[LOGO OF SMITH BARNEY]
SMITH BARNEY
CONTRARIAN
Fund
CLASSIC INVESTOR SERIES
ANNUAL REPORT
DECEMBER 31, 1999
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
Smith Barney
Contrarian Fund
The Smith Barney Contrarain Fund ("Fund") Seeks long-term growth of capital
through a "contrarian" approach to stock selection, which means that the Fund,
which invests primarily in common stocks and other equity securities, seeks
stocks of companies that are currently out of favor, price depressed or
undervalued.
Smith Barney Contrarian Fund
Average Annual Total Returns Ended
December 31, 1999
Without Sales Charges(1)
----------------------------------------
Class A Class B Class L
================================================================================
One-Year (5.27)% (5.99)% (5.82)%
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Since Inception++ 5.22 4.44 4.47
================================================================================
With Sales Charges(2)
----------------------------------------
Class A Class B Class L
================================================================================
One-Year (10.02)% (10.14)% (7.62)%
- --------------------------------------------------------------------------------
Since Inception++ 4.04 4.26 4.24
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges, with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase and declines
thereafter by 1.00% per year until no CDSC is incurred. Class L shares also
reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed
within the first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
++ The inception date for Class A, B and L shares is June 30, 1995.
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FUND HIGHLIGHT
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On Friday, January 7, 2000, the Board of Directors of the Smith Barney
Investment Funds Inc. ("Board"), on behalf of the Smith Barney Contrarian Fund
upon the recommendation of Management, approved a proposed reorganization in
which the Smith Barney Fundamental Value Fund ("Fundamental Value Fund") would
acquire the assets of the Smith Barney Contrarian Fund in exchange for shares of
the Fundamental Value Fund. In addition to approving the proposed
reorganization, effective Friday, January 7, 2000, Management, with the Board's
concurrence, appointed John Goode as the Smith Barney Contrarian Fund's
portfolio manager. John has more than 30 years of investment experience.
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NASDAQ SYMBOL
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Class A SBMGX
Class B SBMBX
Class L SBMCX
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WHAT'S INSIDE
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Shareholder Letter ............................................................1
A Message From Smith Barney Contrarian
Fund's New Portfolio Manager .................................................3
Historical Performance ........................................................5
Smith Barney Contrarian 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 .........................................................20
Tax Information ..............................................................23
Independent Auditors' Report .................................................24
<PAGE>
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Shareholder Letter
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[PHOTO]
HEATH B. MCLENDON
Chairman
Dear Shareholder:
I am pleased to provide the annual report for the Smith Barney Contrarian Fund
for the year ended December 31, 1999. For your convenience, I have outlined the
investment philosophy of the Smith Barney Contrarian Fund and its current
portfolio strategy. Any discussion of the Smith Barney Contrarian Fund's
holdings is as of December 31, 1999. Please refer to pages eight through eleven
for a listing of portfolio holdings. A detailed summary of performance for the
Smith Barney Contrarian Fund can be found in the appropriate sections that
follow. I hope you find this report to be useful and informative.
Special Shareholder Notice
On Friday, January 7, 2000, the Board of Directors of the Smith Barney
Investment Funds Inc. ("Board"), on behalf of the Smith Barney Contrarian Fund
upon the recommendation of Management, approved a proposed reorganization in
which the Smith Barney Fundamental Value Fund ("Fundamental Value Fund") would
acquire the assets of the Smith Barney Contrarian Fund in exchange for shares of
the Fundamental Value Fund.
In addition to approving the proposed reorganization, effective Friday, January
7, 2000, Management, with the Board's concurrence, appointed John Goode as the
Smith Barney Contrarian Fund's portfolio manager. John has more than 30 years of
investment experience and has been managing the Fundamental Value Fund since
1990. Please note that a message from manager John Goode appears on page three.
The proposed reorganization, which is subject to shareholder approval, will
enable you to maintain an investment in a fund that has a similar primary
investment objective. John Goode was appointed the new portfolio manager of the
Smith Barney Contrarian Fund due to his expertise in managing funds with similar
investment objectives.
Under the terms of this proposal, you would receive shares of the Fundamental
Value Fund that are of equal value to your investment in the Smith Barney
Contrarian Fund. No sales charges will be imposed in the transaction, and it is
anticipated that no gain or loss for Federal income tax purposes would be
recognized by shareholders as a result of the reorganization. If the
reorganization is approved, you will maintain all the rights and privileges
currently available to all shareholders within the Smith Barney Family of Funds.
This proposed reorganization is subject to the fulfillment of certain
conditions, including approval of the reorganization by the shareholders of the
Smith Barney Contrarian Fund. Proxy materials describing the proposed
reorganization are expected to be mailed to Smith Barney Contrarian Fund
shareholders in April 2000 in anticipation of a meeting of the shareholders,
which is expected to be held on Friday, May 26, 2000.
I ask that when you receive the proxy statement you review it carefully. Upon
receiving the proxy statement, if you do not plan to attend the shareholder
meeting, I ask that you complete, sign, date and return the proxy/voting card as
soon as possible. Thank you in advance for your attention and vote.
Performance and Market Update*
For the year ended December 31, 1999, the Class A shares of the Smith Barney
Contrarian Fund ("Fund") returned a disappointing negative return of 5.27%,
excluding the effects of sales charges. The Fund greatly lagged the 20.90%
return for the Russell 3000 Index. (The Russell 3000 Index measures the return
for approximately 98% of all U.S. stocks and serves as a long-term benchmark for
the Fund.)
- ----------
* Please note that past performance is not indicative of future results.
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Smith Barney Contrarian Fund 1
<PAGE>
Yet I think that it is important to note that the Russell 3000 is a
capitalization weighted index (i.e., larger companies are given more weight in
the index) and does not show the fact that only a relatively small number of
stocks performed exceptionally well this past year and drove the major averages.
In fact, 62% of the stocks traded on the New York Stock Exchange declined during
1999, with the median stock down over 5%. Technology stocks, comprising nearly
20% of the Russell 3000 Index, appreciated about 75% during the year and the
technology sector was the primary driver for the Index.
Investors, excited about the tremendous growth potential of wireless
communications and the Internet, have been buying stocks of technology companies
that are expected to benefit from this growth. Recent data suggests the majority
of mutual fund investor's purchases have been focused on aggressive growth and
technology oriented funds.
Not surprisingly, the Russell Mid-Cap Growth Index** total return of 28.7% was
much better than the comparable mid-sized value index return of 2.2%. The narrow
leadership of technology stocks, as well as investors overall preference for
growth stocks rather than value stocks, was a disadvantage for the Fund from a
relative performance perspective.
Investment Strategy
The manager's investment strategy in the Fund remained unchanged during the
period. The manager continued to focus on identifying stocks that were out of
favor yet possessed what he believed to be attractive long-term values. Stocks
were bought by the Fund only after extensive fundamental analysis of the company
showed acceptable growth prospects and an attractive valuation. Stocks were
generally sold when an established price target was achieved, or when the
manager thought a better investment opportunity existed. Risk management
strategies in the Fund included having exposure to most economic sectors and
limiting initial investment positions to 1.5% of the portfolio.
Portfolio Update
During the past year, the capital goods and consumer staples sector weightings
were reduced while the consumer cyclical sector was raised by an offsetting
amount. This was consistent with the manager's positive view about the future of
consumer spending. Many people remained employed and were confident in large
part due to the tremendous wealth created in the financial markets over the last
few years.
The Fund's 1999 capitalization mix (i.e., 36% large-cap, 49% mid-cap and 15%
small-cap) did not change significantly from last year. The Fund's mix was
consistent with its contrarian investment style as smaller-sized companies have
been viewed less favorably by investors. However, this mix is dramatically
different from the Fund's assigned benchmark and may result in relative
performance deviations during each reporting period. Also, the smaller sized
companies held by the Fund may be more volatile than mid- and large-cap
companies.
As previously noted, I have included a message after this letter from John
Goode, the Fund's new portfolio manager, where he outlines some of the changes
that he plans to make to the portfolio. It begins on page three.
Thank you for investing in the Smith Barney Contrarian Fund. I look forward to
your continued confidence in our investment management approach.
Sincerely,
/s/ Heath B. McClendon
Heath B. McClendon
Chairman
January 10, 2000
- ------------
** The Russell Midcap Growth Index measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The Russell Midcap Index companies are the 800 smallest
companies in the Russell 1000 Index, representing approximately 26% of the
total market capitalization of the Russell 1000 Index.
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2 1999 Annual Report to Shareholders
<PAGE>
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A Message from the Smith Barney Contrarian Fund's New Portfolio Manager John G.
Goode
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[PHOTO]
JOHN G. GOODE
Vice President and Investment Officer
On Friday, January 7, 2000, my investment team was appointed to take over the
responsibility of managing the Smith Barney Contrarian Fund ("Fund"). Within a
reasonable period of time, we plan on changing the Fund's portfolio in three
specific areas. First, the present sector weightings of the Fund, in our
opinion, need to be narrowed. Second, the Fund has nearly 100 issues and we plan
on reducing the number of names in the Fund's portfolio. Third, we intend to
change the Fund's stock-selection process.
Although stocks selling near their 52-week lows do, in fact, produce some very
interesting investment opportunities, inexpensiveness in and of itself is only
one part of the equation. For example, in recent months, we have believed that
drug distribution companies represent fertile grounds for investing. It is true
that these stocks are near their 12-month lows but there is another factor which
has caused us to build positions in several of these companies. The presidential
debates, especially on the Democratic side, have discussed the need for broader
health coverage, including the availability of prescription drugs. Broader
coverage and increased reliance on generic products are pluses for drug
distribution companies because both volume and margins could be positively
affected. Drug distribution companies make far more money distributing generic
products than patented pharmaceuticals. It is also clear that generic drug
companies may do well in the next few years.
The above industry opportunity illustrates an important point. We try to combine
attractive prices with a theme or trend likely to increase investor interest in
the period ahead as a primary consideration in our stock-selection process. And
while we monitor insider activity and other factors that may also highlight
values, in the final analysis, one needs the market to look more favorably on a
company's future business prospects if an investment is to succeed. Oftentimes a
company that benefits from a theme or trend develops a "wind at its back" in
terms of greater investor interest and improved prospects for its share price.
We would make one additional point with regard to our stock-selection process
that we intend to implement in the Fund. We think for a small- or mid-cap stock
to make the cut, it must have much better upside potential than the "average"
large-cap stock. This takes into account liquidity issues and the fact that
there has generally been less interest in smaller-sized companies in recent
years. And while no guarantees can be made, we believe this trend will change
and the stock market's performance may include more of these stocks.
Nevertheless, the concept of "risk-adjusted returns" means that small- and mid-
cap stocks need to have materially greater upside potential to justify inclusion
in our portfolios. Although we will own small- and mid-cap stocks in the Fund's
portfolio, the combination of somewhat fewer issues and our selection process
means that the average company size in the Fund probably will increase.
While we are discussing our new portfolio strategy, let me cover another
possible future scenario that illustrates another characteristic of my team's
investment approach. We seek to develop strategies that might be necessary, at
some future date, should market conditions warrant. These "inventories" are
thoroughly researched and ready to be implemented if market conditions develop
as we expect. For example, it seems likely to us that interest rates may
continue to rise early in 2000.
Business conditions in the U.S. are strong, labor markets are tight, speculation
is rampant in the stock
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Smith Barney Contrarian Fund 3
<PAGE>
market that is spilling over into the real economy, and the global economy
appears to be recovering. Our guess is that long-term interest rates should peak
at 7% to 7 1/2%. If that occurs, it is clear that certain sectors of the market
may do very well, subsequent to a peaking in interest rates.
We have identified those companies and industry sectors that have outperformed
the Standard and Poor's 500 Index ("S&P 500")+ by a substantial margin in
previous periods when interest rates reached an intermediate term peak. If
interest rates perform as we expect in the first quarter, our sector weightings
and stock selection very likely will reflect those opportunities that may be at
hand at that time.
Although the current "rulebook" seems to have a few new chapters, the broad
sweep of investment history does not change. We believe the stock market should
soon be moving toward value and away from growth. Small- and mid-cap stocks
should emerge whether or not the behemoths of the mutual fund industry have any
interest. This is because mergers and acquisition activity may be very
substantial in this area of the market and share buy-backs should provide
competitive returns for capital so employed. Leveraged buyouts could occur
rather frequently for small- and mid-cap companies.
In our view, pariah sectors of the stock market will cease to be investment
wallflowers. Growth still should have an important place in portfolios. We
suggest that this may be an opportune time for investors to fine tune their
asset allocation and begin tilting in favor of our investment style. The market
indexes all seem to say the same thing, namely that common stocks are high
priced historically. However, market breadth peaked about 20 months ago and many
stocks have been in their own private bear markets in recent years.
It has been ten years since we have seen so many attractively priced stocks.
And while no guarantees can be made, we believe our management style has a good
chance of producing solid returns in the next few years while helping to
minimize risks. There are many money managers and investors who have abandoned
risk management but that could prove to be a dangerous omission in the coming
days.
Sincerely,
/s/ John G. Goode
John Goode
Vice President and
Investment Officer
January 10, 2000
- -------------
+ The Standard & Poor's 500 Index is a market capitalization-weighted measure
of 500 widely held common stocks.
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4 1999 Annual Report to Shareholders
<PAGE>
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Historical Performance -- Class A Shares
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<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=========================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/99 $13.62 $11.33 $0.11 $1.52 (5.27)%
- ---------------------------------------------------------------------------------------------------------
12/31/98 14.21 13.62 0.00 0.44 (1.12)
- ---------------------------------------------------------------------------------------------------------
12/31/97 13.42 14.21 0.02 1.04 13.70
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12/31/96 12.03 13.42 0.09 0.46 16.33
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Inception* -- 12/31/95 12.00 12.03 0.15 0.00 1.53+
=========================================================================================================
Total $0.37 $3.46
=========================================================================================================
</TABLE>
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Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=========================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/99 $13.42 $11.13 $0.03 $1.52 (5.99)%
- ---------------------------------------------------------------------------------------------------------
12/31/98 14.11 13.42 0.00 0.44 (1.84)
- ---------------------------------------------------------------------------------------------------------
12/31/97 13.41 14.11 0.00 1.04 12.84
- ---------------------------------------------------------------------------------------------------------
12/31/96 12.02 13.41 0.00 0.46 15.55
- ---------------------------------------------------------------------------------------------------------
Inception* -- 12/31/95 12.00 12.02 0.11 0.00 1.16+
=========================================================================================================
Total $0.14 $3.46
=========================================================================================================
</TABLE>
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Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=========================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/99 $13.42 $11.15 $0.03 $1.52 (5.82)%
- ---------------------------------------------------------------------------------------------------------
12/31/98 14.12 13.42 0.00 0.44 (1.91)
- ---------------------------------------------------------------------------------------------------------
12/31/97 13.41 14.12 0.00 1.04 12.91
- ---------------------------------------------------------------------------------------------------------
12/31/96 12.03 13.41 0.00 0.46 15.45
- ---------------------------------------------------------------------------------------------------------
Inception* -- 12/31/95 12.00 12.03 0.11 0.00 1.16+
=========================================================================================================
Total $0.14 $3.46
=========================================================================================================
</TABLE>
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Smith Barney Contrarian Fund 5
<PAGE>
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Historical Performance -- Class Y Shares
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<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
=========================================================================================================
<S> <C> <C> <C> <C> <C>
12/31/99 $13.70 $11.41 $0.15 $1.52 (4.89)%
- ---------------------------------------------------------------------------------------------------------
12/31/98 14.24 13.70 0.00 0.44 (0.76)
- ---------------------------------------------------------------------------------------------------------
12/31/97 13.43 14.24 0.08 1.04 14.23
- ---------------------------------------------------------------------------------------------------------
Inception* -- 12/31/96 12.21 13.43 0.13 0.46 14.97+
=========================================================================================================
Total $0.36 $3.46
=========================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
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Average Annual Total Return
- --------------------------------------------------------------------------------
Without Sales Charge (1)
----------------------------------
Class A Class B Class L Class Y
================================================================================
Year Ended 12/31/99 (5.27)% (5.99)% (5.82)% (4.89)%
- --------------------------------------------------------------------------------
Inception* through 12/31/99 5.22 4.44 4.47 5.63
================================================================================
With Sales Charge (2)
----------------------------------
Class A Class B Class L Class Y
================================================================================
Year Ended 12/31/99 (10.02)% (10.14)% (7.62)% (4.89)%
- --------------------------------------------------------------------------------
Inception* through 12/31/99 4.04 4.26 4.24 5.63
================================================================================
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Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 12/31/99) 25.81%
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Class B (Inception* through 12/31/99) 21.62
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Class L (Inception* through 12/31/99) 21.82
- --------------------------------------------------------------------------------
Class Y (Inception* through 12/31/99) 23.97
================================================================================
(1) Assumes reinvestment of all dividend and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividend and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase and declines
thereafter by 1.00% per year until no CDSC is incurred. Class L shares
reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed
within the first year of purchase.
