<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
SMITH BARNEY
GOVERNMENT SECURITIES
Fund
CLASSIC SERIES
SEMI-ANNUAL REPORT
JUNE 30, 2000
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
--------------------------------------------------------------------------------
A Message from the Chairman
--------------------------------------------------------------------------------
[PHOTO]
HEATH B. MCLENDON
Chairman
Dear Shareholder:
For years, individuals and their families and businesses have looked to the
investment professionals of SSB Citi Fund Management LLC for thoughtful insights
and advice. For some, the solution has been a long-term investment strategy,
incorporating multiple stock and bond mutual funds. Others have invested with
specific portfolio managers who are recognized and respected for their insights
and record.
In our opinion, the lessons of the past may be used to better understand the
challenges and opportunities of the future. We believe SSB Citi Fund Management
LLC represents extensive asset management expertise. We also believe that
expertise is achieved through the intelligent application of knowledge and
experience. Our portfolio managers have managed portfolios across markets and
cycles.
Whatever your investment objective may be, we believe that following a
disciplined investment plan is of paramount importance in these uncertain times.
We encourage you to work closely with your financial professional to map out an
investment plan that fits in with your objectives -- be it retirement, estate
planning or educational needs.
When you invest with SSB Citi Fund Management LLC, you can do so with the
confidence that your interests come first, your investment success is paramount,
and that the ultimate in resources is being committed to your financial future.
Thank you for investing with us.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
July 23, 2000
--------------------------------------------------------------------------------
Smith Barney Government Securities Fund 1
<PAGE>
--------------------------------------------------------------------------------
Shareholder Letter
--------------------------------------------------------------------------------
[PHOTO]
JAMES E. CONROY
Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Government
Securities Fund ("Portfolio") for the period ended June 30, 2000. In this
report, we summarize the period's prevailing economic and market conditions and
outline our portfolio strategy.1 A more detailed summary of performance can be
found in the appropriate sections that follow. We hope you find this report to
be useful and informative.
Performance Update
For the six months ended June 30, 2000, the Portfolio's Class A shares, without
and with sales charges, returned 3.89% and a negative 0.75%, respectively. In
comparison, the peer group average for general U.S. government funds posted a
return of 3.95% for the same period according to Lipper Inc. ("Lipper"). (Lipper
is an independent fund-tracking organization. The Portfolio's calculation of the
Lipper peer group average includes the reinvestment of all capital gains and
dividends without the effects of sales charges.) Also, the Lehman Brothers
Government Bond Index ("Lehman Index")2 returned 4.18% for the same period. In
addition, during the past six months, the Portfolio distributed income dividends
totaling $0.27 per Class A share. For additional performance information please
refer to pages six through eight.
The continued strength of the U.S. stock markets and the inverted yield curve
has made investing in bonds challenging. (The yield curve is a graphical
depiction of the relationship between the yield on bonds of the same credit
quality but different maturities. An inverted yield curve illustrates an
occurrence when shorter-term bonds have higher yields than longer-term bonds.)
However,it is our belief that the Federal Reserve Board's ("Fed") actions may
ultimately slow economic conditions and make bonds more appealing to many
investors over time. Additionally, we think that long-term rates may possibly
decline by the end of the year.
----------
1 The information provided represents the opinion of the manager and is not
intended to be a forecast of future events, a guarantee of future results
nor investment advice. Further, there is no assurance that certain
securities will remain in or out of the Portfolio.
2 The Lehman Index is a broad-based unmanaged index of all U.S. government
obligations. An investor cannot invest directly in an index.
--------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
Market Update and Outlook
In our view, the issues that significantly impacted the performance of the bond
market during the period were:
. The increase in interest rates by the Fed;
. The U.S. Treasury's buyback program;
. Reduced mutual fund inflows; and
. Investor concerns regarding credit quality, the extreme levels of market
volatility and illiquidity.
The Fed raised interest rates three times for a total of 75 basis points3 during
the reporting period. In addition, the plan by the U.S. Treasury to buy back
more than $30 billion of its long-term debt obligations has led to reduced
supply in the market. As such, the price of longer-term bonds increased in
relation to their shorter-term counterparts, as reflected by an inverted yield
curve. Instead of a "normal" yield curve, with yields rising steadily along with
the maturity of Treasury bonds, the highest yields were for shorter-term bonds.
Investment Strategy & Portfolio Update4
The Portfolio seeks high current return and 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. (Please note that the Portfolio's shares are
not guaranteed by the U.S. government or its agencies.)
During the period, the Portfolio's income orientation helped returns somewhat
due to our emphasis on mortgage-backed securities. We employed this strategy in
an attempt to mirror the 5-10 year U.S. Treasury benchmark. In addition, we have
maintained a duration of 4.5 to 6.5 years in the Portfolio during the period.
Our investment strategy has also included slowly buying U.S. Treasuries and
extending maturities as interest rates have continued to rise during the period.
In our view, we have probably seen the highs in yields over the near-term. Our
investment strategy in the coming months will be to increase our U.S. Treasury
exposure and reduce our mortgage-backed securities holdings as we believe rates
will continue to decline.
----------
3 A basis point is 0.01% or one one-hundredth of a percent.
4 Please note that the Portfolio's holdings are subject to change and any
discussion of holdings is as of June 30, 2000. Please refer to page 11 for
a complete list and percentage breakdown of the Portfolio's holdings.
--------------------------------------------------------------------------------
Smith Barney Government Securities Fund 3
<PAGE>
We also avoided Federal Home Loan Mortgage Corporation ("Freddie Mac")5
obligations and Federal National Mortgage Association ("Fannie Mae")6
obligations during the period due to concerns regarding the future of federal
guarantees. Both the U.S. Treasury and Congress have questioned the rates that
these agencies receive versus corporations with similar balance sheets who for
the most part are required to finance their activities at higher interest rates.
These comments temporarily hurt the performance of Freddie Mac and Fannie Mae
securities, but benefited Government National Mortgage Association ("Ginnie
Mae")7 obligations. Many investors shifted their assets from Fannie Mae and
Freddie Mac securities, which are indirect obligations of the U.S. government,
to what they deemed to be the relative safe haven of Ginnie Mae securities,
which are direct obligations of the U.S. government.
The Portfolio's holdings of securities in the 8% to 81/2% coupon range during
the period were overweight versus its Lipper peer group. We believe that any
future decrease in interest rates may only benefit the Lipper average on a
short-term basis. As such, we are confident that our investment strategy should
benefit the Portfolio in times of rising and decreasing interest rates. (Of
course no guarantees can be given that our expectations will be met.)
As of June 30, 2000, the Portfolio's allocation was approximately 66% in
mortgage-backed securities, 21% in U.S. government obligations and 13% in
short-term instruments. And while no guarantees can be given, we believe our
strategy should continue to benefit the Portfolio.
The chart below shows the yields from U.S. Treasuries during the period under
review.
Yields from U.S. Treasuries
Interest Rates 6/30/00 12/31/99
-------------- ------- --------
2-year U.S. Treasury Notes 6.36% 6.23%
5-year U.S. Treasury Notes 6.18 6.34
10-year U.S. Treasury Bonds 6.02 6.43
30-year U.S. Treasury Bonds 5.90 6.48
----------
5 Freddie Mac obligations are securities offered by the Federal Home Loan
Mortgage Corporation consisting of pooled mortgages backed by federal
guarantees.
6 Fannie Mae obligations are securities offered by the Federal National
Mortgage Association consisting of mortgages backed by the Federal Housing
Administration and some non- governmentally backed mortgages.
7 Ginnie Mae obligations are securities backed by a pool of mortgages and
guaranteed by the Government National Mortgage Association which passes
through to investors the interest and principal payments to the bank or
savings and loan that originated their mortgage.
--------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<PAGE>
Thank you for investing in the Smith Barney Government Securities Fund. We look
forward to continuing to help you pursue your financial goals in the future.
Sincerely,
/s/ James E. Conroy
James E. Conroy
Vice President and
Investment Officer
July 23, 2000
--------------------------------------------------------------------------------
Smith Barney Government Securities Fund 5
<PAGE>
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Historical Performance - Class A Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-----------------
Beginning End of Income Capital Gain Return Total
Period Ended of Period Period Dividends Distributions of Capital Returns(1)
====================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/00 $ 8.99 $ 9.07 $ 0.27 $ 0.00 $ 0.00 3.89%+
------------------------------------------------------------------------------------
12/31/99 9.97 8.99 0.49 0.00 0.00 (4.96)
------------------------------------------------------------------------------------
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 $4.48 $0.00 $0.10
====================================================================================
<CAPTION>
------------------------------------------------------------------------------------
Historical Performance - Class B Shares
Net Asset Value
-----------------
Beginning End of Income Capital Gain Return Total
Period Ended of Period Period Dividends Distributions of Capital Returns(1)
====================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/00 $ 9.00 $ 9.08 $ 0.24 $ 0.00 $ 0.00 3.61%+
------------------------------------------------------------------------------------
12/31/99 9.97 9.00 0.45 0.00 0.00 (5.35)
------------------------------------------------------------------------------------
12/31/98 9.79 9.97 0.53 0.00 0.00 7.44
------------------------------------------------------------------------------------
12/31/97 9.3 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
====================================================================================
Total $ 5.89 $ 0.00 $ 0.33
====================================================================================
</TABLE>
--------------------------------------------------------------------------------
6 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Historical Performance - Class L Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End of Income Capital Gain Return Total
Period Ended of Period Period Dividends Distribution of Capital Returns(1)
==========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/00 $ 8.99 $ 9.08 $0.24 $0.00 $0.00 3.75%+
----------------------------------------------------------------------------------------------------------
12/31/99 9.97 8.99 0.45 0.00 0.00 (5.41)
----------------------------------------------------------------------------------------------------------
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 $4.01 $0.00 $0.08
==========================================================================================================
</TABLE>
--------------------------------------------------------------------------------
Historical Performance - Class Y Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End of Income Capital Gain Return Total
Period Ended of Period Period Dividends Distribution of Capital Returns(1)
========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/00 $8.99 $9.07 $0.28 $0.00 $0.00 4.07%+
--------------------------------------------------------------------------------------------------------
12/31/99 9.97 8.99 0.53 0.00 0.00 (4.61)
--------------------------------------------------------------------------------------------------------
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 $2.59 $0.00 $0.01
========================================================================================================
</TABLE>
--------------------------------------------------------------------------------
Historical Performance - Class Y Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End of Income Capital Gain Return Total
Period Ended of Period Period Dividends Distribution of Capital Returns(1)
=====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/00 $8.99 $9.07 $0.28 $0.00 $0.00 4.07%
-----------------------------------------------------------------------------------------------------
Inception* - 12/31/99 9.97 8.99 0.53 0.00 0.00 (4.61)
=====================================================================================================
Total $0.81 $0.00 $0.00
=====================================================================================================
</TABLE>
It is the Portfolio's policy to distribute dividends monthly and capital gains,
if any, annually.
--------------------------------------------------------------------------------
Smith Barney Government Securities Fund 7
<PAGE>
--------------------------------------------------------------------------------
Average Annual Total Returns
--------------------------------------------------------------------------------
Without Sales Charges(1)
---------------------------------------------------
Class A Class B Class L Class Y Class Z
================================================================================
Six Months Ended 6/30/00+ 3.89% 3.61% 3.75% 4.07% 4.07%
--------------------------------------------------------------------------------
Year Ended 6/30/00 2.71 2.26 2.31 3.08 3.08
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 5.08 4.55 4.60 N/A N/A
--------------------------------------------------------------------------------
Ten Years Ended 6/30/00 N/A 6.40 N/A N/A N/A
--------------------------------------------------------------------------------
Inception* through 6/30/00 5.73 7.27 4.72 4.82 (0.49)
================================================================================
With Sales Charges(2)
---------------------------------------------------
Class A Class B Class L Class Y Class Z
================================================================================
Six Months Ended 6/30/00+ (0.75)% (0.89)% 1.72% 4.07% 4.07%
--------------------------------------------------------------------------------
Year Ended 6/30/00 (1.91) (2.12) 0.37 3.08 3.08
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 4.13 4.40 4.38 N/A N/A
--------------------------------------------------------------------------------
Ten Years Ended 6/30/00 N/A 6.40 N/A N/A N/A
--------------------------------------------------------------------------------
Inception* through 6/30/00 5.10 7.27 4.58 4.82 (0.49)
================================================================================
--------------------------------------------------------------------------------
Cumulative Total Returns
--------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (Inception* through 6/30/00) 53.18%
--------------------------------------------------------------------------------
Class B (6/30/90 through 6/30/00) 85.97
--------------------------------------------------------------------------------
Class L (Inception* through 6/30/00) 40.75
--------------------------------------------------------------------------------
Class Y (Inception* through 6/30/00) 23.02
--------------------------------------------------------------------------------
Class Z (Inception* through 6/30/00) (0.73)
================================================================================
(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.
--------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Historical Performance (unaudited)
--------------------------------------------------------------------------------
Growth of $10,000 Invested in Class B Shares of
the Smith Barney Government Securities Fund
vs. Lehman Brothers Government Bond Index
and Lipper General U.S. Government Peer Group Average+
--------------------------------------------------------------------------------
June 1990 -- June 2000
[GRAPH]
Smith Barney Lehman Lipper
Government Brothers General U.S.
