we attempt to reduce risk by
diversifying the Fund's portfolio across all economic sectors and company sizes.
Our strategy is basically "buying low and selling high." By identifying stocks
of quality companies that have declined substantially due to industry or company
specific reasons, we are able to capitalize on the emotional reactions of
previous stockholders who act irrationally and sell the stock at low prices when
faced
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 1
<PAGE>
with negative news. By not owning the stock prior to its decline, we are in a
position to make a rational long-term investment decision when the bad news is
known and reflected in the stock price. Our sell discipline is simple. When a
stock price achieves our sell target, it will be sold. Otherwise, it will be
held until a better investment opportunity arises.
Portfolio Transactions Update
During the year we made several purchases and sales that are consistent with the
previously stated strategy.
For example, our decision to buy IndyMac Mortgage holdings came at a time when
investors were discouraged with the company after management pre-announced
disappointing earnings expectations for the upcoming quarter. Investors sold the
stock and the price declined from a high of $24 per share over the last year to
below $10 per share. Investors did not take the time to understand the positive
long-term implications of management's efforts to build a conservative reserve
posture on the balance sheet, or the implications of a very exciting Internet
based software platform for originating mortgage loans. The stock price declined
below its book value with an implied dividend yield of 15%. The stock has
performed very well since our purchase after investors have considered the
potential of this new Internet based software platform to lower the company's
cost structure and increase revenues by enabling the company to reach new
customers. Also, management has announced an organizational restructuring that
should allow the company to repurchase a significant amount of the company's
outstanding stock over the next several years that should increase earnings per
share growth.
Our sales transactions included stocks that reached our sell targets, as well as
situations where deteriorating fundamentals caused us to lower our expectations
for the stock. For example, our decision to sell Telephone & Data Systems when
the stock price reached our predetermined target price followed our discipline.
Unfortunately, this decision was premature. Although sold at a significant gain
from our original purchase price, the stock has continued to perform well since
our sale. Crown Cork & Seal, a container manufacturer, was sold at a loss when
the stock declined due to continued earnings shortfalls caused by weak orders
and lower product pricing. The business has turned out to be more of a commodity
business than originally thought and we have thus lowered our future
expectations for the stock. Maxtor, a computer disk drive manufacturer, was sold
at a loss for the same reasons. Pricing pressure continued to erode along with
our expectations for the company's future earnings and stock price.
Portfolio Structure
A few comments regarding our change in sector weightings: First, our weighting
in the capital goods sector was reduced from 16% to 11% during the reporting
period primarily due to our decision to take profits. This sector returned to
favor as the indications of a strong economy caused investors to transition away
from growth stocks to value stocks in April 1999 through May 1999. We wanted to
lock in some profits and reduce our previously over-weighted position to a
neutral weighting relative to the broad market.
Second, our decision to reduce our over-weighted position in the fairly
defensive consumer staples sector seemed prudent given the strong economic
backdrop and the prospects of a less robust stock performance in this sector
given the current environment. Also a factor was our decision to lower our risk
exposure to the tobacco industry.
Offsetting these two sector reductions was our decision to increase our exposure
to the consumer cyclical and technology sectors. With consumer confidence high,
strong consumer purchases should
- --------------------------------------------------------------------------------
2 1999 Semi-Annual Report to Shareholders
<PAGE>
continue to drive demand for products (i.e., household furnishings, computers,
cars, etc.) offered by companies in these groups.
Our capitalization mix is balanced with 38% of our holdings considered large,
51% mid-size, and 11% small. While the $17 billion average weighted market
capitalization of the fund's holdings provides adequate liquidity, the median
market capitalization of our holdings is about $3.5 billion compared to about
$40 billion for the Russell 3000 Index. Clearly, the Fund's future performance
will be influenced by the performance of smaller sized companies relative to the
larger sized companies that dominate the broad market indices like the Russell
3000 Index.
Market Outlook
In contrast to last year when there were concerns over a weak economy and a
potential recession predicated in part by weakness in Asia, the risk today, in
our view, appears to be an economy that may be too strong and could threaten to
spark inflation. As evidence, the consumer price index rose a strong 0.7% in
April 1999, while interest rates in the bond market were generally higher during
the period. The Federal Open Market Committee ("FOMC") recently raised a key
interest rate as a signal they intend to guard against the possibility of an
over-heating economy that could lead to inflationary cost pressures. We view
this as a near term positive stance that should help lower inflationary
expectations. However, it remains to be seen how the equity and bond markets
will respond if the FOMC finds it necessary to follow with a succession of
further rate increases that could eventually threaten to slow economic growth
and corporate profit growth.
We believe the Fund is well positioned to respond positively to continued profit
growth expectations as this should coincide with broader stock market
participation in the mid cap and small cap segments of the market where the Fund
is well represented. The average holding in the Fund has a price to this year's
earnings expectations ratio of 15.4. The ratio for the S&P 500 Index is 27.8. If
the stock market has a negative response to a continued increase in interest
rates, the Fund's discounted valuation relative to the market should be a
positive attribute. In such a scenario, the relative performance of the Fund
could benefit from investor's selling growth stocks and buying the value stocks
emphasized by the Fund.
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 and
Investment Officer
July 7, 1999
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 3
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
6/30/99 $13.62 $14.78 $0.00 $0.50 12.29%+
- --------------------------------------------------------------------------------
12/31/98 14.21 13.62 0.00 0.44 (1.12)
- --------------------------------------------------------------------------------
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 $2.44
================================================================================
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
6/30/99 $13.42 $14.49 $0.00 $0.50 11.79%+
- --------------------------------------------------------------------------------
12/31/98 14.11 13.42 0.00 0.44 (1.84)
- --------------------------------------------------------------------------------
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 $2.44
================================================================================
- --------------------------------------------------------------------------------
Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
6/30/99 $13.42 $14.50 $0.00 $0.50 11.86%+
- --------------------------------------------------------------------------------
12/31/98 14.12 13.42 0.00 0.44 (1.91)
- --------------------------------------------------------------------------------
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 $2.44
================================================================================
- --------------------------------------------------------------------------------
4 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
6/30/99 $13.70 $14.90 $0.00 $0.50 12.54%+
- --------------------------------------------------------------------------------
12/31/98 14.24 13.70 0.00 0.44 (0.76)
- --------------------------------------------------------------------------------
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 $2.44
================================================================================
It is the Fund's policy to distribute dividends 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 6/30/99+ 12.29% 11.79% 11.86% 12.54%
- --------------------------------------------------------------------------------
Year Ended 6/30/99 7.42 6.57 6.64 7.91
- --------------------------------------------------------------------------------
Inception* through 6/30/99 10.49 9.65 9.66 11.86
================================================================================
With Sales Charge(2)
---------------------------------------------
Class A Class B Class L Class Y
================================================================================
Six Months Ended 6/30/99+ 6.65% 6.79% 9.70% 12.54%
- --------------------------------------------------------------------------------
Year Ended 6/30/99 2.06 1.57 4.61 7.91
- --------------------------------------------------------------------------------
Inception* through 6/30/99 9.09 9.46 9.39 11.86
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 6/30/99) 49.12%
- --------------------------------------------------------------------------------
Class B (Inception* through 6/30/99) 44.61
- --------------------------------------------------------------------------------
Class L (Inception* through 6/30/99) 44.70
- --------------------------------------------------------------------------------
Class Y (Inception* through 6/30/99) 46.68
================================================================================
(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 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. The inception
date for Class Y shares is January 31, 1996.
+ 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 L Shares of the
Smith Barney Contrarian Fund vs. the Standard & Poor's 500 Index
and the Russell 3000 Index+
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 1995--June 1999
[LINE GRAPH]
SB Contrarian Fund SB Contrarian Fund SB Contrarian Fund S&P 500 Russell
Class A Class B Class L Index++ 3000 Index++
----------- ------------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C>
June 1995 9,501 10,000 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
Dec 1998 12,618 12,737 12,808 24,158
June 1999 14,168 14,361 14,326 27,115 25,456
</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% sales charge at the time of investment for
Class A shares, the deduction of the maximum 5.00% CDSC for Class B shares
and the deduction of the 1.00% CDSC for Class L shares at the time of
investment and reinvestment of dividends and capital gains, if any,
through June 30, 1999. 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 Russell 3000 Index is composed of the 3,000
largest U.S. securities, as determined by total market capitalization.
This portfolio of securities represents approximately 98% of the
investable U.S. equity market. 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 class may be greater or less than the
Class A, B and L shares' performance indicated on this chart, depending on
whether greater or lesser sales charges and fees were incurred by
shareholders investing in the other class.
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.
++ It is the opinion of management that the Russell 3000 Index is a more
appropriate broad-based benchmark for the market in which the Fund invests
than the Standard & Poor's 500 Index. In future reporting, the Russell
3000 Index will be used as a basis of comparison of total return
performance rather than the Standard & Poor's 500 Index.
Industry Diversification of Common Stock*
- --------------------------------------------------------------------------------
[BAR GRAPH]
Financial Services 9.7%
Healthcare 11.7%
Insurance 9.8%
Food and Beverage 5.6%
Tobacco 3.8%
Consumer Products 6.1%
Electronics 3.8%
Energy 6.5%
Manufacturing 1.4%
Machinery - Diversified 2.4%
Other 39.2%*
* As a percentage of total common stock.