* Inception date for Class A, B and L shares is June 30, 1995. The inception
date for Class Y shares is January 31, 1996.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
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6 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund at a Glance (unaudited)
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Growth of $10,000 Invested in Class A, B and L Shares of the
Smith Barney Contrarian Fund vs. the Standard & Poor's 500 Index and the Russell
3000 Index+
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[CHART]
Date Class A Class B Class L 3000 Index 500 Index
- ---- ------- ------- ------- ---------- ---------
June 1995 9,501 10,000 10,000 10,000 10,000
Dec 1995 9,647 9,608 9,917 11,470 11,443
June 1996 10,505 10,574 10,865 12,601 12,598
Dec 1996 11,222 11,279 11,563 13,972 14,069
June 1997 12,343 12,394 12,676 16,455 16,967
Dec 1997 12,760 12,879 13,057 18,413 18,762
June 1998 13,189 13,369 13,434 21,195 22,087
Dec 1998 12,618 12,737 12,808 22,859 24,128
June 1999 14,168 14,361 14,326 25,456 27,115
Dec 1999 11,953 12,069 12,062 27,635 29,203
+ The above chart represents a hypothetical illustration of $10,000 invested
in Class A, B and L shares at inception on June 30, 1995, assuming
deduction of the maximum 5.00% sales charge at the time of investment for
Class A shares, the deduction of the maximum 5.00% CDSC for Class B shares
and the deduction of the 1.00% CDSC for Class L shares at the time of
investment and reinvestment of dividends and capital gains, if any, through
December 31, 1999. The Standard & Poor's 500 Index is composed of widely
held common stocks listed on the New York Stock Exchange, American Stock
Exchange and over-the-counter market. Figures for the index include
reinvestment of dividends. The Russell 3000 Index is composed of the 3,000
largest U.S. securities, as determined by total market capitalization. This
portfolio of securities represents approximately 98% of the investable U.S.
equity market. The Index is unmanaged and is not subject to the same
management and trading expenses as a mutual fund. The performance of the
Fund's other class may be greater or less than the Class A, B and L shares'
performance indicated on this chart, depending on whether greater or lesser
sales charges and fees were incurred by shareholders investing in the other
class.
++ It is the opinion of management that the Russell 3000 Index is a more
appropriate broad-based benchmark for the market in which the Fund invests
than the Standard & Poor's 500 Index. In future reporting, the Russell 3000
Index will be used as a basis of comparison of total return performance
rather than the Standard & Poor's 500 Index.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and the
redemption value may be more or less than the original cost. No adjustment
has been made for shareholders tax liability on dividends or capital gains.
Industry Diversification of Common Stock*
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[CHART]
9.7% Retail
8.1% Financial Services
7.4% Real Estate
6.4% Computer Software
5.4% Food and Beverages
5.4% Insurance
5.4% Medical
4.6% Electronics
4.6% Healthcare
4.5% Manufacturing
38.5% Other
* As a percentage of total common stock.
Investment Breakdown**
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[CHART]
2.0% Cash Equivalent
98.0% Common Stock
** As a percentage of total Investments.
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Smith Barney Contrarian Fund 7
<PAGE>
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Schedule of Investments December 31, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 98.0%
Advertising -- 2.9%
265,000 Snyder Communications Inc.(a)(b) $ 5,101,250
341,666 Ventiv Health, Inc.(a)(b) 3,139,059
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8,240,309
- --------------------------------------------------------------------------------
Aerospace and Defense -- 3.3%
150,000 B.F. Goodrich Co.(a) 4,125,000
64,000 Litton Industries, Inc.(b) 3,192,000
75,000 Raytheon Co., Class B Shares(a) 1,992,188
- --------------------------------------------------------------------------------
9,309,188
- --------------------------------------------------------------------------------
Agricultural Biotechnology -- 0.3%
25,000 Monsanto Co. 890,625
- --------------------------------------------------------------------------------
Airlines -- 0.3%
25,000 Alaska Air Group, Inc.(b) 878,125
- --------------------------------------------------------------------------------
Building Products -- 0.0%
1 Huttig Building Products, Inc.(b) 5
- --------------------------------------------------------------------------------
Broadcast Services -- 1.3%
150,000 Fox Entertainment Group, Inc., Class A Shares(b) 3,740,625
- --------------------------------------------------------------------------------
Cable TV -- 1.8%
65,000 MediaOne Group, Inc.(b) 4,992,813
- --------------------------------------------------------------------------------
Computer Services -- 2.2%
15,000 Affiliated Computer Services, Inc., Class A Shares(a)(b) 690,000
240,000 SunGard Data Systems, Inc.(b) 5,700,000
- --------------------------------------------------------------------------------
6,390,000
- --------------------------------------------------------------------------------
Computer Software -- 6.3%
375,000 IMRGlobal Corp.(b) 4,710,938
75,000 J.D. Edwards & Co.(a)(b) 2,240,625
175,000 Transaction Systems Architects, Inc., Class A
Shares(a)(b) 4,900,000
125,000 Visio Corp.(b) 5,937,500
- --------------------------------------------------------------------------------
17,789,063
- --------------------------------------------------------------------------------
Consumer Products -- 1.7%
10,000 Hewlett-Packard Co. 1,139,375
125,000 Mattel Inc. 1,640,625
190,000 Nabisco Group Holdings 2,018,750
- --------------------------------------------------------------------------------
4,798,750
- --------------------------------------------------------------------------------
Consumer Services -- 1.4%
55,000 ABM Industries, Inc. 1,120,625
145,000 Central Parking Corp.(a) 2,773,125
- --------------------------------------------------------------------------------
3,893,750
- --------------------------------------------------------------------------------
Cosmetics -- 1.5%
65,000 Kimberly-Clark Corp. 4,241,250
- --------------------------------------------------------------------------------
Electronics -- 4.5%
230,000 Actel Corp.(b) 5,520,000
105,000 CMS Energy Corp. 3,274,688
See Notes to Financial Statements.
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8 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
Electronics -- 4.5% (continued)
115,000 Sterling Commerce, Inc.(b) $ 3,917,188
- --------------------------------------------------------------------------------
12,711,876
- --------------------------------------------------------------------------------
Energy -- 1.5%
125,000 Unocal Corp.(a) 4,195,313
- --------------------------------------------------------------------------------
Energy Holding -- 0.3%
15,000 Shell Transport & Trading Co. -- ADR 738,750
- --------------------------------------------------------------------------------
Equipment Rental -- 1.4%
240,000 United Rentals, Inc.(a)(b) 4,110,000
- --------------------------------------------------------------------------------
Financial Services -- 7.9%
50,000 Associates First Capital, Inc. 1,371,875
100,000 Bank America Corp. 5,018,750
50,000 Bank One Corp. 1,603,125
25,000 The Chase Manhattan Corp. 1,942,188
35,000 First Union Corp. 1,148,438
35,000 Freddie Mac 1,647,188
45,000 Golden State Bancorp, Inc.(b) 776,250
225,000 Washington Federal, Inc. 4,443,750
175,000 Washington Mutual, Inc.(a) 4,550,000
- --------------------------------------------------------------------------------
22,501,564
- --------------------------------------------------------------------------------
Foods and Beverages -- 5.3%
130,000 Albertson's Inc. 4,192,500
240,000 ConAgra Inc.(a) 5,415,000
175,000 Interstate Bakeries Corp.(a) 3,171,875
100,000 Sara Lee Corp. 2,206,250
- --------------------------------------------------------------------------------
14,985,625
- --------------------------------------------------------------------------------
Healthcare -- 4.5%
100,000 Mallinckrodt Inc. 3,181,250
220,000 Mylan Laboratories 5,541,250
75,000 PacifiCare Health Systems, Inc.(a)(b) 3,975,000
- --------------------------------------------------------------------------------
12,697,500
- --------------------------------------------------------------------------------
Home Furnishings -- 0.7%
70,000 Newell Rubbermaid, Inc.(a) 2,030,000
- --------------------------------------------------------------------------------
Insurance -- 5.3%
225,000 Ace, Ltd. 3,754,688
50,000 Aetna, Inc. 2,790,625
125,000 Conseco, Inc. 2,234,375
120,000 Radian Group, Inc. 5,730,000
20,000 UNumProvident Corp. 641,250
- --------------------------------------------------------------------------------
15,150,938
- --------------------------------------------------------------------------------
Machinery --- Diversified -- 2.7%
73,750 Honeywell Inc.(a) 4,254,453
60,000 Ingersoll-Rand Co.(a) 3,303,750
- --------------------------------------------------------------------------------
7,558,203
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
Manufacturing -- 4.4%
105,000 Crane Co. $ 2,086,875
40,000 Pentair, Inc. 1,540,000
140,000 Scherwin-Williams Co. 2,940,000
150,000 Tyco International Ltd. 5,831,250
- --------------------------------------------------------------------------------
12,398,125
- --------------------------------------------------------------------------------
Medical -- 5.3%
45,000 Abbott Laboratories(a) 1,634,063
35,000 American Home Products, Inc. 1,380,313
40,000 Cardinal Health, Inc. 1,915,000
70,000 Genzyme Corp.(a)(b) 3,150,000
40,000 Pharmacia & Upjohn, Inc. 1,800,000
145,000 Watson Pharmaceuticals, Inc.(a)(b) 5,192,813
- --------------------------------------------------------------------------------
15,072,189
- --------------------------------------------------------------------------------
Office Automation -- 1.0%
60,000 Pitney Bowes, Inc. 2,898,750
- --------------------------------------------------------------------------------
Oil Field Services -- 1.1%
90,000 Baker Hughes, Inc. 1,895,625
45,000 Conoco, Inc. Class B Shares 1,119,375
- --------------------------------------------------------------------------------
3,015,000
- --------------------------------------------------------------------------------
Photo Equipment and Supplies -- 0.9%
40,000 Eastman Kodak Co. 2,650,000
- --------------------------------------------------------------------------------
Pipelines -- 2.0%
145,000 El Paso Energy Corp.(a) 5,627,813
- --------------------------------------------------------------------------------
Publishing and Printing -- 3.9%
122,000 Houghton Mifflin Co. 5,146,875
95,000 Scholastic Corp.(b) 5,907,813
- --------------------------------------------------------------------------------
11,054,688
- --------------------------------------------------------------------------------
Real Estate -- 7.2%
190,000 Camden Property Trust 5,201,250
155,000 Equity Office Properties Trust 3,816,875
290,000 FelCor Lodging Trust Inc.(a) 5,075,000
515,000 IndyMac Mortgage Holdings, Inc. 6,566,250
- --------------------------------------------------------------------------------
20,659,375
- --------------------------------------------------------------------------------
Retail -- 9.4%
125,000 Abercrombie & Fitch Co.(b) 3,335,938
75,000 CVS Corp.(a) 2,995,313
40,000 Kroger Co. 755,000
80,000 Nordstrom, Inc. 2,095,000
325,000 Office Depot, Inc.(a)(b) 3,554,688
425,000 OfficeMax Inc.(b) 2,337,500
600,000 Pier 1 Imports, Inc. 3,825,000
100,000 Safeway, Inc.(a)(b) 3,556,250
300,000 Saks, Inc.(b) 4,668,750
500 U.S. FoodService(b) 8,375
- --------------------------------------------------------------------------------
27,131,814
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
Security Services -- 2.1%
270,000 Pittston Brink's Group $ 5,940,000
- --------------------------------------------------------------------------------
Semiconductors -- 0.2%
5,560 Agilent Technologies, Inc.(a)(b) 429,858
- --------------------------------------------------------------------------------
Tobacco -- 1.2%
150,000 Philip Morris Cos., Inc. 3,478,125
- --------------------------------------------------------------------------------
Waste Management -- 2.2%
140,800 Allied Waste Industries, Inc.(b) 1,240,800
355,000 Republic Services, Inc.(b) 5,103,115
- --------------------------------------------------------------------------------
6,343,915
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $274,777,076) 278,543,924
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 2.0%
$5,614,000 Morgan Stanley Dean Witter & Co., 2.500% due 1/3/00;
Proceeds at maturity -- $5,615,170; (Fully
collateralized by U.S. Treasury Bonds, 6.000% to
7.250% due 2/15/26 to 8/15/22; Market value --
$5,780,123)
(Cost -- $5,614,000) 5,614,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $280,391,076*) $ 284,157,924
================================================================================
(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.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $280,391,076) $284,157,924
Cash 877
Collateral for securities on loan (Note 6) 67,003,802
Receivable for Fund shares sold 14,065
Receivable for securities sold 1,412,041
Dividends and interest receivable 620,615
- --------------------------------------------------------------------------------
Total Assets 353,209,324
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 67,003,802
Payable for Fund shares purchased 1,145,128
Management fees payable 224,982
Shareholder and system servicing fees payable 39,057
Distribution fees payable 26,507
Payable for securities purchased 8,090
Accrued expenses 53,544
- --------------------------------------------------------------------------------
Total Liabilities 68,501,110
- --------------------------------------------------------------------------------
Total Net Assets $284,708,214
- --------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 25,277
Capital paid in excess of par value 262,999,911
Undistributed net investment income 223,189
Accumulated net realized gain from security transactions 17,692,989
Net unrealized appreciation of investments 3,766,848
- --------------------------------------------------------------------------------
Total Net Assets $284,708,214
- --------------------------------------------------------------------------------
Shares Outstanding:
Class A 4,604,992
-----------------------------------------------------------------------------
Class B 10,965,476
-----------------------------------------------------------------------------
Class L 1,276,022
-----------------------------------------------------------------------------
Class Y 8,430,342
-----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $11.33
-----------------------------------------------------------------------------
Class B * $11.13
-----------------------------------------------------------------------------
Class L ** $11.15
-----------------------------------------------------------------------------
Class Y (and redemption price) $11.41
-----------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $11.93
-----------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $11.26
-----------------------------------------------------------------------------
* 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.
- --------------------------------------------------------------------------------
12 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 8,465,172
Interest 442,978
- --------------------------------------------------------------------------------
Total Investment Income 8,908,150
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 3,442,248
Distribution fees (Note 2) 2,511,042
Shareholder and system servicing fees 389,483
Shareholder communications 85,236
Audit and legal 50,673
Directors' fees 30,991
Custody 18,767
Registration fees 3,423
Other 11,049
- --------------------------------------------------------------------------------
Total Expenses 6,542,912
- --------------------------------------------------------------------------------
Net Investment Income 2,365,238
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions (excluding short-term
securities):
Proceeds from sales 572,527,327
Cost of securities sold 528,065,930
- --------------------------------------------------------------------------------
Net Realized Gain 44,461,397
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of investments:
Beginning of year 70,458,038
End of year 3,766,848
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (66,691,190)
- --------------------------------------------------------------------------------
Net Loss on Investments (22,229,793)
- --------------------------------------------------------------------------------
Decrease in Net Assets From Operations $(19,864,555)
================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets For the Years Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
============================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,365,238 $ 31,549
Net realized gain 44,461,397 23,711,092
Decrease in net unrealized appreciation (66,691,190) (40,630,163)
- --------------------------------------------------------------------------------------------
Decrease in Net Assets From Operations (19,864,555) (16,887,522)
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,213,616) --
Net realized gains (41,629,557) (21,580,436)
- --------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (43,843,173) (21,580,436)
- --------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 57,061,936 56,276,485
Net asset value of shares issued for
reinvestment of dividends 30,008,326 18,459,523
Cost of shares reacquired (263,283,607) (472,270,586)
- --------------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (176,213,345) (397,534,578)
- --------------------------------------------------------------------------------------------
Decrease in Net Assets (239,921,073) (436,002,536)
NET ASSETS:
Beginning of year 524,629,287 960,631,823
- --------------------------------------------------------------------------------------------
End of year* $ 284,708,214 $ 524,629,287
============================================================================================
* Includes undistributed net investment income of: $ 223,189 $ 105,339
============================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Contrarian Fund ("Portfolio"), a separate investment fund of
the Smith Barney Investment Funds Inc. ("Fund"), is a Maryland corporation,
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund consists of the
Portfolio and eight other separate investment portfolios: Smith Barney
Government Securities Fund, Smith Barney Investment Grade Bond Fund, Concert
Peachtree Growth Fund, Smith Barney Hansberger Global Value Fund, Smith Barney
Hansberger Global Small Cap Value Fund, Smith Barney Small Cap Value Fund, Smith
Barney Premier Selections Fund and Smith Barney Small Cap 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 maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (d) dividend income is recorded on the ex-dividend date;
foreign dividends are recorded on the earlier of the ex-dividend date or as soon
as practical after the Fund determines the existence of a dividend declaration
after exercising reasonable due diligence; (e) interest income is recorded on
the accrual basis; (f) gains or losses on the sale of securities are calculated
by using the specific identification method; (g) direct expenses are charged to
each class; management fees and general portfolio expenses are allocated on the
basis of relative net assets; (h) dividends and distributions to shareholders
are recorded on the ex-dividend date; (i) the character of income and gains to
be distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. At December 31, 1999,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Net investment income, net realized gains and net assets
were not affected by this change; (j) the Portfolio intends to comply with the
applicable provisions of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (k) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
2. Management Agreement and Other Transactions
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH") which, in
turn, is a subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
manager to the Fund. The Portfolio pays SSBC a management fee calculated at an
annual rate of 0.85% of the average daily net assets. This fee is calculated
daily and paid monthly.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Fund's transfer agent and PFPC
Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to the size and
type of account. PFPC is responsible for shareholder recordkeeping and financial
processing for all shareholder accounts and is paid by Private Trust. During the
period October 1, 1999 through December 31, 1999, the Portfolio paid transfer
agent fees of $58,364 to Private Trust.
CFBDS, Inc. ("CFBDS") acts as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
SSB acts as primary broker for its portfolio agency transactions. For the year
ended December 31, 1999 SSB received brokerage commissions of $23,145.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B shares,
which applies if redemption occurs within one year from purchase and declines
thereafter by 1.00% per year until no CDSC is incurred. Class L shares also have
a 1.00% CDSC, which applies if redemption occurs within the first year of
purchase. In 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 year ended December 31, 1999, CFBDS and SSB received sales charges of
$21,000 and $1,000 on sales of the Funds' Class A and Class L shares,
respectively. In addition, CDSCs paid to SSB were approximately:
Class A Class B Class L
================================================================================
CDSCs -- $929,000 --
================================================================================
Pursuant to a Distribution Plan, the Portfolio pays a service fee with respect
to Class A, B and L shares calculated at the annual rate of 0.25% of the average
daily net assets for each respective class. The Portfolio also pays a
distribution fee with respect to Class B and L shares calculated at the annual
rate of 0.75% of the average daily net assets of each class, respectively. For
the year ended December 31, 1999, total Distribution Plan fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $211,338 $2,067,789 $231,915
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the year ended December 31, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
================================================================================
Purchases $354,625,713
- --------------------------------------------------------------------------------
Sales 572,527,327
================================================================================
At December 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 33,566,124
Gross unrealized depreciation (29,799,276)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 3,766,848
================================================================================
- --------------------------------------------------------------------------------
16 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (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. Options Contracts
Premiums paid when put or call options are purchased by the Portfolio, represent
investments, which are marked-to-market daily. When a purchased option expires,
the Portfolio will realize a loss in the amount of the premium paid. When the
Portfolio enters into closing sales transaction, the Portfolio will realize a
gain or loss depending on whether the sales proceeds from the closing sales
transaction are greater or less than the premium paid for the option. When the
Portfolio exercises a put option, it will realize a gain or loss from the sale
of the underlying security and the proceeds from such sale will be decreased by
the premium originally paid. When the Portfolio exercises a call option, the
cost of the security which the Portfolio purchases upon exercise will be
increased by the premium originally paid.