Securities Government Government Peer
Fund Bond Index Group Average
6/90 10,000 10,000 10,000
12/90 10,518 10,636 10,586
12/91 12,231 12,265 12,128
12/92 12,897 13,151 12,898
12/93 14,245 14,553 14,095
12/94 13,792 14,061 13,472
12/95 15,705 16,639 15,871
12/96 15,928 17,101 16,142
12/97 17,651 18,741 17,586
12/98 18,964 20,586 19,001
12/99 17,948 20,145 18,432
6/00 18,597 20,987 19,160
+ Hypothetical illustration of $10,000 invested in Class B shares on June 30,
1990, assuming reinvestment of dividends and capital gains, if any, at net
asset value through June 30, 2000. The Lehman Brothers Government Bond
Index is a broad-based index of all public debt obligations of the U.S.
Government and its agencies and has an average maturity of approximately
nine years. The Lipper General U.S. Government Peer Group Average is
composed of the Portfolio's peer group of 189 mutual funds investing in
U.S. Government securities as of June 30, 2000. The index is unmanaged and
is not subject to the same management and trading expenses as a mutual
fund. The performance of the Portfolio's other classes may be greater or
less than the 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.
--------------------------------------------------------------------------------
Smith Barney Government Securities Fund 9
<PAGE>
--------------------------------------------------------------------------------
Portfolio Highlights (unaudited) June 30, 2000
--------------------------------------------------------------------------------
Portfolio Breakdown
[GRAPH]
66.0% Mortgage-Backed Securities
20.9% U.S. Government and Agency Obligations
13.1% Repurchase Agreement
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 bills, notes 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.
--------------------------------------------------------------------------------
10 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 2000
--------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
U.S. GOVERNMENT OBLIGATIONS-- 20.9%
U.S. Treasury Strips:
$112,912,000 Zero coupon due 11/15/09 $ 62,414,366
7,000,000 Zero coupon due 11/15/18 2,252,404
195,800,000 Zero coupon due 2/15/19 62,144,962
--------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost-- $125,853,770) 126,811,732
================================================================================
MORTGAGE-BACKED SECURITIES -- 66.0%
1,417 FNMA Ballon 7 Year, 6.000% due 8/1/04 1,351
GNMA 30 Year:
43,841,059 7.000% due 2/15/30* 42,662,612
122,490,578 7.500% due 3/15/30* 121,685,816
117,260,578 8.000% due 4/15/30* 118,579,760
116,216,361 8.500% due 5/15/30* 119,157,798
--------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost-- $399,332,600) 402,087,337
================================================================================
SUB-TOTAL INVESTMENTS
(Cost-- $525,186,370) 528,899,069
================================================================================
REPURCHASE AGREEMENT -- 13.1%
79,951,000 Goldman, Sachs & Co., 6.450% due 7/3/00;
Proceeds at maturity-- $79,993,974; (Fully
collateralized by U.S. Treasury Bills, Notes
and Bonds, 0.000% to 12.000% due 8/15/00 to
11/15/28; Market value-- $81,550,083) (Cost--
$79,951,000) 79,951,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $605,137,370**) $608,850,069
================================================================================
* Date shown represents the last in range of maturity dates of mortgage
certificates owned.
** Aggregate cost for Federal income tax purposes is substantially the
same.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Smith Barney Government Securities Fund 11
<PAGE>
-------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 2000
-------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost-- $525,186,370) $528,899,069
Repurchase agreement, at value (Cost-- $79,951,000) 79,951,000
Cash 820
Receivable for Fund shares sold 326,717
Interest receivable 2,641,634
-------------------------------------------------------------------------------
Total Assets 611,819,240
-------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 3,157,307
Investment advisory fees payable 177,469
Distribution fees payable 168,496
Administration fees payable 104,962
Payable for Fund shares purchased 17,384
Accrued expenses 103,751
-------------------------------------------------------------------------------
Total Liabilities 3,729,369
-------------------------------------------------------------------------------
Total Net Assets $608,089,871
===============================================================================
NET ASSETS:
Par value of capital shares $ 67,015
Capital paid in excess of par value 702,796,665
Undistributed net investment income 1,495,903
Accumulated net realized loss on security transactions and
futures contracts (99,982,411)
Net unrealized appreciation of investments 3,712,699
-------------------------------------------------------------------------------
Total Net Assets $608,089,871
===============================================================================
Shares Outstanding:
Class A 29,755,824
-----------------------------------------------------------------------------
Class B 5,538,032
-----------------------------------------------------------------------------
Class L 706,781
-----------------------------------------------------------------------------
Class Y 24,307,281
-----------------------------------------------------------------------------
Class Z 6,707,126
-----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 9.07
-----------------------------------------------------------------------------
Class B * $ 9.08
-----------------------------------------------------------------------------
Class L ** $ 9.08
-----------------------------------------------------------------------------
Class Y (and redemption price) $ 9.07
-----------------------------------------------------------------------------
Class Z $ 9.07
-----------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value
per share) $ 9.50
-----------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value
per share) $ 9.17
===============================================================================
* 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.
--------------------------------------------------------------------------------
12 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations (unaudited)
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000
INVESTMENT INCOME:
Interest $ 22,540,895
-------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 1,081,076
Administration fees (Note 2) 617,758
Distribution fees (Note 2) 581,304
Shareholder and system servicing fees 142,448
Shareholder communications 28,919
Registration fees 25,392
Custody 19,480
Directors' fees 19,118
Audit and legal 18,502
Other 10,980
-------------------------------------------------------------------------------
Total Expenses 2,544,977
-------------------------------------------------------------------------------
Net Investment Income 19,995,918
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 3 AND 7):
Realized Loss From:
Security transactions (excluding short-term securities) (18,231,019)
Futures contracts (2,894,658)
-------------------------------------------------------------------------------
Net Realized Loss (21,125,677)
-------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments:
Beginning of period (21,369,922)
End of period 3,712,699
-------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 25,082,621
-------------------------------------------------------------------------------
Net Gain on Investments and Futures Contracts 3,956,944
-------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 23,952,862
===============================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Smith Barney Government Securities Fund 13
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
2000 1999
=======================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 19,995,918 $ 35,900,829
Net realized loss (21,125,677) (45,975,860)
Increase (decrease) in net unrealized appreciation 25,082,621 (24,345,994)
---------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 23,952,862 (34,421,025)
---------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (18,496,244) (35,868,390)
Capital -- (317,217)
---------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (18,496,244) (36,185,607)
---------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 39,588,780 301,097,753
Net asset value of shares issued for
reinvestment of dividends 6,622,287 17,773,354
Cost of shares reacquired (80,490,088) (246,720,222)
Increase (Decrease) in Net Assets From
Fund Share Transactions (34,279,021) 72,150,885
---------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (28,822,403) 1,544,253
NET ASSETS:
Beginning of period 636,912,274 635,368,021
---------------------------------------------------------------------------------------
End of period* $608,089,871 $636,912,274
---------------------------------------------------------------------------------------
* Includes undistributed (overdistributed)
net investment income of: $ 1,495,903 $ (3,771)
=======================================================================================
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
14 2000 Semi-Annual Report to Shareholders
<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 nine other separate investment portfolios: Smith Barney Investment
Grade Bond, Concert Peachtree Growth, Smith Barney Hansberger Global Value,
Smith Barney Hansberger Global Small Cap Value, Smith Barney Small Cap Value,
Smith Barney Premier Selections Large Cap, Smith Barney Premier Selections All
Cap, Smith Barney Premier Selections Global Growth and Smith Barney Small Cap
Growth Funds. 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 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, 1999,
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 (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.
--------------------------------------------------------------------------------
Smith Barney Government Securities Fund 15
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
2. Investment Advisory Agreement, Administration Agreement and
Other Transactions
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup Inc.
("Citigroup"), acts as investment advisor 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.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney Private
Trust Company, another subsidiary of Citigroup, acts as the Portfolio's transfer
agent and PFPC Global Fund Services ("PFPC") acts as the Portfolio's
sub-transfer agent. CFTC receives account fees and asset-based fees that vary
according to the account size and type of account. PFPC is responsible for
shareholder recordkeeping and financial processing for all shareholder accounts
and is paid by CFTC. During the six months ended June 30, 2000, the Portfolio
paid transfer agent fees of $132,204 to CFTC.
Effective June 5, 2000, Salomon Smith Barney Inc. ("SSB"), another subsidiary of
SSBH, became the Portfolio's distributor replacing CFBDS, Inc. ("CFBDS"). In
addition, SSB acts as the primary broker for the Fund's portfolio agency
transactions. Certain other broker-dealers, continue to sell Portfolio shares to
the public as members of the selling group.
There are maximum initial sales charges of 4.50% and 1.00% for Class A and L
shares, respectively. 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.
--------------------------------------------------------------------------------
16 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)(continued)
--------------------------------------------------------------------------------
For the six months ended June 30, 2000, CFBDS and SSB received sales charges of
approximately $39,000 and $16,000 on sales of the Portfolio's Class A and L
shares, respectively. In addition, CDSCs paid to SSB were approximately $81,000
for 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 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, 2000, total Distribution Plan
fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $345,406 $213,858 $22,040
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $820,315,743
--------------------------------------------------------------------------------
Sales 892,062,362
================================================================================
At June 30, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $5,106,344
Gross unrealized depreciation (1,393,645)
--------------------------------------------------------------------------------
Net unrealized appreciation $3,712,699
================================================================================
--------------------------------------------------------------------------------
Smith Barney Government Securities Fund 17
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
4. Capital Loss Carryforward
At December 31, 1999, the Portfolio had, for Federal tax purposes, approximately
$75,237,000 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 2007
================================================================================
Capital Loss Carryforward $31,677,000 $195,000 $43,365,000
================================================================================
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, 2000, the Portfolio did not enter into any
reverse repurchase agreements.
--------------------------------------------------------------------------------
18 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)(continued)
--------------------------------------------------------------------------------
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 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, 2000, 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, 2000, 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
--------------------------------------------------------------------------------
Smith Barney Government Securities Fund 19
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
--------------------------------------------------------------------------------
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.
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, 2000, the Portfolio did not write any call
or put option contracts.
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, 2000, the Portfolio did not hold any TBA securities.
10. Lending of Portfolio Securities
The Portfolio has an agreement with its custodian whereby the custodian may lend
securities owned by the Portfolio to brokers, dealers and other financial
organizations,and receives a lenders fee. Fees earned by the Portfolio on
securities lending are recorded in interest income. Loans of securities by the
Portfolio are collateralized by cash, U.S. Government securities or high quality
money market instruments that are maintained at all times in an amount at least
equal to the current market value of the loaned securities, plus a margin which
may vary depending on the type of securities loaned. The custodian establishes
and maintains the collateral in a segregated account. The Fund maintains
exposure for the risk of any losses in the investment of amounts received as
collateral.
At June 30, 2000, the Portfolio had no securities on loan.
--------------------------------------------------------------------------------
20 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
11. Capital Shares
At June 30, 2000, 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, 2000, 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 $266,818,067 $130,438,050 $6,897,098 $231,025,675 $67,684,790
===================================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999*
------------------------ -------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A
=====================================================================================
Shares sold 2,049,159 $ 18,494,495 15,324,130 $146,350,103
Shares issued on reinvestment 493,005 4,439,945 1,182,742 11,108,585
Shares reacquired (4,823,710) (43,503,211)(19,332,917) (183,718,121)
-------------------------------------------------------------------------------------
Net Decrease (2,281,546) $ (20,568,771) (2,826,045) $(26,259,433)
=====================================================================================
Class B
Shares sold 325,205 $ 2,924,783 1,937,860 $ 18,481,308
Shares issued on reinvestment 91,427 824,114 262,455 2,470,322
Shares reacquired (2,209,363) (19,910,463) (4,101,258) (38,779,393)
-------------------------------------------------------------------------------------
Net Decrease (1,792,731) $ (16,161,566) (1,900,943) $(17,827,763)
=====================================================================================
Class L
Shares sold 184,676 $ 1,660,137 807,944 $ 7,650,700
Shares issued on reinvestment 11,818 106,504 23,595 220,776
Shares reacquired (224,685) (2,017,607) (539,025) (5,015,694)
-------------------------------------------------------------------------------------
Net Increase (Decrease) (28,191) $ (250,966) 292,514 $ 2,855,782
=====================================================================================
Class Y
Shares sold 1,462,906 $ 13,142,707 4,636,231 $ 43,975,335
Shares issued on reinvestment 82 737 -- --
Shares reacquired (855,114) (7,720,238) (110,644) (1,031,573)
-------------------------------------------------------------------------------------
Net Increase 607,874 $ 5,423,206 4,525,587 $ 42,943,762
=====================================================================================
Class Z
Shares sold 373,764 $ 3,366,658 8,528,957 $ 84,640,307
Shares issued on reinvestment 139,423 1,250,987 423,085 3,973,671
Shares reacquired (816,914) (7,338,569) (1,941,189) (18,175,441)
-------------------------------------------------------------------------------------
Net Increase (Decrease) (303,727) $ (2,720,924) 7,010,853 $ 70,438,537
=====================================================================================
</TABLE>
* For Class Z shares, transactions are for the period from January 4, 1999
(inception date) to December 31, 1999.