Investment Breakdown
- --------------------------------------------------------------------------------
[PIE CHART]
Common Stock 97.8%
Cash Equivalent 2.2%
- --------------------------------------------------------------------------------
6 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 97.8%
Advertising -- 1.8%
250,000 Snyder Communications Inc.(b) $ 8,187,500
- --------------------------------------------------------------------------------
Aerospace/Defense -- 3.5%
50,000 B.F. Goodrich Co.(b) 2,125,000
300,000 Coltec Industries(a) 6,506,250
180,000 Lockheed Martin Corp. 6,705,000
- --------------------------------------------------------------------------------
15,336,250
- --------------------------------------------------------------------------------
Auto/Truck Parts and Equipment -- 1.0%
50,000 DaimlerChrysler, A.G.(b) 4,443,750
- --------------------------------------------------------------------------------
Computer Software -- 7.9%
358,729 Cadence Design Systems, Inc.(b) 4,573,795
70,000 Computer Associates International, Inc. 3,850,000
230,000 IMRGlobal Corp. 4,427,500
475,000 J.D. Edwards & Co.(b) 8,787,500
150,000 Transaction Systems Architects, Inc.(b) 5,850,000
200,000 Visio Corp. 7,612,500
- --------------------------------------------------------------------------------
35,101,295
- --------------------------------------------------------------------------------
Consumer Products -- 5.9%
155,000 Compaq Computer Corp. 3,671,563
85,000 Hewlett-Packard Co. 8,542,500
348,000 Mattel Inc.(b) 9,200,500
255,000 Nabisco Group Holdings 4,988,438
- --------------------------------------------------------------------------------
26,403,001
- --------------------------------------------------------------------------------
Cosmetics -- 1.7%
130,000 Kimberly-Clark Corp. 7,410,000
- --------------------------------------------------------------------------------
Electronics -- 3.7%
525,000 Actel Corp.(a) 7,743,750
230,000 Illinova Corp.(b) 6,267,500
130,000 Thermo Electron Corp. 2,608,125
- --------------------------------------------------------------------------------
16,619,375
- --------------------------------------------------------------------------------
Energy -- 6.4%
100,000 Halliburton Co. 4,525,000
350,000 MCN Energy Group Inc. 7,262,500
250,000 Sonat Inc. 8,281,250
210,000 Unocal Corp. 8,321,250
- --------------------------------------------------------------------------------
28,390,000
- --------------------------------------------------------------------------------
Energy Holding -- 0.8%
75,000 Shell Transport & Trading Co. 3,478,125
- --------------------------------------------------------------------------------
Financial Services -- 9.5%
140,000 Bank America Corp. 10,263,750
125,000 Bank One Corp. 7,445,314
200,000 Everen Capital Corp. 5,962,500
45,000 First Union Corp.(b) 2,115,000
30,000 The Chase Manhattan Corp. 2,598,750
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Financial Services -- 9.5% (continued)
225,000 Washington Federal, Inc. $ 5,048,438
245,000 Washington Mutual, Inc. 8,666,875
- --------------------------------------------------------------------------------
42,100,627
- --------------------------------------------------------------------------------
Foods and Beverages -- 5.5%
125,000 Albertson's Inc. 6,445,313
290,000 ConAgra Inc.(b) 7,721,250
275,000 Interstate Bakeries Corp.(b) 6,170,051
35,000 PepsiCo Inc. 1,354,063
125,000 Sara Lee Corp. 2,835,938
- --------------------------------------------------------------------------------
24,526,615
- --------------------------------------------------------------------------------
Healthcare -- 11.4%
490,000 HEALTHSOUTH Corp.(a) 7,319,375
245,000 Mallinckrodt Inc. 8,911,875
200,000 McKesson HBOC, Inc. 6,425,000
405,000 Mylan Laboratories(a)(b) 10,732,500
565,000 Quorum Health Group, Inc.(a) 7,097,813
655,000 Total Renal Care Holdings, Inc. 10,193,438
- --------------------------------------------------------------------------------
50,680,001
- --------------------------------------------------------------------------------
Insurance -- 9.6%
90,000 Aetna, Inc. 8,049,375
125,000 Allstate Corp. 4,484,375
490,000 Capital Re Corp. 7,870,625
225,000 Conseco, Inc. 6,848,438
125,000 MGIC Investment Corp. 6,078,125
186,655 Radian Group, Inc. 9,111,097
- --------------------------------------------------------------------------------
42,442,035
- --------------------------------------------------------------------------------
Machinery - Diversified -- 2.4%
160,000 Flowserve Corp. 3,030,000
65,000 Honeywell Inc. 7,531,875
- --------------------------------------------------------------------------------
10,561,875
- --------------------------------------------------------------------------------
Manufacturing -- 1.4%
505,000 Safeskin Corp.(a) 6,060,000
- --------------------------------------------------------------------------------
Photo Equipment and Supplies -- 1.5%
100,000 Eastman Kodak Co. 6,775,000
- --------------------------------------------------------------------------------
Publishing and Printing -- 3.3%
122,000 Houghton Mifflin Co. 5,741,625
180,000 Scholastic Corp.(a) 9,112,500
- --------------------------------------------------------------------------------
14,854,125
- --------------------------------------------------------------------------------
Real Estate -- 5.4%
200,000 Camden Property Trust 5,550,000
155,000 Equity Office Properties Trust 3,971,875
275,000 FelCor Lodging Trust Inc. 5,706,250
550,000 IndyMac Mortgage Holdings, Inc. 8,800,000
- --------------------------------------------------------------------------------
24,028,125
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Retail -- 4.2%
675,000 OfficeMax, Inc. $ 8,100,000
400,000 Pier 1 Imports, Inc. 4,500,000
250,000 Rite-Aid Corp.(b) 6,156,250
- --------------------------------------------------------------------------------
18,756,250
- --------------------------------------------------------------------------------
Security Services -- 1.8%
300,000 Pittston Brink's Group 8,025,000
- --------------------------------------------------------------------------------
Tobacco -- 3.7%
200,000 Philip Morris Cos., Inc. 8,037,500
85,000 R J Reynolds Tobacco Holdings, Inc. 2,677,500
200,000 UST, Inc. 5,850,000
- --------------------------------------------------------------------------------
16,565,000
- --------------------------------------------------------------------------------
Transportation -- 0.1%
13,300 Teekay Shipping Corp. 234,418
- --------------------------------------------------------------------------------
Utilities -- 1.4%
225,000 Western Resources, Inc.(b) 5,990,625
- --------------------------------------------------------------------------------
Waste Management -- 3.9%
245,000 Allied Waste Industries, Inc. 4,838,750
100,000 Browning-Ferris Industries 4,300,000
155,000 Waste Management, Inc. 8,331,250
- --------------------------------------------------------------------------------
17,470,000
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $371,703,844) 434,438,992
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 2.2%
$9,852,000 Goldman, Sachs & Co., 4.800% due 7/1/99;
Proceeds at maturity -- $9,853,314; (Fully
collateralized by U.S. Treasury Notes, 6.125%
due 8/15/07; U.S. Treasury Notes, 5.250% due
5/15/04; U.S. Treasury Notes, 5.750% due
4/30/03; U.S. Treasury Notes, 5.500% due 2/28/03;
U.S. Treasury Notes, 4.000% due 10/31/00; U.S.
Treasury Bonds, 8.750% due 5/15/17; U.S. Treasury
Bonds, 7.250% due 5/15/16; U.S. Treasury Bills,
due 3/2/00; Total Market value -- $10,049,047)
(Cost -- $9,852,000) 9,852,000
================================================================================
TOTAL INVESTMENTS
(Cost -- $381,555,844*) $444,290,992
================================================================================
(a) Non-income producing security.
(b) All or 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.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $381,555,844) $444,290,992
Cash 937
Collateral for securities on loan (Note 6) 55,617,821
Receivable for securities sold 56,756
Receivable for Fund shares sold 488,214
Dividends and interest receivable 678,984
- --------------------------------------------------------------------------------
Total Assets 501,133,704
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 55,617,821
Management fees payable 360,826
Distribution fees payable 68,148
Payable for Fund shares purchased 13,454
Accrued expenses 232,100
- --------------------------------------------------------------------------------
Total Liabilities 56,292,349
- --------------------------------------------------------------------------------
Total Net Assets $444,841,355
================================================================================
NET ASSETS:
Par value of capital shares $ 30,382
Capital paid in excess of par value 324,338,150
Undistributed net investment income 1,100,888
Accumulated net realized gain from security transactions 56,636,787
Net unrealized appreciation of investments 62,735,148
- --------------------------------------------------------------------------------
Total Net Assets $444,841,355
- --------------------------------------------------------------------------------
Shares Outstanding:
Class A 6,430,774
----------------------------------------------------------------------------
Class B 15,661,194
----------------------------------------------------------------------------
Class L 1,741,323
----------------------------------------------------------------------------
Class Y 6,548,270
----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $14.78
----------------------------------------------------------------------------
Class B * $14.49
----------------------------------------------------------------------------
Class L ** $14.50
----------------------------------------------------------------------------
Class Y (and redemption price) $14.90
----------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $15.56
----------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $14.67
================================================================================
* 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 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended June 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 4,699,854
Interest 209,805
- --------------------------------------------------------------------------------
Total Investment Income 4,909,659
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 1,959,708
Distribution fees (Note 2) 1,482,000
Shareholder communications 201,555
Registration fees 89,260
Shareholder and system servicing fees 62,445
Directors' fees 29,257
Custody 21,423
Audit and legal 17,357
Other 7,902
- --------------------------------------------------------------------------------
Total Expenses 3,870,907
- --------------------------------------------------------------------------------
Net Investment Income 1,038,752
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTES 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 324,564,689
Cost of securities sold 267,926,709
- --------------------------------------------------------------------------------
Net Realized Gain 56,637,980
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 70,458,038
End of period 62,735,148
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (7,722,890)
- --------------------------------------------------------------------------------
Net Gain on Investments 48,915,090
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 49,953,842
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1999 (unaudited)
and the Year Ended December 31, 1998.
1999 1998
================================================================================
OPERATIONS:
Net investment gain $ 1,038,752 $ 31,549
Net realized gain 56,637,980 23,711,092
Decrease in net unrealized appreciation (7,722,890) (40,630,163)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 49,953,842 (16,887,522)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (43,203) --
Net realized gains (14,828,570) (21,580,436)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (14,871,773) (21,580,436)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 21,662,520 56,276,485
Net asset value of shares issued for
reinvestment of dividends 11,064,931 18,459,523
Cost of shares reacquired (147,597,452) (472,270,586)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (114,870,001) (397,534,578)
- --------------------------------------------------------------------------------
Decrease in Net Assets (79,787,932) (436,002,536)
NET ASSETS:
Beginning of period 524,629,287 960,631,823
- --------------------------------------------------------------------------------
End of period* $ 444,841,355 $ 524,629,287
================================================================================
* Includes undistributed net investment income of: $1,100,888 $105,339
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1999 Semi-Annual Report to Shareholders
<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 seven
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, Smith
Barney Hansberger Global Small Cap Value Fund and Smith Barney Small Cap Value
Fund. The financial statements and financial highlights for the other portfolios
are presented in separate semi-annual reports.
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, 1998,
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 investment 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
SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), acts as investment
manager to the Fund. The Portfolio pays SSBC 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.
CFBDS, Inc. acts as the Fund's distributor. Salomon Smith Barney Inc. ("SSB"),
another subsidiary of SSBH, as well as certain other broker-dealers, continues
to sell Fund shares to the public as a member of the selling group.
SSB acts as primary broker for its portfolio agency transactions. For the six
months ended June 30, 1999 SSB received brokerage commissions of $9,870.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
There is a contingent deferred sales charge ("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. Class L shares also have
a 1.00% CDSC, which applies if redemption occurs within the first year of
purchase. 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, 1999, CFBDS received sales charges of $14,000
and $1,000 on sales of the Funds' Class A and Class L shares, respectively. In
addition, CDSCs paid to CFBDS were approximately:
Class A Class B Class L
================================================================================
CDSCs -- $599,000 --
================================================================================
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, 1999, total Distribution Plan fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $123,738 $1,220,859 $137,403
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the six months ended June 30, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $191,413,259
- --------------------------------------------------------------------------------
Sales 324,564,689
================================================================================
At June 30, 1999, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 74,589,427
Gross unrealized depreciation (11,854,279)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 62,735,148
================================================================================
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, 1999, the Portfolio had no open purchased call or put options.
When a Portfolio writes a call or put option, an amount equal to the premium
received by the Portfolio is
- --------------------------------------------------------------------------------
14 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
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, 1999, the Fund 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, 1999, the Portfolio had loaned common stocks having a value of
approximately $55,153,567 and holds the following collateral for loaned
securities:
Security Description Value
================================================================================
Time Deposit:
Banco Bilbao Vizcaya, 5.875% due 7/1/99 $16,171,799
Bank of Montreal, 5.937% due 7/1/99 2,132,979
Bank of Montreal, 5.250% due 7/1/99 11,249,947
Banque of Paribas, 5.875% due 7/1/99 5,531,943
Banque of Paribas, 5.875% due 7/1/99 11,531,196
Barclays Bank, 5.750% due 7/1/99 8,999,957
- --------------------------------------------------------------------------------
Total $55,617,821
================================================================================
Income earned by the Fund from securities loaned for the six months ended June
30, 1999 was $26,588.