At December 31, 1999, the Portfolio had no open purchased call or put options.
When a Portfolio writes a call or put option, an amount equal to the premium
received by the Portfolio is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Portfolio realizes a
gain equal to the amount of the premium received. When the Portfolio enters into
a closing purchase transaction, the Portfolio realizes a gain or loss depending
upon whether the cost of the closing transaction is greater or less than the
premium originally received, without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is eliminated.
When a written call option is exercised the cost of the security sold will be
decreased by the premium originally received. When a written put option is
exercised, the amount of the premium received will reduce the cost of the
security which the Portfolio purchased upon exercise. When written index option
is exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Portfolio enters into options for hedging purposes. The risk in
writing a covered call option is that the Portfolio gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Portfolio is
exposed to the risk of loss if the market price of the underlying security
declines.
During the year ended December 31, 1999, the Portfolio did not write any
options.
6. Lending of Portfolio Securities
The Portfolio has an agreement with its custodian whereby the custodian may lend
securities owned by the Portfolio to brokers, dealers and other financial
organizations, and receives a lenders fee. Fees earned by the Portfolio on
securities lending are recorded in interest income. Loans of securities by the
Portfolio are collateralized by cash, U.S. Government securities or high quality
money market instruments that are maintained at all times in an amount at least
equal to the current market value of the loaned securities, plus a margin which
may vary depending on the type of securities loaned. The custodian establishes
and maintains the collateral in a segregated account. The Portfolio maintains
exposure for the risk of any losses in the investment of amounts received as
collateral.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
At December 31, 1999, the Portfolio had loaned common stocks having a value of
approximately $64,540,816 and holds the following collateral for loaned
securities:
Security Description Value
- --------------------------------------------------------------------------------
Time Deposits:
CAISSE, 12.000% due 1/3/00 $ 5,425,344
Chase Bank, 4.500% due 1/3/00 8,104,100
Deutsche Bank, 11.000% due 1/3/00 11,314,630
Marshal & Isley, 2.000% due 1/3/00 942,599
Suntrust Bank, 13.000% due 1/3/00 6,682,417
Suntrust Bank, 4.500% due 1/3/00 9,946,465
Certificates of Deposit:
Deutsche Bank, 6.040% due 1/3/00 814,008
Commercial Paper:
Atlantis One, 5.973% due 3/22/00 496,898
Asset Securitiz, 5.943% due 2/28/00 912,580
Atlantis One, 5.973% due 3/20/00 959,443
CC USA Discount, 5.904% due 2/14/00 3,176,822
Corporate Receivable, 5.941% due 2/28/00 1,577,959
Corporate Receivable, 6.191% due 1/20/00 7,546,670
Delaware Funding, 5.995% due 1/24/00 3,820,603
Floating Rate Notes:
American Home Product, 5.508% due 4/20/00 2,943,719
Sigma Finance, 5.820% due 2/3/00 2,339,545
- --------------------------------------------------------------------------------
Total $67,003,802
================================================================================
Income earned by the Portfolio from securities loaned for the year ended
December 31, 1999 was $62,827.
7. Capital Shares
At December 31, 1999, the Fund had ten billion shares of capital stock
authorized with a par value of $0.001 per share. The Portfolio has the ability
to issue multiple classes of shares. Each share of a class represents an
identical interest and has the same rights, except that each class bears certain
direct expenses, including those specifically related to the distribution of its
shares.
At December 31, 1999, total paid-in capital amounted to the following for each
class:
Class A Class B Class L Class Y
================================================================================
Total Paid-in Capital $37,417,142 $106,476,443 $10,976,486 $108,155,117
================================================================================
- --------------------------------------------------------------------------------
18 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
------------------------- ---------------------------
Shares Amount Shares Amount
===============================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 2,004,542 $ 27,399,767 841,540 $ 12,059,326
Shares issued on reinvestment 725,412 8,846,959 324,842 4,561,829
Shares reacquired (6,602,940) (86,303,863) (9,232,541) (130,041,484)
- -----------------------------------------------------------------------------------------------
Net Decrease (3,872,986) $ (50,057,137) (8,066,159) $(113,420,329)
===============================================================================================
Class B
Shares sold 115,810 $ 1,558,748 859,389 $ 12,355,161
Shares issued on reinvestment 1,575,687 18,986,761 846,593 11,744,374
Shares reacquired (12,419,170) (158,426,933) (18,802,208) (255,580,291)
- -----------------------------------------------------------------------------------------------
Net Decrease (10,727,673) $(137,881,424) (17,096,226) $(231,480,756)
===============================================================================================
Class L+
Shares sold 58,978 $ 770,754 218,764 $ 3,126,633
Shares issued on reinvestment 180,418 2,174,606 106,857 1,486,477
Shares reacquired (1,440,155) (18,552,811) (3,289,378) (44,989,284)
- -----------------------------------------------------------------------------------------------
Net Decrease (1,200,759) $ (15,607,451) (2,963,757) $ (40,376,174)
===============================================================================================
Class Y
Shares sold 2,237,521 $ 27,332,667 1,790,595 $ 25,024,375
Shares reacquired -- -- (626,132) (8,800,000)
- -----------------------------------------------------------------------------------------------
Net Increase 2,237,521 $ 27,332,667 1,164,463 $ 16,224,375
===============================================================================================
Class Z++
Shares sold -- -- 265,807 $ 3,710,900
Shares issued on reinvestment -- -- 47,351 666,843
Shares reacquired -- -- (2,389,658) (32,859,527)
- -----------------------------------------------------------------------------------------------
Net Decrease -- -- (2,076,500) $ (28,481,784)
===============================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed Class L shares.
++ At December 31, 1998, all Class Z shares were fully redeemed.
8. Subsequent Event
On January 7, 2000, the Board of Directors of the Smith Barney Investment Funds
Inc. -- Smith Barney Contrarian Fund approved a proposed reorganization in which
the Smith Barney Fundamental Value Fund Inc. would acquire the assets of the
Smith Barney Contrarian Fund. This proposed reorganization is subject to
shareholder approval.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Financaial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 1999(1) 1998(1) 1997 1996(1) 1995(1)(2)
================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.62 $ 14.21 $ 13.42 $ 12.03 $ 12.00
- ----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.12 0.06 0.08 0.10 0.16
Net realized and unrealized gain (loss) (0.78) (0.21) 1.77 1.84 0.02
- ----------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.66) (0.15) 1.85 1.94 0.18
- ----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.11) -- (0.02) (0.09) (0.15)
Net realized gains (1.52) (0.44) (1.04) (0.46) --
- ----------------------------------------------------------------------------------------------------------------
Total Distributions (1.63) (0.44) (1.06) (0.55) (0.15)
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 11.33 $ 13.62 $ 14.21 $ 13.42 $ 12.03
- ----------------------------------------------------------------------------------------------------------------
Total Return (5.27)% (1.12)% 13.70% 16.33% 1.53%++
- ----------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $52,196 $115,480 $235,172 $218,927 $160,487
- ----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.28% 1.29% 1.28% 1.27% 1.19%+
Net investment income 0.93 0.43 0.55 0.84 2.74+
- ----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 89% 77% 35% 34% 6%
================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from June 30, 1995 (inception date) to December 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
20 1999 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 B Shares 1999(1) 1998(1) 1997 1996(1) 1995(1)(2)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.42 $ 14.11 $ 13.41 $ 12.02 $ 12.00
- ---------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) 0.02 (0.05) (0.03) 0.01 0.11
Net realized and unrealized gain (loss) (0.76) (0.20) 1.77 1.84 0.02
- ---------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.74) (0.25) 1.74 1.85 0.13
- ---------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.03) -- -- -- (0.11)
Net realized gains (1.52) (0.44) (1.04) (0.46) --
- ---------------------------------------------------------------------------------------------------------------
Total Distributions (1.55) (0.44) (1.04) (0.46) (0.11)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 11.13 $ 13.42 $ 14.11 $ 13.41 $ 12.02
- ---------------------------------------------------------------------------------------------------------------
Total Return (5.99)% (1.84)% 12.84% 15.55% 1.16%++
- ---------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $122,069 $291,038 $547,481 $484,673 $300,000
- ---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.05% 2.06% 2.05% 2.03% 1.94%+
Net investment income (loss) 0.15 (0.33) (0.22) 0.08 1.99+
- ---------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 89% 77% 35% 34% 6%
===============================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from June 30, 1995 (inception date) to December 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 21
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 1999(1) 1998(1)(2) 1997 1996(1) 1995(1)(3)
==========================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.42 $ 14.12 $ 13.41 $ 12.03 $ 12.00
- ----------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) 0.03 (0.05) (0.03) 0.00* 0.11
Net realized and unrealized gain (loss) (0.75) (0.21) 1.78 1.84 0.03
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.72) (0.26) 1.75 1.84 0.14
- ----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.03) -- -- -- (0.11)
Net realized gains (1.52) (0.44) (1.04) (0.46) --
- ----------------------------------------------------------------------------------------------------------
Total Distributions (1.55) (0.44) (1.04) (0.46) (0.11)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 11.15 $ 13.42 $ 14.12 $ 13.41 $ 12.03
- ----------------------------------------------------------------------------------------------------------
Total Return (5.82)% (1.91)% 12.91% 15.45% 1.16%++
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $14,228 $33,249 $76,819 $68,340 $ 42,530
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.97% 2.04% 2.04% 2.03% 1.91%+
Net investment income (loss) 0.22 (0.33) (0.21) 0.08 2.02+
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 89% 77% 35% 34% 6%
==========================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
(3) For the period from June 30, 1995 (inception date) to December 31, 1995.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
22 1999 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 1999(1) 1998(1) 1997 1996(1)(2)
======================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.70 $ 14.24 $ 13.43 $ 12.21
- ------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.18 0.13 0.16 0.12
Net realized and unrealized gain (loss) (0.80) (0.23) 1.77 1.69
- ------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.62) (0.10) 1.93 1.81
- ------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.15) -- (0.08) (0.13)
Net realized gains (1.52) (0.44) (1.04) (0.46)
- ------------------------------------------------------------------------------------------------------
Total Distributions (1.67) (0.44) (1.12) (0.59)
- ------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 11.41 $ 13.70 $ 14.24 $ 13.43
- ------------------------------------------------------------------------------------------------------
Total Return (4.89)% (0.76)% 14.23% 14.97%++
- ------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $96,215 $84,862 $71,599 $ 65,499
- ------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.87% 0.90% 0.90% 0.92%+
Net investment income 1.37 0.95 0.92 1.12+
- ------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 89% 77% 35% 34%
======================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from January 31, 1996 (inception date) to December 31, 1996.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
For Federal tax purposes the Fund hereby designates for the fiscal year
ended December 31, 1999:
. Total long-term capital gain distributions paid of $39,035,998.
. A corporate dividends received deduction of 42.97%.
- --------------------------------------------------------------------------------
Smith Barney Contrarian Fund 23
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Smith Barney Investment Funds Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Smith Barney Contrarian Fund of Smith Barney
Investment Funds Inc. as of December 31, 1999, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended and financial highlights for
each of the years in the four-year period then ended and for the period from
June 30, 1995 (commencement of operations) to December 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1999, by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Smith Barney Contrarian Fund of Smith Barney Investment Funds Inc. as of
December 31, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the years in the two-year period then
ended and the financial highlights for each of the years in the four-year period
then ended and for the period from June 30, 1995 to December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
24 1999 Annual Report to Shareholders
<PAGE>
Smith Barney
Contrarian Fund
Directors
Paul R. Ades
Herbert Barg
Dwight B. Crane
Frank G. Hubbard
Heath B. McLendon, Chairman
Jerome Miller
Ken Miller
John F. White, Emeritus
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
John G. Goode
Vice President and Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Manager
SSB Citi Fund Management LLC
Distributor
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Transfer Agent
Smith Barney Private Trust Company
388 Greenwich Street
22nd Floor
New York, New York 10013
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 Contrarian Fund. It is not
authorized for distribution to prospective investors unless accompanied or
preceded by a current Prospectus for the Fund, which contains information
concerning the Fund's investment policies and expenses as well as other
pertinent information. If used as sales material after March 31, 2000, this
report must be accompanied by performance information for the most recently
completed calendar quarter.
[LOGO OF SALOMON SMITH BARNEY]
Smith Barney Contrarian Fund
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
FD01070 2/00
<PAGE>
[LOGO OF SMITH BARNEY]
SMITH BARNEY
GOVERNMENT SECURITIES
Fund
ANNUAL REPORT
DECEMBER 31,1999
[LOGO OF SMITH BARNEY]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
Smith Barney
Government
Securities Fund
[PHOTO] [PHOTO]
HEATH B. MCLENDON JAMES E. CONROY
Chairman Vice President
Dear Shareholder:
We are pleased to provide the annual report for the Smith Barney Government
Securities Fund ("Fund") for the year ended December 31, 1999. We hope you find
this report to be useful and informative. In this report, we summarize the
period's prevailing economic and market conditions and outline our portfolio
strategy. A more detailed summary of performance can be found in the appropriate
sections that follow.
Performance Update
For the year ended December 31, 1999, the Fund returned a negative 4.96% for
Class A shares, excluding the effects of sales charges. In comparison, the peer
group average for general U.S. government funds posted a return of negative
3.01% for the same period according to Lipper, Inc. (Lipper is an independent
fund-tracking organization.) In addition, during the past year, the Fund
distributed income dividends totaling $0.49 per Class A share. For performance
information on the Fund's other share classes, please refer to page five.
Market Update and Outlook
In our view, 1999 turned out to be one of the two worst years for the bond
market in the 1990's, 1994 being the other. In 1999 the bond market was
negatively impacted by the diminishing liquidity--a direct result of the global
financial crisis that reached its climax in October of 1998, and of the Federal
Reserve Board's ("Fed") three 25-basis-point increase (100 basis points are
equal to one percent) on June 30, August 24 and November 16, 1999, respectively.
It is our belief that the worst may be over. In our opinion, with the likelihood
of more moderate growth going forward, inflation fears could abate. The bond
market is likely to remain unsettled until worries about Fed monetary tightening
and the rapid pace of economic growth subside. However, we do foresee the Fed
raising rates again in the first half of 2000*. Nevertheless, we doubt that
yields will rise much above recent levels.
- ----------
* On Wednesday, February 2, 2000, after this letter was written, the Fed raised
interest rates by 0.25%, to 5.75%.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 1
<PAGE>
In fact, many bond experts expect that yields on 30-year U.S. Treasuries will
trade between 6% and 6.7% over the next 12 months. If correct, these yields may
provide investors with some offset against declines in the bond prices.
Investment Strategy
The Fund 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.
During the period, the Fund's income orientation helped returns due to our
emphasis on mortgage-backed securities and U.S. Treasury strips throughout the
year. 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 5.25 to 5.375
years in the Fund.
Within the Fund, we have sought to maximize income through mortgage-backed
securities, buying coupon at or near par and avoiding any potential prepayment
risk. (Coupon is the periodic interest payment made to the bondholders during
the life of the bond. Prepayment risk refers to payments made in excess of
scheduled mortgage principal repayments.)
Our strategy has included slowly buying U.S. Treasuries and extending maturities
as interest rates have risen during this 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 that rates will continue to
decline.
The chart below shows the yields from U.S. Treasuries during the period under
review.
Yields from U.S. Treasuries
Interest Rates 12/31/98 12/31/99 High Low
- -------------- -------- -------- ---- ---
2-year U.S. Treasury Notes 4.53% 6.23% 6.23% 4.44%
5-year U.S. Treasury Notes 4.54 6.34 6.34 4.46
10-year U.S. Treasury Bonds 4.65 6.43 6.43 4.61
30-year U.S. Treasury Bonds 5.09 6.48 6.49 5.06
- --------------------------------------------------------------------------------
2 1999 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.
Sincerely,
/s/ Heath B. McLendon /s/ James E. Conroy
Heath B. McLendon James E. Conroy
Chairman Vice President
January 19, 2000
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 3
<PAGE>
Principal Risks of Investing in the
Smith Barney Government Securities Fund
Investors could lose money on their investment in the Smith Barney Government
Securities Fund ("Fund"), or the Fund may not perform as well as other
investments, if:
. Interest rates increase, causing the prices of fixed income securities to
decline and reducing the value of the Fund's portfolio
. As interest rates decline, the issuers of mortgage-related securities held
by the Fund may pay principal earlier than scheduled or exercise a right to
call the securities, forcing the Fund to reinvest in lower yielding
securities. This is known as prepayment or call risk.
. As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of these securities. This is known as
extension risk.
. The manager's judgement about interest rates or the attractiveness, value
or income potential of a particular security proves incorrect.
. The Fund may engage in active and frequent trading, resulting in high
portfolio turnover. This may lead to the realization and distribution to
shareholders of higher capital gains, increasing their tax liability.
Frequent trading also increases transaction costs, which could detract from
the Fund's performance.