--------------------------------------------------------------------------------
Smith Barney Government Securities Fund 21
<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 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995(2)
====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 8.99 $ 9.97 $ 9.75 $ 9.34 $ 9.77 $ 9.17
----------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income 0.29 0.49 0.51 0.59 0.61 0.67
Net realized and
unrealized gain (loss) 0.06 (0.98) 0.26 0.42 (0.44) 0.62
----------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.35 (0.49) 0.77 1.01 0.17 1.29
----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.27) (0.49) (0.55) (0.60) (0.59) (0.69)
Capital -- (0.00)* -- -- (0.01) --
----------------------------------------------------------------------------------------------------
Total Distributions (0.27) (0.49) (0.55) (0.60) (0.60) (0.69)
----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 9.07 $ 8.99 $ 9.97 $ 9.75 $ 9.34 $ 9.77
----------------------------------------------------------------------------------------------------
Total Return 3.89%++ (4.96)% 8.12% 11.23% 1.96% 14.50%
----------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $ 269,993 $ 288,133 $ 347,622 $ 361,124 $ 388,563 $ 453,378
----------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Other expenses 0.92%+ 0.93% 0.92% 0.92% 0.93% 0.94%
Interest expense -- 0.01 0.08 0.85 0.84 0.43
Net investment income 6.38+ 5.21 5.15 6.24 6.16 6.70
----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 130% 161% 334% 274% 420% 294%
====================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
* 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.
--------------------------------------------------------------------------------
22 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Hightlights (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 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995(2)
===================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.00 $9.97 $9.79 $9.38 $9.81 $9.17
-----------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income 0.26 0.45 0.45 0.54 0.56 0.59
Net realized and
unrealized gain (loss) 0.06 (0.97) 0.26 0.44 (0.44) 0.65
-----------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.32 (0.52) 0.71 0.98 0.12 1.24
-----------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.24) (0.45) (0.53) (0.57) (0.54) (0.60)
Capital -- (0.00)* -- -- (0.01) --
-----------------------------------------------------------------------------------
Total Distributions (0.24) (0.45) (0.53) (0.57) (0.55) (0.60)
-----------------------------------------------------------------------------------
Net Asset Value,
End of Period $9.08 $9.00 $9.97 $9.79 $9.38 $9.81
-----------------------------------------------------------------------------------
Total Return 3.61%++ (5.35)% 7.44% 10.82% 1.42% 13.87%
-----------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $50,298 $65,989 $92,082 $101,273 $121,894 $158,459
-----------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Other expenses 1.45%+ 1.41% 1.43% 1.44% 1.45% 1.45%
Interest expense -- 0.01 0.08 0.85 0.84 0.43
Net investment income 5.84+ 4.72 4.64 5.73 5.64 6.19
-----------------------------------------------------------------------------------
Portfolio Turnover Rate 130% 161% 334% 274% 420% 294%
===================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
* 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 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 L Shares 2000(1)(2)1999(2) 1998(2) 1997 1996 1995(2)
====================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $8.99 $9.97 $9.78 $9.38 $9.81 $9.17
------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income 0.26 0.46 0.45 0.54 0.57 0.60
Net realized and
unrealized gain (loss) 0.07 (0.99) 0.27 0.43 (0.44) 0.65
------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.33 (0.53) 0.72 0.97 0.13 1.25
------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.24) (0.45) (0.53) (0.57) (0.55) (0.61)
Capital -- (0.00)* -- -- (0.01) --
------------------------------------------------------------------------------------
Total Distributions (0.24) (0.45) (0.53) (0.57) (0.56) (0.61)
------------------------------------------------------------------------------------
Net Asset Value,
End of Period $9.08 $8.99 $9.97 $9.78 $9.38 $9.81
------------------------------------------------------------------------------------
Total Return 3.75%++ (5.41)% 7.56% 10.75% 1.47% 13.93%
------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $6,414 $6,611 $4,411 $2,311 $1,443 $1,039
------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Other expenses 1.41%+ 1.39% 1.40% 1.39% 1.38% 1.37%
Interest expense -- 0.01 0.08 0.85 0.84 0.43
Net investment income 5.89+ 4.77 4.63 5.70 5.71 6.27
------------------------------------------------------------------------------------
Portfolio Turnover Rate 130% 161% 334% 274% 420% 294%
====================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
* 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.
--------------------------------------------------------------------------------
24 2000 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 Y Shares 2000(1)(2)1999(2) 1998(2) 1997 1996(3)
==================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $8.99 $9.97 $9.76 $9.34 $9.71
----------------------------------------------------------------------------------
Income (Loss) From Operations:
----------------------------------------------------------------------------------
Net investment income 0.30 0.53 0.54 0.61 0.57
Net realized and unrealized gain 0.06 (0.98) 0.26 0.44 (0.37)
(loss)
----------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.36 (0.45) 0.80 1.05 0.20
----------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.28) (0.53) (0.59) (0.63) (0.56)
Capital -- (0.00)* -- -- (0.01)
----------------------------------------------------------------------------------
Total Distributions (0.28) (0.53) (0.59) (0.63) (0.57)
----------------------------------------------------------------------------------
Net Asset Value, End of Period $9.07 $8.99 $9.97 $9.76 $9.34
----------------------------------------------------------------------------------
Total Return 4.07%++ (4.61)% 8.42% 11.73% 2.30%++
----------------------------------------------------------------------------------
Net Assets, End of Period (000s) $220,572 $213,170 $191,253 $109,909 $39,667
----------------------------------------------------------------------------------
Ratios to Average Net Assets:
Other expenses 0.58%+ 0.59% 0.59% 0.58% 0.44%+
Interest expense -- 0.01 0.08 0.85 0.84+
Net investment income 6.72+ 5.57 5.43 6.46 6.49+
----------------------------------------------------------------------------------
Portfolio Turnover Rate 130% 161% 334% 274% 420%
==================================================================================
<CAPTION>
Class Z Shares 2000(1)(2)1999(2)(4)
==================================================================================
<S> <C> <C>
Net Asset Value, Beginning of Period $8.99 $9.97
----------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.30 0.52
Net realized and unrealized gain 0.06 (0.97)
(loss)
----------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.36 (0.45)
----------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.28) (0.53)
Capital -- (0.00)*
----------------------------------------------------------------------------------
Total Distributions (0.28) (0.53)
----------------------------------------------------------------------------------
Net Asset Value, End of Period $9.07 $8.99
----------------------------------------------------------------------------------
Total Return++ 4.07% (4.61)%
----------------------------------------------------------------------------------
Net Assets, End of Period (000s) $60,813 $63,009
----------------------------------------------------------------------------------
Ratios to Average Net Assets+:
Other expenses 0.59% 0.63%
Interest expense -- 0.01
Net investment income 6.71 5.53
----------------------------------------------------------------------------------
Portfolio Turnover Rate 130% 161%
==================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (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.
(4) For the period from January 4, 1999 (inception date) to December 31, 1999.
* 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 Government Securities Fund 25
<PAGE>
[LOGO OF SALOMON SMITH BARNEY]
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 Advisor
SSB Citi Fund Management LLC
Distributor
Salomon Smith Barney Inc.
Custodian
PFPC Trust Company
Transfer Agent
Citi Fiduciary Trust Company
125 Broad Street, 11th Floor
New York, New York 10004
Sub-Transfer Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of the shareholders of
Smith Barney Investment Funds -- Smith Barney Government Securities Fund. But it
may also be used as sales literature when proceeded or accompanied by the
current Prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the Portfolio. If used as sales material
after September 30, 2000, this report must be accompanied by performance
information for the most recently completed calendar quarter.
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/mutualfunds
FD0408 8/00
<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
CONCERT
PEACHTREE
GROWTH Fund
CLASSIC INVESTOR SERIES
SEMI-ANNUAL REPORT
JUNE 30, 2000
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
Your Serious Money. Professionaly Managed(SM).
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
Concert Peachtree
Growth Fund
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--------------------------------------------------------------------------------
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, 2000
Without Sales Charges(1)
------------------------------------------------
Class A(2) Class B(2) Class L
================================================================================
Six Months+ (0.24)% (0.57)% (0.63)%
--------------------------------------------------------------------------------
One-Year 13.10 12.22 11.85
--------------------------------------------------------------------------------
Since Inception++ 16.95 16.06 15.23
================================================================================
With Sales Charges(3)
------------------------------------------------
Class A(2) Class B(2) Class L
--------------------------------------------------------------------------------
Six Months+ (5.25)% (5.42)% (2.59)%
--------------------------------------------------------------------------------
One-Year 7.43 7.27 9.78
--------------------------------------------------------------------------------
Since Inception++ 15.76 15.95 14.99
================================================================================
(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.
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FUND HIGHLIGHT
--------------------------------------------------------------------------------
Strict adherence to our approach of investing in companies with positive
earnings characteristics and reasonable stock valuations continued to drive the
Fund's performance results during the period. In addition, sticking to our
investment philosophy of being fully invested enabled the Fund to capture higher
returns from stocks versus the yields from either bonds or cash equivalents.
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NASDAQ SYMBOL
--------------------------------------------------------------------------------
Class A CPGFA
Class B CPGFB
Class L CPGFL
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WHAT'S INSIDE
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A Message from the Chairman ............................................... 1
Shareholder Letter ........................................................ 2
Historical Performance .................................................... 4
Concert Peachtree Growth Fund at a Glance ................................. 6
Schedule of Investments ................................................... 7
Statement of Assets and Liabilities ....................................... 10
Statement of Operations ................................................... 11
Statements of Changes in Net Assets ....................................... 12
Notes to Financial Statements ............................................. 13
Financial Highlights ...................................................... 18
<PAGE>
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A Message from the Chairman
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For years, individuals and their families and businesses have considered the
investment professionals of SSB Citi Fund Management LLC for market insight and
advice. For some, the solution has been a long-term investment strategy,
incorporating multiple stock and bond mutual funds. Others have invested with
specific portfolio managers who are recognized and respected for their insights
and track records.
[PHOTO]
HEATH B.
MCLENDON
Chairman
We believe that SSB Citi Fund Management LLC represent unparalleled asset
management experience. We also believe that expertise is achieved through the
intelligent application of knowledge and experience. Our experienced portfolio
managers have managed portfolios across markets and cycles. Whatever your
investment objective may be, we think that following a disciplined investment
plan is of paramount importance in these uncertain times. We encourage you to
work closely with your Salomon Smith Barney Financial Professional to map out an
investment plan that fits in with your objectives -- be it retirement, estate
planning or educational needs.
When you invest with SSB Citi Fund Management LLC, you can do so with the
knowledge that our resources are being committed to your financial future and
that your investment success is our goal as well. Thank you for investing with
us.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
July 23, 2000
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Concert Peachtree Growth Fund 1
<PAGE>
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Shareholder Letter
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Dear Shareholder:
We are pleased to present the semi-annual report for Concert Peachtree Growth
Fund ("Fund") for the period ended June 30, 2000. In this report, we summarize
the period's prevailing economic and market conditions and outline our portfolio
strategy. The information herein represents the opinion of the manager and is
not intended to be a forecast of future results. Further, there is no assurance
that certain securities will remain in or out of the portfolio. We hope you find
this report to be useful and informative.
[PHOTO]
DENNIS A.
JOHNSON, CFA
President and
Chief Investment Officer
Peachtree Asset
Management
Performance Update
For the six months ended June 30, 2000, the Fund's Class A shares reported
negative total returns of 5.25% and 0.24%, with and without sales charges,
respectively. In comparison, the Standard & Poor's 500 Index ("S&P 500")
returned negative 0.43% and the Russell 1000 Growth Index returned 4.23% for the
same period.1
Investment Strategy and Portfolio Update
In our inaugural report to shareholders two years ago, we stated that we are
active managers. We have specific criteria that we look for in every company
that we invest in. As long as a particular holding meets our criteria, it will
remain in the Fund's portfolio. When that criteria is no longer met, the
security is sold and replaced with one that meets our strict parameters.
We are also bottom-up2 managers who strive to remain fully invested at all
times. We seek to identify companies that we believe may provide the best
returns to our shareholders over time, while at the same time trying to help
minimize risk.
Strict adherence to our approach of investing in companies with positive
earnings characteristics and reasonable stock valuations continued to influence
the Fund's performance results during the period.
Market and Portfolio Outlook3
The first six months of this year can be characterized as two periods. For the
first three months, your Fund was appreciating more rapidly than the market.
Such performance was the result of favorable stock selection and emphasizing
sectors of the market that were performing well. Specifically, our investments
in technology stocks like LSI Logic, Apple Computer and Applied Material
performed well. In the telecommunications sector, Nextel was a positive
performer. Also, our investments in healthcare stocks were rewarded with
favorable performance results.
The period April through June can best be described as one when your Fund was
not holding up well in a declining market, specifically during the month of May.
Most stocks in the portfolio contributed to the decline during the period,
regardless of the area of the market each stock was associated with.
The net result is that both the portfolio and the market experienced a
considerable amount of volatility, but basically did not perform well for the
first
1 The S&P 500 is a market capitalization-weighted measure of 500 widely held
common stocks. The Russell 1000 Growth Index contains those securities in
the underlying indexes with higher price-to-book ratios and higher
forecasted growth ratios. An investor cannot invest directly in an index.
2 Bottom-up approach investing is to search for outstanding performance of
individual stocks before considering the impact of economic trends.
3 Please note the Fund's holdings are subject to change and any discussion of
the holdings is as of June 30, 2000. Please refer to pages 7 through 9 for
a complete list and percentage breakdown of the Fund's holdings.
--------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
six months of the year. The beginning of the year witnessed the lack of validity
of Y2K concerns. It also was a period where economic activity and corporate
profit growth was solid. The second quarter can be best described as a period
where investors experienced elevated concerns about the impact of rising
interest rates on the economy and corporate profits. It also contained
considerable rotation within stock groups by investors, causing significant
fluctuations in individual stock prices. While we do not disregard the negative
impact rising interest rates may have on stock valuations, we think the
directional bias for the market should be up for the remainder of the year.