7. Capital Shares
At June 30, 1999, 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.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
At June 30, 1999, total paid-in capital amounted to the following for each
class:
Class A Class B Class L Class Y
================================================================================
Total Paid-in Capital $59,463,094 $162,597,539 $16,600,734 $85,707,165
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998++
------------------------ ---------------------------
Shares Amount Shares Amount
========================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 1,026,270 $ 15,346,546 841,540 $ 12,059,326
Shares issued on reinvestment 208,388 3,002,872 324,842 4,561,829
Shares reacquired (3,281,862) (46,360,604) (9,232,541) (130,041,484)
- ----------------------------------------------------------------------------------------
Net Decrease (2,047,204) $(28,011,186) (8,066,159) $(113,420,329)
========================================================================================
Class B
Shares sold 67,956 $ 952,776 859,389 $ 12,355,161
Shares issued on reinvestment 511,867 7,237,797 846,593 11,744,374
Shares reacquired (6,611,778) (89,950,900) (18,802,208) (255,580,291)
- ----------------------------------------------------------------------------------------
Net Decrease (6,031,955) $(81,760,327) (17,096,226) $(231,480,756)
========================================================================================
Class L+
Shares sold 34,819 $ 478,483 218,764 $ 3,126,633
Shares issued on reinvestment 58,252 824,262 106,857 1,486,477
Shares reacquired (828,529) (11,285,948) (3,289,378) (44,989,284)
- ----------------------------------------------------------------------------------------
Net Decrease (735,458) $ (9,983,203) (2,963,757) $ (40,376,174)
========================================================================================
Class Y
Shares sold 355,449 $ 4,884,715 1,790,595 $ 25,024,375
Shares reacquired -- -- (626,132) (8,800,000)
- ----------------------------------------------------------------------------------------
Net Increase 355,449 $ 4,884,715 1,164,463 $ 16,224,375
========================================================================================
Class Z
Shares sold -- -- 265,807 $ 3,710,900
Shares issued on reinvestment -- -- 47,351 666,843
Shares reacquired -- -- (2,389,658) (32,859,527)
- ----------------------------------------------------------------------------------------
Net Decrease -- -- (2,076,500) $ (28,481,694)
========================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed Class L shares.
++ At December 31, 1998, all Class Z shares were fully redeemed.
- --------------------------------------------------------------------------------
16 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 1999(1)(2) 1998(2) 1997 1996(2) 1995(2)(3)
==========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.62 $14.21 $13.42 $12.03 $12.00
- ----------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.06 0.06 0.08 0.10 0.16
Net realized and unrealized gain (loss) 1.60 (0.21) 1.77 1.84 0.02
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.66 (0.15) 1.85 1.94 0.18
- ----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.00)* -- (0.02) (0.09) (0.15)
Net realized gains (0.50) (0.44) (1.04) (0.46) --
- ----------------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.44) (1.06) (0.55) (0.15)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period 14.78 $13.62 $14.21 $13.42 $12.03
- ----------------------------------------------------------------------------------------------------------
Total Return 12.29%++ (1.12)% 13.70% 16.33% 1.53%++
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $95,045 $115,480 $235,172 $218,927 $160,487
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.30%+ 1.29% 1.28% 1.27% 1.19%+
Net investment income 0.83+ 0.43 0.55 0.84 2.74+
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 42% 77% 35% 34% 6%
==========================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) 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.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class B Shares 1999(1)(2) 1998(2) 1997 1996(2) 1995(2)(3)
========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.42 $14.11 $13.41 $12.02 $12.00
- --------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) -- (0.05) (0.03) 0.01 0.11
Net realized and unrealized gain (loss) 1.57 (0.20) 1.77 1.84 0.02
- --------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.57 (0.25) 1.74 1.85 0.13
- --------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- -- (0.11)
Net realized gains (0.50) (0.44) (1.04) (0.46) --
- --------------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.44) (1.04) (0.46) (0.11)
- --------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.49 $13.42 $14.11 $13.41 $12.02
- --------------------------------------------------------------------------------------------------------
Total Return 11.79%++ (1.84)% 12.84% 15.55% 1.16%++
- --------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $226,993 $291,038 $547,481 $484,673 $300,000
- --------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.07%+ 2.06% 2.05% 2.03% 1.94%+
Net investment income (loss) 0.05+ (0.33) (0.22) 0.08 1.99+
- --------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 42% 77% 35% 34% 6%
========================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(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 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 1999(1)(2) 1998(2)(3) 1997 1996(2) 1995(2)(4)
==========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period: $13.42 $14.12 $13.41 $12.03 $12.00
- ----------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) -- (0.05) (0.03) 0.00* 0.11
Net realized and unrealized gain (loss) 1.58 (0.21) 1.78 1.84 0.03
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.58 (0.26) 1.75 1.84 0.14
- ----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- -- (0.11)
Net realized gains (0.50) (0.44) (1.04) (0.46) --
- ----------------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.44) (1.04) (0.46) (0.11)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.50 $13.42 $14.12 $13.41 $12.03
- ----------------------------------------------------------------------------------------------------------
Total Return 11.86%++ (1.91)% 12.91% 15.45% 1.16%++
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $25,255 $33,249 $76,819 $68,340 $42,530
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.06%+ 2.04% 2.04% 2.03% 1.91%+
Net investment income (loss) 0.06+ (0.33) (0.21) 0.08 2.02+
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 42% 77% 35% 34% 6%
==========================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On June 12, 1998, Class C shares were renamed Class L shares. (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.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class Y Shares 1999(1)(2) 1998(2) 1997 1996(2)(3)
================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.70 $14.24 $13.43 $12.21
- ------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.09 0.13 0.16 0.12
Net realized and unrealized gain (loss) 1.61 (0.23) 1.77 1.69
- ------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.70 (0.10) 1.93 1.81
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.00)* -- (0.08) (0.13)
Net realized gains (0.50) (0.44) (1.04) (0.46)
- ------------------------------------------------------------------------------------------------
Total Distributions (0.50) (0.44) (1.12) (0.59)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.90 $13.70 $14.24 $13.43
- ------------------------------------------------------------------------------------------------
Total Return 12.54%++ (0.76)% 14.23% 14.97%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $97,548 $84,862 $71,599 $65,499
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.93%+ 0.90% 0.90% 0.92%+
Net investment income 1.21+ 0.95 0.92 1.12+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 42% 77% 35% 34%
================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from January 31, 1996 (inception date) to December 31,
1996.
* 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 1999 Semi-Annual Report to Shareholders
<PAGE>
Smith Barney
Contrarian Fund
Directors
Paul R. Ades
Herbert Barg
Dwight B. Crane
Frank G. Hubbard
Heath B. McLendon, Chairman
Jerome Miller
Ken Miller
John F. White, Emeritus
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
John F. Stoeser
Vice President and Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Manager
SSBC Fund Management Inc.
Distributor
CFBDS, 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 Funds --Smith Barney Contrarian 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.
SALOMON SMITH BARNEY
---------------------------
A member of citigroup[LOGO]
Smith Barney Contrarian Fund
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com
[GRAPHIC OMITTED]
Smith Barney
Investment Grade
Bond Fund
[GRAPHIC OMITTED]
------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1999
[LOGO] Smith Barney Mutual Funds
<PAGE>
Smith Barney Investment
Grade Bond Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Smith Barney Investment Grade Bond Fund ("Portfolio") seeks as high a level
of current income as is consistent with prudent investment management and
preservation of capital.
Smith Barney Investment Grade Bond Fund
Average Annual Total Returns
June 30, 1999
Without Sales Charges(1)
------------------------------------------
Class A Class B Class L
===============================================================================
Six-Month+ (6.03)% (6.20)% (6.28)%
- ------------------------------------------------------------------------------
One-Year (4.00) (4.47) (4.53)
- ------------------------------------------------------------------------------
Five-Year 10.13 9.59 9.62
- ------------------------------------------------------------------------------
Ten-Year N/A 9.05 N/A
- ------------------------------------------------------------------------------
Since Inception++ 9.12 11.16 7.39
===============================================================================
With Sales Charges(2)
------------------------------------------
Class A Class B Class L
===============================================================================
Six-Month+ (10.27)% (10.31)% (8.10)%
- ------------------------------------------------------------------------------
One-Year (8.32) (8.43) (6.37)
- -------------------------------------------------------------------------------
Five-Year 9.12 9.45 9.41
- -------------------------------------------------------------------------------
Ten-Year N/A 9.05 N/A
- -------------------------------------------------------------------------------
Since Inception++ 8.37 11.16 7.21
===============================================================================
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 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
- --------------------------------------------------------------------------------
With interest rates at historically low levels versus the early 1980s, we have
adopted a slightly less aggressive stance in the Portfolio. At the beginning of
the year, the Portfolio's average maturity was 49 years with a strong emphasis
on industrial bonds. As of this writing, the Portfolio's average maturity is 22
years. Moreover, we have broadened the Portfolio's diversification during the
reporting period and it currently has roughly 50% of its assets invested in
industrials, about 8% in utilities, approximately 15% in financials, about 6% in
Yankee bonds and the remainder in U.S. Treasuries and mortgage-backed
securities.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A HGBPA
Class B HGBPB
Class L HGBPL
- --------------------------------------------------------------------------------
WHAT'S INSIDE
- --------------------------------------------------------------------------------
Shareholder Letter ........................................................ 1
Historical Performance .................................................... 3
Smith Barney Investment Grade Bond Fund
at a Glance ............................................................... 5
Schedule of Investments ................................................... 6
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
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Letter
- --------------------------------------------------------------------------------
[PHOTO OMITTED] [PHOTO OMITTED]
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 Investment
Grade Bond Fund ("Portfolio") for the period ended June 30, 1999. We hope you
find this report to be useful and informative. 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, 1999, the Portfolio's Class A shares generated
a total return of a negative 6.03% without sales charges. In comparison, the
Portfolio's Lipper, Inc. peer group posted a negative 2.43% 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 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 half of 1999 was a period of sustained economic growth at home and
recovery abroad. Following the events surrounding the Russian debt default in
August of 1998 -- which included a 0.75% cut in Fed funds -- yields have risen
thus far in 1999. Investor optimism regarding economic prospects, however, was
tempered by concerns about potential inflation. In addition, both Russia and
Argentina remain economic hot spots and deserve close monitoring. The
reconstruction of Kosovo and peacekeeping efforts in that war-torn country will
also be an ongoing challenge.
Another issue facing the bond market is Y2K, a phrase referring to the fact that
some dates were coded into computers using only the last two digits of the year,
assuming the first two digits were "19." On or after January 1, 2000, some
computers may misread or not recognize dates and cause potential dislocations.
And while the extent of the Y2K problem is impossible to predict, it is safe to
say the immediate future promises to be interesting.
During the first half of 1999, U.S. economic growth continued at a robust pace,
posting a 4.3% annualized GDP growth rate for the first quarter. Furthermore,
the labor market continued to be extremely tight, as the unemployment rate fell
to a 29-year low of 4.2% in March. Defying the expectations of many economists,
inflation, as measured by the Consumer Price Index ("CPI"), was virtually
absent. Productivity gains and sagging global demand were credited with keeping
inflation under control. However, in the month of April, the CPI rose by 0.7%,
its largest monthly increase in nine years. This, coupled with signs that many
world economies were in the nascent stages of growth and recovery, deepened
fears that inflationary pressures were reaching a breaking point. These concerns
brought about an increase in the yield of the benchmark 30-year U.S. Treasury
Bond, which gained 71 basis points between April 8 and June 24 to close at
6.16%.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 1
<PAGE>
To counter these inflationary pressures, the Federal Reserve Board ("Fed")
raised short-term interest rates by 0.25% in late June, and subsequently adopted
a neutral stance on monetary policy. Meanwhile, during the months of May and
June, the CPI remained constant, generating considerable optimism that inflation
had retreated. Further reports of rising U.S. jobless claims added to the
optimism. This sparked a rise in demand for fixed-income investments,
effectively lowering the 30-year U.S. Treasury yield to 5.89% on July 19.