Payments of principal and interest on mortgage pools issued by instrumentalities
of the U.S. government are not guaranteed by the U.S. government. Although
mortgage pools issued by U.S. agencies are guaranteed with respect to payments
of principal and interest, this guarantee does not apply to losses resulting
from declines in the market value of these securities.
- --------------------------------------------------------------------------------
4 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-----------------
Year Beginning End Income Capital Gain Return Total
Ended of Year of Year Dividends Distributions of Capital Returns(1)
==============================================================================================
<S> <C> <C> <C> <C> <C> <C>
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 $4.21 $0.00 $0.10
==============================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- ----------------------------------------------------------------------------------------------
Net Asset Value
-------------------
Year Beginning End Income Capital Gain Return Total
Ended of Year of Year Dividends Distributions of Capital Returns(1)
==============================================================================================
<S> <C> <C> <C> <C> <C> <C>
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 9.38 9.79 0.57 0.00 0.00 10.82
- ----------------------------------------------------------------------------------------------
12/31/96 9.81 9.38 0.54 0.00 0.01 1.42
- ----------------------------------------------------------------------------------------------
12/31/95 9.17 9.81 0.60 0.00 0.00 13.87
- ----------------------------------------------------------------------------------------------
12/31/94 10.01 9.17 0.45 0.00 0.07 (3.25)
- ----------------------------------------------------------------------------------------------
12/31/93 9.68 10.01 0.67 0.00 0.00 10.45
- ----------------------------------------------------------------------------------------------
12/31/92 9.81 9.68 0.53 0.00 0.11 5.45
- ----------------------------------------------------------------------------------------------
12/31/91 9.11 9.81 0.63 0.00 0.08 16.28
- ----------------------------------------------------------------------------------------------
12/31/90 9.25 9.11 0.68 0.00 0.06 6.99
==============================================================================================
Total $5.65 $0.00 $0.33
==============================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 5
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Year Beginning End Income Capital Gain Return Total
Ended of Year of Year Dividends Distributions of Capital Returns(1)
==============================================================================================
<S> <C> <C> <C> <C> <C> <C>
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 $3.77 $0.00 $0.08
==============================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Year Beginning End Income Capital Gain Return Total
Ended of Year of Year Dividends Distributions of Capital Returns(1)
==============================================================================================
<S> <C> <C> <C> <C> <C> <C>
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 $2.31 $0.00 $0.01
==============================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Z Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Period Beginning End Income Capital Gain Return Total
Ended of Period of Period Dividends Distributions of Capital Returns(1)
===================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Inception* - 12/31/99 $9.97 $8.99 $0.53 $0.00 $0.00 (4.61)%+
===================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and
capital gains,if any,annually.
- --------------------------------------------------------------------------------
6 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge(1)
------------------------------------------------------
Class A Class B Class L Class Y Class Z
<S> <C> <C> <C> <C> <C>
===================================================================================
Year Ended 12/31/99 (4.96)% (5.35)% (5.41)% (4.61)% N/A
- -----------------------------------------------------------------------------------
Five Years Ended 12/31/99 5.94 5.41 5.46 N/A N/A
- -----------------------------------------------------------------------------------
Ten Years Ended 12/31/99 N/A 6.20 N/A N/A N/A
- -----------------------------------------------------------------------------------
Inception* through 12/31/99 5.58 7.27 4.52 4.38 (4.61)%+
===================================================================================
<CAPTION>
With Sales Charge(2)
------------------------------------------------------
Class A Class B Class L Class Y Class Z
<S> <C> <C> <C> <C> <C>
===================================================================================
Year Ended 12/31/99 (9.24)% (9.42)% (7.24)% (4.61)% N/A
- -----------------------------------------------------------------------------------
Five Years Ended 12/31/99 4.97 5.25 5.26 N/A N/A
- -----------------------------------------------------------------------------------
Ten Years Ended 12/31/99 N/A 6.20 N/A N/A N/A
- -----------------------------------------------------------------------------------
Inception* through 12/31/99 4.90 7.27 4.36 4.38 (4.61)%+
===================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 12/31/99) 47.45%
- --------------------------------------------------------------------------------
Class B (12/31/89 through 12/31/99) 82.57
- --------------------------------------------------------------------------------
Class L (Inception* through 12/31/99) 35.67
- --------------------------------------------------------------------------------
Class Y (Inception* through 12/31/99) 18.21
- --------------------------------------------------------------------------------
Class Z (Inception* through 12/31/99) (4.61)
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect deduction of the applicable
sales charges with respect to Class A and L shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and L
shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 4.50% and 1.00%,
respectively. Class B shares reflect the deduction of a 4.50% CDSC, which
applies if shares are redeemed within one year from purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00% per
year until no CDSC is incurred. Class L shares also reflect the deduction
of a 1.00% CDSC, which applies if shares are redeemed within the first year
of purchase.
* Inception dates for Class A, B, L, Y and Z shares are November 6, 1992,
March 20, 1984, February 4, 1993, February 7, 1996 and January 4, 1999,
respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class B Shares of
the Smith Barney Government Securities Fund
vs. Lehman Brothers Government Bond Index
and Lipper U.S. Government Peer Group Average+
- --------------------------------------------------------------------------------
December 1989 -- December 1999
[GRAPH]
[PLOT POINTS TO COME]
+ Hypothetical illustration of $10,000 invested in Class B shares on December
31, 1989, assuming reinvestment of dividends and capital gains, if any, at
net asset value through December 31, 1999. The Lehman Brothers Government
Bond Index is a broad-based index of all public debt obligations of the
U.S. Government and its agencies and has an average maturity of
approximately nine years. The Lipper U.S. Government Peer Group Average is
composed of the Fund's peer group of 191 mutual funds investing in U.S.
Government securities as of December 31, 1999. The index is unmanaged and
is not subject to the same management and trading expenses as a mutual
fund. The performance of the Fund's other classes may be greater or less
than the Class B shares' performance indicated on this chart, depending on
whether greater or lesser sales charges and fees were incurred by
shareholders investing in other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
- --------------------------------------------------------------------------------
8 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Highlights (unaudited) December 31, 1999
- --------------------------------------------------------------------------------
Portfolio Breakdown
69.2% Mortgage-Backed Securities
25.3% U.S. Government and Agency Obligations
5.5% 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 notes, bills and bonds.
Mortgage-Backed Securities are debt securities issued by the U.S. Government
agencies such as the Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA) and Government National Mortgage
Association (GNMA). They represent thousands of individual home mortgages that
are pooled to form securities. As homeowners pay interest and principal each
month, these payments are passed on to investors. Mortgage-backed securities are
backed by the full faith and credit of the issuing agency.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments December 31, 1999
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 25.3%
$192,125,000 U.S. Treasury Strips, zero coupon due 11/15/09 $ 97,165,298
3,810,000 FNMA Global Bond, 6.350% due 11/23/01 3,780,358
209,300,000 FNMA, zero coupon due 6/1/17 60,163,285
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- $168,825,184) 161,108,941
================================================================================
MORTGAGE-BACKED SECURITIES+ -- 69.2%
28,385,811 FNMA 30 Year, 7.000% due 9/1/29 27,454,189
95,565,988 GNMA 30 Year, 6.500% due 8/15/28 89,771,823
3,362,638 GNMA 30 Year, 7.000% due 7/15/29 3,249,149
80,685,741 GNMA 30 Year, 7.500% due 9/15/29 79,828,052
90,042,627 GNMA 30 Year, 6.000% due 12/15/29 81,994,617
155,905,852 GNMA 30 Year, 8.000% due 12/15/29 157,561,572
- --------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost -- $453,513,081) 439,859,402
================================================================================
REPURCHASE AGREEMENT -- 5.5%
34,729,000 Warburg Dillon Read LLC, 2.998% due 1/3/00;
Proceeds at maturity -- $34,737,676 (Fully collateralized by
U.S. Treasury Notes, 6.500% due 5/31/01;
Market value -- $35,424,147) (Cost -- $34,729,000) 34,729,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $657,067,265*) $635,697,343
================================================================================
+ Date shown represents the last in range of maturity dates of mortgage
certificates owned.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (Cost -- $657,067,265) $635,697,343
Receivable for Fund shares sold 493,349
Interest receivable 2,640,709
- ---------------------------------------------------------------------------------------------
Total Assets 638,831,401
- ---------------------------------------------------------------------------------------------
LIABILITIES:
Payable to bank 1,018,031
Payable for Fund shares purchased 338,025
Investment advisory fees payable 193,556
Distribution fees payable 158,709
Administration fees payable 114,154
Accrued expenses 96,652
- ---------------------------------------------------------------------------------------------
Total Liabilities 1,919,127
- ---------------------------------------------------------------------------------------------
Total Net Assets $636,912,274
=============================================================================================
NET ASSETS:
Par value of capital shares $ 70,813
Capital paid in excess of par value 737,071,888
Overdistributed net investment income (3,771)
Accumulated net realized loss from security transactions and futures contracts (78,856,734)
Net unrealized depreciation of investments (21,369,922)
- ---------------------------------------------------------------------------------------------
Total Net Assets $636,912,274
=============================================================================================
Shares Outstanding:
Class A 32,037,370
- ---------------------------------------------------------------------------------------------
Class B 7,330,763
- ---------------------------------------------------------------------------------------------
Class L 734,972
- ---------------------------------------------------------------------------------------------
Class Y 23,699,407
- ---------------------------------------------------------------------------------------------
Class Z 7,010,853
- ---------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 8.99
- ---------------------------------------------------------------------------------------------
Class B * $ 9.00
- ---------------------------------------------------------------------------------------------
Class L ** $ 8.99
- ---------------------------------------------------------------------------------------------
Class Y (and redemption price) $ 8.99
- ---------------------------------------------------------------------------------------------
Class Z (and redemption price) $ 8.99
- ---------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $ 9.41
- ---------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $ 9.08
=============================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest $ 41,759,754
Less: Interest expense (Note 6) (48,059)
- ---------------------------------------------------------------------------------------------
Total Investment Income 41,711,695
- ---------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 2,376,064
Distribution fees (Note 2) 1,438,072
Administration fees (Note 2) 1,357,751
Shareholder and system servicing fees 339,039
Shareholder communications 80,563
Directors' fees 45,188
Audit and legal 41,719
Registration fees 57,548
Custody 40,094
Other 34,828
- ---------------------------------------------------------------------------------------------
Total Expenses 5,810,866
- ---------------------------------------------------------------------------------------------
Net Investment Income 35,900,829
- ---------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 3 AND 7):
Realized Loss From:
Security transactions (excluding short-term securities) (43,230,860)
Futures contracts (2,745,000)
- ---------------------------------------------------------------------------------------------
Net Realized Loss (45,975,860)
- ---------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of Investments:
Beginning of year 2,976,072
End of year (21,369,922)
- ---------------------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (24,345,994)
- ---------------------------------------------------------------------------------------------
Net Loss on Investments and Futures Contracts (70,321,854)
- ---------------------------------------------------------------------------------------------
Decrease in Net Assets From Operations $(34,421,025)
=============================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets For the Years Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
=====================================================================================
OPERATIONS:
<S> <C> <C>
Net investment income $ 35,900,829 $ 30,951,647
Net realized gain (loss) (45,975,860) 22,883,384
Increase in net unrealized depreciation (24,345,994) (6,841,093)
- -------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (34,421,025) 46,993,938
- -------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (35,868,390) (33,878,439)
Capital (317,217) --
- -------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (36,185,607) (33,878,439)
- -------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 301,097,753 163,735,064
Net asset value of shares issued for
reinvestment of dividends 17,773,354 16,427,262
Cost of shares reacquired (246,720,222) (132,526,357)
- -------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 72,150,885 47,635,969
- -------------------------------------------------------------------------------------
Increase in Net Assets 1,544,253 60,751,468
NET ASSETS:
Beginning of year 635,368,021 574,616,553
- -------------------------------------------------------------------------------------
End of year* $ 636,912,274 $ 635,368,021
=====================================================================================
* Includes overdistributed net investment income of: $ (3,771) $ (2,303)
=====================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 eight other separate investment portfolios: Smith Barney
Investment Grade Bond, Smith Barney Contrarian, Concert Peachtree Growth, Smith
Barney Hansberger Global Value, Smith Barney Hansberger Global Small Cap Value,
Smith Barney Small Cap Value, Smith Barney Premier Selections 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.
- --------------------------------------------------------------------------------
14 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., 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 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.
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Fund's transfer agent and PFPC
Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to the size and
type of account. PFPC is responsible for shareholder recordkeeping and financial
processing for all shareholder accounts and is paid by Private Trust. During the
period October 1, 1999 through December 31, 1999, the Portfolio paid transfer
agent fees of $73,570 to Private Trust.
CFBDS, Inc. ("CFBDS") acts as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B shares,
which applies if redemption occurs within one year from purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00% per year
until no CDSC is incurred. Class L shares also have a 1.00% CDSC, which applies
if redemption occurs within the first year of purchase. In addition, Class A
shares have a 1.00% CDSC, which applies if redemption occurs within the first
year of purchase. This CDSC only applies to those purchases of Class A shares
which, when combined with current holdings of Class A shares, equal or exceed
$500,000 in the aggregate. These purchases do not incur an initial sales charge.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
For the year ended December 31, 1999, CFBDS and SSB received sales charges of
approximately $173,000 and $62,000 on sales of the Fund's Class A and L shares,
respectively. In addition, CDSCs paid to SSB were approximately:
Class A Class B Class L
================================================================================
CDSCs $12,000 $105,000 $3,000
================================================================================
Pursuant to a Distribution Plan, the Portfolio pays a service fee with respect
to Class A, B and L shares calculated at the annual rate of 0.25% of the average
daily net assets for each respective class. The Portfolio also pays a
distribution fee with respect to Class B and L shares calculated at the annual
rate of 0.50% and 0.45% of the average daily net assets for each class,
respectively. For the year ended December 31, 1999, total Distribution Plan fees
incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $798,258 $595,854 $43,960
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the year ended December 31, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
================================================================================
Purchases $1,208,800,196
- --------------------------------------------------------------------------------
Sales 1,136,627,703
================================================================================
At December 31, 1999, aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation --
Gross unrealized depreciation $(21,369,922)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(21,369,922)
================================================================================
- --------------------------------------------------------------------------------
16 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (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 year ended December 31, 1999, the maximum and average amount of
reverse repurchase agreements outstanding were as follows:
================================================================================
Maximum amount outstanding $53,000,000
- --------------------------------------------------------------------------------
Average amount outstanding (outstanding for 20 days) 41,000,000
================================================================================
Interest rates on reverse repurchase agreements were all at 4.75% during the
period. Interest expense on reverse repurchase agreements totaled $48,059. The
Portfolio had no open reverse repurchase agreements at December 31, 1999.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (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 December 31, 1999, the Portfolio had no open futures contracts.
8. Options Contracts
Premiums paid when put or call options are purchased by the Portfolio represent
investments, which are marked-to-market daily and are included in the schedule
of investments. When a purchased option expires, the Portfolio will realize a
loss in the amount of the premium paid. When the Portfolio enters into a closing
sales transaction, the Portfolio will realize a gain or loss depending on
whether the proceeds from the closing sales transaction are greater or less than
the premium paid for the option. When the Portfolio exercises a put option, it
will realize a gain or loss from the sale of the underlying security and the
proceeds from such sale will be decreased by the premium originally paid. When
the Portfolio exercises a call option, the cost of the security which the
Portfolio purchases upon exercise will be increased by the premium originally
paid.
At December 31, 1999, the Portfolio had no purchased put or call options.
When a Portfolio writes a covered call or put option, an amount equal to the
premium received by the Portfolio is recorded as a liability, the value of which
is marked-to-market daily. When a written option expires, the Portfolio realizes
a gain equal to the amount of the premium received. When the Portfolio enters
into a closing purchase transaction, the Portfolio realizes a gain or loss
depending upon whether the cost of the closing transaction is greater or less
- --------------------------------------------------------------------------------
18 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
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 year ended December 31, 1999, the Portfolio did not write any
options.
9. Securities Traded on a When-Issued or
To-Be-Announced Basis
The Portfolio may trade securities on a "to-be-announced" ("TBA") basis. In a
TBA transaction, the Portfolio commits to purchasing or selling securities for
which specific information is not yet known at the time of the trade,
particularly the face amount and maturity date. Securities purchased on a TBA
basis are not settled until they are delivered to the Portfolio, normally 15 to
45 days later. These transactions are subject to market fluctuations and their
current value is determined in the same manner as for other portfolio
securities.
At December 31, 1999, 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 December 31, 1999, the Portfolio had no securities on loan.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
11. Capital Shares
At December 31, 1999, the Fund had ten billion shares of capital stock
authorized with a par value of $0.001 per share. The Portfolio has the ability
to issue multiple classes of shares. Each share of a class represents an
identical interest and has the same rights, except that each class bears certain
direct expenses, including those specifically related to the distribution of its
shares.