Generally, the Fund invests in companies where business trends are good, current
earnings characteristics and visibility are positive, and stock valuations are
deemed to be reasonable. We expect these specific companies and those with
similar traits to be rewarded with above-average results for the remainder of
the year. We continue to find a reasonable number of companies with these
characteristics to invest in. Many continue to be in technology, consumer
cyclical, utility and capital goods sectors of the market. General Electric,
Analog Devices, Pharmacia and Tyco International are examples of stocks that
currently fit our criteria. We continue to evaluate and monitor companies in the
financial, consumer staples and oil service sectors of the market for possible
investment opportunities. Finally, attention to earnings and valuation risks
deserves a premium in the current market environment. We seek to continue to
sell aggressively those companies that violate our sell discipline for either
fundamental or valuation reasons. This year, the market may be rewarding stock
selection.
Thank you for your investment in the Concert Peachtree Growth Fund. We look
forward to serving your investment needs in the future.
Respectfully submitted,
/s/ Dennis A. Johnson, CFA
Dennis A. Johnson, CFA
President and
Chief Investment Officer,
Peachtree Asset Management
July 23, 2000
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Concert Peachtree Growth Fund 3
<PAGE>
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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>
6/30/00 $19.10 $18.60 $0.00 $0.45 (0.24)%+
------------------------------------------------------------------------------------------------
12/31/99 17.71 19.10 0.00 2.09 19.88
------------------------------------------------------------------------------------------------
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 $6.93
================================================================================================
</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>
6/30/00 $18.50 $17.94 $0.00 $0.45 (0.57)%+
------------------------------------------------------------------------------------------------
12/31/99 17.35 18.50 0.00 2.09 18.88
------------------------------------------------------------------------------------------------
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 $6.93
================================================================================================
</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>
6/30/00 $18.54 $17.97 $0.00 $0.45 (0.63)%+
------------------------------------------------------------------------------------------------
12/31/99 17.41 18.54 0.00 2.09 18.67
------------------------------------------------------------------------------------------------
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 $6.93
================================================================================================
</TABLE>
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4 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
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>
6/30/00 $19.29 $18.83 $0.00 $0.45 (0.03)%+
------------------------------------------------------------------------------------------------
12/31/99 17.79 19.29 0.00 2.09 20.41
------------------------------------------------------------------------------------------------
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 $3.74
================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
--------------------------------------------------------------------------------
Average Annual Total Returns
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charges(1)
---------------------------------------------------
Class A(2) Class B(2) Class L Class Y
======================================================================================
<S> <C> <C> <C> <C>
Six Months Ended 6/30/00+ (0.24)% (0.57)% (0.63)% (0.03)%
--------------------------------------------------------------------------------------
Year Ended 6/30/00 13.10 12.22 11.85 13.57
--------------------------------------------------------------------------------------
Inception* through 6/30/00 16.95 16.06 15.23 18.18
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
With Sales Charges(3)
---------------------------------------------------
Class A(2) Class B(2) Class L Class Y
======================================================================================
<S> <C> <C> <C> <C>
Six Months Ended 6/30/00+ (5.25)% (5.42)% (2.59)% (0.03)%
--------------------------------------------------------------------------------------
Year Ended 6/30/00 7.43 7.27 9.78 13.57
--------------------------------------------------------------------------------------
Inception* through 6/30/00 15.76 15.95 14.99 18.18
</TABLE>
--------------------------------------------------------------------------------
Cumulative Total Returns
--------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (May 3, 1994 through 6/30/00)(2) 118.70%
--------------------------------------------------------------------------------
Class B (May 3, 1994 through 6/30/00)(2) 110.51
--------------------------------------------------------------------------------
Class L (Inception* through 6/30/00) 100.22
--------------------------------------------------------------------------------
Class Y (Inception* through 6/30/00) 57.23
================================================================================
(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.
--------------------------------------------------------------------------------
Concert Peachtree Growth Fund 5
<PAGE>
--------------------------------------------------------------------------------
Concert Peachtree Growth Fund at a Glance (unaudited)
--------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares and Class B Shares of the Concert
Peachtree Growth Fund vs. Russell 1000 Growth Index and Russell 2000 Index+
--------------------------------------------------------------------------------
May 1994-- June 2000
[GRAPH]
Concert Peachtree Growth Fund
-- Class A Shares
Concert Peachtree Growth Fund
-- Class B Shares
Russell 1000 Growth Index
Russell 2000 Index
Concert Peachtree Concert Peachtree Russell 1000 Russell 2000
Growth Fund\Class A Growth Fund\Class B Growth Index Index
May 3, 1994 9,448 10,000 10,000 10,000
Dec 1994 9,552 9,619 11,012 10,027
Dec 1995 12,506 12,744 15,106 12,880
Dec 1996 14,251 14,568 18,598 15,005
Dec 1997 14,990 15,322 24,268 18,361
Dec 1998 19,959 20,411 33,661 17,894
Dec 1999 23,926 24,384 44,822 21,696
June 30, 2000 23,868 24,244 46,718 22,356
+ 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, 2000. (Performance calculations include the
historical return information related to Common Sense for the period from May
3, 1994 through June 30, 1995). The Russell 2000 Index is composed of the
2,000 smallest companies in the Russell 3000 Index. The Russell 3000 Index is
composed of 3,000 of the largest U.S. companies by market capitalization. The
Russell 1000 Index measures the performance of the 1,000 largest companies in
the Russell 3000 Index. The Russell 1000 Growth Index measures the performance
of those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values. The indexes are unmanaged and are not subject to the
same management and trading expenses as a mutual fund. An investor may not
invest directly in an index. 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*
--------------------------------------------------------------------------------
[GRAPH]
3.8% Aerospace/Defense
5.1% Broadcast/TV/Cable/Radio
9.2% Computer Software and Hardware
10.7% Diversified Manufacturing
14.7% Electronics/Semiconductor
9.0% Food
9.0% Healthcare
5.1% Internet
4.3% Machinery
7.2% Telecommunications
21.9% Other
* As a percentage of total common stock.
Top Ten Holdings*
--------------------------------------------------------------------------------
1. General Electric Co. 5.2%
--------------------------------------------------------------------------------
2. Quaker Oats Co. 3.8
--------------------------------------------------------------------------------
3. Analog Devices, Inc. 3.6
--------------------------------------------------------------------------------
4. Microsoft Corp. 3.0
--------------------------------------------------------------------------------
5. Bristol-Myers Squibb Co. 2.7
--------------------------------------------------------------------------------
6. Integrated Device Technology, Inc. 2.6
--------------------------------------------------------------------------------
7. Apple Computer, Inc. 2.5
--------------------------------------------------------------------------------
8. Sun Microsystems, Inc. 2.5
--------------------------------------------------------------------------------
9. CommScope, Inc. 2.2
--------------------------------------------------------------------------------
10. Kroger Co. 2.2
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
6 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 98.4%
Aerospace/Defense -- 3.8%
155,000 General Dynamics Corp. $ 8,098,750
161,000 United Technologies Corp. 9,478,875
--------------------------------------------------------------------------------
17,577,625
--------------------------------------------------------------------------------
Banking -- 1.5%
221,250 AmSouth Bancorporation(a) 3,484,687
124,031 Commerce Bancshares Inc. 3,689,922
--------------------------------------------------------------------------------
7,174,609
--------------------------------------------------------------------------------
Broadcast/TV/Cable/Radio -- 5.1%
230,000 Comcast Corp.(b) 9,315,000
257,700 The Walt Disney Co. 10,001,981
200,000 USA Networks, Inc.(b) 4,325,000
--------------------------------------------------------------------------------
23,641,981
--------------------------------------------------------------------------------
Computer Software and Hardware -- 9.0%
220,000 Apple Computer, Inc.(a)(b) 11,522,500
150,000 Autodesk, Inc. 5,203,125
175,000 Microsoft Corp.(b) 14,000,000
125,500 Sun Microsystems Inc.(b) 11,412,656
--------------------------------------------------------------------------------
42,138,281
--------------------------------------------------------------------------------
Cosmetics and Toiletries -- 2.1%
168,000 Colgate-Palmolive Co. 10,059,000
--------------------------------------------------------------------------------
Diversified Manufacturing -- 10.5%
203,000 Air Products and Chemicals, Inc. 6,254,937
198,900 Eastman Chemical Co. 9,497,475
454,500 General Electric Co. 24,088,500
192,000 Tyco International Ltd. 9,096,000
--------------------------------------------------------------------------------
48,936,912
--------------------------------------------------------------------------------
Drugs/Healthcare -- 2.9%
258,230 Pharmacia Corp. 13,347,263
--------------------------------------------------------------------------------
Electronics/Semiconductor -- 14.4%
116,000 Advanced Micro Devices, Inc.(a)(b) 8,961,000
215,400 Analog Devices, Inc.(b) 16,370,400
200,000 Arrow Electronics, Inc. 6,200,000
200,000 Integrated Device Technology, Inc.(a)(b) 11,975,000
119,400 KLA-Tencor Corp.(b) 6,992,362
136,400 LSI Logic Corp.(a)(b) 7,382,650
167,000 Novellus Systems, Inc.(a)(b) 9,445,937
--------------------------------------------------------------------------------
67,327,349
--------------------------------------------------------------------------------
Electric/Utilities -- 3.2%
300,000 PPL Corp. 6,581,250
250,000 Pinnacle West Capital Corp. 8,468,750
--------------------------------------------------------------------------------
15,050,000
--------------------------------------------------------------------------------
Financial Services -- 1.1%
173,000 Knight Trading Group, Inc.(a)(b) 5,157,562
--------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Concert Peachtree Growth Fund 7
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Food -- 8.8%
457,000 Kroger Co. $ 10,082,563
230,000 Quaker Oats Co. 17,278,750
217,000 Ralston-Ralston Purina Group 4,326,438
213,100 Safeway Inc.(b) 9,616,138
--------------------------------------------------------------------------------
41,303,889
--------------------------------------------------------------------------------
Healthcare -- 8.8%
216,600 Bristol-Myers Squibb Co. 12,616,950
58,000 CIGNA Corp. 5,423,000
300,000 Tenet Healthcare Corp.(b) 8,100,000
100,000 UnitedHealth Group Inc. 8,575,000
100,000 Universal Health Services, Inc., Class B Shares(a) 6,550,000
--------------------------------------------------------------------------------
41,264,950
--------------------------------------------------------------------------------
Insurance -- 2.1%
110,000 Providian Financial Corp. 9,900,000
--------------------------------------------------------------------------------
Internet -- 5.1%
185,000 America Online, Inc.(b) 9,758,750
75,000 CMGI Inc.(a)(b) 3,435,938
250,000 CNET Networks, Inc.(a)(b) 6,140,625
277,660 Earthlink, Inc.(a)(b) 4,286,376
--------------------------------------------------------------------------------
23,621,689
--------------------------------------------------------------------------------
Machinery -- 4.2%
111,200 Applied Materials, Inc.(b) 10,077,500
155,000 Deere & Co. 5,735,000
94,000 Dover Corp. 3,812,875
--------------------------------------------------------------------------------
19,625,375
--------------------------------------------------------------------------------
Oil and Gas -- 1.0%
161,000 Tosco Corp. 4,558,313
--------------------------------------------------------------------------------
Photo Equipment and Supplies -- 1.6%
123,000 Eastman Kodak Co. 7,318,500
--------------------------------------------------------------------------------
Publishing - Newspapers -- 3.3%
134,000 Dow Jones & Co., Inc. 9,815,500
105,000 Knight-Ridder, Inc.(a) 5,584,688
--------------------------------------------------------------------------------
15,400,188
--------------------------------------------------------------------------------
Retail -- 2.8%
90,700 Wal-Mart Stores, Inc. 5,226,588
213,000 Zale Corp.(b) 7,774,500
--------------------------------------------------------------------------------
13,001,088
--------------------------------------------------------------------------------
Telecommunications -- 7.1%
91,000 ADTRAN Inc.(b) 5,448,625
300,000 Broadwing Inc.(a)(b) 7,781,250
246,000 CommScope, Inc.(b) 10,086,000
224,000 SBC Communications Inc. 9,688,000
--------------------------------------------------------------------------------
33,003,875
--------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $435,990,698) 459,408,449
================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited)(continued) June 30, 2000
--------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 1.6%
$7,694,000 Goldman, Sachs & Co., 6.450% due 7/3/00;
Proceeds at maturity -- $7,698,136
(Fully collateralized by U.S.
Treasury Bills, Notes & Bonds,
5.250% to 12.000% due 8/15/00 to
11/15/28; Market value -- $7,847,886)
(Cost -- $7,694,000) $ 7,694,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $443,684,698*) $ 467,102,449
================================================================================
(a) All or a portion of this security is on loan (See Note 6).