However, the Fed has signaled its willingness to raise rates if there are any
signs of inflationary pressures.
Investment Strategy
As previously noted, the Investment Grade Bond Fund seeks as high a level of
current income as is consistent with prudent investment management and
preservation of capital. The Portfolio invests primarily in "investment grade"
fixed income securities. These are securities rated by a national ratings
organization within one of the top four categories, or, if unrated, judged by
the manager to be of comparable credit quality. The Portfolio may also invest in
U.S. government securities and U.S. dollar denominated fixed income securities
of foreign issuers. The Portfolio may invest in securities having any maturity.
With interest rates at historically low levels versus the early 1980s, with bond
market liquidity extremely thin, and given the fact that the Portfolio's
previous success was based on its long maturity, we have adopted a slightly less
aggressive stance in light of current market conditions. At the beginning of the
year, the Portfolio's average maturity was 49 years with a strong emphasis on
industrial bonds. As of this writing, the Portfolio's average maturity is 22
years. Moreover, we have broadened the Portfolio's diversification during the
reporting period and it currently has roughly 50% of its assets invested in
industrials, about 8% in utilities, approximately 15% in financials, about 6% in
Yankee bonds and the remainder in U.S. Treasuries and mortgage-backed
securities.
Market Outlook
We anticipate that interest rates will decline as the end of 1999 approaches. In
our view, the combination of Y2K concerns and the potential for more moderate
economic growth will alleviate some of the inflation concerns that have recently
affected interest rates. Overall, we remain optimistic that growth and
relatively low levels of inflation can co-exist.
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/ James E. Conroy
Heath B. McLendon James E. Conroy
Chairman Vice President and
Investment Officer
July 21, 1999
- --------------------------------------------------------------------------------
Top Ten Holdings* As of June 30, 1999
- --------------------------------------------------------------------------------
1. NationsBank Corp. 4.9%
- --------------------------------------------------------------------------------
2. Boeing Co. 4.9
- --------------------------------------------------------------------------------
3. Time Warner Inc. 4.6
- --------------------------------------------------------------------------------
4. Chrysler Corp. 4.6
- --------------------------------------------------------------------------------
5. Bank One Corp. 4.5
- --------------------------------------------------------------------------------
6. American General Corp. 4.5
- --------------------------------------------------------------------------------
7. Rite Aid Corp. 4.4
- --------------------------------------------------------------------------------
8. General Motors Corp. 4.1
- --------------------------------------------------------------------------------
9. Sprint Capital 4.1
- --------------------------------------------------------------------------------
10. Ford Motor Co. 3.9
- --------------------------------------------------------------------------------
* As a percentage of total investments.
- --------------------------------------------------------------------------------
2 1999 Semi-Annual Report to Shareholders
<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>
6/30/99 $13.12 $11.97 $ 0.37 $ 0.00 $ 0.00 (6.03)%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/98 13.19 13.12 0.76 0.37 0.00 8.30
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 5.47 $ 1.38 $ 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>
- ------------------------------------------------------------------------------------------------------------------------------------
6/30/99 $13.09 $11.95 $ 0.34 $ 0.00 $ 0.00 (6.20)%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/98 13.19 13.09 0.72 0.37 0.00 7.72
- ------------------------------------------------------------------------------------------------------------------------------------
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
====================================================================================================================================
Total $ 8.39 $ 1.38 $ 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>
6/30/99 $13.07 $11.92 $ 0.34 $ 0.00 $ 0.00 (6.28)%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/98 13.18 13.07 0.74 0.37 0.00 7.83
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 4.86 $ 1.38 $ 0.03
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 3
<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>
6/30/99 $13.11 $11.96 $ 0.39 $ 0.00 $ 0.00 (5.86)%+
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/98 13.19 13.11 0.82 0.37 0.00 8.66
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 2.78 $ 0.77 $ 0.00
====================================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
------------------------------------------
Class A Class B Class L Class Y
================================================================================
Six Months Ended 6/30/99+ (6.03)% (6.20)% (6.28)% (5.86)%
- --------------------------------------------------------------------------------
Year Ended 6/30/99 (4.00) (4.47) (4.53) (3.71)
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 10.13 9.59 9.62 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/99 N/A 9.05 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 6/30/99 9.12 11.16 7.39 5.87
================================================================================
With Sales Charges(2)
------------------------------------------
Class A Class B Class L Class Y
================================================================================
Six Months Ended 6/30/99+ (10.27)% (10.31)% (8.10)% (5.86)%
- --------------------------------------------------------------------------------
Year Ended 6/30/99 (8.32) (8.43) (6.37) (3.71)
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 9.12 9.45 9.41 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/99 N/A 9.05 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 6/30/99 8.37 11.16 7.21 5.87
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (Inception* through 6/30/99) 78.65%
- --------------------------------------------------------------------------------
Class B (6/30/89 through 6/30/99) 137.79
- --------------------------------------------------------------------------------
Class L (Inception* through 6/30/99) 57.16
- --------------------------------------------------------------------------------
Class Y (Inception* through 6/30/99) 21.35
================================================================================
(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.
- --------------------------------------------------------------------------------
4 1999 Semi-Annual Report to Shareholders
<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 and the Salomon Smith Barney Corporate
Index 10++
[GRAPHIC OMITTED]
[INSERT PLOT POINTS]
+ Hypothetical illustration of $10,000 invested in Class B shares on June
30, 1989, assuming reinvestment of dividends and capital gains, if any, at
net asset value through June 30, 1999. 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 164
mutual funds as of June 30, 1999. 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.
++ It is the opinion of management that the Salomon Smith Barney Corporate
Index 10+ more accurately reflects the current composition of the Smith
Barney Investment Grade Bond Fund. In future reporting, the Salomon Smith
Barney Corporate Index 10+ will be used as a basis of comparison of the
total return performance rather than the Lehman Brothers Long-Term
Corporate Bond Index.
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*
- --------------------------------------------------------------------------------
[The following table was represented by a line chart in the printed material.]
6.9% Aerospace & Defense
4.4% Airlines
12.6% Automotive
9.5% Banking
5.5% Finance
6.0% Insurance
11.5% Multimedia
9.9% Oil & Gas
4.4% Pollution Control
8.3% Telecommunications
21.0% Other
* As a percentage of total corporate bonds and notes.
Summary of Investments by Combined Ratings
- --------------------------------------------------------------------------------
Standard Percentage of
Moody's & Poor's Total Bonds & Notes
--------- ---------- ---------------------
Aaa AAA 0.7%
Aa AA 20.6
A A 38.1
Baa BBB 39.6
Ba BB 1.0
-------
100.0%
=======
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 5
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(A) SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 3.9%
$25,000,000 AAA U.S. Treasury Bond, 5.250% due 11/15/28 (c)
(Cost-- $22,994,602) $22,141,750
====================================================================================================================================
CORPORATE BONDS AND NOTES-- 78.6%
Aerospace & Defense-- 5.5%
23,500,000 AA- Boeing Co., Debentures, 6.875% due 10/15/43 21,678,750
2,000,000 A3* Lockheed Martin Corp., Debentures, 7.750% due 5/1/26 2,007,500
7,500,000 A3* Loral Corp., Debentures, 7.000% due 9/15/23 7,143,750
- ------------------------------------------------------------------------------------------------------------------------------------
30,830,000
- ------------------------------------------------------------------------------------------------------------------------------------
Airlines -- 3.5%
12,500,000 BBB- AMR Corp., Debentures, 9.000% due 9/15/16 13,796,875
5,000,000 BBB- Delta Air Lines, Inc., Debentures, 9.750% due 5/15/21 5,968,750
- ------------------------------------------------------------------------------------------------------------------------------------
19,765,625
- ------------------------------------------------------------------------------------------------------------------------------------
Automotive -- 9.9%
20,000,000 A+ Chrysler Corp., Debentures, 7.450% due 3/1/27 20,375,000
20,000,000 A1* Ford Motor Co., Debentures, 6.375% due 2/1/29 17,450,000
20,000,000 A General Motors Corp., Debentures, 6.750% due 5/1/28 18,375,000
- ------------------------------------------------------------------------------------------------------------------------------------
56,200,000
- ------------------------------------------------------------------------------------------------------------------------------------
Banking -- 7.4%
Bank One Corp., Debentures:
8,000,000 A1* 7.750% due 7/15/25 8,350,000
11,500,000 A1* 7.625% due 10/15/26 11,845,000
23,500,000 Aa3* NationsBank Corp., Debentures, 6.800% due 3/15/28 21,913,750
- ------------------------------------------------------------------------------------------------------------------------------------
42,108,750
- ------------------------------------------------------------------------------------------------------------------------------------
Beverages -- 1.9%
8,500,000 A+ Anheuser Busch Cos. Inc., Debentures, 6.750% due 12/15/27 8,138,750
3,000,000 A+ Coca Cola Enterprises Inc., Debentures, 6.750% due 1/15/38 2,767,500
- ------------------------------------------------------------------------------------------------------------------------------------
10,906,250
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Products -- 0.8%
6,000,000 BB+ Fruit of The Loom Corp., Debentures, 7.375% due 11/15/23 4,515,000
- ------------------------------------------------------------------------------------------------------------------------------------
Electronics/Computers -- 1.6%
10,000,000 AA- Motorola Inc., Debentures, 6.500% due 11/15/28 8,925,000
- ------------------------------------------------------------------------------------------------------------------------------------
Finance -- 4.3%
10,000,000 A Lehman Brothers Holdings, Sr. Notes, 7.200% due 8/15/09 9,762,500
16,000,000 AA- Merrill Lynch & Co., Debentures, 6.750% due 6/1/28 14,640,000
- ------------------------------------------------------------------------------------------------------------------------------------
24,402,500
- ------------------------------------------------------------------------------------------------------------------------------------
Foods -- 3.0%
16,000,000 A- Ralston Purina Co., Debentures, 8.125% due 2/1/23 17,180,000
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance -- 4.7%
American General Corp.:
15,000,000 AA- Debentures, 7.500% due 7/15/25 15,281,250
5,000,000 AA- Sr. Notes, 6.625% due 2/15/29 4,575,000
7,000,000 BBB+ Fairfax Financial Holdings, Notes, 8.250% due 10/1/15 6,912,500
- ------------------------------------------------------------------------------------------------------------------------------------
26,768,750
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(A) SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C> <C>
Manufacturing -- 2.4%
TYCO International Group, Company Guarantor:
$ 5,000,000 A- 6.125% due 1/15/09 $ 4,643,750
10,000,000 A- 6.875% due 1/15/29 9,137,500
- ------------------------------------------------------------------------------------------------------------------------------------
13,781,250
- ------------------------------------------------------------------------------------------------------------------------------------
Multimedia -- 19.7%
12,000,000 BBB- Paramount Communications, Inc., Sr. Debentures,
7.500% due 7/15/23 11,250,000
18,300,000 BBB- Seagrams Co., Ltd., Debentures, 6.875% due 9/1/23 16,630,125
2,500,000 BBB Time Warner Entertainment, Debentures, 8.375% due 7/15/33 2,728,125
Time Warner Inc., Debentures:
1,500,000 BBB 7.250% due 10/15/17 1,464,375
19,000,000 BBB 7.570% due 2/1/24 18,976,250
- ------------------------------------------------------------------------------------------------------------------------------------
51,048,875
- ------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas -- 7.8%
10,000,000 BBB- El Paso Energy Corp., Sr. Notes, 6.750% due 5/15/09 9,650,000
15,300,000 BBB Occidental Petroleum, Sr. Notes, 7.650% due 2/15/06 15,472,125
Petroleum Geo - Services:
5,000,000 BBB Bonds, 6.250% due 11/19/03 4,850,000