At December 31, 1999, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class L Class Y Class Z
<S> <C> <C> <C> <C> <C>
==========================================================================================
Total Paid-in Capital $287,386,838 $146,599,616 $7,148,064 $225,602,469 $70,405,714
==========================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
---------------------- -------------------------
Shares Amount Shares Amount
====================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 15,324,130 $ 146,350,103 5,977,934 $ 59,386,468
Shares issued on reinvestment 1,182,742 11,108,585 1,327,067 13,040,346
Shares reacquired (19,332,917) (183,718,121) (9,463,412) (93,606,842)
- ----------------------------------------------------------------------------------------------------
Net Decrease (2,826,045) $ (26,259,433) (2,158,411) $(21,180,028)
====================================================================================================
Class B
Shares sold 1,937,860 $ 18,481,308 2,353,261 $ 23,496,336
Shares issued on reinvestment 262,455 2,470,322 334,301 3,291,162
Shares reacquired (4,101,258) (38,779,393) (3,804,979) (37,524,683)
- ----------------------------------------------------------------------------------------------------
Net Decrease (1,900,943) $ (17,827,763) (1,117,417) $(10,737,185)
====================================================================================================
Class L(1)
Shares sold 807,944 $ 7,650,700 337,917 $ 3,359,379
Shares issued on reinvestment 23,595 220,776 9,720 95,754
Shares reacquired (539,025) (5,015,694) (141,467) (1,394,832)
- ----------------------------------------------------------------------------------------------------
Net Increase 292,514 $ 2,855,782 206,170 $ 2,060,301
====================================================================================================
Class Y
Shares sold 4,636,231 $ 43,975,335 7,915,587 $ 77,492,881
Shares issued on reinvestment -- -- -- --
Shares reacquired (110,644) (1,031,573) -- --
- ----------------------------------------------------------------------------------------------------
Net Increase 4,525,587 $ 42,943,762 7,915,587 $ 77,492,881
====================================================================================================
Class Z(2)
Shares sold 8,528,957 $ 84,640,307 -- --
Shares issued on reinvestment 423,085 3,973,671 -- --
Shares reacquired (1,941,189) (18,175,441) -- --
- ----------------------------------------------------------------------------------------------------
Net Increase 7,010,853 $ 70,438,537 -- --
====================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(2) For Class Z shares, transactions are for the period from January 4, 1999
(inception date) to December 31, 1999.
- --------------------------------------------------------------------------------
20 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 1999(1) 1998(1) 1997 1996 1995(1)
<S> <C> <C> <C> <C> <C>
==============================================================================================
Net Asset Value, Beginning of Year $9.97 $9.75 $9.34 $9.77 $9.17
- ----------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.49 0.51 0.59 0.61 0.67
Net realized and unrealized gain (loss) (0.98) 0.26 0.42 (0.44) 0.62
- ----------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.49) 0.77 1.01 0.17 1.29
- ----------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.49) (0.55) (0.60) (0.59) (0.69)
Capital (0.00)* -- -- (0.01) --
- ----------------------------------------------------------------------------------------------
Total Distributions (0.49) (0.55) (0.60) (0.60) (0.69)
- ----------------------------------------------------------------------------------------------
Net Asset Value, End of Year $8.99 $9.97 $9.75 $9.34 $9.77
- ----------------------------------------------------------------------------------------------
Total Return (4.96)% 8.12% 11.23% 1.96% 14.50%
- ----------------------------------------------------------------------------------------------
Net Assets, End of Year(000s) $ 288,133 $347,622 $361,124 $388,563 $453,378
- ----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Other expenses 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 5.21 5.15 6.24 6.16 6.70
- ----------------------------------------------------------------------------------------------
Portfolio Turnover Rate 161% 334% 274% 420% 294%
==============================================================================================
Class B Shares 1999(1) 1998(1) 1997 1996 1995(1)
==============================================================================================
Net Asset Value, Beginning of Year $9.97 $9.79 $9.38 $9.81 $9.17
- ----------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.45 0.45 0.54 0.56 0.59
Net realized and unrealized gain (loss) (0.97) 0.26 0.44 (0.44) 0.65
- ----------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.52) 0.71 0.98 0.12 1.24
- ----------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.45) (0.53) (0.57) (0.54) (0.60)
Capital (0.00)* -- -- (0.01) --
- ----------------------------------------------------------------------------------------------
Total Distributions (0.45) (0.53) (0.57) (0.55) (0.60)
- ----------------------------------------------------------------------------------------------
Net Asset Value, End of Year $9.00 $9.97 $9.79 $9.38 $9.81
- ----------------------------------------------------------------------------------------------
Total Return (5.35)% 7.44% 10.82% 1.42% 13.87%
- ----------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $65,989 $92,082 $101,273 $121,894 $158,459
- ----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Other expenses 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 4.72 4.64 5.73 5.64 6.19
- ----------------------------------------------------------------------------------------------
Portfolio Turnover Rate 161% 334% 274% 420% 294%
==============================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
* Amount represents less than $0.01 per share.
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 21
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 1999(1) 1998(1) 1997 1996 1995(1)
==============================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.97 $9.78 $9.38 $9.81 $9.17
- ----------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.46 0.45 0.54 0.57 0.60
Net realized and unrealized gain (loss) (0.99) 0.27 0.43 (0.44) 0.65
- ----------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.53) 0.72 0.97 0.13 1.25
- ----------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.45) (0.53) (0.57) (0.55) (0.61)
Capital (0.00)* -- -- (0.01) --
- ----------------------------------------------------------------------------------------------
Total Distributions (0.45) (0.53) (0.57) (0.56) (0.61)
- ----------------------------------------------------------------------------------------------
Net Asset Value, End of Year $8.99 $9.97 $9.78 $9.38 $9.81
- ----------------------------------------------------------------------------------------------
Total Return (5.41)% 7.56% 10.75% 1.47% 13.93%
- ----------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $6,611 $4,411 $2,311 $1,443 $1,039
- ----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Other expenses 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 4.77 4.63 5.70 5.71 6.27
- ----------------------------------------------------------------------------------------------
Portfolio Turnover Rate 161% 334% 274% 420% 294%
==============================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
* Amount represents less than $0.01 per share.
- --------------------------------------------------------------------------------
22 1999 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 1999(1) 1998(1) 1997 1996(2)
==================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $9.97 $9.76 $9.34 $9.71
- ----------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.53 0.54 0.61 0.57
Net realized and unrealized gain (loss) (0.98) 0.26 0.44 (0.37)
- ----------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.45) 0.80 1.05 0.20
- ----------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.53) (0.59) (0.63) (0.56)
Capital (0.00)* -- -- (0.01)
- ----------------------------------------------------------------------------------
Total Distributions (0.53) (0.59) (0.63) (0.57)
- ----------------------------------------------------------------------------------
Net Asset Value, End of Year $8.99 $9.97 $9.76 $9.34
- ----------------------------------------------------------------------------------
Total Return (4.61)% 8.42% 11.73% 2.30%++
- ----------------------------------------------------------------------------------
Net Assets, End of Year (000s) $213,170 $191,253 $109,909 $39,667
- ----------------------------------------------------------------------------------
Ratios to Average Net Assets:
Other expenses 0.59% 0.59% 0.58% 0.44%+
Interest expense 0.01 0.08 0.85 0.84+
Net investment income 5.57 5.43 6.46 6.49+
- ----------------------------------------------------------------------------------
Portfolio Turnover Rate 161% 334% 274% 420%
==================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period from February 7, 1996 (inception date) to December 31, 1996.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
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:
Class Z Shares 1999(1)(2)
==============================================================================
Net Asset Value, Beginning of Period $ 9.97
- ------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.52
Net realized and unrealized loss (0.97)
- ------------------------------------------------------------------------------
Total Loss From Operations (0.45)
- ------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.53)
Capital (0.00)*
- ------------------------------------------------------------------------------
Total Distributions (0.53)
- ------------------------------------------------------------------------------
Net Asset Value, End of Period $ 8.99
- ------------------------------------------------------------------------------
Total Return (4.61)%++
- ------------------------------------------------------------------------------
Net Assets, End of Period (000s) $63,009
- ------------------------------------------------------------------------------
Ratios to Average Net Assets:
Other expenses 0.63%+
Interest expense 0.01+
Net investment income 5.53+
- ------------------------------------------------------------------------------
Portfolio Turnover Rate 161%
==============================================================================
(1) For the period from January 4, 1999 (inception date) to December 31, 1999.
(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.
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
A total of 28.71% of the ordinary dividends paid by the Portfolio from net
investment income are derived from Federal obligations and may be exempt from
taxation at the state level.
- --------------------------------------------------------------------------------
24 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Smith Barney Investment Funds Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Smith Barney Government Securities Fund of
Smith Barney Investment Funds Inc. as of December 31, 1999, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended and financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Smith Barney Government Securities Fund of Smith Barney Investment Funds Inc. as
of December 31, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the years in the two-year period then
ended and its financial highlights for each of the years in the five-year period
then ended, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
Smith Barney Government Securities Fund 25
<PAGE>
SALOMON SMITH BARNEY
----------------------
A member of citigroup
Directors
Paul R. Ades
Herbert Barg
Dwight B. Crane
Frank J. Hubbard
Heath B. McLendon, Chairman
Jerome Miller
Ken Miller
John F. White, Emeritus
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
James E. Conroy
Vice President and
Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser
SSB Citi Fund Management LLC
Distributor
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Transfer Agent
Smith Barney Private Trust Company
388 Greenwich Street
22nd Floor
New York, New York 10013
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. It is
not authorized for distribution to prospective investors unless accompanied or
preceded by a current Prospectus for the Fund, which contains information
concerning the Fund's investment policies and expenses as well as other
pertinent information. If used as sales material after March 31, 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
FD0316 2/00
[GRAPHIC OMITTED]
SMITH BARNEY
INVESTMENT
GRADE BOND FUND
[GRAPHIC OMITTED]
STYLE PURE SERIES
ANNUAL REPORT
DECEMBER 31, 1999
[LOGO] Smith Barney Mutual Funds
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
December 31, 1999
Without Sales Charges(1)
------------------------------------------
Class A Class B Class L
===============================================================================
One-Year (9.09)% (9.44)% (9.44)%
- -------------------------------------------------------------------------------
Five-Year 9.19 8.67 8.72
- -------------------------------------------------------------------------------
Ten-Year N/A 8.28 N/A
- -------------------------------------------------------------------------------
Since Inception+ 7.95 10.61 6.29
===============================================================================
With Sales Charges(2)
------------------------------------------
Class A Class B Class L
===============================================================================
One-Year (13.20)% (13.30)% (11.18)%
- -------------------------------------------------------------------------------
Five-Year 8.20 8.53 8.50
- -------------------------------------------------------------------------------
Ten-Year N/A 8.28 N/A
- -------------------------------------------------------------------------------
Since Inception+ 7.26 10.61 6.13
===============================================================================
(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.
+ Inception dates for Class A, B and L shares are November 6, 1992, January
4, 1982 and February 26, 1993, respectively.
- --------------------------------------------------------------------------------
FUND HIGHLIGHT
- --------------------------------------------------------------------------------
Over the period covered by this report, our strategy included slowly buying U.S.
Treasuries and extending maturities as interest rates rose during the period.
Due to our belief that 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
- --------------------------------------------------------------------------------
NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A HGBPA
Class B HGBPB
Class L HGBPL
- --------------------------------------------------------------------------------
WHAT'S INSIDE
- --------------------------------------------------------------------------------
Shareholder Letter ........................................................ 1
Historical Performance .................................................... 3
Smith Barney Investment Grade Bond Fund
at a Glance ............................................................... 5
Schedule of Investments ................................................... 6
Statement of Assets and Liabilities ....................................... 10
Statement of Operations ................................................... 11
Statements of Changes in Net Assets ....................................... 12
Notes to Financial Statements ............................................. 13
Financial Highlights ...................................................... 17
Independent Auditors' Report .............................................. 19
Tax Information ........................................................... 20
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Letter
- --------------------------------------------------------------------------------
[PHOTO OMITTED] [PHOTO OMITTED]
HEATH B. JAMES E.
MCLENDON CONROY
Chairman Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide the annual report for the Smith Barney Investment
Grade Bond Fund ("Portfolio") for the year ended December 31, 1999. We hope you
find this report to be useful and informative. In this report, we summarize the
period's prevailing economic and market conditions and outline our investment
strategy. A more detailed summary of performance can be found in the appropriate
sections that follow.
Performance Update
For the year ended December 31, 1999, the Portfolio returned a negative 9.09%
for Class A shares, excluding the effects of sales charges. In comparison, the
Portfolio's Lipper, Inc. peer group average posted a total return of negative
2.58% for the same period. (Lipper is an independent fund-tracking
organization.) In addition, during the past year, the Portfolio distributed
income dividends totaling $0.73 per Class A share. For performance information
on the Portfolio's other share classes, please refer to pages 3 and 4.
Market Update and Outlook
1999 turned out to be one of the two worst years for the bond market in the
1990's, 1994 being the other. In 1999 the bond market was negatively impacted by
diminishing liquidity -- a direct result of the global financial crisis that
reached its climax in October of 1998, and by the Federal Reserve Board ("Fed")
three 25-basis-point increases (100 basis points are equal to one percent) on
June 30, August 24 and November 16, 1999, respectively.(1)
It is our belief that the worst may be over. With the likelihood of more
moderate growth going forward, inflation fears could abate.
The bond market is likely to remain unsettled until worries about Fed monetary
tightening and the rapid pace of economic growth subside. We foresee the Fed
raising rates again in the first half of 2000. Nevertheless, we doubt that
yields will rise much above recent levels.
Many bond experts expect that yields on 30-year U.S. Treasuries will trade
between 6.0% and 6.7% over the next 12 months. If correct, the yields may
provide investors with some offset against declines in the bond prices.
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"(2) fixed-income securities. 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.
The Portfolio currently has a slightly shorter duration than the corporate 10+
year benchmark. The Fund's performance lagged its benchmark as the Portfolio is
made up of extremely long maturity bonds, which had been a benefit in a period
of declining rates, was a negative as rates rose during the period.
Our strategy included slowly buying U.S. Treasuries and extending maturities as
interest rates have risen during the period. Due to our belief that we have
probably seen the highs in yields over the near-term. Our investment strategy in
the coming months will be
- ----------
(1) On Wednesday, February 2, 2000 after this letter was written, the Fed
raised interest rates by 0.25% to 5.75%.
(2) Investment-grade bonds are those rated Aaa, Aa, A and Baa by Moody's
Investors Service, Inc. or AAA, AA, A and BBB by Standard and Poor's
Ratings Service, or have been determined by the manager to be of
equivalent quality.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 1
<PAGE>
to increase our U.S. Treasury exposure and reduce our mortgage-backed securities
holdings. The chart below shows the yields for various U.S. Treasuries during
the reporting period.
Yields from U.S. Treasuries
Interest Rates 12/31/99 12/31/98
-------- --------
2-Year U.S. Treasury Notes ..................... 6.23% 4.53%
5-Year U.S. Treasury Notes ..................... 6.34 4.54
10-Year U.S. Treasury Bonds .................... 6.43 4.65
30-Year U.S. Treasury Bonds .................... 6.48 5.09
12/31/99
----------------------
High Low
---- ---
2-Year U.S. Treasury Notes ..................... 6.23% 4.44%
5-Year U.S. Treasury Notes ..................... 6.34 4.46
10-Year U.S. Treasury Bonds .................... 6.43 4.61
30-Year U.S. Treasury Bonds .................... 6.49 5.06
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/ Heath B. McLendon /s/ James E. Conroy
Heath B. McLendon James E. Conroy
Chairman Vice President and
Investment Officer
January 19, 2000
- --------------------------------------------------------------------------------
Top Ten Holdings* December 31, 1999
- --------------------------------------------------------------------------------
1. Ralston Purina Co. 4.7%
- --------------------------------------------------------------------------------
2. AMR Corp. 3.9
- --------------------------------------------------------------------------------
3. IBM Corp. 3.2
- --------------------------------------------------------------------------------
4. Paramount Communications, Inc. 3.2
- --------------------------------------------------------------------------------
5. Abbey National PLC 3.0
- --------------------------------------------------------------------------------
6. Occidental Petroleum 3.0
- --------------------------------------------------------------------------------
7. Cable & Wireless Communications 3.0
- --------------------------------------------------------------------------------
8. United Technologies Corp. 2.9
- --------------------------------------------------------------------------------
9. Chrysler Corp. 2.9
- --------------------------------------------------------------------------------
10. News America Holdings 2.9
- --------------------------------------------------------------------------------
* As a percentage of total corporate bonds and notes.
- --------------------------------------------------------------------------------
2 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
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 $5.83 $1.38 $0.05
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
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 $7.84 $1.38 $0.07
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
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 $5.18 $1.38 $0.04
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 3
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
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 $3.16 $0.77 $0.01
====================================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
------------------------------------------
Class A Class B Class L Class Y
================================================================================
Year Ended 12/31/99 (9.09)% (9.44)% (9.44)% (8.68)%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/99 9.19 8.67 8.72 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/99 N/A 8.28 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 12/31/99 7.95 10.61 6.29 4.27
================================================================================
With Sales Charges(2)
------------------------------------------
Class A Class B Class L Class Y
================================================================================
Year Ended 12/31/99 (13.20)% (13.30)% (11.18)% (8.68)%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/99 8.20 8.53 8.50 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/99 N/A 8.28 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 12/31/99 7.26 10.61 6.13 4.27
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (Inception* through 12/31/99) 72.83%
- --------------------------------------------------------------------------------
Class B (12/31/89 through 12/31/99) 121.51
- --------------------------------------------------------------------------------
Class L (Inception* through 12/31/99) 51.85
- --------------------------------------------------------------------------------
Class Y (Inception* through 12/31/99) 17.72
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum sales charge of 4.50% and 1.00%, respectively;
Class B shares reflect the deduction of a 4.50% CDSC, which applies if
shares are redeemed within one year from initial purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00%
per year until no CDSC is incurred. Class L shares also reflect the
deduction of a 1.00% CDSC, which applies if shares are redeemed within the
first year of purchase.
* Inception dates for Class A, B, L and Y shares are November 6, 1992,
January 4, 1982, February 26, 1993 and February 7, 1996, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
- --------------------------------------------------------------------------------
4 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund at a Glance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class B Shares of the Smith Barney Investment
Grade Bond Fund vs. the Lehman Brothers Long-Term Corporate Bond Index, the
Lipper Corporate Debt A-Rated Average and the Salomon Smith Barney Corporate
Index 10+ +
[GRAPH OMITTED]
+ Hypothetical illustration of $10,000 invested in Class B shares on
December 31, 1989, assuming reinvestment of dividends and capital gains,
if any, at net asset value through December 31, 1999. The Lehman Brothers
Long-Term Corporate Bond Index is comprised of all publicly issued, fixed
rate, non-convertible and dollar-denominated investment-grade corporate
debt from a diverse range of industries with an average maturity of
approximately 23 years. The index is unmanaged and is not subject to the
same management and trading expenses as a mutual fund. The Lipper
Corporate Debt A-Rated Average is composed of the Fund's peer group of 32
mutual funds as of December 31, 1999. The performance of the Fund's other
classes may be greater or less than the Class B shares' performance
indicated on this chart, depending on whether greater or lesser sales
charges and fees were incurred by shareholders investing in the other
classes.