(b) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Concert Peachtree Growth Fund 9
<PAGE>
--------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (Cost -- $443,684,698) $467,102,449
Cash 308
Collateral for securities on loan (Note 6) 52,146,668
Receivable for Fund shares sold 1,379,176
Dividends and interest receivable 544,043
--------------------------------------------------------------------------------------
Total Assets 521,172,644
--------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 52,146,668
Payable for securities purchased 9,869,772
Management fees payable 359,937
Accrued expenses 217,881
--------------------------------------------------------------------------------------
Total Liabilities 62,594,258
--------------------------------------------------------------------------------------
Total Net Assets $458,578,386
======================================================================================
NET ASSETS:
Par value of capital shares $ 24,700
Capital paid in excess of par value 358,005,513
Accumulated net investment loss (1,232,520)
Accumulated net realized gain from security transactions 78,362,942
Net unrealized appreciation of investments 23,417,751
--------------------------------------------------------------------------------------
Total Net Assets $458,578,386
======================================================================================
Shares Outstanding:
Class A 6,714,991
-----------------------------------------------------------------------------------
Class B 5,605,274
-----------------------------------------------------------------------------------
Class L 36,687
-----------------------------------------------------------------------------------
Class Y 12,342,920
-----------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 18.60
-----------------------------------------------------------------------------------
Class B* $ 17.94
-----------------------------------------------------------------------------------
Class L ** $ 17.97
-----------------------------------------------------------------------------------
Class Y (and redemption price) $ 18.83
-----------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $ 19.58
-----------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $ 18.15
======================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
10 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended June 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 296,790
Dividends 1,581,665
--------------------------------------------------------------------------------
Total Investment Income 1,878,455
--------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 2,137,451
Distribution fees (Note 2) 653,145
Shareholder and system servicing fees 202,074
Registration fees 42,268
Shareholder communications 26,062
Audit and legal 18,895
Directors' fees 15,912
Custody 8,454
Other 6,714
--------------------------------------------------------------------------------
Total Expenses 3,110,975
--------------------------------------------------------------------------------
Net Investment Loss (1,232,520)
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain (Loss) From Security Transactions
(excluding short-term securities):
Proceeds from sales 293,955,163
Cost of securities sold 215,562,995
--------------------------------------------------------------------------------
Net Realized Gain 78,392,168
--------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 101,576,432
End of period 23,417,751
--------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (78,158,681)
--------------------------------------------------------------------------------
Net Gain on Investments 233,487
--------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (999,033)
================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Concert Peachtree Growth Fund 11
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
2000 1999
===================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment loss $ (1,232,520) $ (2,131,340)
Net realized gain 78,392,168 57,223,625
Increase (decrease) in net unrealized appreciation (78,158,681) 20,550,178
---------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (999,033) 75,642,463
---------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains (10,969,840) (47,172,390)
---------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (10,969,840) (47,172,390)
---------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 81,458,976 118,088,916
Net asset value of shares issued for
reinvestment of dividends 5,517,847 23,531,401
Cost of shares reacquired (63,400,641) (56,661,648)
---------------------------------------------------------------------------------------------------
Increase in Net Assets From Fund Share Transactions 23,576,182 84,958,669
---------------------------------------------------------------------------------------------------
Increase in Net Assets 11,607,309 113,428,742
NET ASSETS:
Beginning of period 446,971,077 333,542,335
---------------------------------------------------------------------------------------------------
End of period* $ 458,578,386 $ 446,971,077
===================================================================================================
* Includes accumulated net investment loss of: $ (1,232,520) --
===================================================================================================
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
12 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
--------------------------------------------------------------------------------
1. Significant Accounting Policies
The Concert Peachtree Growth Fund ("Portfolio"), a separate investment fund of
the Smith Barney Investment Funds Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund consists of this
Portfolio and nine other separate investment portfolios: Smith Barney Investment
Grade Bond Fund, Smith Barney Government Securities Fund, Smith Barney
Hansberger Global Value Fund, Smith Barney Hansberger Global Small Cap Value
Fund, Smith Barney Small Cap Value Fund, Smith Barney Small Cap Growth Fund,
Smith Barney Premier Selections All Cap Growth Fund, Smith Barney Premier
Selections Global Growth Fund, and Smith Barney Premier Selections Large Cap
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, 1999, 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.
--------------------------------------------------------------------------------
Concert Peachtree Growth Fund 13
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)(continued)
--------------------------------------------------------------------------------
2. Management Agreement and Other Transactions
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), which in turn, is a subsidiary of Citigroup Inc.
("Citigroup"), acts as investment manager of the Fund. The Portfolio pays 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.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney Private
Trust Company, another subsidiary of Citigroup, acts as the Fund's transfer
agent and PFPC Global Fund Services ("PFPC") acts as the sub-transfer agent.
CFTC receives account fees and asset-based fees that vary according to the
account size and type of account. PFPC is responsible for shareholder
recordkeeping and financial processing for all shareholder accounts and are paid
by CFTC. During the six months ended June 30, 2000, the Portfolio paid transfer
agent fees of $5,541 to CFTC.
Effective June 5, 2000, Salomon Smith Barney Inc. ("SSB"), another subsidiary of
SSBH, became the Fund's distributor replacing CFBDS, Inc. ("CFBDS"). In
addition, SSB acts as the primary broker for the Fund's portfolio agency
transactions. Certain other broker-dealers continue to sell Fund shares to the
public as members of the selling group. For the six months ended June 30, 2000,
SSB and its affiliates did not receive brokerage commissions.
There are maximum initial sales charges of 5.00% and 1.00% for Class A and L
shares, respectively. 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, 2000, CFBDS and SSB received sales charges of
approximately $49,000 and $1,000 for Class A and Class L shares, respectively.
In addition, CDSCs paid to SSB were approximately $3,000 for 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, 2000, total Distribution Plan fees incurred by
the Portfolio were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $156,810 $492,949 $3,386
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $307,351,841
--------------------------------------------------------------------------------
Sales 293,955,163
================================================================================
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 64,742,940
Gross unrealized depreciation (41,325,189)
--------------------------------------------------------------------------------
Net unrealized appreciation $ 23,417,751
================================================================================
--------------------------------------------------------------------------------
14 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
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 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, 2000, 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, 2000, the Portfolio did not write any call
or put option 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.
--------------------------------------------------------------------------------
Concert Peachtree Growth Fund 15
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
At June 30, 2000, the Portfolio loaned common stocks having a value of
approximately $50,837,098 and holds the following collateral for loaned
securities:
Security Description Value
================================================================================
Time Deposits:
Banco Bilbia VI, 7.13% due 7/3/00 $13,968,574
Bank Brussels, 7.03% to 7.13% due 7/3/00 729,401
CAISSE, 6.94% to 7.06% due 7/3/00 20,902,898
Credit Suisse, 7.13% to 7.16% due 7/3/00 3,896,086
San Paolo, 7.00% due 7/3/00 6,984,287
Floating Rate Notes:
Bank One, 6.68% due 7/2/01 821,708
First Union, 6.51% due 5/21/01 3,681,372
Goldman, Sachs & Co., Inc., 5.28% due 8/23/00 988,160
Keybank Corp., 5.91% due 2/14/01 174,182
--------------------------------------------------------------------------------
Total $52,146,668
================================================================================
For the six months ended June 30, 2000, interest income earned from securities
lending was $46,407.
7. Capital Shares
At June 30, 2000, 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, 2000, total paid-in capital amounted to the following for each
class:
Class A Class B Class L Class Y
================================================================================
Total Paid-in Capital $96,484,903 $84,022,383 $604,129 $176,918,798
================================================================================
--------------------------------------------------------------------------------
16 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
------------------------------- -------------------------------
Shares Amount Shares Amount
==========================================================================================================================
Class A
<S> <C> <C> <C> <C>
Shares sold 2,779,955 $ 53,649,403 3,067,687 $ 58,001,350
Shares issued on reinvestment 159,844 2,949,117 717,433 13,563,289
Shares reacquired (2,695,968) (51,851,310) (2,209,240) (41,074,980)
--------------------------------------------------------------------------------------------------------------------------
Net Increase 243,831 $ 4,747,210 1,575,880 $30,489,659
==========================================================================================================================
Class B
Shares sold 861,774 $ 16,057,381 2,044,383 $ 36,405,757
Shares issued on reinvestment 137,875 2,452,799 514,938 9,442,662
Shares reacquired (527,295) (9,856,759) (830,572) (14,818,964)
--------------------------------------------------------------------------------------------------------------------------
Net Increase 472,354 $ 8,653,421 1,728,749 $ 31,029,455
==========================================================================================================================
Class L
Shares sold 5,300 $ 95,683 22,055 $ 391,212
Shares issued on reinvestment 902 16,077 3,623 66,773
Shares reacquired (4,222) (78,829) (3,730) (67,704)
--------------------------------------------------------------------------------------------------------------------------
Net Increase 1,980 $ 32,931 21,948 $ 390,281
==========================================================================================================================
Class Y
Shares sold 610,639 $ 11,656,509 1,281,857 $ 23,290,597
Shares issued on reinvestment 5,348 99,854 23,914 458,677
Shares reacquired (82,623) (1,613,743) (37,899) (700,000)
--------------------------------------------------------------------------------------------------------------------------
Net Increase 533,364 $ 10,142,620 1,267,872 $ 23,049,274
==========================================================================================================================
</TABLE>
--------------------------------------------------------------------------------
Concert Peachtree Growth Fund 17
<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 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995(3)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $19.10 $17.71 $13.41 $13.80 $14.31 $13.36
------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.06) (0.12) (0.07) 0.03 0.01 0.03
Net realized and unrealized gain 0.01 3.60 4.50 0.65 1.85 1.87
------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.05) 3.48 4.43 0.68 1.86 1.90
------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- -- (0.11) (0.02)
Net realized gains (0.45) (2.09) (0.13) (1.07) (2.26) (0.93)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.45) (2.09) (0.13) (1.07) (2.37) (0.95)
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $18.60 $19.10 $17.71 $13.41 $13.80 $14.31
------------------------------------------------------------------------------------------------------------------------------------
Total Return (0.24)%++ 19.88% 33.13% 5.18% 13.96% 14.61%++
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $124,928 $123,593 $86,712 $67,349 $72,180 $57,693
------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.41%+ 1.44% 1.40% 1.67% 1.78% 1.72%+
Net investment income (loss) (0.59)+ (0.64) (0.48) 0.22 0.13 0.46+
------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 65% 94% 93% 227% 183% 51%
====================================================================================================================================
Class B Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995(3)
====================================================================================================================================
Net Asset Value, Beginning of Period $18.50 $17.35 $13.24 $13.74 $14.27 $13.36
------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.13) (0.26) (0.19) (0.07) (0.09) (0.02)
Net realized and unrealized gain 0.02 3.50 4.43 0.64 1.84 1.86
------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.11) 3.24 4.24 0.57 1.75 1.84
------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- -- (0.02) --
Net realized gains (0.45) (2.09) (0.13) (1.07) (2.26) (0.93)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.45) (2.09) (0.13) (1.07) (2.28) (0.93)
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $17.94 $18.50 $17.35 $13.24 $13.74 $14.27
------------------------------------------------------------------------------------------------------------------------------------
Total Return (0.57)%++ 18.88% 32.11% 4.40% 13.12% 14.15%++
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $100,542 $94,969 $59,062 $42,172 $43,148 $32,685
------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.19%+ 2.24% 2.21% 2.42% 2.53% 2.46%+
Net investment loss (1.37)+ (1.44) (1.29) (0.53) (0.63) (0.27)+
------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 65% 94% 93% 227% 183% 51%
====================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (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.
--------------------------------------------------------------------------------
18 2000 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 2000(1)(2) 1999(2) 1998(2)(3) 1997 1996 1995(4)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $18.54 $17.41 $13.28 $13.78 $14.29 $14.05
------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.14) (0.32) (0.18) (0.05) (0.08) 0.01
Net realized and unrealized gain 0.02 3.54 4.44 0.62 1.85 1.16
------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.12) 3.22 4.26 0.57 1.77 1.17
------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- -- (0.02) --
Net realized gains (0.45) (2.09) (0.13) (1.07) (2.26) (0.93)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.45) (2.09) (0.13) (1.07) (2.28) (0.93)
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $17.97 $18.54 $17.41 $13.28 $13.78 $14.29
------------------------------------------------------------------------------------------------------------------------------------
Total Return (0.63)%++ 18.67% 32.17% 4.38% 13.24% 8.69%++
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $659 $644 $222 $203 $174 $88
------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.27%+ 2.56% 2.16% 2.41% 2.40% 2.29%+
Net investment income (loss) (1.46)+ (1.77) (1.23) (0.53) (0.48) 0.13+
------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 65% 94% 93% 227% 183% 51%
====================================================================================================================================
<CAPTION>
Class Y Shares 2000(1)(2) 1999(2) 1998(2) 1997(5)
====================================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $19.29 $17.79 $13.42 $14.86
------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.02) (0.04) (0.02) 0.01
Net realized and unrealized gain (loss) 0.01 3.63 4.52 (0.38)
------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.01) 3.59 4.50 (0.37)
------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains (0.45) (2.09) (0.13) (1.07)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.45) (2.09) (0.13) (1.07)
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $18.83 $19.29 $17.79 $13.42
------------------------------------------------------------------------------------------------------------------------------------
Total Return (0.03)%++ 20.41% 33.62% (2.25)%++
------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $232,449 $227,765 $187,546 $115,343
------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.98%+ 1.00% 1.07% 1.10%+
Net investment income (loss) (0.16)+ (0.20) (0.14) 0.62+
------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 65% 94% 93% 227%
====================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (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 19
<PAGE>
(This page intentionally left blank.)
<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
SSB Citi Fund Management LLC
Distributor
Salomon Smith Barney Inc.
PFS Investments Inc.
Custodian
PFPC Trust Company
Transfer Agent
Citi Fiduciary Trust Company
125 Broad Street, 11th Floor
New York, New York 10004
Sub-Transfer Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of the shareholders of
Concert Peachtree Growth Fund, but it may also be used as sales literature when
proceeded or accompanied by the current Prospectus, which gives details about
charges, expenses, investment objectives and operating policies of the Fund. If
used as sales material after September 30, 2000, this report must be accompanied
by performance information for the most recently completed calendar quarter.