7,100,000 BBB Sr. Notes, 7.125% due 3/30/28 6,381,125
8,200,000 BBB- Union Pacific Resources, Debentures, 7.500% due 10/15/26 7,574,750
- ------------------------------------------------------------------------------------------------------------------------------------
43,928,000
- ------------------------------------------------------------------------------------------------------------------------------------
Pollution Control -- 3.5%
10,000,000 BBB+ Waste Management Inc., Sr. Notes, 7.375% due 5/15/29 9,787,500
10,000,000 BBB+ WMX Technologies, Notes, 6.375% due 12/1/03 9,912,500
- ------------------------------------------------------------------------------------------------------------------------------------
19,700,000
- ------------------------------------------------------------------------------------------------------------------------------------
Retail -- 3.5%
Rite Aid Corp., Debentures:
10,000,000 Baa1* 6.875% due 8/15/13 9,425,000
10,000,000 BBB+ 7.700% due 2/15/27 10,075,000
- ------------------------------------------------------------------------------------------------------------------------------------
19,500,000
- ------------------------------------------------------------------------------------------------------------------------------------
Super National Entity -- 0.5%
21,860,000 AAA International Bank of Reconstruction and Development,
zero coupon bond to yield 7.845% due 7/15/29 2,951,100
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications -- 6.5%
5,000,000 AA- GTE North Inc., Debentures, 5.650% due 11/15/08 4,593,750
20,000,000 A- Sprint Capital, Debentures, 6.875% due 11/15/28 18,275,000
15,000,000 A- WorldCom Inc., Sr. Notes, 6.950% due 8/15/28 14,212,500
- ------------------------------------------------------------------------------------------------------------------------------------
37,081,250
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation -- 2.8%
CSX Corp.:
6,000,000 BBB Debentures, 7.950% due 5/1/27 6,210,000
10,000,000 BBB Notes, 6.250% due 10/15/08 9,387,500
- ------------------------------------------------------------------------------------------------------------------------------------
15,597,500
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $460,818,068) 445,189,850
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
====================================================================================================================================
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (b) -- 16.0%
$14,015,932 FNMA 15 Year, 6.500% due 12/1/13 $ 13,849,492
1,958,567 FNMA 30 Year, 6.500% due 1/1/29 1,897,973
24,866,526 FNMA 30 Year, 6.000% due 2/1/29 23,452,242
29,519,950 GNMA 30 Year, 6.500% due 3/15/29 28,532,802
11,909,270 GNMA 30 Year, 6.000% due 4/15/29 11,190,903
11,964,602 GNMA 30 Year, 7.000% due 5/15/29 11,852,376
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost -- $93,724,974) 90,775,788
====================================================================================================================================
REPURCHASE AGREEMENT -- 1.5%
8,550,000 Morgan Stanley Dean Witter & Co., 4.800% due 7/1/99;
Proceeds at maturity -- $8,551,140; (Fully collateralized by U.S. Treasury
Notes, Bonds and Bills, 0.000% to 7.750% due 10/14/99
to 11/15/27; Market value -- $8,721,000) (Cost -- $8,550,000) 8,550,000
====================================================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $586,087,644**) $566,657,388
====================================================================================================================================
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service except those
identified by an asterisk (*) are rated by Moody's Investors Service, Inc.
(b) Dates shown represent the last in a range of maturity dates of mortgage
certificates owned.
(c) Security is on loan (See Note 5).
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 9 for definition of ratings.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited)
- --------------------------------------------------------------------------------
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("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 Investors Service, Inc. ("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, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $586,087,644) $566,657,388
Cash 27,626
Collateral for securities on loan (Note 5) 22,243,750
Interest receivable 10,194,630
Receivable for securities sold 1,802,245
Receivable for Fund shares sold 1,727,406
- ------------------------------------------------------------------------------
Total Assets 602,653,045
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 5) 22,243,750
Investment advisory fees payable 237,989
Administration fees payable 102,979
Payable for Fund shares purchased 64,256
Distribution fees payable 55,514
Accrued expenses 94,429
- ------------------------------------------------------------------------------
Total Liabilities 22,798,917
- ------------------------------------------------------------------------------
Total Net Assets $ 579,854,128
==============================================================================
NET ASSETS:
Par value of capital shares $ 484,977
Capital paid in excess of par value 586,445,200
Overdistributed net investment income (537,403)
Accumulated net realized gain from security transactions 12,891,610
Net unrealized depreciation of investments (19,430,256)
- ------------------------------------------------------------------------------
Total Net Assets $ 579,854,128
==============================================================================
Shares Outstanding:
Class A 19,742,521
-------------------------------------------------------------------------
Class B 18,836,147
-------------------------------------------------------------------------
Class L 1,663,843
-------------------------------------------------------------------------
Class Y 8,255,119
-------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 11.97
-------------------------------------------------------------------------
Class B * $ 11.95
-------------------------------------------------------------------------
Class L ** $ 11.92
-------------------------------------------------------------------------
Class Y (and redemption price) $ 11.96
-------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net
asset value per share) $ 12.53
-------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net
asset value per share) $ 12.04
==============================================================================
* 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.
- --------------------------------------------------------------------------------
10 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended June 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 20,395,429
- -------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 1,341,053
Distribution fees (Note 2) 1,282,575
Administration fees (Note 2) 592,449
Shareholder and system servicing fees 186,643
Registration fees 49,230
Shareholder communications 44,359
Directors' fees 19,326
Audit and legal 17,812
Custody 10,905
Pricing service fees 2,401
Other 6,845
- -------------------------------------------------------------------------------
Total Expenses 3,553,598
- -------------------------------------------------------------------------------
Net Investment Income 16,841,831
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 520,339,894
Cost of securities sold 506,125,312
- -------------------------------------------------------------------------------
Net Realized Gain 14,214,582
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
(Depreciation) of Investments:
Beginning of period 49,808,732
End of period (19,430,256)
- -------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (69,238,988)
- -------------------------------------------------------------------------------
Net Loss on Investments (55,024,406)
- -------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (38,182,575)
===============================================================================
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, 1999 (unaudited)
and the Year Ended December 31, 1998
<TABLE>
<CAPTION>
1999 1998
====================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 16,841,831 $ 32,654,497
Net realized gain 14,214,582 15,949,183
Increase in net unrealized depreciation (69,238,988) (3,219,301)
- ----------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (38,182,575) 45,384,379
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (17,377,174) (33,069,438)
Net realized gains -- (17,337,072)
- ----------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (17,377,174) (50,406,510)
- ----------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 79,244,645 178,170,675
Net asset value of shares issued for reinvestment of dividends 10,119,233 30,877,496
Cost of shares reacquired (80,806,190) (127,423,376)
- ----------------------------------------------------------------------------------------------------
Increase in Net Assets From Fund Share Transactions 8,557,688 81,624,795
- ----------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (47,002,061) 76,602,664
NET ASSETS:
Beginning of period 626,856,189 550,253,525
- ----------------------------------------------------------------------------------------------------
End of period* $ 579,854,128 $ 626,856,189
====================================================================================================
* Includes overdistributed net investment income of: $ (537,403) $ (2,060)
====================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Investment Grade Bond Fund ("Port folio"), 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 seven other separate investment portfolios: Smith
Barney Government Securities Fund, Smith Barney Special Equities Fund, Smith
Barney Contrarian Fund, Concert Peachtree Growth Fund, Smith Barney Hansberger
Global Value Fund, Smith Barney Hansberger Global Small Cap Value Fund and Smith
Barney Small Cap Value Fund. The financial statements and financial highlights
for the other port folios are presented in separate shareholder reports.
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; (j) 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, 1998, reclassifications were made to the Portfolio's capital
accounts to reflect permanent book/tax differences and in come and gains
available for distributions under income tax regulations. In addition, a portion
of overdistributed net investment income and accumulated net realized loss
amounting to $427,144 and $2,575 was reclassified to paid-in capital. Net
investment income, net realized gains and net assets were not affected by this
change; 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. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), acts as investment
adviser to the Fund. The Portfolio pays SSBC 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.
SSBC 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
mil lion and 0.18% of the average daily net assets thereafter. This fee is
calculated daily and paid monthly.
CFBDS, Inc. acts as the Fund's distributor. Salomon Smith Barney Inc. ("SSB"),
another subsidiary of SSBH, as well as certain other broker-dealers, continues
to sell Fund shares to the public as members of the selling group.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
There is also a contingent deferred sales charge ("CDSC") of 4.50% 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. Class L shares also have a 1.00% CDSC which
applies if redemption occurs within the first year of purchase. 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, 1999, SSB received sales charges of
approximately $148,000 and $48,000 on sales of the Portfolio's Class A and L
shares, respectively. In addition, CDSCs paid to SSB were approximately:
Class B Class L
================================================================================
CDSCs $172,000 $ 8,000
================================================================================
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, 1999, total Distribution Plan
fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $306,623 $908,369 $67,583
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the six months ended June 30, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $528,056,313
- --------------------------------------------------------------------------------
Sales 520,339,894
================================================================================
At June 30, 1999, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 5,944,295
Gross unrealized depreciation (25,374,551)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (19,430,256)
================================================================================
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. 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
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 Portfolio maintains exposure for the
risk of any losses in the investment of amounts received as collateral.
At June 30, 1999, the Portfolio loaned stocks having a value of approximately
$22,141,750 and holds the following collateral for loaned securities:
- --------------------------------------------------------------------------------
14 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Descriptions Value
====================================================================================================================================
<S> <C>
Time Deposits:
Banco Bilbao Vizcaya, 5.875% due 7/1/99 $ 6,467,737
Bank of Montreal, 5.250% due 7/1/99 4,499,295
Bank of Montreal, 5.937% due 7/1/99 853,062
Banque Paribas, 5.875% due 7/1/99 6,824,220
Barclays Bank PLC, 5.750% due 7/1/99 3,599,436
- ---------------------------------------------------------------------------------------------------------------------------------
Total $22,243,750
====================================================================================================================================
</TABLE>
Income earned by the Portfolio from securities loaned for the six months ended
June 30,1999 was $38,787.