++ It is the opinion of management that the Salomon Smith Barney Corporate
Index 10+ more accurately reflects the current composition of the Smith
Barney Investment Grade Bond Fund. In future reporting, the Salomon Smith
Barney Corporate Index 10+ will be used as a basis of comparison of the
total return performance rather than the Lehman Brothers Long-Term
Corporate Bond Index.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
Industry Diversification*
8.6% Aerospace & Defense
5.5% Airlines
8.0% Automotive
5.6% Banking
5.8% Electronics/Computers
9.5% Finance
4.7% Foods
10.2% Multimedia
9.4% Oil & Gas
12.8% Telecommunications
19.9% Other
* As a percentage of total corporate bonds and notes.
Summary of Investments by Combined Ratings
Standard Percentage of
Moody's & Poor's Total Bonds & Notes
---------- ----------- ----------------------
Aaa AAA 2.7%
Aa AA 17.4
A A 40.4
Baa BBB 39.5
-----
100.0%
=====
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 5
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FACE
AMOUNT RATING(A) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES -- 64.4%
Aerospace & Defense -- 5.6%
$10,000,000 AA- The Boeing Co., Debentures, 6.875% due 10/15/43 $ 8,612,500
7,500,000 BBB- Loral Corp., Debentures, 7.000% due 9/15/23 6,243,750
5,000,000 Baa2* Raytheon Co., Debentures, 7.200% due 8/15/27 4,443,750
10,000,000 A+ United Technologies Corp., Debentures, 7.500% due 9/15/29 9,787,500
- ------------------------------------------------------------------------------------------------------------------------------------
29,087,500
- ------------------------------------------------------------------------------------------------------------------------------------
Airlines -- 3.6%
12,500,000 Baa2* AMR Corp., Debentures, 9.000% due 9/15/16 13,109,375
5,000,000 BBB- Delta Air Lines, Inc., Debentures 9.750% due 5/15/21 5,468,750
- ------------------------------------------------------------------------------------------------------------------------------------
18,578,125
- ------------------------------------------------------------------------------------------------------------------------------------
Automotive -- 5.2%
10,000,000 A+ Chrysler Corp., Debentures, 7.450% due 3/1/27 9,687,500
10,000,000 A+ Ford Motor Co., Notes, 6.375% due 2/1/29 8,425,000
10,000,000 A General Motors Corp., Debentures, 5.850% due 1/14/09 8,862,500
- ------------------------------------------------------------------------------------------------------------------------------------
26,975,000
- ------------------------------------------------------------------------------------------------------------------------------------
Banking -- 3.6%
10,000,000 AA- Abbey National PLC, Sub. Debentures, 7.950% due 10/26/29 10,037,500
10,000,000 Aa3* NationsBank Corp., Debentures, 6.800% due 3/15/28 8,637,500
- ------------------------------------------------------------------------------------------------------------------------------------
18,675,000
- ------------------------------------------------------------------------------------------------------------------------------------
Beverages -- 2.3%
8,500,000 A+ Anheuser-Busch Cos., Inc., Debentures, 6.750% due 12/15/27 7,618,125
5,000,000 A Coca-Cola Enterprises Inc., Debentures, 6.750% due 9/15/28 4,387,500
- ------------------------------------------------------------------------------------------------------------------------------------
12,005,625
- ------------------------------------------------------------------------------------------------------------------------------------
Electronics/Computers -- 3.7%
10,000,000 A+ IBM Corp., Debentures, 8.375% due 11/1/19 10,925,000
10,000,000 A+ Motorola, Inc., Debentures, 6.500% due 11/15/28 8,562,500
- ------------------------------------------------------------------------------------------------------------------------------------
19,487,500
- ------------------------------------------------------------------------------------------------------------------------------------
Finance -- 6.1%
10,000,000 A+ Ford Motor Credit, Sr. Notes, 5.800% due 1/12/09 8,887,500
5,000,000 A+ Goldman Sachs Group, Inc., Notes, 7.350% due 10/1/09 4,887,500
10,000,000 A Lehman Brothers Holdings Inc., Sr. Notes, 7.200% due 8/15/09 9,575,000
10,000,000 AA- Merrill Lynch & Co., Debentures, 6.750% due 6/1/28 8,675,000
- ------------------------------------------------------------------------------------------------------------------------------------
32,025,000
- ------------------------------------------------------------------------------------------------------------------------------------
Foods -- 3.0%
16,000,000 A- Ralston Purina Co., Debentures, 8.125% due 2/1/23 15,900,000
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance -- 3.0%
10,000,000 AA- American General Corp., Debentures, 7.500% due 7/15/25 9,362,500
7,000,000 BBB+ Fairfax Financial Holdings Ltd., Notes, 8.250% due 10/1/15 6,072,500
- ------------------------------------------------------------------------------------------------------------------------------------
15,435,000
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturing -- 0.9%
5,000,000 AA- Illinois Tool Works Inc., Notes, 5.750% due 3/1/09 4,481,250
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FACE
AMOUNT RATING(A) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Multimedia -- 6.5%
$10,000,000 BBB- News America Holdings, Company Guaranteed,
8.150% due 10/17/36 $ 9,662,500
12,000,000 BBB- Paramount Communications, Inc., Sr. Debentures,
7.500% due 7/15/23 10,620,000
5,000,000 BBB- The Seagram Co. Ltd., Debentures, 6.875% due 9/1/23 4,362,500
10,000,000 BBB Time Warner, Inc., Debentures, 7.570% due 2/1/24 9,537,500
- ------------------------------------------------------------------------------------------------------------------------------------
34,182,500
- ------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas -- 6.0%
10,000,000 BBB El Paso Energy Corp., Sr. Notes, 6.750% due 5/15/09 9,325,000
10,000,000 BBB Occidental Petroleum Corp., Sr. Notes, 7.650% due 2/15/06 9,987,500
5,000,000 BBB Petroleum Geo-Services, Bonds, 6.250% due 11/19/03 4,793,750
8,200,000 BBB- Union Pacific Resources, Debentures, 7.500% due 10/15/26 7,503,000
- ------------------------------------------------------------------------------------------------------------------------------------
31,609,250
- ------------------------------------------------------------------------------------------------------------------------------------
Pollution Control -- 1.7%
10,000,000 BBB WMX Technologies Inc., Notes, 6.375% due 12/1/03 8,962,500
- ------------------------------------------------------------------------------------------------------------------------------------
Sovereign Debt -- 1.8%
9,000,000 A Province of Saskatchewan, Debentures, 8.000% due 2/1/13 9,303,750
- ------------------------------------------------------------------------------------------------------------------------------------
Super National Entity -- 0.5%
21,860,000 AAA International Bank of Reconstruction and Development,
zero coupon bond to yield 7.845% due 7/15/29 2,486,575
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications -- 8.2%
10,000,000 AA- AT&T Corp., Notes, 6.500% due 3/15/29 8,575,000
7,140,000 AAA BellSouth Telecommunications Inc., Debentures, 7.000% due 10/1/25 6,586,650
10,000,000 A- Cable & Wireless Communications, Notes, 6.750% due 12/1/08 9,925,000
10,000,000 BBB+ Sprint Capital, Debentures, 6.875% due 11/15/28 8,912,500
10,000,000 A- Worldcom, Inc., Sr. Notes, 6.950% due 8/15/28 9,125,000
- ------------------------------------------------------------------------------------------------------------------------------------
43,124,150
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation -- 2.7%
10,000,000 BBB CSX Corp., Notes, 6.250% due 10/15/08 9,050,000
5,000,000 BBB+ Norfolk Southern Corp., Bonds, 7.700% due 5/15/17 4,912,500
- ------------------------------------------------------------------------------------------------------------------------------------
13,962,500
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES
(Cost -- $356,219,828) 336,281,225
====================================================================================================================================
MORTGAGE-BACKED SECURITIES (b) -- 11.2%
1,865,151 FNMA 30 Year, 6.500% due 1/1/29 1,758,484
28,821,869 GNMA 30 Year, 6.500% due 3/15/29 27,074,400
30,825,027 GNMA 30 Year, 7.000% due 7/15/29 29,784,682
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost -- $61,187,152) 58,617,566
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 14.9%
U.S. Treasury Bonds:
$ 20,000,000 7.875% due 2/15/21 $ 22,364,800
10,000,000 6.125% due 11/15/27 9,313,200
10,000,000 5.250% due 11/15/28 8,245,400
46,000,000 5.250% due 2/15/29(c) 38,110,080
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(Cost -- $81,730,783) 78,033,480
====================================================================================================================================
REPURCHASE AGREEMENT -- 9.5%
49,503,000 Warburg Dillion Read, 3.000% due 1/3/00;
Proceeds at maturity -- $49,515,376; (Fully collateralized by
U.S. Treasury Notes, 6.500% due 5/31/01;
Market value -- $50,493,868) (Cost -- $49,503,000) 49,503,000
====================================================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $548,640,763**) $522,435,271
====================================================================================================================================
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service except those
identified by an asterisk (*) are rated by Moody's Investors Service, Inc.
(b) Date shown represents the last in range of maturity dates of mortgage
certificates owned.
(c) A portion of this security is on loan (Note 5).
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 9 for definition of ratings.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited)
- --------------------------------------------------------------------------------
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"BB" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in a
small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to meet
timely interest and principal payments.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2, and 3
may be applied to each generic rating from "Aa" to "Baa", where 1 is the highest
and 3 the lowest rating within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to
impairment some time in the future.
Baa -- Bonds rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
<TABLE>
<S> <C>
Investments, at value (Cost -- $548,640,763) $ 522,435,271
Cash 841
Collateral for securities on loan (Note 5) 26,383,100
Receivable for Fund shares sold 605,813
Interest receivable 9,194,938
- --------------------------------------------------------------------------------------
Total Assets 558,619,963
- --------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 5) 26,383,100
Payable for Fund shares purchased 1,283,850
Advisory fees payable 209,724
Administration fees payable 90,671
Distribution fees payable 47,585
Accrued expenses 93,340
- --------------------------------------------------------------------------------------
Total Liabilities 28,108,270
- --------------------------------------------------------------------------------------
Total Net Assets $ 530,511,693
======================================================================================
NET ASSETS:
Par value of capital shares $ 47,305
Capital paid in excess of par value 572,378,629
Overdistributed net investment income (3,374)
Accumulated net realized loss from security transactions (15,705,375)
Net unrealized depreciation of investments (26,205,492)
- --------------------------------------------------------------------------------------
Total Net Assets $ 530,511,693
======================================================================================
Shares Outstanding:
Class A 18,818,072
---------------------------------------------------------------------------------
Class B 17,115,318
---------------------------------------------------------------------------------
Class L 1,683,034
---------------------------------------------------------------------------------
Class Y 9,688,191
---------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 11.22
---------------------------------------------------------------------------------
Class B * $ 11.21
---------------------------------------------------------------------------------
Class L ** $ 11.19
---------------------------------------------------------------------------------
Class Y (and redemption price) $ 11.22
---------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $ 11.75
---------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $ 11.30
======================================================================================
</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.
- --------------------------------------------------------------------------------
10 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 40,548,407
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 2,594,524
Distribution fees (Note 2) 2,421,991
Administration fees (Note 2) 1,147,655
Shareholder and system servicing fees 391,604
Registration fees 73,376
Shareholder communications 64,143
Audit and legal 48,896
Directors' fees 41,659
Custody 23,635
Other 19,672
- --------------------------------------------------------------------------------
Total Expenses 6,827,155
- --------------------------------------------------------------------------------
Net Investment Income 33,721,252
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 870,869,878
Cost of securities sold 885,246,165
- --------------------------------------------------------------------------------
Net Realized Loss (14,376,287)
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
(Depreciation) of Investments:
Beginning of year 49,808,732
End of year (26,205,492)
- --------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (76,014,224)
- --------------------------------------------------------------------------------
Net Loss on Investments (90,390,511)
- --------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (56,669,259)
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
====================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 33,721,252 $ 32,654,497
Net realized gain (loss) (14,376,287) 15,949,183
Increase in net unrealized depreciation (76,014,224) (3,219,301)
- ----------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (56,669,259) 45,384,379
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (33,728,682) (33,069,438)
Net realized gains -- (17,337,072)
Capital (696,364) --
- ----------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (34,425,046) (50,406,510)
- ----------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 135,979,643 178,170,675
Net asset value of shares issued for reinvestment of dividends 19,663,427 30,877,496
Cost of shares reacquired (160,893,261) (127,423,376)
- ----------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Fund Share Transactions (5,250,191) 81,624,795
- ----------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (96,344,496) 76,602,664
NET ASSETS:
Beginning of year 626,856,189 550,253,525
- ----------------------------------------------------------------------------------------------------
End of year* $ 530,511,693 $ 626,856,189
====================================================================================================
* Includes overdistributed net investment income of: $ (3,374) $ (2,060)
====================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 eight other separate investment portfolios: Smith Barney
Government Securities Fund, Smith Barney Contrarian 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 and Smith Barney Premier Selections 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"), formerly known as SSBC Fund Management
Inc., 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 Fund. The Portfolio pays SSBC an advisory fee calculated at an annual
rate of 0.45% of the average daily net assets up to $500 million and 0.42% of
the average daily net assets thereafter. This fee is calculated daily and paid
monthly.
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Fund's transfer agent and PFPC
Global Fund Services ("PFPC") became the Fund's sub-transfer agent. Private
Trust receives account fees and asset-based fees that vary according to the
account size and type of account. PFPC is
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 14
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
responsible for shareholder recordkeeping and financial processing for all
shareholder accounts and is paid by Privatre Trust. During the period October 1,
1999 through December 31, 1999, the Fund paid transfer agent fees of $78,678 to
Private Trust.
SSBC also acts as the Fund's administrator for which the Portfolio pays a fee
calculated at an annual rate of 0.20% of the average daily net assets up to $500
million and 0.18% of the average daily net assets there- after. This fee is
calculated daily and paid monthly.
CFBDS, Inc. ("CFBDS") acts as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as members of the selling group.
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 year ended December 31, 1999, SSB and CFBDS received sales charges of
approximately $190,000 and $74,000 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 $6,000 $352,000 $12,000
================================================================================
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 year ended December 31, 1999, total Distribution Plan fees
incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $591,545 $1,694,973 $135,473
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the year ended December 31, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $831,844,931
- --------------------------------------------------------------------------------
Sales 870,869,878
================================================================================
At December 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 1,748,281
Gross unrealized depreciation (27,953,773)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (26,205,492)
================================================================================
4. Repurchase Agreements
The Portfolio purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day),
at an agreed-upon higher repurchase price. The Portfolio requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
- --------------------------------------------------------------------------------
14 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (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 December 31, 1999, the Portfolio loaned stocks having a value of
approximately $25,016,952 and holds the following collateral for loaned
securities:
Security Descriptions Value
================================================================================
Time Deposits:
Caisse des Depots et Consig., 12.000% due 1/3/00 $ 4,636,690
Chase Manhattan Bank, 4.500% due 1/3/00 6,791,681
Marshal & Isley, 2.000% due 1/3/00 805,578
Suntrust Bank, 4.500% due 1/3/00 8,500,598
Suntrust Bank, 13.000% due 1/3/00 5,648,553
- --------------------------------------------------------------------------------
Total $ 26,383,100
================================================================================
Income earned by the Portfolio from securities loaned for the year ended
December 31, 1999 was $77,665.
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 December 31, 1999 the Fund had ten billion shares of capital stock authorized
with a par value of $0.001 per share. The Portfolio has the ability to issue
multiple classes of shares. Each share of a class represents an identical
interest and has the same rights, except that each class bears certain direct
expenses, including those specifically related to the distribution of its
shares.