[LOGO OF SALOMON SMITH BARNEY]
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/mutualfunds
FD01155 8/00
<PAGE>
[LOGO]
SMITH BARNEY
INVESTMENT
GRADE BOND FUND
CLASSIC SERIES
SEMI-ANNUAL REPORT
JUNE 30, 2000
[LOGO] SMITH BARNEY
MUTUAL FUNDS
Your Serious Money Professionally Managed (SM)
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
<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, 2000
Without Sales Charges(1)
---------------------------
Class A Class B Class L
=================================================
Six Months+ 3.58% 3.32% 3.36%
-------------------------------------------------
One-Year (0.20) (0.24) (0.14)
-------------------------------------------------
Five-Year 5.74 5.24 5.29
-------------------------------------------------
Ten-Year N/A 8.57 N/A
-------------------------------------------------
Since Inception++ 7.91 10.51 6.33
=================================================
With Sales Charges(2)
---------------------------
Class A Class B Class L
=================================================
Six Months+ (1.09)% (1.18)% 1.36%
-------------------------------------------------
One-Year (4.27) (4.48) (2.06)
-------------------------------------------------
Five-Year 4.77 5.09 5.07
-------------------------------------------------
Ten-Year N/A 8.57 N/A
-------------------------------------------------
Since Inception++ 7.26 10.51 6.18
=================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales 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
================================================================================
During the period covered by this report, our strategy included slowly buying
longer-dated U.S. Treasuries and extending maturities as interest rates rose
during the period. Due to the U.S. Treasury's plan to buy back more than $30
billion of long-term debt, we anticipate that interest rates on the long end of
the yield curve will continue to be lower than rates on the short end of the
yield curve. (Of course, no guarantees can be given that our expectations will
be met.)
================================================================================
NASDAQ SYMBOLS
================================================================================
CLASS A HGBPA
CLASS B HGBPB
CLASS L HGBPL
================================================================================
WHAT'S INSIDE
================================================================================
A Message from the Chairman ............................................... 1
Shareholder Letter ........................................................ 2
Historical Performance .................................................... 4
Smith Barney Investment Grade Bond Fund
at a Glance ............................................................... 7
Schedule of Investments ................................................... 8
Statement of Assets and Liabilities ....................................... 12
Statement of Operations ................................................... 13
Statements of Changes in Net Assets ....................................... 14
Notes to Financial Statements ............................................. 15
Financial Highlights ...................................................... 19
<PAGE>
================================================================================
A Message from the Chairman
================================================================================
[PHOTO]
Heath B.
McLendon
Chairman
Dear Shareholder:
For years, individuals and their families and businesses have looked to the
investment professionals of SSB Citi Fund Management LLC for thoughtful insights
and advice. For some, the solution has been a long-term investment strategy,
incorporating multiple stock and bond mutual funds. Others have invested with
specific portfolio managers who are recognized and respected for their insights
and record.
In our opinion, the lessons of the past may be used to better understand the
challenges and opportunities of the future. We believe SSB Citi Fund Management
LLC represents extensive asset management expertise. We also believe that
expertise is achieved through the intelligent application of knowledge and
experience. Our portfolio managers have managed portfolios across markets and
cycles.
Whatever your investment objective may be, we believe that following a
disciplined investment plan is of paramount importance in these uncertain times.
We encourage you to work closely with your financial professional to map out an
investment plan that fits in with your objectives -- be it retirement, estate
planning or educational needs.
When you invest with SSB Citi Fund Management LLC, you can do so with the
confidence that your interests come first, your investment success is paramount
and that the ultimate in resources is being committed to your financial future.
Thank you for investing with us.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
July 24, 2000
--------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 1
<PAGE>
================================================================================
Shareholder Letter
================================================================================
[PHOTO]
James E.
Conroy
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, 2000. In this
report, we summarize the period's prevailing economic and market conditions and
outline our investment strategy.(1) A more detailed summary of performance can
be found in the appropriate sections that follow. We hope you find this report
to be useful and informative.
Performance Update(2)
For the six months ended June 30, 2000, the Portfolio's Class A shares, without
sales charges, returned 3.58%. The Portfolio's Class A shares, with sales
charges, returned a negative 1.09%. In comparison, the Salomon Smith Barney
Corporate Index 10+ ("SSB Index")(3) returned 1.92% for the same time period.
In addition, during the past six months, the Portfolio distributed income
dividends totaling $0.35 per Class A share. For additional performance
information please refer to pages four through six.
Market Update and Outlook
In our view, the issues that significantly impacted the performance of the bond
market during the period were:
o The increase in interest rates by the Federal Reserve Board ("Fed");
o The U.S. Treasury's buyback program;
o Reduced mutual fund inflows; and
o Investor concerns regarding credit quality, the extreme levels of market
volatility and illiquidity.
The Fed raised interest rates three times for a total of 75 basis points(4)
during the reporting period. In addition, the plan by the U.S. Treasury to buy
back more than $30 billion of its long-term debt obligations has led to reduced
supply in the market. As such, the price of longer-term bonds increased in
relation to their shorter-term counterparts, as reflected by an inverted yield
curve. Instead of a "normal" yield curve, with yields rising steadily along with
the maturity of Treasury bonds, the highest yields were for shorter-term bonds.
During the period covered by this report, our strategy included slowly buying
longer-dated U.S. Treasuries and extending maturities as interest rates rose
during the period. Due to the U.S. Treasury's buyback program, we anticipate
that interest rates on the long end of the yield curve will continue to be lower
than rates on the short end of the yield curve. (Of course, no guarantees can be
given that our expectations will be met.)
Investment Strategy
The Portfolio seeks as high a level of current income as is consistent with
prudent investment management and preservation of capital by investing primarily
in "investment grade" fixed-income securities. Investment grade securities are
securities rated by a national ratings organization (e.g., Moody's Investors
Service, Inc. or Standard & Poor's Ratings Service) within one of the top four
catagories, 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 of any maturity.
-------------
1 The information provided represents the opinion of the manager and is not
intended to be a forecast of future events, a guarantee of future results
nor investment advice. Further, there is no assurance that certain
securities will remain in or out of the Portfolio.
2 Please note that the Portfolio's holdings are subject to change and any
discussion of holdings is as of June 30, 2000. Please refer to pages eight
through ten for a complete list and percentage breakdown of the
Portfolio's holdings.
3 The SSB Index is a broad-based unmanaged index of investment grade
corporate bonds with maturities of ten years or more. Please note that an
investor cannot invest directly in an index.
4 A basis point is 0.01% or one one-hundredth of a percent.
--------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
We continue to emphasize individual bond selection while diversifying the
Portfolio's investments across a range of issues, industries and maturity dates.
In selecting individual corporate bonds for investment, we:
o Use fundamental credit analysis to estimate the relative value and
attractiveness of various companies and bond issues;
o Seek to identify undervalued corporate bond issues and avoid issues that
may be subject to credit downgrades; and
o Determine sector and maturity weightings based on intermediate and
long-term assessments of the economic environment and interest rate
outlook.
Additionally, going forward, we will look to lengthen the Portfolio's duration
and identify those securities that we deem as appropriate investments.
The chart below shows the yields from U.S. Treasuries during the period under
review.
Yields from U.S. Treasuries
Interest Rates 6/30/00 12/31/99
----------- -------------
2-Year U.S. Treasury Notes 6.36% 6.24%
5-Year U.S. Treasury Notes 6.18 6.34
10-Year U.S. Treasury Bonds 6.02 6.43
30-Year U.S. Treasury Bonds 5.90 6.48
Thank you for investing in the Smith Barney Investment Grade Bond Fund. We look
forward to continuing to help you pursue your financial goals in the new
century.
Sincerely,
/s/ James E. Conroy
James E. Conroy
Vice President and
Investment Officer
July 24, 2000
--------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 3
<PAGE>
================================================================================
Historical Performance -- Class A Shares
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/00 $11.22 $11.27 $0.35 $0.00 $0.00 3.58%+
--------------------------------------------------------------------------------------------------
12/31/99 13.12 11.22 0.73 0.00 0.01 (9.09)
--------------------------------------------------------------------------------------------------
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 $6.18 $1.38 $0.05
==================================================================================================
</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>
6/30/00 $11.21 $11.26 $0.32 $0.00 $0.00 3.32%+
--------------------------------------------------------------------------------------------------
12/31/99 13.09 11.21 0.66 0.00 0.01 (9.44)
--------------------------------------------------------------------------------------------------
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
==================================================================================================
Total $8.16 $1.38 $0.07
==================================================================================================
</TABLE>
--------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
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>
6/30/00 $11.19 $11.24 $0.32 $0.00 $0.00 3.36%+
--------------------------------------------------------------------------------------------------
12/31/99 13.07 11.19 0.66 0.00 0.01 (9.44)
--------------------------------------------------------------------------------------------------
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 $5.50 $1.38 $0.04
==================================================================================================
</TABLE>
================================================================================
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>
6/30/00 $11.22 $11.26 $0.37 $0.00 $0.00 3.67%+
--------------------------------------------------------------------------------------------------
12/31/99 13.11 11.22 0.77 0.00 0.01 (8.68)
--------------------------------------------------------------------------------------------------
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 $3.53 $0.77 $0.01
==================================================================================================
</TABLE>
It is the Portfolio's policy to distribute dividends monthly and capital gains,
if any, annually.
--------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 5
<PAGE>
================================================================================
Average Annual Total Returns
================================================================================
<TABLE>
<CAPTION>
Without Sales Charges(1)
--------------------------------------------------------------
Class A Class B Class L Class Y
============================================================================================
<S> <C> <C> <C> <C>
Six Months Ended 6/30/00+ 3.58% 3.32% 3.36% 3.67%
--------------------------------------------------------------------------------------------
Year Ended 6/30/00 (0.20) (0.24) (0.14) 0.57
--------------------------------------------------------------------------------------------
Five Years Ended 6/30/00 5.74 5.24 5.29 N/A
--------------------------------------------------------------------------------------------
Ten Years Ended 6/30/00 N/A 8.57 N/A N/A
--------------------------------------------------------------------------------------------
Inception* through 6/30/00 7.91 10.51 6.33 4.64
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
With Sales Charges(2)
--------------------------------------------------------------
Class A Class B Class L Class Y
============================================================================================
<S> <C> <C> <C> <C>
Six Months Ended 6/30/00+ (1.09)% (1.18)% 1.36% 3.67%
--------------------------------------------------------------------------------------------
Year Ended 6/30/00 (4.27) (4.48) (2.06) 0.57
--------------------------------------------------------------------------------------------
Five Years Ended 6/30/00 4.77 5.09 5.07 N/A
--------------------------------------------------------------------------------------------
Ten Years Ended 6/30/00 N/A 8.57 N/A N/A
--------------------------------------------------------------------------------------------
Inception* through 6/30/00 7.26 10.51 6.18 4.64
============================================================================================
</TABLE>
================================================================================
Cumulative Total Returns
================================================================================
Without Sales Charges(1)
================================================================================
Class A (Inception* through 6/30/00) 79.02%
--------------------------------------------------------------------------------
Class B (6/30/90 through 6/30/00) 127.54
--------------------------------------------------------------------------------
Class L (Inception* through 6/30/00) 56.95
--------------------------------------------------------------------------------
Class Y (Inception* through 6/30/00) 22.05
================================================================================
(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; 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.
--------------------------------------------------------------------------------
6 2000 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 Lipper Corporate Debt A-Rated Average and the Salomon
Smith Barney Corporate Index 10++
[THE FOLLOWING WAS REPRESENTED BY A LINE GRAPH]
June 1990 -- June 2000
<TABLE>
<CAPTION>
Smith Barney Investment Lipper Corporate Salomon Smith Barney Corporate
Grade Bond Fund Debt A-Rated Average Index 10+
<S> <C> <C> <C>
Jun\1990 10000 10000 10000
Dec\1990 10238 10365 10394
Dec\1991 12541 12540 12550
Dec\1992 13590 13711 13795
Dec\1993 16044 15582 15759
Dec\1994 14531 14684 14866
Dec\1995 19563 18785 19028
Dec\1996 19388 18878 19407
Dec\1997 22106 20609 22020
Dec\1998 24204 22589 24025
Dec\1999 22022 21994 22635
Jun\2000 22754 22656 23070
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class B shares on June
30, 1990, assuming reinvestment of dividends and capital gains, if any, at
net asset value through June 30, 2000. The Salomon Smith Barney Corporate
Index 10+ is a broad-based unmanaged index of investment grade corporate
bonds with maturities of ten years or more. 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 Portfolio's
peer group of 179 mutual funds as of June 30, 2000. The performance of the
Portfolio's other classes may be greater or less than the Class B shares'
performance indicated on this chart, depending on whether greater or
lesser sales charges and fees were incurred by shareholders investing in
the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
Industry Diversification*
-----------------------------------------
[THE FOLLOWING WAS REPRESENTED BY A BAR CHART]
8.3% Aerospace & Defense
5.2% Automotive
5.2% Banking
4.6% Beverages
5.6% Electronics/Computers
7.5% Finance
7.1% Insurance
7.9% Multimedia
9.4% Oil & Gas
8.0% Telecommunications
31.2% Other
* As a percentage of total corporate bonds and notes.