6. Capital Shares
At June 30, 1999 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, 1999, 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 $227,564,642 $233,595,288 $21,283,890 $104,486,357
====================================================================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
-------------------------------- --------------------------------
Shares Amount Shares Amount
=================================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 2,908,938 $(36,858,687 5,233,650 $ 69,950,340
Shares issued on reinvestment 442,746 5,519,237 1,192,598 15,821,653
Shares reacquired (2,891,607) (36,379,024) (3,943,897) (52,610,416)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase 460,077 $ 5,998,900 2,482,351 $ 33,161,577
================================================================================================================================
Class B
Shares sold 1,948,375 $(24,642,399 4,929,844 $ 66,085,664
Shares issued on reinvestment 339,307 4,228,498 1,063,022 14,079,056
Shares reacquired (3,278,071) (41,173,753) (5,064,349) (67,488,549)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (990,389) $(12,302,856) 928,517 $ 12,676,171
================================================================================================================================
Class L*
Shares sold 462,952 $ (5,836,428 1,130,469 $ 15,179,652
Shares issued on reinvestment 29,899 371,498 73,908 976,787
Shares reacquired (258,058) (3,253,413) (547,650) (7,324,411)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase 234,793 $ (2,954,513 656,727 $ 8,832,028
================================================================================================================================
Class Y
Shares sold 954,898 $ 11,907,131 2,044,302 $ 26,955,019
Shares issued on reinvestment -- -- -- --
Shares reacquired -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase 954,898 $ 11,907,131 2,044,302 $ 26,955,019
================================================================================================================================
</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 year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 1999(1)(2) 1998(2) 1997 1996 1995(2) 1994(2)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.12 $ 13.19 $ 12.27 $ 13.25 $ 10.67 $ 13.01
- --------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.36 0.77 0.80 0.80 0.83 0.74
Net realized and unrealized gain (loss) (1.14) 0.29 1.20 (0.90) 2.80 (1.88)
- --------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.78) 1.06 2.00 (0.10) 3.63 (1.14)
- --------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.37) (0.76) (0.80) (0.76) (0.89) (0.86)
Net realized gains -- (0.37) (0.28) (0.12) (0.16) (0.31)
Capital -- -- -- -- -- (0.03)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.37) (1.13) (1.08) (0.88) (1.05) (1.20)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 11.97 $ 13.12 $ 13.19 $ 12.27 $ 13.25 $ 10.67
- --------------------------------------------------------------------------------------------------------------------------------
Total Return (6.03)%++ 8.30% 17.10% (0.47)% 35.29% (8.95)%
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 236 $ 253 $ 222 $ 206 $ 226 $ 181
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.02%+ 1.04% 1.02% 1.04% 1.11% 1.11%
Net investment income 5.75+ 5.73 6.43 6.63 7.02 7.35
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 88% 32% 39% 48% 49% 18%
================================================================================================================================
<CAPTION>
Class B Shares 1999(1)(2) 1998(2) 1997 1996 1995(2) 1994(2)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.09 $ 13.19 $ 12.29 $ 13.25 $ 10.67 $ 13.01
- --------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.33 0.70 0.75 0.74 0.77 0.82
Net realized and unrealized gain (loss) (1.13) 0.29 1.18 (0.90) 2.80 (2.02)
- --------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.80) 0.99 1.93 (0.16) 3.57 (1.20)
- --------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.34) (0.72) (0.75) (0.68) (0.83) (0.80)
Net realized gains -- (0.37) (0.28) (0.12) (0.16) (0.31)
Capital -- -- -- -- -- (0.03)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.34) (1.09) (1.03) (0.80) (0.99) (1.14)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 11.95 $ 13.09 $ 13.19 $ 12.29 $ 13.25 $ 10.67
- --------------------------------------------------------------------------------------------------------------------------------
Total Return (6.20)%++ 7.72% 16.44% (0.89)% 34.63% (9.41)%
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 225 $ 260 $ 249 $ 258 $ 289 $ 221
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.52%+ 1.53% 1.51% 1.54% 1.61% 1.57%
Net investment income 5.24+ 5.23 5.95 6.13 6.51 6.89
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 88% 32% 39% 48% 49% 18%
================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
++ Annualized.
- --------------------------------------------------------------------------------
16 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 1999(1)(2) 1998(2)(3) 1997 1996 1995(2) 1994(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.07 $ 13.18 $ 12.30 $ 13.26 $ 10.67 $ 13.01
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.33 0.70 0.72 0.75 0.78 0.75
Net realized and unrealized gain (loss) (1.14) 0.30 1.21 (0.90) 2.80 (1.95)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.81) 1.00 1.93 (0.15) 3.58 (1.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.34) (0.74) (0.77) (0.69) (0.83) (0.80)
Net realized gains -- (0.37) (0.28) (0.12) (0.16) (0.31)
Capital -- -- -- -- -- (0.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.34) (1.11) (1.05) (0.81) (0.99) (1.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 11.92 $ 13.07 $ 13.18 $ 12.30 $ 13.26 $ 10.67
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (6.28)%++ 7.83% 16.41% (0.83)% 34.74% (9.41)%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 19,838 $ 18,671 $ 10,182 $ 6,724 $ 3,769 $ 999
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.45%+ 1.54% 1.49% 1.42% 1.56% 1.57%
Net investment income 5.32+ 5.22 5.93 6.28 6.55 6.89
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 88% 32% 39% 48% 49% 18%
====================================================================================================================================
<CAPTION>
Class Y Shares 1999(1)(2) 1998(2) 1997 1996(4)
====================================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.11 $ 13.19 $ 12.28 $ 13.03
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.38 0.82 0.83 0.75
Net realized and unrealized gain (loss) (1.14) 0.29 1.21 (0.66)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.76) 1.11 2.04 0.09
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.39) (0.82) (0.85) (0.72)
Net realized gains -- (0.37) (0.28) (0.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.39) (1.19) (1.13) (0.84)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 11.96 $ 13.11 $ 13.19 $ 12.28
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (5.86)%++ 8.66% 17.44% 1.01%++
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 98,737 $ 95,708 $ 69,328 $ 18,174
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.68%+ 0.70% 0.69% 0.72%+
Net investment income 6.09+ 6.07 6.63 7.34+
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 88% 32% 39% 48%
====================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On June 12, 1998, Class C shares were renamed Class L shares.
(4) 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.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 17
<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
John F. White, Emeritus
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
James E. Conroy
Vice President and Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser
SSBC Fund Management Inc.
Distributor
CFBDS, 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 distri bution
to prospective investors unless accompanied or preceded by a current Prospectus
for the Fund, which contains information concerning the Fund's in vestment
policies and expenses as well as other pertinent information.
SALOMON SMITH BARNEY
- ---------------------------
A member of citigroup[LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney
Investment Grade Bond Fund
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com
FD0317 8/99
<PAGE>
[PHOTO]
Concert
Peachtree
Growth Fund
[GRAPHIC] ------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1999
Smith Barney
[LOGO] Mutual Funds
<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, 1999
Without Sales Charges(1)
----------------------------------------
Class A(2) Class B(2) Class L
================================================================================
Six-Months+ 5.73% 5.33% 5.43%
- --------------------------------------------------------------------------------
One-Year 20.51 19.54 19.75
- --------------------------------------------------------------------------------
Since Inception++ 17.95 17.06 16.12
================================================================================
With Sales Charges(3)
----------------------------------------
Class A(2) Class B(2) Class L
================================================================================
Six-Months+ 0.46% 0.33% 3.35%
- --------------------------------------------------------------------------------
One-Year 14.51 14.54 17.52
- --------------------------------------------------------------------------------
Since Inception++ 16.45 16.74 15.83
================================================================================
(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.
(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
- --------------------------------------------------------------------------------
During February, we were penalized mainly by our technology holdings. Technology
stocks did not perform well during this period and our results were additionally
penalized for having an above-market weight in this sector. For the month of
April, we observed a noticeable shift in the marketplace away from stocks that
we held in areas like pharmaceuticals, retail, and telecommunications to those
that are more economically sensitive and energy related. Considering that our
exposure to economically sensitive and energy stocks was very low during this
time, the Fund did not participate in the market's move in April.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A CPGFA
Class B CPGFB
Class L CPGFL
- --------------------------------------------------------------------------------
WHAT'S INSIDE
- --------------------------------------------------------------------------------
Shareholder Letter ............................................................1
Historical Performance ........................................................3
Concert Peachtree Growth Fund
at a Glance ...................................................................5
Schedule of Investments .......................................................6
Statement of Assets and Liabilities ...........................................9
Statement of Operations ......................................................10
Statements of Changes in Net Assets ..........................................11
Notes to Financial Statements ................................................12
Financial Highlights .........................................................16
<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, 1999, and hope you find it to be
informative and useful. 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.
A Classic Investor Series Fund
The Fund is part of the Classic Investor Series of Smith Barney Mutual Funds.
The Classic Investor 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 Investor
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, 1999, the total return of the Fund's Class A,
B, and L shares, without sales charges, were 5.73%, 5.33% and 5.43%,
respectively. In comparison, the total return for the same time period for the
Russell 1000 Growth Index was 11.54%. (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 have been
achieved over a full market cycle.
As previously noted, for the first six months of 1999, the Fund's Class A shares
returned 5.73% without sales charges. Fund performance during the reporting
period was reflective of strong results for both January and June that was
offset by unfavorable Fund performance results during February and April.
During February, we were penalized mainly by our technology holdings. Technology
stocks did not perform well during this period and our results were additionally
penalized for having an above-market weight in this sector. For the month of
April, we observed a noticeable shift in the marketplace away from stocks that
we held in areas like pharmaceuticals, retail, and telecommunications to those
that are more economically sensitive and energy related. Considering that our
exposure to economically sensitive and energy stocks was very low during this
time, the Fund did not participate in the market's move in April.
On a more positive note, we have witnessed a noticeable increase in the Fund's
net asset value during the month of June that has continued so far in
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 1
<PAGE>
July. The stock market appears to have recovered, at least temporarily, from
anxiety over the potential change in monetary policy by the Federal Reserve
Board ("Fed"). More specific to our investment approach, it appears that
investors may finally be recognizing the favorable earnings prospects for some
of our holdings and that has resulted in an expansion in P/E ratios versus the
decline in P/E ratios that we experienced during the first five months of 1999.
Market Outlook
Our research suggests that companies with the most favorable earnings growth
prospects and reasonable stock valuations are currently in the technology,
health care and consumer cyclical sectors of the market. We have an above-market
weight position in each of these sectors. In addition, we are more bullish now
on the energy sector of the market and have invested approximately 5% of the
Fund's assets in energy stocks. Finally, we continue to be positive on the
earnings growth prospects for Microsoft and General Electric. These stocks are
significant holdings in the portfolio and we expect them to have a positive
impact on the Fund's performance going forward.
Thank you for your investment in the Concert Peachtree Growth Fund and we look
forward to continuing to help you pursue your financial goals.