At December 31, 1999, total paid-in capital amounted to the following for each
class:
Class A Class B Class L Class Y
================================================================================
Total Paid-in Capital $216,624,243 $213,345,430 $ 21,483,220 $120,973,041
================================================================================
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
-------------------------------- --------------------------------
Shares Amount Shares Amount
====================================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 4,469,082 $ 54,940,121 5,233,650 $ 69,950,340
Shares issued on reinvestment 907,823 10,897,536 1,192,598 15,821,653
Shares reacquired (5,841,277) (70,496,063) (3,943,897) (52,610,416)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (464,372) $ (4,658,406) 2,482,351 $ 33,161,577
====================================================================================================================================
Class B
Shares sold 3,572,268 $ 43,389,631 4,929,844 $ 66,085,664
Shares issued on reinvestment 668,801 8,033,041 1,063,022 14,079,056
Shares reacquired (6,952,287) (83,705,096) (5,064,349) (67,488,549)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (2,711,218) $(32,282,424) 928,517 $ 12,676,171
====================================================================================================================================
Class L*
Shares sold 748,179 $ 9,136,262 1,130,469 $ 15,179,652
Shares issued on reinvestment 61,261 732,850 73,908 976,787
Shares reacquired (555,456) (6,692,102) (547,650) (7,324,411)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 253,984 $ 3,177,010 656,727 $ 8,832,028
====================================================================================================================================
Class Y
Shares sold 2,387,970 $ 28,513,629 2,044,302 $ 26,955,019
Shares issued on reinvestment -- -- -- --
Shares reacquired -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 2,387,970 $ 28,513,629 2,044,302 $ 26,955,019
====================================================================================================================================
</TABLE>
* On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
16 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
Class A Shares 1999(1) 1998(1) 1997 1996 1995(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.12 $ 13.19 $ 12.27 $ 13.25 $ 10.67
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.72 0.77 0.80 0.80 0.83
Net realized and unrealized gain (loss) (1.88) 0.29 1.20 (0.90) 2.80
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (1.16) 1.06 2.00 (0.10) 3.63
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (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 (0.74) (1.13) (1.08) (0.88) (1.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 11.22 $ 13.12 $ 13.19 $ 12.27 $ 13.25
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (9.09)% 8.30% 17.10% (0.47)% 35.29%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $ 211 $ 253 $ 222 $ 206 $ 226
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.03% 1.04% 1.02% 1.04% 1.11%
Net investment income 5.94 5.73 6.43 6.63 7.02
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 147% 32% 39% 48% 49%
====================================================================================================================================
Class B Shares 1999(1) 1998(1) 1997 1996 1995(1)
====================================================================================================================================
Net Asset Value, Beginning of Year $ 13.09 $ 13.19 $ 12.29 $ 13.25 $ 10.67
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.66 0.70 0.75 0.74 0.77
Net realized and unrealized gain (loss) (1.87) 0.29 1.18 (0.90) 2.80
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (1.21) 0.99 1.93 (0.16) 3.57
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (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 (0.67) (1.09) (1.03) (0.80) (0.99)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 11.21 $ 13.09 $ 13.19 $ 12.29 $ 13.25
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (9.44)% 7.72% 16.44% (0.89)% 34.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $ 192 $ 260 $ 249 $ 258 $ 289
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.52% 1.53% 1.51% 1.54% 1.61%
Net investment income 5.44 5.23 5.95 6.13 6.51
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 147% 32% 39% 48% 49%
====================================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 17
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
Class L Shares 1999(1) 1998(1)(2) 1997 1996 1995(1)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.07 $ 13.18 $ 12.30 $ 13.26 $ 10.67
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.67 0.70 0.72 0.75 0.78
Net realized and unrealized gain (loss) (1.88) 0.30 1.21 (0.90) 2.80
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (1.21) 1.00 1.93 (0.15) 3.58
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (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 (0.67) (1.11) (1.05) (0.81) (0.99)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 11.19 $ 13.07 $ 13.18 $ 12.30 $ 13.26
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (9.44)% 7.83% 16.41% (0.83)% 34.74%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 18,830 $ 18,671 $ 10,182 $ 6,724 $ 3,769
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.46% 1.54% 1.49% 1.42% 1.56%
Net investment income 5.52 5.22 5.93 6.28 6.55
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 147% 32% 39% 48% 49%
====================================================================================================================================
<CAPTION>
Class Y Shares 1999(1) 1998(1) 1997 1996(3)
====================================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.11 $ 13.19 $ 12.28 $ 13.03
- --------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.76 0.82 0.83 0.75
Net realized and unrealized gain (loss) (1.87) 0.29 1.21 (0.66)
- --------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (1.11) 1.11 2.04 0.09
- --------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.77) (0.82) (0.85) (0.72)
Net realized gains -- (0.37) (0.28) (0.12)
Capital (0.01) -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total Distributions (0.78) (1.19) (1.13) (0.84)
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 11.22 $ 13.11 $ 13.19 $ 12.28
- --------------------------------------------------------------------------------------------------------------------
Total Return (8.68)% 8.66% 17.44% 1.01%++
- --------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 108,657 $ 95,708 $ 69,328 $ 18,174
- --------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.68% 0.70% 0.69% 0.72%+
Net investment income 6.31 6.07 6.63 7.34+
- --------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 147% 32% 39% 48%
====================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
(3) For the period from February 7, 1996 (inception date) to December 31,
1996.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
18 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Smith Barney Investment Funds Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Smith Barney Investment Grade Bond Fund of
Smith Barney Investment Funds Inc. as of December 31, 1999, the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended and financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Investment Grade Bond Fund of Smith Barney Investment Funds Inc. as of
December 31, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the years in the two-year period then
ended and its financial highlights for each of the years in the five-year period
then ended, in conformity with generally accepted accounting principles.
KPMG LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
Smith Barney Investment Grade Bond Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
A total of 5.51% of the ordinary dividends paid by the Portfolio from net
investment income are derived from Federal obligations and may be exempt from
taxation at the state level.
- --------------------------------------------------------------------------------
20 1999 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
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Transfer Agent
Smith Barney Private Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
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 Grade Bond Fund. It is not authorized for distribution
to prospective investors unless accompanied or preceded by a current Prospectus
for the Fund, which contains information concerning the Fund's investment
policies and expenses as well as other pertinent information.
SALOMON SMITH BARNEY
- ---------------------------
A member of citigroup[LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney
Investment Grade Bond Fund
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutual funds
FD0317 2/00
<PAGE>
SB
MF
CONCERT
Peachtree
Growth Fund
CLASSIC INVESTOR SERIES
Annual Report
DECEMBER 31, 1999
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
Concert Peachtree
Growth Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Concert Peachtree Growth Fund seeks capital appreciation through investments
in securities believed to have above-average potential for capital appreciation.
Concert Peachtree Growth Fund
Average Annual Total Returns
December 31, 1999
Without Sales Charges(1)
---------------------------------
Class A(2) Class B(2) Class L
================================================================================
One-Year 19.88% 18.88% 18.67%
- --------------------------------------------------------------------------------
Since Inception+ 19.06 18.15 17.26
================================================================================
With Sales Charges(3)
---------------------------------
Class A(2) Class B(2) Class L
================================================================================
One-Year 13.90% 13.88% 16.45%
- --------------------------------------------------------------------------------
Since Inception+ 17.72 18.02 17.00
================================================================================
(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.
+ Inception date for Class A and B shares is July 3, 1995. Inception date for
Class L shares is August 8, 1995.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A CPGFA
Class B CPGFB
Class L CPGFL
- --------------------------------------------------------------------------------
WHAT'S INSIDE
- --------------------------------------------------------------------------------
Shareholder Letter.............................................................1
Historical Performance.........................................................3
Concert Peachtree Growth Fund
at a Glance....................................................................5
Schedule of Investments........................................................6
Statement of Assets and Liabilities............................................9
Statement of Operations.......................................................10
Statements of Changes in Net Assets...........................................11
Notes to Financial Statements.................................................12
Financial Highlights..........................................................17
Independent Auditors' Report..................................................19
Tax Information...............................................................20
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Letter
- --------------------------------------------------------------------------------
[PICTURE] [PICTURE]
Heath B. Dennis A.
McLendon Johnson, CFA
Chairman President and
Chief Investment Officer,
Peachtree Asset
Management
Dear Shareholder:
We are pleased to present the annual report for Concert Peachtree Growth Fund
("Fund") for the year ended December 31, 1999. In this report, we summarize the
year's prevailing economic and market conditions and outline our portfolio
strategy. Any discussion of the Fund's holdings is as of December 31, 1999.
Please refer to pages six through eight for a list of the Fund's holdings. We
hope you find this report to be useful and informative.
Performance Update
For the year ended December 31, 1999, the returns of the Fund's Class A, B and L
shares, without the effects of sales charges, had a return of 19.88%, 18.88% and
18.67%, respectively. In comparison, the return for the Russell 1000 Growth
Index1 was 33.16% during the same period.
Investment Strategy and Portfolio Update
We have specific criteria that we look for in every company that we invest. 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 will 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 drive the
Fund's performance results during the year. 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.
These elements of our investment approach were critical in 1999, considering the
market volatility driven by Y2K concerns, rising interest rates and rapid stock
market rotation between economically sensitive stocks.
The performance of the Fund received a boost during the period from our emphasis
on technology stocks such as:
. AOL (a leader in interactive services, Web brands, Internet technologies
and electronic commerce services)3
. Microsoft (a leading technology company that develops, manufactures,
licenses and supports a wide range of software products, as well as
Internet/Intranet products and services)
- ---------------
1 The Russell 1000 Growth Index measures the performance of these Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values. Price-to-book ratios show the price of a stock compared to
the difference between a company's assets and liabilities.
2 Bottom-up investing is a search for outstanding performance of individual
stocks before considering the impact of economic trends.
3 Higher merger and acquisition activity that has been taking place on a
global scale over the past few years was further seen by the recent
announcement by America Online Inc. and Time Warner Inc. that Internet
pioneer AOL plans to acquire media giant Time Warner to create what will be
called AOL Time Warner Inc. The mega-merger will be the largest to date and
may represent the first sign of further consolidation between media
companies and Internet firms.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 1
<PAGE>
. Apple Computer (a major computer company that designs, manufactures and
markets microprocessor-based personal computers)
In addition the Fund's performance during the period was positively impacted by
its holdings in telecommunications and related companies such as:
. Nextel (a company that provides a wide array of digital and analog wireless
communications services throughout the United States)
. Scientific-Atlanta (a company that provides products and services for
advanced communications networks delivering voice, data and video)
In the consumer cyclical stock sector, stocks such as Home Depot (a leading
retailer in the home improvement industry), Wal-Mart (a retailing giant that
operates numerous discount stores and supercenters throughout the U.S. and
worldwide) and General Electric (one of the largest and most diversified
industrial corporations in the world) contributed to the Fund's performance
during the period. However, we were disappointed in our investments in
financial, health care, consumer staple and energy stocks, which did not perform
as expected.
Market and Portfolio Outlook
We believe that careful stock selection should continue to be an important
factor driving the Fund's performance in 2000. It is possible that the returns
for the market will continue to be derived from just a few stocks.
Our extensive analysis will continue to focus on companies with favorable
earnings trends and reasonable stock valuations. In our opinion, such companies
can still be found in sectors like technology, telecommunications, energy and
consumer cyclical. We are also finding selective opportunities in the healthcare
and consumer staples sectors, particularly pharmaceutical and packaged food
stocks.
We plan to continue to closely follow our sell discipline to help minimize the
performance risks associated with stocks that become overvalued or companies
that are experiencing a deterioration in business conditions. Lastly, we plan on
focusing on new investment opportunities that may come from an improvement in
business conditions for specific companies. Looking ahead, new investment ideas
for the Fund may also come from stocks that we think are incorrectly priced
based on a company's level of business as well as resulting from extraordinary
market volatility.
Thank you for your investment in the Concert Peachtree Growth Fund. We look
forward to serving your investment needs in the new century.
Respectfully submitted,
/s/ Heath B. McLendon /s/ Dennis A. Johnson
Heath B. McLendon Dennis A. Johnson, CFA
Chairman President and
Chief Investment Officer
Peachtree Asset Management
January 15, 2000
- --------------------------------------------------------------------------------
2 1999 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
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 $6.48
====================================================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
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 $6.48
====================================================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Historical Performance -- Class L Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
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 $6.48
====================================================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
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 $3.29
====================================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns
- ------------------------------------------------------------------------------------------------------------------------------------
Without Sales Charges(1)
----------------------------------------------------------------------------------
Class A(2) Class B(2) Class L Class Y
====================================================================================================================================
<S> <C> <C> <C> <C>
Year Ended 12/31/99 19.88% 18.88% 18.67% 20.41%
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* through 12/31/99 19.06 18.15 17.26 22.73
====================================================================================================================================
<CAPTION>
Without Sales Charges(1)
----------------------------------------------------------------------------------
Class A(2) Class B(2) Class L Class Y
====================================================================================================================================
<S> <C> <C> <C> <C>
Year Ended 12/31/99 13.90% 13.88% 16.45% 20.41%
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* through 12/31/99 17.72 18.02 17.00 22.73
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Cumulative Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (May 3, 1994 through 12/31/99)(2) 119.24%
- --------------------------------------------------------------------------------
Class B (May 3, 1994 through 12/31/99)(2) 111.73
- --------------------------------------------------------------------------------
Class L (Inception* through 12/31/99) 101.49
- --------------------------------------------------------------------------------
Class Y (Inception* through 12/31/99) 57.28
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Performance calculations for Class A and B shares include the historical
return information related to the Common Sense II Aggressive Opportunity
Fund of the Common Sense Trust, which was the predecessor fund, for the
period from May 3, 1994 through June 30, 1995.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and Class L shares reflect
the deduction of the maximum initial sales charge of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase. Thereafter,
the CDSC declines by 1.00% per year until no CDSC is incurred. Class L
shares also reflect the deduction of a 1.00% CDSC, which applies if shares
are redeemed within the first year of purchase.
* Inception dates for Class A, B, L and Y shares are July 3, 1995, July 3,
1995, August 8, 1995 and October 15, 1997, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
- --------------------------------------------------------------------------------
4 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund at a Glance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares and Class B Shares of the
Concert Peachtree Growth Fund vs. Russell 1000 Growth Index and Russell 2000
Index+
- --------------------------------------------------------------------------------
[GRAPH]
May 1994 -- December 1999
Class A Class B Russell 1000 Russell 2000
May 3 1994 9,448 10,000 10,000 10,000
Dec. 1994 9,552 9,619 10,688 10,027
Dec. 1995 12,506 12,744 14,663 12,880
Dec. 1996 14,251 14,568 18,053 15,005
Dec. 1997 14,990 15,322 23,557 18,361
Dec. 1998 19,959 20,411 32,674 17,894
Dec. 31 1999 23,926 24,384 43,938 19,555
+ 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 December 31, 1999. (Performance
calculations include the historical return information related to Common
Sense for the period from May 3, 1994 through June 30, 1995). The Russell
2000 Index is composed of the 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*
- -----------------------------------------------
[CHART]
3.7% Banking
15.5% Computer Software & Hardware
11.2% Diversified Manufacturing
4.6% Drugs/Health Care
7.9% Electronics/Semi-conductor
5.7% Foods
5.5% Heath Care
7.7% Internet
5.2% Retail
16.3% Telecommunications
16.7% Other
Top Ten Holdings*
- ------------------------------------------------------
1. General Electric Co. 8.7%
- ------------------------------------------------------
2. Lucent Technologies, Inc. 6.1
- ------------------------------------------------------
3. America Online, Inc. 6.1
- ------------------------------------------------------
4. Microsoft Corp. 5.9
- ------------------------------------------------------
5. Nextel Communications 4.4
- ------------------------------------------------------
6. Apple Computer, Inc. 3.5
- ------------------------------------------------------
7. Compuware Corp. 3.3
- ------------------------------------------------------
8. Bristol-Myers Squibb Co. 3.1
- ------------------------------------------------------
9. LSI Logic, Inc. 3.0
- ------------------------------------------------------
10. Sun Microsystems, Inc. 2.9
- ------------------------------------------------------
* As a percentage of total common stock.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 5
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments December 31, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 99.7%
Aerospace/Defense -- 1.8%
155,000 General Dynamics $ 8,176,250
- --------------------------------------------------------------------------------
Banking -- 3.7%
221,250 AmSouth Bancorporation 4,272,891
124,031 Commerce Bancshares Inc. 4,201,550
125,000 SouthTrust Corp. 4,726,563
46,000 Suntrust Banks, Inc. 3,165,375
- --------------------------------------------------------------------------------
16,366,379
- --------------------------------------------------------------------------------
Biotechnology - Agricultural -- 1.0%
119,400 Monsanto Co. (b) 4,253,625
- --------------------------------------------------------------------------------
Broadcast/TV/Cable/Radio -- 3.0%
140,000 Comcast Corp. (a)(b) 7,035,000
126,000 Cox Communications, Inc.(a)(b) 6,489,000
- --------------------------------------------------------------------------------
13,524,000
- --------------------------------------------------------------------------------
Computer Software & Hardware -- 15.5%
150,000 Apple Computer, Inc. (a)(b) 15,421,875
391,000 Compuware Corp. (a) 14,564,750
225,000 Microsoft Corp. (a) 26,268,750
168,000 Sun Microsystems Inc. (a) 13,009,500
- --------------------------------------------------------------------------------
69,264,875
- --------------------------------------------------------------------------------
Diversified Manufacturing -- 11.2%
250,500 General Electric Co. (b) 38,764,875
292,000 Tyco International Ltd. 11,351,500
- --------------------------------------------------------------------------------
50,116,375
- --------------------------------------------------------------------------------
Drugs/Health Care -- 4.6%
217,000 Pharmacia & Upjohn, Inc. 9,765,000
132,000 Warner-Lambert Co. 10,815,750
- --------------------------------------------------------------------------------
20,580,750
- --------------------------------------------------------------------------------
Electronics/Semi-conductor -- 7.9%
123,000 Analog Devices, Inc. (a) 11,439,000
93,000 KLA-Tencor Corp. (a) 10,357,875
200,000 LSI Logic Corp. (a)(b) 13,500,000
- --------------------------------------------------------------------------------
35,296,875
- --------------------------------------------------------------------------------
Electric Utilities -- 0.5%
100,000 PP&L Resources, Inc. 2,287,500
- --------------------------------------------------------------------------------
Foods -- 5.7%
122,000 Nabisco Holdings Corp. (b) 3,858,250
130,000 Quaker Oats Co. 8,531,250
167,000 Ralston-Ralston Purina Group 4,655,125
113,100 Safeway Inc. (a)(b) 4,022,119