Summary of Investments by Combined Ratings
--------------------------------------------------
Standard Percentage of Total
Moody's & Poor's Corporate Bonds & Notes
-------------- ----------- -----------------------
Aaa AAA 3.7%
Aa AA 21.7
A A 38.0
Baa BBB 36.6
--------
100.0%
========
--------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 7
<PAGE>
================================================================================
Schedule of Investments (unaudited) June 30, 2000
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
CORPORATE BONDS & NOTES -- 71.5%
Aerospace & Defense -- 6.0%
$ 10,000,000 AA- The Boeing Co., Debentures, 6.875% due 10/15/43 $8,775,000
7,500,000 BBB- Loral Corp., Debentures, 7.000% due 9/15/23 6,384,375
5,000,000 Baa2* Raytheon Co., Debentures, 7.200% due 8/15/27 4,375,000
10,000,000 A+ United Technologies Corp., Debentures, 7.500% due 9/15/29 9,937,500
--------------------------------------------------------------------------------------------------------
29,471,875
--------------------------------------------------------------------------------------------------------
Agricultural Equipment -- 1.0%
5,000,000 A+ Deere & Co., Debentures, 8.100% due 5/15/30 5,025,000
--------------------------------------------------------------------------------------------------------
Airlines -- 2.2%
7,500,000 Baa2* AMR Corp., Debentures, 9.000% due 9/15/16 7,200,000
5,000,000 BBB- Delta Air Lines, Inc., Notes, 8.300% due 12/15/29 4,393,750
--------------------------------------------------------------------------------------------------------
11,593,750
--------------------------------------------------------------------------------------------------------
Automotive -- 3.6%
10,000,000 A+ DaimlerChrysler Corp., Debentures, 7.450% due 3/1/27 9,612,500
10,000,000 A General Motors Corp., Debentures, 5.850% due 1/14/09 8,762,500
--------------------------------------------------------------------------------------------------------
18,375,000
--------------------------------------------------------------------------------------------------------
Banking -- 3.6%
10,000,000 AA- Abbey National PLC, Sub. Debentures, 7.950% due 10/26/29 9,901,760
10,000,000 Aa3* NationsBank Corp., Debentures, 6.800% due 3/15/28 8,525,000
--------------------------------------------------------------------------------------------------------
18,426,760
--------------------------------------------------------------------------------------------------------
Beverages -- 3.3%
8,500,000 A+ Anheuser-Busch Cos., Inc., Debentures, 6.750% due 12/15/27 7,628,750
10,000,000 A Coca-Cola Enterprises Inc., Debentures, 6.750% due 9/15/28 8,625,000
--------------------------------------------------------------------------------------------------------
16,253,750
--------------------------------------------------------------------------------------------------------
Broadcasting -- 1.0%
5,000,000 BBB- Liberty Media Group, Inc., Debentures, 8.500% due 7/15/29 4,734,370
--------------------------------------------------------------------------------------------------------
Chemicals -- 1.0%
5,000,000 A Dow Chemical Co., Debentures, 7.375% due 11/1/29 4,875,770
--------------------------------------------------------------------------------------------------------
Consumer Sundries -- 0.9%
5,000,000 AA Procter & Gamble Co., Debentures, 6.450% due 1/15/26 4,468,750
--------------------------------------------------------------------------------------------------------
Department Stores -- 0.5%
3,000,000 BBB J.C. Penney & Co., Debentures, 7.400% due 4/1/37 2,715,000
--------------------------------------------------------------------------------------------------------
Drugs -- 1.0%
5,000,000 AA Eli Lilly & Co., Notes, 7.125% due 6/1/25 4,868,750
--------------------------------------------------------------------------------------------------------
Electronics/Computers -- 4.0%
10,000,000 A+ International Business Machines Corp., Debentures,
8.375% due 11/1/19 11,008,570
10,000,000 A+ Motorola, Inc., Debentures, 6.500% due 11/15/28 8,787,500
--------------------------------------------------------------------------------------------------------
19,796,070
--------------------------------------------------------------------------------------------------------
Finance -- 5.4%
10,000,000 A+ Ford Motor Credit Co., Sr. Notes, 5.800% due 1/12/09 8,712,500
5,000,000 A+ Goldman Sachs Group, Inc., Notes, 7.350% due 10/1/09 4,800,000
5,000,000 A Lehman Brothers Holdings Inc., Sr. Notes, 7.200% due 8/15/09 4,656,250
10,000,000 AA- Merrill Lynch & Co., Debentures, 6.750% due 6/1/28 8,375,000
--------------------------------------------------------------------------------------------------------
26,543,750
--------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 2000
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
Food Chains -- 0.9%
$ 5,000,000 AA McDonald's Corp., Debentures, 6.375% due 1/8/28 $4,369,050
--------------------------------------------------------------------------------------------------------
Foods -- 2.3%
5,000,000 A+ Archer-Daniels-Midland Co., Debentures, 8.125% due 6/1/12 5,162,500
6,000,000 A- Ralston-Ralston Purina Group, Debentures, 8.125% due 2/1/23 6,002,496
--------------------------------------------------------------------------------------------------------
11,164,996
--------------------------------------------------------------------------------------------------------
Forestry Products -- 1.0%
5,000,000 A Weyerhaeuser Co., Debentures, 7.250% due 7/1/13 4,756,250
--------------------------------------------------------------------------------------------------------
Insurance -- 5.1%
10,000,000 AA- American General Corp., Debentures, 7.500% due 7/15/25 9,394,510
7,000,000 BBB+ Fairfax Financial Holdings, Ltd., Notes, 8.250% due 10/1/15 5,757,500
5,000,000 AA+ John Hancock Global Funding, Notes, 7.900% due 7/2/10 5,037,500
5,000,000 A- The MONY Group Inc., Sr. Notes, 8.350% due 3/15/10 4,918,750
--------------------------------------------------------------------------------------------------------
25,108,260
--------------------------------------------------------------------------------------------------------
Manufacturing -- 1.8%
5,000,000 AA- Illinois Tool Works Inc., Notes, 5.750% due 3/1/09 4,550,000
5,000,000 A- Tyco International Group SA, Company Guaranteed,
6.875% due 1/15/29 4,287,500
--------------------------------------------------------------------------------------------------------
8,837,500
--------------------------------------------------------------------------------------------------------
Medical Specialties -- 0.7%
4,275,000 AAA Johnson & Johnson, Debentures, 6.950% due 9/1/29 4,093,313
--------------------------------------------------------------------------------------------------------
Multimedia -- 5.7%
5,000,000 BBB- News America Holdings Inc., Company Guaranteed,
8.150% due 10/17/36 4,599,445
5,000,000 BBB- Paramount Communications, Inc., Sr. Debentures,
7.500% due 7/15/23 4,437,500
5,000,000 BBB- The Seagram Co., Ltd., Debentures, 6.875% due 9/1/23 4,239,515
10,000,000 BBB Time Warner Inc., Debentures, 7.570% due 2/1/24 9,478,640
5,000,000 BBB+ Westinghouse Electric Co., Debentures, 8.625% due 8/1/12 5,318,750
--------------------------------------------------------------------------------------------------------
28,073,850
--------------------------------------------------------------------------------------------------------
Oil & Gas -- 6.7%
10,000,000 BBB- El Paso Energy Corp., Sr. Notes, 6.750% due 5/15/09 9,337,500
2,400,000 A Norsk Hydro A/S, Debentures, 9.000% due 4/15/12 2,610,000
10,000,000 BBB Occidental Petroleum Corp., Sr. Notes, 7.650% due 2/15/06 9,950,000
4,000,000 BBB Phillips Petroleum Co., Debentures, 6.650% due 7/15/18 3,485,000
8,200,000 BBB- Union Pacific Resources Group Inc., Debentures,
7.500% due 10/15/26 7,728,500
--------------------------------------------------------------------------------------------------------
33,111,000
--------------------------------------------------------------------------------------------------------
Packaging -- 0.8%
5,000,000 BBB Crown Cork & Seal Co., Inc., Debentures, 7.375% due 12/15/26 3,781,250
--------------------------------------------------------------------------------------------------------
Pollution Control -- 1.9%
10,000,000 BBB WMX Technologies Inc., Notes, 6.375% due 12/1/03 9,212,500
--------------------------------------------------------------------------------------------------------
Sovereign Debt -- 1.9%
9,000,000 A Province of Saskatchewan, Debentures, 8.000% due 2/1/13 9,180,000
--------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 9
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) June 30, 2000
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
========================================================================================================
<S> <C> <C> <C>
Super National Entity -- 0.6%
$ 21,860,000 AAA International Bank for Reconstruction & Development,
zero coupon bond to yield 7.845% due 7/15/29 $2,787,150
--------------------------------------------------------------------------------------------------------
Telecommunications -- 5.8%
10,000,000 AA- AT&T Corp., Notes, 6.500% due 3/15/29 8,400,000
7,140,000 AAA BellSouth Telecommunications, Inc., Debentures,
7.000% due 10/1/25 6,426,000
10,000,000 BBB+ Sprint Capital Corp., Debentures, 6.875% due 11/15/28 8,675,000
5,000,000 A- Vodafone AirTouch PLC, 7.750% due 2/15/10 (b) 4,962,500
--------------------------------------------------------------------------------------------------------
28,463,500
--------------------------------------------------------------------------------------------------------
Transportation -- 2.8%
10,000,000 BBB CSX Corp., Notes, 6.250% due 10/15/08 8,851,310
5,000,000 BBB+ Norfolk Southern Corp., Bonds, 7.700% due 5/15/17 4,797,190
--------------------------------------------------------------------------------------------------------
13,648,500
--------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES
(Cost-- $373,783,339) 353,735,714
========================================================================================================
MORTGAGE-BACKED SECURITIES (c) -- 15.6%
20,000,000 FHLMC Gold 30 Year, 8.000% due 6/1/30 20,125,000
1,778,324 FNMA 30 Year, 6.500% due 1/1/29 1,677,173
27,863,527 GNMA 30 Year, 6.500% due 3/15/29 26,461,435
29,453,014 GNMA 30 Year, 7.000% due 7/15/29 28,661,317
--------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost-- $78,552,302) 76,924,925
========================================================================================================
U.S. GOVERNMENT OBLIGATIONS -- 12.3%
30,000,000 U.S. Treasury Notes, 4.750% due 11/15/08 (d) 27,252,900
30,000,000 U.S. Treasury Bonds, 7.250% due 8/15/22 (d) 33,665,400
--------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost-- $59,835,375) 60,918,300
========================================================================================================
REPURCHASE AGREEMENT -- 0.6%
3,004,000 Goldman, Sachs & Co., 6.450% due 7/3/00; Proceeds
at maturity-- $3,005,614; (Fully collateralized by
U.S. Treasury Notes & Bonds, 5.250% to 12.000%
due 8/15/00 to 11/15/28; Market value-- $3,064,000)
(Cost-- $3,004,000) 3,004,000
========================================================================================================
TOTAL INVESTMENTS-- 100%
(Cost-- $515,175,016**) $494,582,939
========================================================================================================
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service except for those
which are identified by an asterisk (*), are rated by Moody's Investors
Service, Inc.
(b) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(c) Date shown represents the last in range of maturity dates of mortgage
certificates owned.
(d) All or a portion of this security is on loan (See Note 5).
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 11 for definitions of ratings.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
10 2000 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 11
<PAGE>
================================================================================
Statement of Assets and Liabilities (unaudited) June 30, 2000
================================================================================
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost-- $515,175,016) $ 494,582,939
Cash 591
Collateral for securities on loan (Note 5) 59,207,500
Interest receivable 8,939,787
Receivable for securities sold 4,930,050
Receivable for Fund shares sold 474,308
---------------------------------------------------------------------------------------
Total Assets 568,135,175
---------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 5) 59,207,500
Dividends payable 2,515,959
Payable for securities purchased 2,033,307
Investment advisory fees payable 190,674
Administration fees payable 82,399
Distribution fees payable 66,981
Payable for Fund shares purchased 4,108
Accrued expenses 101,151
---------------------------------------------------------------------------------------
Total Liabilities 64,202,079
---------------------------------------------------------------------------------------
Total Net Assets $ 503,933,096
=======================================================================================
NET ASSETS:
Par value of capital shares $ 44,737
Capital paid in excess of par value 543,426,274
Undistributed net investment income 612,682
Accumulated net realized loss from security transactions (19,558,520)
Net unrealized depreciation of investments (20,592,077)
---------------------------------------------------------------------------------------
Total Net Assets $ 503,933,096
=======================================================================================
Shares Outstanding:
Class A 18,008,923
----------------------------------------------------------------------------------
Class B 14,071,179
----------------------------------------------------------------------------------
Class L 1,562,452
----------------------------------------------------------------------------------
Class Y 11,094,288
----------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 11.27
----------------------------------------------------------------------------------
Class B * $ 11.26
----------------------------------------------------------------------------------
Class L ** $ 11.24
----------------------------------------------------------------------------------
Class Y (and redemption price) $ 11.26
----------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $ 11.80
----------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $ 11.35
=======================================================================================
</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.