Respectfully submitted,
/s/ Heath B. McLendon /s/ Dennis A. Johnson, CFA
Heath B. McLendon Dennis A. Johnson, CFA
Chairman President and
Chief Investment Officer,
Peachtree Asset Management
July 9, 1999
- --------------------------------------------------------------------------------
2 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<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>
6/30/99 $17.71 $18.57 $ 0.00 $ 0.15 5.73%+
- -------------------------------------------------------------------------------------------------------
12/31/98 13.41 17.71 0.00 0.13 33.13
- -------------------------------------------------------------------------------------------------------
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 $ 4.54
=======================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<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>
6/30/99 $17.35 $18.12 $ 0.00 $ 0.15 5.33%+
- -------------------------------------------------------------------------------------------------------
12/31/98 13.24 17.35 0.00 0.13 32.11
- -------------------------------------------------------------------------------------------------------
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 $ 4.54
=======================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<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>
6/30/99 $17.41 $18.20 $ 0.00 $ 0.15 5.43%+
- -------------------------------------------------------------------------------------------------------
12/31/98 13.28 17.41 0.00 0.13 32.17
- -------------------------------------------------------------------------------------------------------
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 $ 4.54
=======================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
<TABLE>
<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>
6/30/99 $17.79 $18.70 $ 0.00 $ 0.15 5.99%+
- -------------------------------------------------------------------------------------------------------
12/31/98 13.42 17.79 0.00 0.13 33.62
- -------------------------------------------------------------------------------------------------------
Inception* -- 12/31/97 14.86 13.42 0.00 1.07 (2.25)+
=======================================================================================================
Total $ 0.00 $ 1.35
=======================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 3
<PAGE>
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
--------------------------------------------
Class A(2) Class B(2) Class L Class Y
================================================================================
Six Months Ended 6/30/99+ 5.73% 5.33% 5.43% 5.99%
- --------------------------------------------------------------------------------
Year Ended 6/30/99 20.51 19.54 19.75 20.96
- --------------------------------------------------------------------------------
Inception* through 6/30/99 17.95 17.06 16.12 20.99
================================================================================
With Sales Charges(3)
--------------------------------------------
Class A(2) Class B(2) Class L Class Y
================================================================================
Six Months Ended 6/30/99+ 0.46% 0.33% 3.35% 5.99%
- --------------------------------------------------------------------------------
Year Ended 6/30/99 14.51 14.54 17.52 20.96
- --------------------------------------------------------------------------------
Inception* through 6/30/99 16.45 16.74 15.83 20.99
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (May 3, 1994 through 6/30/99)(2) 123.36%
- --------------------------------------------------------------------------------
Class B (May 3, 1994 through 6/30/99)(2) 116.04
- --------------------------------------------------------------------------------
Class L (Inception* through 6/30/99) 79.01
- --------------------------------------------------------------------------------
Class Y (Inception* through 6/30/99) 38.44
================================================================================
(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; 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.
- --------------------------------------------------------------------------------
4 1999 Semi-Annual Report to Shareholders
<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 1999
[GRAPHIC]
<TABLE>
<CAPTION>
Concert Peachtree Concert Peachtree
Growth Fund Growth Fund Russell 1000 Russell 2000
-- Class A Shares -- Class B Shares Growth Index Index
<S> <C> <C> <C> <C>
May 3 94 9,448 10,000 10,000 10,000
Dec. 94 9,552 9,619 10,688 10,027
Dec. 95 12,506 12,744 14,663 12,880
Dec. 96 14,251 14,568 18,053 15,005
Dec. 97 14,990 15,322 23,557 18,361
Dec. 98 19,959 20,411 32,674 17,894
June 99 21,103 21,604 36,445 19,555
</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, 1999. (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 2000 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.
Industry Diversification of Common Stock*
- --------------------------------------------------------------------------------
[BAR GRAPH]
Computer Software & Hardware 13.4%
Diversified Manufacturing 11%
Drugs/Healthcare 4.5%
Electronics/Semi-conductor 6%
Financial Services 4.5%
Health Care 4.2%
Internet 6.1%
Oil 4.4%
Retail 10.6%
Telecommunications 9.3%
Other 26%
- --------------------------------------------------------------------------------
* As a percentage of total common stock.
Top Ten Holdings*
- --------------------------------------------------------------------------------
1. Microsoft Corp. 7.8%
- --------------------------------------------------------------------------------
2. General Electric Co. 7.6
- --------------------------------------------------------------------------------
3. Tyco International Ltd. 3.4
- --------------------------------------------------------------------------------
4. Lucent Technologies, Inc. 3.3
- --------------------------------------------------------------------------------
5. America Online, Inc. 3.0
- --------------------------------------------------------------------------------
6. Schering-Plough Corp. 2.8
- --------------------------------------------------------------------------------
7. Intel Corp. 2.6
- --------------------------------------------------------------------------------
8. Omnicom Group, Inc. 2.6
- --------------------------------------------------------------------------------
9. Lehman Brothers Holdings Inc. 2.6
- --------------------------------------------------------------------------------
10. Sprint Corp. 2.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 5
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 95.0%
Advertising -- 2.5%
120,000 Omnicom Group, Inc. $ 9,600,000
- --------------------------------------------------------------------------------
Automotive -- 0.9%
64,000 Harley Davidson, Inc.(a) 3,480,000
- --------------------------------------------------------------------------------
Banking -- 5.1%
221,250 AmSouth Bancorporation(a) 5,130,234
118,125 Commerce Bancshares Inc. 4,754,531
125,000 SouthTrust Corp. 4,796,875
71,000 Suntrust Banks, Inc. 4,930,063
- --------------------------------------------------------------------------------
19,611,703
- --------------------------------------------------------------------------------
Biotechnology - Agricultural -- 1.0%
94,400 Monsanto Co.(a) 3,722,900
- --------------------------------------------------------------------------------
Broadcast/TV/Cable/Radio -- 1.2%
126,000 Cox Communications, Inc.(a)(b) 4,638,375
- --------------------------------------------------------------------------------
Brewers -- 1.8%
100,000 Anheuser-Busch Cos., Inc. 7,093,750
- --------------------------------------------------------------------------------
Computer Software & Hardware -- 12.8%
150,000 Apple Computer, Inc.(a) 6,946,875
251,000 Compuware Corp.(a)(b) 7,984,938
318,000 Microsoft Corp.(b) 28,679,625
84,000 Sun Microsystems Inc.(b) 5,785,500
- --------------------------------------------------------------------------------
49,396,938
- --------------------------------------------------------------------------------
Consumer Products -- 2.2%
78,000 Clorox Co.(a) 8,331,375
- --------------------------------------------------------------------------------
Diversified Manufacturing -- 10.5%
250,500 General Electric Co. 27,836,813
133,000 Tyco International Ltd. 12,601,750
- --------------------------------------------------------------------------------
40,438,563
- --------------------------------------------------------------------------------
Drugs/Healthcare -- 4.3%
75,000 Eli Lilly & Co. 5,371,875
100,000 Pharmacia & Upjohn, Inc. 5,681,250
80,000 Warner-Lambert Co. 5,550,000
- --------------------------------------------------------------------------------
16,603,125
- --------------------------------------------------------------------------------
Electronics/Semiconductor -- 5.7%
162,000 Intel Corp. 9,639,000
93,000 KLA-Tencor Corp.(b) 6,033,375
139,000 LSI Logic Corp.(b) 6,411,375
- --------------------------------------------------------------------------------
22,083,750
- --------------------------------------------------------------------------------
Financial Services -- 4.3%
151,000 Lehman Brothers Holdings Inc. 9,399,750
70,000 Morgan Stanley Dean Witter & Co. 7,175,000
- --------------------------------------------------------------------------------
16,574,750
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Healthcare -- 3.9%
70,600 Bristol-Myers Squibb Co. $ 4,972,888
194,000 Schering-Plough Corp. 10,282,000
- --------------------------------------------------------------------------------
15,254,888
- --------------------------------------------------------------------------------
Insurance -- 3.3%
158,000 AFLAC Inc. 7,564,250
54,500 Providian Financial Corp. 5,095,750
- --------------------------------------------------------------------------------
12,660,000
- --------------------------------------------------------------------------------
Internet -- 5.8%
100,000 America Online, Inc.(b) 11,050,000
84,000 Earthlink Network, Inc.(b) 5,160,750
142,000 Mindspring Enterprises, Inc.(b) 6,292,375
- --------------------------------------------------------------------------------
22,503,125
- --------------------------------------------------------------------------------
Machinery -- 1.8%
92,000 Applied Materials, Inc.(b) 6,796,500
- --------------------------------------------------------------------------------
Manufacturing -- 0.1%
8,250 V.F. Corp. 352,688
- --------------------------------------------------------------------------------
Medical Equipment -- 1.5%
72,000 Medtronic Inc.(a) 5,607,000
- --------------------------------------------------------------------------------
Oil -- 4.2%
41,300 Royal Dutch Petroleum Co. 2,488,325
50,000 Phillips Petroleum Co. 2,515,625
100,000 Texaco Inc.(a) 6,250,000
125,000 Unocal Corp. 4,953,125
- --------------------------------------------------------------------------------
16,207,075
- --------------------------------------------------------------------------------
Retail -- 10.0%
162,000 Abercrombie & Fitch Co.(b) 7,776,000
200,000 Bed Bath & Beyond Inc.(b) 7,700,000
91,500 Best Buy Co., Inc.(b) 6,176,250
112,500 The Gap, Inc. 5,667,187
91,000 Home Depot, Inc. 5,863,812
116,000 Wal-Mart Stores, Inc. 5,597,000
- --------------------------------------------------------------------------------
38,780,249
- --------------------------------------------------------------------------------
Telecommunications -- 8.8%
177,970 CenturyTel, Inc. 7,074,505
180,000 Lucent Technologies, Inc. 12,138,750
172,000 Nextel Communications, Inc.(a)(b) 8,632,250
173,000 Scientific-Atlanta, Inc. 6,228,000
- --------------------------------------------------------------------------------
34,073,505
- --------------------------------------------------------------------------------
Telephone -- 2.2%
164,000 Sprint Corp. 8,661,250
- --------------------------------------------------------------------------------
Wireless Equipment -- 1.1%
922,000 Paging Network, Inc.(b) 4,437,125
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $299,838,590) 366,908,634
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1999
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 5.0%
$19,378,000 Morgan Stanley Dean Witter & Co., 4.800% due
7/1/99; Proceeds at maturity -- $19,380,584;
(Fully collateralized by U.S. Treasury Bills,
Notes & Bonds, 4.000% to 8.750 due 3/2/00 to
5/15/07; Market value -- $19,765,573)
(Cost -- $19,378,000) $ 19,378,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $319,216,590*) $386,286,634
================================================================================
(a) Non-income producing security.
(b) All or 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.