192,000 Sara Lee Corp. 4,236,000
- --------------------------------------------------------------------------------
25,302,744
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued December 31, 1999
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
Health Care -- 5.5%
216,600 Bristol-Myers Squibb Co. $ 13,903,013
29,000 CIGNA Corp. 2,336,313
194,000 Schering-Plough Corp. 8,184,375
- --------------------------------------------------------------------------------
24,423,701
- --------------------------------------------------------------------------------
Insurance -- 1.5%
41,500 AFLAC Inc. 1,958,281
54,500 Providian Financial Corp. 4,962,906
- --------------------------------------------------------------------------------
6,921,187
- --------------------------------------------------------------------------------
Internet -- 7.7%
358,000 America Online, Inc. (a) 27,006,625
84,000 Earthlink Network, Inc. (a) 3,570,000
142,000 Mindspring Enterprises, Inc. (a) 3,749,687
- --------------------------------------------------------------------------------
34,326,312
- --------------------------------------------------------------------------------
Machinery -- 1.4%
50,600 Applied Materials, Inc. (a) 6,410,387
- --------------------------------------------------------------------------------
Medical Equipment -- 1.6%
198,000 Medtronic Inc. 7,214,625
- --------------------------------------------------------------------------------
Oil & Gas -- 1.9%
50,000 Apache Corp. 1,846,875
65,900 Columbia Energy Group 4,168,175
25,000 Phillips Petroleum Co. 1,175,000
35,000 Unocal Corp. (b) 1,174,687
- --------------------------------------------------------------------------------
8,364,737
- --------------------------------------------------------------------------------
Paper & Related Products -- 0.3%
25,000 Champion International Corp. 1,548,438
- --------------------------------------------------------------------------------
Publishing - Newspapers -- 0.7%
55,000 Knight-Ridder, Inc. (b) 3,272,500
- --------------------------------------------------------------------------------
Retail -- 5.2%
162,000 Abercrombie & Fitch Co. (a) 4,323,375
136,500 Home Depot, Inc. 9,358,781
136,000 Wal-Mart Stores, Inc. 9,401,000
- --------------------------------------------------------------------------------
23,083,156
- --------------------------------------------------------------------------------
Telecommunications -- 16.3%
98,800 ADTRAN Inc. (a) 5,082,025
246,000 CommScope, Inc. (a) 9,916,875
363,000 Lucent Technologies, Inc. (b) 27,156,938
192,000 Nextel Communications, Inc. (a)(b) 19,800,000
199,000 Scientific-Atlanta, Inc. 11,069,375
- --------------------------------------------------------------------------------
73,025,213
- --------------------------------------------------------------------------------
Telephone -- 2.7%
226,500 MCI WorldCom, Inc. (a)(b) 12,018,656
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $344,201,853 ) 445,778,285
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued December 31, 1999
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.3%
$1,342,000 Morgan Stanley Dean Witter & Co., 2.500% due 1/3/00;
Proceeds at maturity -- $1,342,280 (Fully
collateralized by U.S. Treasury Bonds, 6.000% to
7.250% due 8/15/22 to 2/15/26 Market value --
$1,354,618)(Cost -- $1,342,000) $ 1,342,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $345,543,853*) $447,120,285
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) A portion of this security is on loan (See Note 6)
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $345,543,853) $447,120,285
Cash 536
Collateral for securities on loan (Note 6) 96,911,937
Receivable for Fund shares sold 168,096
Dividends and interest receivable 313,995
- --------------------------------------------------------------------------------
Total Assets 544,514,849
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 96,911,937
Payable for Fund shares purchased 180,504
Management fee payable 353,192
Accrued expenses 98,139
- --------------------------------------------------------------------------------
Total Liabilities 97,543,772
- --------------------------------------------------------------------------------
Total Net Assets $446,971,077
================================================================================
NET ASSETS:
Par value of capital shares $ 23,448
Capital paid in excess of par value 334,430,583
Accumulated net realized gain on security transactions 10,940,614
Net unrealized appreciation of investments 101,576,432
- --------------------------------------------------------------------------------
Total Net Assets $446,971,077
================================================================================
Shares Outstanding:
Class A 6,471,160
-----------------------------------------------------------------------------
Class B 5,132,920
-----------------------------------------------------------------------------
Class L 34,707
-----------------------------------------------------------------------------
Class Y 11,809,556
-----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $19.10
-----------------------------------------------------------------------------
Class B * $18.50
-----------------------------------------------------------------------------
Class L ** $18.54
-----------------------------------------------------------------------------
Class Y (and redemption price) $19.29
-----------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $20.10
-----------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $18.73
================================================================================
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 2,571,928
Interest 466,596
Less: Foreign withholding tax (4,319)
- --------------------------------------------------------------------------------
Total Investment Income 3,034,205
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 3,598,241
Distribution fees (Note 2) 993,818
Shareholder and system servicing fees 340,929
Registration fees 77,253
Audit and legal 66,834
Shareholder communications 44,740
Directors' fees 35,085
Other 8,645
- --------------------------------------------------------------------------------
Total Expenses 5,165,545
- --------------------------------------------------------------------------------
Net Investment Loss (2,131,340)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 347,557,518
Cost of securities sold 290,333,893
- --------------------------------------------------------------------------------
Net Realized Gain 57,223,625
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 81,026,254
End of year 101,576,432
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 20,550,178
- --------------------------------------------------------------------------------
Net Gain on Investments 77,773,803
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 75,642,463
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended December 31,
- --------------------------------------------------------------------------------
1999 1998
================================================================================
OPERATIONS:
Net investment loss $ (2,131,340) $ (1,160,590)
Net realized gain 57,223,625 7,698,625
Increase in net unrealized appreciation 20,550,178 75,285,882
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 75,642,463 81,823,917
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains (47,172,390) (2,434,019)
- --------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to
Shareholders (47,172,390) (2,434,019)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 118,088,916 55,639,704
Net asset value of shares issued for
reinvestment of dividends 23,531,401 1,067,774
Cost of shares reacquired (56,661,648) (27,622,553)
- --------------------------------------------------------------------------------
Increase in Net Assets From Fund Share
Transactions 84,958,669 29,084,925
- --------------------------------------------------------------------------------
Increase in Net Assets 113,428,742 108,474,823
NET ASSETS:
Beginning of year 333,542,335 225,067,512
- --------------------------------------------------------------------------------
End of year* $446,971,077 $333,542,335
================================================================================
* Includes accumulated net investment loss of: -- $ (920)
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 eight other separate investment portfolios:Smith Barney Investment
Grade Bond Fund, Smith Barney Contrarian 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 and Smith Barney Premier Selections 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.
- --------------------------------------------------------------------------------
12 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
2. Management Agreement and Other Transactions
SSB Citi Fund Management LLC("SSBC"), formerly known as SSBC Fund Management
Inc., 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.
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Fund's transfer agent and PFPC
Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to the size and
type of account. PFPC is responsible for shareholder recordkeeping and financial
processing for all shareholder accounts and is paid by Private Trust. During the
period October 1, 1999 through December 31, 1999, the Fund paid transfer agent
fees of $2,343 to Private Trust.
CFBDS, Inc. ("CFBDS") acts as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
SSB acts as the primary broker for its portfolio agency transactions. For the
year ended December 31, 1999, SSB received no brokerage commissions.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B shares,
which applies if redemption occurs within one year from initial purchase and
declines thereafter by 1.00% per year until no CSDC is incurred. Class L shares
also have a 1.00% CDSC, which applies if redemption occurs within the first year
of purchase. In addition, Class A shares also have a 1.00% CDSC, which applies
if redemption occurs within the first year of purchase. This CDSC only applies
to those purchases of Class A shares, which, when combined with current holdings
of Class A shares, equal or exceed $500,000 in the aggregate. These purchases do
not incur an initial sales charge.
For the year ended December 31, 1999, CFBDS and SSB received sales charges of
approximately $12,000 and $3,000 for Class A and Class L shares, respectively.
In addition, CDSCs paid to CFBDS 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 year ended December 31, 1999, total Distribution Plan fees incurred by
the Portfolio were:
Class A Class B Class L
===============================================================================
Distribution Plan Fees $251,543 $737,429 $4,846
===============================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the year ended December 31, 1999, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
===============================================================================
Purchases $383,486,352
- -------------------------------------------------------------------------------
Sales 347,557,518
===============================================================================
At December 31, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
===============================================================================
Gross unrealized appreciation $119,524,914
Gross unrealized depreciation (17,948,482)
- -------------------------------------------------------------------------------
Net unrealized appreciation $101,576,432
===============================================================================
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (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 December 31, 1999, the Portfolio had no purchased call or put options.
When a Portfolio writes a covered call or put option, an amount equal to the
premium received by the Portfolio is recorded as a liability, the value of which
is marked-to-market daily. When a written option expires, the Portfolio realizes
a gain equal to the amount of the premium received. When the Portfolio enters
into a closing purchase transaction, the Portfolio realizes a gain or loss
depending upon whether the cost of the closing transaction is greater or less
than the premium originally received, without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
eliminated. When a written call option is exercised, the cost of the security
sold will be decreased by the premium originally received. When a written put
option is exercised, the amount of the premium originally received will reduce
the cost of the security which the Portfolio purchased upon exercise. When a
written index option is exercised, settlement is made in cash. The risk
associated with purchasing options is limited to the premium originally paid.
The Portfolio enters into options for hedging purposes. The risk in writing a
covered call option is that a 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 year ended December 31, 1999, the Portfolio did not write any call or
put options.
6. Lending of Portfolio Securities
The Portfolio has an agreement with its custodian whereby the custodian may lend
securities owned by the Portfolio to brokers, dealers and other financial
organizations. Fees earned by the Portfolio on securities lending are recorded
as interest income. Loans of securities by the Portfolio are collateralized by
cash, U.S. government securities or high quality money market instruments that
are maintained at all times in an amount at least equal to the current market
value of the loaned securities, plus a margin which may vary depending on the
type of securities loaned. The custodian establishes and maintains the
collateral in a segregated account. The Portfolio maintains exposure for the
risk of any losses in the investment of amounts received as collateral.
- --------------------------------------------------------------------------------
14 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
At December 31, 1999, the Portfolio loaned common stocks having a value of
approximately $95,300,539 and holds the following collateral for loaned
securities:
Security Description Value
================================================================================
Time Deposits:
CAISSE, 12.00% due 1/3/00 $ 2,344,985
Chase Bank, 4.50% due 1/3/00 4,282,008
Deutsche Bank, 11.00% due 1/3/00 17,668,484
Marshal & Isley, 2.00% due 1/3/00 407,418
Sun Trust Bank, 13.00% due 1/3/00 2,856,731
Sun Trust Bank, 4.50% due 1/3/00 4,299,140
Certificates of Deposit:
Deutsche Bank, 6.04% due 1/3/00 1,221,829
Windmill Funding, 5.91% due 2/23/00 8,252,904
Australia New Zealand, 6.29% due 1/14/00 4,065,494
Toronto Dominion, 6.74% due 1/14/00 11,556,039
Commercial Paper:
Corp. Receivable, 5.9414% due 2/28/00 1,605,233
Atlantis One, 5.9202% due 2/23/00 21,884,495
Asset Securitization, 5.9434% due 2/28/00 1,348,731
Delaware Funding, 5.9953% due 1/24/00 1,193,939
Floating Rate Notes:
American Home Products, 5.5075% due 4/20/00 1,449,601
Goldman Sachs & Co., 5.91% due 8/23/00 2,549,340
Interest Bearing Note:
Bank of Montreal, 6.68% due 1/14/00 9,925,566
- --------------------------------------------------------------------------------
Total $96,911,937
================================================================================
For the year ended December 31, 1999, securities lending income earned was
$61,837.
7. Capital Shares
At December 31, 1999, the Fund had ten billion shares of capital stock
authorized with a par value of $0.001 per share. The Portfolio has the ability
to issue multiple classes of shares. Each share of a class represents an
identical interest and has the same rights, except that each class bears certain
direct expenses, including those specifically related to the distribution of its
shares.
At December 31, 1999, total paid-in capital amounted to the following for each
class:
Class A Class B Class L Class Y
================================================================================
Total Paid-in Capital $91,737,693 $75,368,962 $571,198 $166,776,178
================================================================================
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statement (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
---------------------- -------------------------
Shares Amount Shares Amount
========================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 3,067,687 $ 58,001,350 1,041,557 $ 15,731,753
Shares issued on reinvestment 717,433 13,563,289 38,891 629,547
Shares reacquired (2,209,240) (41,074,980) (1,209,054) (18,044,902)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 1,575,880 $ 30,489,659 (128,606) $ (1,683,602)
========================================================================================================================
Class B
Shares sold 2,044,383 $ 36,405,757 840,003 $ 12,333,600
Shares issued on reinvestment 514,938 9,442,662 27,496 436,622
Shares reacquired (830,572) (14,818,964) (648,885) (9,491,411)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase 1,728,749 $ 31,029,455 218,614 $ 3,278,811
========================================================================================================================
Class L+
Shares sold 22,055 $ 391,212 3,297 $ 50,922
Shares issued on reinvestment 3,623 66,773 101 1,605
Shares reacquired (3,730) (67,704) (5,954) (86,240)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) 21,948 $ 390,281 (2,556) $ (33,713)
========================================================================================================================
Class Y
Shares sold 1,281,857 $ 23,290,597 1,943,719 $ 27,523,429
Shares issued on reinvestment 23,914 458,677 -- --
Shares reacquired (37,899) (700,000) -- --
- ------------------------------------------------------------------------------------------------------------------------
Net Increase 1,267,872 $ 23,049,274 1,943,719 $ 27,523,429
========================================================================================================================
</TABLE>
+ On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
16 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
Class A Shares 1999(1) 1998(1) 1997 1996 1995(2)
================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 17.71 $ 13.41 $ 13.80 $ 14.31 $ 13.36
- ------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.12) (0.07) 0.03 0.01 0.03
Net realized and unrealized gain 3.60 4.50 0.65 1.85 1.87
- ------------------------------------------------------------------------------------------------
Total Income From Operations 3.48 4.43 0.68 1.86 1.90
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.11) (0.02)
Net realized gains (2.09) (0.13) (1.07) (2.26) (0.93)
- ------------------------------------------------------------------------------------------------
Total Distributions (2.09) (0.13) (1.07) (2.37) (0.95)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 19.10 $ 17.71 $ 13.41 $ 13.80 $ 14.31
- ------------------------------------------------------------------------------------------------
Total Return 19.88% 33.13% 5.18% 13.96% 14.61%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $123,593 $86,712 $67,349 $72,180 $ 57,693
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.44% 1.40% 1.67% 1.78% 1.72%+
Net investment income (loss) (0.64) (0.48) 0.22 0.13 0.46+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 94% 93% 227% 183% 51%
================================================================================================
<CAPTION>
Class B Shares 1999(1) 1998(1) 1997 1996 1995(2)
================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 17.35 $ 13.24 $ 13.74 $ 14.27 $ 13.36
- ------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.26) (0.19) (0.07) (0.09) (0.02)
Net realized and unrealized gain 3.50 4.43 0.64 1.84 1.86
- ------------------------------------------------------------------------------------------------
Total Income From Operations 3.24 4.24 0.57 1.75 1.84
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.02) --
Net realized gains (2.09) (0.13) (1.07) (2.26) (0.93)
- ------------------------------------------------------------------------------------------------
Total Distributions (2.09) (0.13) (1.07) (2.28) (0.93)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 18.50 $ 17.35 $ 13.24 $ 13.74 $ 14.27
- ------------------------------------------------------------------------------------------------
Total Return 18.88% 32.11% 4.40% 13.12% 14.15%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 94,969 $59,062 $42,172 $43,148 $ 32,685
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.24% 2.21% 2.42% 2.53% 2.46%+
Net investment loss (1.44) (1.29) (0.53) (0.63) (0.27)+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 94% 93% 227% 183% 51%
================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) 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.
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31:
<TABLE>
<CAPTION>
Class L Shares 1999(1) 1998(1)(2) 1997 1996 1995(3)
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $17.41 $13.28 $13.78 $14.29 $14.05
- --------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.32) (0.18) (0.05) (0.08) 0.01
Net realized and unrealized gain 3.54 4.44 0.62 1.85 1.16
- --------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 3.22 4.26 0.57 1.77 1.17
- --------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.02) --
Net realized gains (2.09) (0.13) (1.07) (2.26) (0.93)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.09) (0.13) (1.07) (2.28) (0.93)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $18.54 $17.41 $13.28 $13.78 $14.29
- --------------------------------------------------------------------------------------------------------------------------------
Total Return 18.67% 32.17% 4.38% 13.24% 8.69%++
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $644 $222 $203 $174 $88
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.56% 2.16% 2.41% 2.40% 2.29%+
Net investment income (loss) (1.77) (1.23) (0.53) (0.48) 0.13+
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 94% 93% 227% 183% 51%
================================================================================================================================
<CAPTION>
Class Y Shares 1999(1) 1998(1) 1997(4)
================================================================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $17.79 $13.42 $14.86
- --------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.04) (0.02) 0.01
Net realized and unrealized gain (loss) 3.63 4.52 (0.38)
- --------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.59 4.50 (0.37)
- --------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains (2.09) (0.13) (1.07)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.09) (0.13) (1.07)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $19.29 $17.79 $13.42
- --------------------------------------------------------------------------------------------------------------------------------
Total Return 20.41% 33.62% (2.25)%++
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $227,765 $187,546 $115,343
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.00% 1.07% 1.10%+
Net investment income (loss) (0.20) (0.14) 0.62+
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 94% 93% 227%
================================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
(3) For the period from August 8, 1995 (inception date) to December 31, 1995.
(4) For the period from October 15, 1997 (inception date) to December 31, 1997.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
18 1999 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Smith Barney Investment Funds Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Concert Peachtree Growth Fund of Smith
Barney Investment Funds Inc. as of December 31, 1999, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended and financial highlights for
each of the years in the four-year period then ended and the period from July 3,
1995 (commencement of operations) to December 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Concert Peachtree Growth Fund of Smith Barney Investment Funds Inc. as of
December 31, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the years in the two-year period then
ended and the financial highlights for each of the years in the four-year period
then ended and the period from July 3, 1995 to December 31, 1995, in conformity
with generally accepted accounting principles.
KPMG LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
Concert Peachtree Growth Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
For Federal tax purposes the Fund hereby designates for the fiscal year ended
December 31, 1999:
. A corporate dividends received deduction of 13.24%.
. Total long-term capital gain distributions paid of $21,940,080.
- --------------------------------------------------------------------------------
20 1999 Annual Report to Shareholders
<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
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Transfer Agent
Smith Barney Private Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
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 Concert
Peachtree Growth Fund. It is not for distribution to prospective investors
unless accompanied by a current Prospectus for the Fund, which contains
information concerning the Fund's investment policies and expenses as well as
other pertinent information.
[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