--------------------------------------------------------------------------------
12 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Statement of Operations (unaudited) For the Six Months Ended June 30, 2000
================================================================================
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 18,994,919
-------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 1,146,182
Distribution fees (Note 2) 959,659
Administration fees (Note 2) 508,927
Shareholder and system servicing fees 150,698
Shareholder communications 39,093
Registration fees 37,186
Custody 15,431
Audit and legal 12,610
Directors' fees 9,160
Other 8,753
-------------------------------------------------------------------------------------------------
Total Expenses 2,887,699
-------------------------------------------------------------------------------------------------
Net Investment Income 16,107,220
-------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions (excluding short-term securities):
Proceeds from sales 231,211,266
Cost of securities sold 235,064,411
-------------------------------------------------------------------------------------------------
Net Realized Loss (3,853,145)
-------------------------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period (26,205,492)
End of period (20,592,077)
-------------------------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation 5,613,415
-------------------------------------------------------------------------------------------------
Net Gain on Investments 1,760,270
-------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 17,867,490
=================================================================================================
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 13
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
2000 1999
======================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 16,107,220 $ 33,721,252
Net realized loss (3,853,145) (14,376,287)
(Increase) decrease in net unrealized depreciation 5,613,415 (76,014,224)
------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 17,867,490 (56,669,259)
------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (15,491,164) (33,728,682)
Capital -- (696,364)
------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (15,491,164) (34,425,046)
------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 49,882,739 135,979,643
Net asset value of shares issued for reinvestment of dividends 6,867,282 19,663,427
Cost of shares reacquired (85,704,944) (160,893,261)
------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share Transactions (28,954,923) (5,250,191)
------------------------------------------------------------------------------------------------------
Decrease in Net Assets (26,578,597) (96,344,496)
NET ASSETS:
Beginning of period 530,511,693 626,856,189
------------------------------------------------------------------------------------------------------
End of period* $ 503,933,096 $ 530,511,693
======================================================================================================
* Includes undistributed (overdistributed) net investment income of: $ 612,682 $ (3,374)
======================================================================================================
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
14 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
The Smith Barney Investment Grade Bond Fund ("Portfolio"), a separate investment
fund of the Smith Barney Investment Funds Inc. ("Fund"), a Maryland corporation,
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund consists of this
Portfolio and nine other separate investment portfolios: Smith Barney Government
Securities Fund, Concert Peachtree Growth Fund, Smith Barney Hansberger Global
Value Fund, Smith Barney Hansberger Global Small Cap Value Fund, Smith Barney
Small Cap Value Fund, Smith Barney Small Cap Growth Fund, Smith Barney Premier
Selections Large Cap Fund, Smith Barney Premier Selections All Cap Fund and
Smith Barney Premier Selections Global Growth 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 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, 1999, 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 (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
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup Inc.
("Citigroup") acts as investment adviser to the Portfolio. 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.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney Private
Trust Company, another subsidiary of Citigroup, acts as the Portfolio's transfer
agent and PFPC Global Fund Services ("PFPC") acts as the Portfolio's
sub-transfer agent. CFTC receives account fees and asset-based fees that
--------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 15
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
vary according to the account size and type of account. PFPC is responsible for
shareholder recordkeeping and financial processing for all shareholder accounts
and is paid by CFTC. For the six months ended June 30, 2000, the Portfolio paid
transfer agent fees of $139,638 to CFTC.
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 up to
$500 million and 0.18% of the average daily net assets thereafter. This fee is
calculated daily and paid monthly.
Effective June 5, 2000, Salomon Smith Barney Inc. ("SSB"), another subsidiary of
SSBH, became the Portfolio's distributor replacing CFBDS, Inc. ("CFBDS"). In
addition, SSB acts as the primary broker for the Portfolio's agency
transactions. Certain other broker-dealers, continue to sell Portfolio shares to
the public as members of the selling group.
There are maximum initial sales charges of 4.50% and 1.00% for Class A and L
shares, respectively. 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 certain cases, 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, 2000, SSB and CFBDS received sales charges of
approximately $72,000 and $14,000 on sales of the Portfolio's Class A and L
shares, respectively. In addition, CDSCs paid to SSB were approximately:
Class A Class B Class L
================================================================================
CDSCs $1,000 $184,000 $2,000
================================================================================
Pursuant to a Distribution Plan, the Portfolio pays a service fee with respect
to Class A, B and L shares calculated at an annual rate of 0.25% of the average
daily net assets for each respective class. The Portfolio also pays a
distribution fee with respect to Class B and L shares calculated at an annual
rate of 0.50% and 0.45% of the average daily net assets for each class,
respectively. For the six months ended June 30, 2000, total Distribution Plan
fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $256,563 $641,122 $61,974
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $250,324,541
--------------------------------------------------------------------------------
Sales 231,211,266
================================================================================
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 3,131,632
Gross unrealized depreciation (23,723,709)
--------------------------------------------------------------------------------
Net unrealized depreciation $(20,592,077)
================================================================================
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.
--------------------------------------------------------------------------------
16 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
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, 2000, the Portfolio loaned stocks having a value of approximately
$58,990,936 and holds the following collateral for loaned securities:
Security Descriptions Value
================================================================================
Time Deposits:
Banco Bilboa Vizcaya S.A., 7.13% due 7/3/00 $17,905,961
Bank Brussels Lambert, 7.13% due 7/3/00 898,114
Caisse des Depots et Consignations, 6.94% due 7/3/00 17,905,962
Caisse des Depots et Consignations, 7.06% due 7/3/00 8,888,932
CS First Boston Corp., 7.16% due 7/3/00 4,655,550
San Paolo IMI, S.p.A., 7.00% due 7/3/00 8,952,981
--------------------------------------------------------------------------------
Total $59,207,500
================================================================================
Income earned by the Portfolio from securities loaned for the six months ended
June 30, 2000 was $32,138.
6. Capital Loss Carryforward
At December 31, 1999, the Portfolio had, for Federal income tax purposes,
approximately $9,868,000 of unused capital loss carryforwards available to
offset future capital gains expiring in 2007. To the extent that these
carryforward losses are used to offset capital gains, it is possible that the
gains so offset will not be distributed.
7. Capital Shares
At June 30, 2000, 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, 2000, total paid-in capital amounted to the following for each
class:
Class A Class B Class L Class Y
================================================================================
Total Paid-in Capital $207,489,376 $179,194,467 $ 20,128,596 $136,658,572
================================================================================
--------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 17
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
-------------------------------- -------------------------------
Shares Amount Shares Amount
=================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 2,206,505 $ 24,764,888 4,469,082 $(54,940,121
Shares issued on reinvestment 355,725 3,992,284 907,823 10,897,536
Shares reacquired (3,371,379) (37,892,039) (5,841,277) (70,496,063)
-------------------------------------------------------------------------------------------------
Net Decrease (809,149) $ (9,134,867) (464,372) $ (4,658,406)
=================================================================================================
Class B
Shares sold 681,896 $ 7,644,615 3,572,268 $(43,389,631
Shares issued on reinvestment 232,380 2,604,876 668,801 8,033,041
Shares reacquired (3,958,415) (44,400,455) (6,952,287) (83,705,096)
-------------------------------------------------------------------------------------------------
Net Decrease (3,044,139) $(34,150,964) (2,711,218) $(32,282,424)
=================================================================================================
Class L
Shares sold 155,825 $ 1,735,110 748,179 $ (9,136,262
Shares issued on reinvestment 24,144 270,122 61,261 732,850
Shares reacquired (300,551) (3,359,855) (555,456) (6,692,102)
-------------------------------------------------------------------------------------------------
Net Increase (Decrease) (120,582) $ (1,354,623) 253,984 $ (3,177,010
=================================================================================================
Class Y
Shares sold 1,410,772 $ 15,738,126 2,387,970 $ 28,513,629
Shares issued on reinvestment -- -- -- --
Shares reacquired (4,675) (52,595) -- --
-------------------------------------------------------------------------------------------------
Net Increase 1,406,097 $ 15,685,531 2,387,970 $ 28,513,629
=================================================================================================
</TABLE>
--------------------------------------------------------------------------------
18 2000 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 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995(2)
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 11.22 $ 13.12 $ 13.19 $ 12.27 $ 13.25 $ 10.67
---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.36 0.72 0.77 0.80 0.80 0.83
Net realized and unrealized
gain (loss) 0.04 (1.88) 0.29 1.20 (0.90) 2.80
---------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.40 (1.16) 1.06 2.00 (0.10) 3.63
---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.35) (0.73) (0.76) (0.80) (0.76) (0.89)
Net realized gains -- -- (0.37) (0.28) (0.12) (0.16)
Capital -- (0.01) -- -- -- --
---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.35) (0.74) (1.13) (1.08) (0.88) (1.05)
---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 11.27 $ 11.22 $ 13.12 $ 13.19 $ 12.27 $ 13.25
---------------------------------------------------------------------------------------------------------------------
Total Return 3.58%++ (9.09)% 8.30% 17.10% (0.47)% 35.29%
---------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 203 $ 211 $ 253 $ 222 $ 206 $ 226
---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.03%+ 1.03% 1.04% 1.02% 1.04% 1.11%
Net investment income 6.40+ 5.94 5.73 6.43 6.63 7.02
---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 47% 147% 32% 39% 48% 49%
=====================================================================================================================
<CAPTION>
Class B Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995(2)
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 11.21 $ 13.09 $ 13.19 $ 12.29 $ 13.25 $ 10.67
---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.33 0.66 0.70 0.75 0.74 0.77
Net realized and unrealized
gain (loss) 0.04 (1.87) 0.29 1.18 (0.90) 2.80
---------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.37 (1.21) 0.99 1.93 (0.16) 3.57
---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.32) (0.66) (0.72) (0.75) (0.68) (0.83)
Net realized gains -- -- (0.37) (0.28) (0.12) (0.16)
Capital -- (0.01) -- -- -- --
---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.32) (0.67) (1.09) (1.03) (0.80) (0.99)
---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 11.26 $ 11.21 $ 13.09 $ 13.19 $ 12.29 $ 13.25
---------------------------------------------------------------------------------------------------------------------
Total Return 3.32%++ (9.44)% 7.72% 16.44% (0.89)% 34.63%
---------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 158 $ 192 $ 260 $ 249 $ 258 $ 289
---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.52%+ 1.52% 1.53% 1.51% 1.54% 1.61%
Net investment income 5.90+ 5.44 5.23 5.95 6.13 6.51
---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 47% 147% 32% 39% 48% 49%
=====================================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (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 Investment Grade Bond 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 L Shares 2000(1)(2) 1999(2) 1998(2)(3) 1997 1996 1995(2)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 11.19 $ 13.07 $ 13.18 $ 12.30 $ 13.26 $ 10.67
-----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.33 0.67 0.70 0.72 0.75 0.78
Net realized and
unrealized gain (loss) 0.04 (1.88) 0.30 1.21 (0.90) 2.80
-----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.37 (1.21) 1.00 1.93 (0.15) 3.58
-----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.32) (0.66) (0.74) (0.77) (0.69) (0.83)
Net realized gains -- -- (0.37) (0.28) (0.12) (0.16)
Capital -- (0.01) -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.32) (0.67) (1.11) (1.05) (0.81) (0.99)
-----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 11.24 $ 11.19 $ 13.07 $ 13.18 $ 12.30 $ 13.26
-----------------------------------------------------------------------------------------------------------------------------------
Total Return 3.36%++ (9.44)% 7.83% 16.41% (0.83)% 34.74%
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 17,558 $ 18,830 $ 18,671 $ 10,182 $ 6,724 $ 3,769
-----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.46%+ 1.46% 1.54% 1.49% 1.42% 1.56%
Net investment income 5.97+ 5.52 5.22 5.93 6.28 6.55
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 47% 147% 32% 39% 48% 49%
===================================================================================================================================
<CAPTION>
Class Y Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996(4)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 11.22 $ 13.11 $ 13.19 $ 12.28 $ 13.03
-----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.38 0.76 0.82 0.83 0.75
Net realized and
unrealized gain (loss) 0.03 (1.87) 0.29 1.21 (0.66)
-----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.41 (1.11) 1.11 2.04 0.09
-----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.37) (0.77) (0.82) (0.85) (0.72)
Net realized gains -- -- (0.37) (0.28) (0.12)
Capital -- (0.01) -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.37) (0.78) (1.19) (1.13) (0.84)
-----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 11.26 $ 11.22 $ 13.11 $ 13.19 $ 12.28
-----------------------------------------------------------------------------------------------------------------------------------
Total Return 3.67%++ (8.68)% 8.66% 17.44% 1.01%++
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 124,965 $ 108,657 $ 95,708 $ 69,328 $ 18,174
-----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.68%+ 0.68% 0.70% 0.69% 0.72%+
Net investment income 6.75+ 6.31 6.07 6.63 7.34+
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 47% 147% 32% 39% 48%
===================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (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.
--------------------------------------------------------------------------------
20 2000 Semi-Annual Report to Shareholders
<PAGE>
Smith Barney
Investment Grade
Bond Fund
Directors
Paul R. Ades
Herbert Barg
Dwight B. Crane
Frank G. Hubbard
Heath B. McLendon, Chairman
Jerome Miller
Ken Miller
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
SSB Citi Fund Management LLC
Distributor
Salomon Smith Barney Inc.
PFS Distributors, Inc.
Custodian
PFPC Trust Company
Transfer Agent
Citi Fiduciary Trust Company
125 Broad Street, 11th Floor
New York, New York 10004
Sub-Transfer Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of shareholders of Smith
Barney Investment Grade Bond Fund, but it may also be used as sales literature
when preceded or accompanied by the current Prospectus, which gives details
about charges, expenses, investment objectives and operating policies of the
Portfolio. If used as sales material after September 30, 2000, this report must
be accompanied by performance information for the most recently completed
calendar quarter.
SALOMONSMITHBARNEY
---------------------------
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/mutual funds
FD0317 8/00