- --------------------------------------------------------------------------------
8 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost -- $319,216,590) $386,286,634
Cash 416
Collateral for securities on loan (Note 6) 39,068,700
Receivable for Fund shares sold 246,987
Dividends and interest receivable 121,718
- ----------------------------------------------------------------------------------------
Total Assets 425,724,455
- ----------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 39,068,700
Management fees payable 310,654
Accrued expenses 44,596
- ----------------------------------------------------------------------------------------
Total Liabilities 39,423,950
- ----------------------------------------------------------------------------------------
Total Net Assets $386,300,505
========================================================================================
NET ASSETS:
Par value of capital shares $ 20,826
Capital paid in excess of par value 284,551,643
Accumulated net investment loss (996,065)
Accumulated net realized gain from security transactions 35,654,057
Net unrealized appreciation of investments 67,070,044
- ----------------------------------------------------------------------------------------
Total Net Assets $386,300,505
========================================================================================
Shares Outstanding:
Class A 5,533,475
-------------------------------------------------------------------------------------
Class B 4,190,927
-------------------------------------------------------------------------------------
Class L 30,841
-------------------------------------------------------------------------------------
Class Y 11,070,815
-------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $18.57
-------------------------------------------------------------------------------------
Class B * $18.12
-------------------------------------------------------------------------------------
Class L ** $18.20
-------------------------------------------------------------------------------------
Class Y (and redemption price) $18.70
-------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $18.55
-------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $18.38
========================================================================================
</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.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended June 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 1,195,806
Interest 200,417
- --------------------------------------------------------------------------------
Total Investment Income 1,396,223
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 1,667,024
Distribution fees (Note 2) 438,881
Shareholder and system servicing fees 145,312
Registration fees 51,762
Shareholder communications 45,322
Custody 14,873
Directors' fees 10,511
Audit and legal 10,125
Other 7,558
- --------------------------------------------------------------------------------
Total Expenses 2,391,368
- --------------------------------------------------------------------------------
Net Investment Loss (995,145)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 188,776,755
Cost of securities sold 153,121,943
- --------------------------------------------------------------------------------
Net Realized Gain 35,654,812
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 81,026,254
End of period 67,070,044
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (13,956,210)
- --------------------------------------------------------------------------------
Net Gain on Investments 21,698,602
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 20,703,457
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1999 (unaudited)
and the Year Ended December 31, 1998
<TABLE>
<CAPTION>
1999 1998
====================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment loss $ (995,145) $ (1,160,590)
Net realized gain 35,654,812 7,698,625
Increase (decrease) in net unrealized appreciation (13,956,210) 75,285,882
- ----------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 20,703,457 81,823,917
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains (3,022,394) (2,434,019)
- ----------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (3,022,394) (2,434,019)
- ----------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 51,675,903 55,639,704
Net asset value of shares issued for
reinvestment of dividends 1,405,516 1,067,774
Cost of shares reacquired (18,004,312) (27,622,553)
- ----------------------------------------------------------------------------------------------------
Increase in Net Assets From Fund Share Transactions 35,077,107 29,084,925
- ----------------------------------------------------------------------------------------------------
Increase in Net Assets 52,758,170 108,474,823
NET ASSETS:
Beginning of period 333,542,335 225,067,512
- ----------------------------------------------------------------------------------------------------
End of period* $ 386,300,505 $ 333,542,335
====================================================================================================
* Includes accumulated net investment loss of: $ (996,065) $ (920)
====================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 11
<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, Smith Barney Government Securities Fund, Smith Barney Hansberger Global
Value Fund, Smith Barney Hansberger Global Small Cap Value Fund and Smith Barney
Small Cap Value Fund. The financial statements and financial highlights for the
other portfolios are presented in separate shareholder reports.
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 for which market quotations are not available will
be valued in good faith at fair value by or under the direction of the Board of
Directors; (d) securities, other than U.S. government agencies, 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; (e) securities maturing
within 60 days are valued at cost plus accreted discount, or minus amortized
premium, which approximates value; (f) dividend income is recorded on
ex-dividend date and interest income is recorded on an accrual basis; (g)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (h) gains or losses on the sale of securities are calculated using the
specific identification method; (i) 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; (j) direct expenses are charged to each class;
management fees and general portfolio expenses are allocated on the basis of
relative net assets; (k) 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;
(l) 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, 1998, 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 (m)
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
SSBC Fund Management Inc. ("SSBC"), formerly known as Mutual Management Corp., a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), acts as investment
manager of the Fund. The Portfolio pays
- --------------------------------------------------------------------------------
12 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
SSBC 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. This fee is calculated daily and paid monthly.
CFBDS, Inc. ("CFBDS") acts as the Fund's distributor. Salomon Smith Barney Inc.,
another subsidiary of SSBH, as well as certain other broker-dealers, continues
to sell Fund shares to the public as a member of the selling group.
SSB acts as the primary broker for its portfolio agency transactions. For the
six months ended June 30, 1999, SSB received no brokerage commissions.
There is 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 CSDC is incurred. Class L shares
also have a 1.00% CDSC, which applies if redemption occurs within the first year
of purchase. 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, 1999, CFBDS and SSBC received sales charges of
approximately $8,000 and $3,000 for Class A and Class L shares, respectively. In
addition, CDSCs paid to CFBDS and SSBC were approximately $2,000 on Class B
shares.
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.
For the six months ended June 30, 1999, total Distribution Plan fees incurred by
the Portfolio were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $113,776 $323,224 $ 1,881
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the six months ended June 30, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $201,911,141
- --------------------------------------------------------------------------------
Sales 188,776,755
================================================================================
At June 30, 1999, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 76,214,380
Gross unrealized depreciation (9,144,336)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 67,070,044
================================================================================
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. 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
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
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, 1999, 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, 1999, 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.
At June 30, 1999, the Portfolio loaned common stocks having a value of
approximately $38,570,029 and holds the following collateral for loaned
securities:
Security Description Value
================================================================================
Time Deposits:
Banco Bilbao Vizcaya, 5.875% due 7/1/99 $10,752,167
Bank of Montreal, 5.250% due 7/1/99 7,479,768
Bank of Montreal, 5.937% due 7/1/99 1,481,545
Banque Paribas, 5.875% due 7/1/99 11,344,793
Barclays Bank PLC, 5.750% due 7/1/99 5,983,815
Commercial Paper:
Moriarty LLC, 5.123% due 8/16/99 2,026,612
- --------------------------------------------------------------------------------
Total $39,068,700
================================================================================
For the six months ended June 30, 1999, securities lending income earned was
$25,613.
- --------------------------------------------------------------------------------
14 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
7. Capital Shares
At June 30, 1999, 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, 1999, total paid-in capital amounted to the following for each
class:
Class A Class B Class L Class Y
================================================================================
Total Paid-in Capital $72,716,580 $58,139,311 $499,823 $153,216,755
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
-------------------------- ----------------------------
Shares Amount Shares Amount
=====================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 1,185,860 $ 21,341,989 1,041,557 $ 15,731,753
Shares issued on reinvestment 45,594 798,328 38,891 629,547
Shares reacquired (593,259) (10,671,771) (1,209,054) (18,044,902)
- -----------------------------------------------------------------------------------------------------
Net Increase (Decrease) 638,195 $ 11,468,546 (128,606) $ (1,683,602)
=====================================================================================================
Class B
Shares sold 1,166,492 $ 20,493,257 840,003 $ 12,333,600
Shares issued on reinvestment 35,288 602,717 27,496 436,622
Shares reacquired (415,024) (7,296,170) (648,885) (9,491,411)
- -----------------------------------------------------------------------------------------------------
Net Increase 786,756 $ 13,799,804 218,614 $ 3,278,811
=====================================================================================================
Class L+
Shares sold 19,838 $ 350,806 3,297 $ 50,922
Shares issued on reinvestment 260 4,471 101 1,605
Shares reacquired (2,016) (36,371) (5,954) (86,240)
- -----------------------------------------------------------------------------------------------------
Net Increase (Decrease) 18,082 $ 318,906 (2,556) $ (33,713)
=====================================================================================================
Class Y
Shares sold 529,131 $ 9,489,851 1,943,719 $ 27,523,429
- -----------------------------------------------------------------------------------------------------
Net Increase 529,131 $ 9,489,851 1,943,719 $ 27,523,429
=====================================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 1999(1)(2) 1998(2) 1997 1996 1995(3)
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.71 $ 13.41 $ 13.80 $ 14.31 $ 13.36
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.06) (0.07) 0.03 0.01 0.03
Net realized and unrealized gain 1.07 4.50 0.65 1.85 1.87
- ---------------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.01 4.43 0.68 1.86 1.90
- ---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.11) (0.02)
Net realized gains (0.15) (0.13) (1.07) (2.26) (0.93)
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.15) (0.13) (1.07) (2.37) (0.95)
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 18.57 $ 17.71 $ 13.41 $ 13.80 $ 14.31
- ---------------------------------------------------------------------------------------------------------------------
Total Return 5.73%++ 33.13% 5.18% 13.96% 14.61%++
- ---------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $102,776 $86,712 $67,349 $72,180 $57,693
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.50%+ 1.40% 1.67% 1.78% 1.72%+
Net investment income (loss) (0.70)+ (0.48) 0.22 0.13 0.46+
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 55% 93% 227% 183% 51%
=====================================================================================================================
<CAPTION>
Class B Shares 1999(1)(2) 1998(2) 1997 1996 1995(3)
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.35 $ 13.24 $ 13.74 $ 14.27 $ 13.36
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.13) (0.19) (0.07) (0.09) (0.02)
Net realized and unrealized gain 1.05 4.43 0.64 1.84 1.86
- ---------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.92 4.24 0.57 1.75 1.84
- ---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.02) --
Net realized gains (0.15) (0.13) (1.07) (2.26) (0.93)
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.15) (0.13) (1.07) (2.28) (0.93)
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 18.12 $ 17.35 $ 13.24 $ 13.74 $ 14.27
- ---------------------------------------------------------------------------------------------------------------------
Total Return 5.33%++ 32.11% 4.40% 13.12% 14.15%++
- ---------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 75,935 $59,062 $42,172 $43,148 $32,685
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.27%+ 2.21% 2.42% 2.53% 2.46%+
Net investment loss (1.47)+ (1.29) (0.53) (0.63) (0.27)+
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 55% 93% 227% 183% 51%
=====================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from July 3, 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.
- --------------------------------------------------------------------------------
16 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 1999(1)(2) 1998(2)(3) 1997 1996 1995(4)
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.41 $ 13.28 $ 13.78 $14.29 $14.05
- ----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.12) (0.18) (0.05) (0.08) 0.01
Net realized and unrealized gain 1.06 4.44 0.62 1.85 1.16
- ----------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.94 4.26 0.57 1.77 1.17
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.02) --
Net realized gains (0.15) (0.13) (1.07) (2.26) (0.93)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.15) (0.13) (1.07) (2.28) (0.93)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 18.20 $ 17.41 $ 13.28 $13.78 $14.29
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return 5.43%++ 32.17% 4.38% 13.24% 8.69%++
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 561 $ 222 $ 203 $ 174 $ 88
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.14%+ 2.16% 2.41% 2.40% 2.29%+
Net investment income (loss) (1.36)+ (1.23) (0.53) (0.48) 0.13+
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 55% 93% 227% 183% 51%
==================================================================================================================================
<CAPTION>
Class Y Shares 1999(1)(2) 1998(2) 1997(5)
==================================================================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.79 $ 13.42 $ 14.86
- ----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.02) (0.02) 0.01
Net realized and unrealized gain (loss) 1.08 4.52 (0.38)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.06 4.50 (0.37)
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains (0.15) (0.13) (1.07)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.15) (0.13) (1.07)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 18.70 $ 17.79 $ 13.42
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return 5.99%++ 33.62% (2.25)%++
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $207,028 $187,546 $115,343
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.01%+ 1.07% 1.10%+
Net investment income (loss) (0.21)+ (0.14) 0.62+
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 55% 93% 227%
==================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On June 12, 1998, Class C shares were renamed Class L shares.
(4) For the period from August 8, 1995 (inception date) to December 31, 1995.
(5) For the period from October 15, 1997 (inception date) to December 31,
1997.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 17
<PAGE>
Concert Peachtree
Growth Fund
Directors
Paul R. Ades
Herbert Barg
Dwight B. Crane
Frank G. Hubbard
Heath B. McLendon, Chairman
Jerome Miller
Ken Miller
John F. White, Emeritus
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
Dennis A. Johnson
President and Chief Investment Officer
Peachtree Asset Management
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Manager
SSBC Fund Management Inc.
Distributor
CFBDS, 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 shareholders of Concert
Peachtree Growth Fund. It is not for distribution to prospective investors
unless accompanied by a current Prospectus for the Fund, which contains
information concerning the Fund's investment policies and expenses as well as
other pertinent information.
SALOMON SMITH BARNEY
- ---------------------------
A member of citigroup[LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Concert Peachtree
Growth Fund
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com
FD01155 8/99
